Auditor General's Report

THE REPUBLIC OF UGANDA

OFFICE OF THE AUDITOR GENERAL

ANNUAL REPORT OF THE AUDITOR GENERAL

FOR THE YEAR ENDED 30TH JUNE 2012

VOLUME 4

STATUTORY CORPORATIONS

TABLE OF CONTENTS

CONTENTS PAGE NO.

PART ONE

1.0 Responsibility Of The Auditor General And The Legal Frame Work ...... 4 2.0 Status Of Accounts Audited During The Year ...... 5 3.0 Status Of Completion Of Audits ...... 6 4.0 Basis And Types Of Opinions Issued ...... 9 5.0 Key Audit Findings ...... 12 6.0 Summary Of General Audit Findings ...... 18 7.0 Special Audit Of The Uganda Printing And Publishing Corporation (UPPC) ...... 31

PART TWO

ENERGY SECTOR

8.0 Uganda Electricity Transmission Company Limited (2011) ...... 35 9.0 Rural Electrification Agency ...... 41 10.0 Kilembe Mines Limited ...... 46 11.0 Uganda Electricity Generation Company Limited(2011) ...... 51 12.0 Uganda Electricity Distribution Company Limited (2011) ...... 56 13.0 Electricity Regulatory Authority...... 66 14.0 Amber House Limited(2011) ...... 72

HEALTH SECTOR

15.0 Uganda Medical And Dental Practitioners Council ...... 78 16.0 The National Drug Authority ...... 82 17.0 The Uganda Nurses And Midwives Council ...... 92 18.0 National Medical Stores ...... 93 19.0 Allied Health Professionals ...... 97

EDUCATION SECTOR

20.0 National Council Of Sports(2011) ...... 101 21.0 National Council Of Sports ...... 104 22.0 The Uganda National Examinations Board ...... 114 23.0 National Curriculum Development Centre (2011) ...... 118 24.0 National Council For Higher Education ...... 122 25.0 Nakivubo War Memorial Stadium(2011)...... 127 26.0 Mandela National Stadium Ltd.(2011) ...... 133 1

INFORMATION AND COMMUNICATION SECTOR

27.0 Uganda Printing And Publishing Corporation ...... 142 28.0 New Vision Printing And Publishing Company Limited ...... 145 29.0 Uganda Communications Commission ...... 147 30.0 The Broadcasting Council ...... 150 31.0 Uganda Institute Of Information And Communications Technology ...... 150 32.0 Rural Communication Development Fund (RCDF) ...... 152 33.0 Uganda National Council For Science And Technology (UNSCT) ...... 153 34.0 Millennium Science Initiative (MSI) Project Ida Credit Number 4174 – Ug ...... 156 35.0 National Information Technology Authority ...... 165 36.0 Uganda Post Limited(2010) ...... 166 37.0 Uganda Broadcasting Corporation (UBC) ...... 177

TRADE AND TOURISM SECTOR

38.0 Management Training And Advisory Centre(2011) ...... 200 39.0 Uganda Wildlife Authority ...... 206 40.0 Uganda National Bureau Of Standards ...... 212 41.0 Uganda Tourism Board ...... 217 42.0 Nile Hotel International Limited( 2011) ...... 221 43.0 Uganda Export Promotion Board(2011) ...... 225 44.0 Uganda Property Holdings Limited ...... 232 45.0 Uganda Development Company Ltd.(2009)...... 234 46.0 Uganda Development Company Ltd(2010) ...... 235 47.0 Uganda Wildlife Training Institute ...... 236 48.0 Uganda Wildlife Education Centre ...... 241

LANDS & HOUSING SECTOR

49.0 National Housing & Construction Company (NHCC) Limited(2011) ...... 243

GENDER SECTOR

50.0 National Social Security Fund (NSSF) ...... 248 51.0 National Women‟s Council ...... 253 52.0 National Council For Children ...... 255 53.0 National Council For Disability...... 261 54.0 National Youth Council ...... 264 55.0 National Library Of Uganda ...... 268

AGRICULTURE SECTOR

56.0 Cotton Development Organization (CDO) ...... 271 57.0 Coordinating Office For The Control Of Trypanosomiasis In Uganda (COCTU) ...... 273 2

58.0 Uganda Coffee Development Authority ...... 275 59.0 Dairy Development Authority(2011) ...... 283 60.0 National Animal Genetic Resource Centre And Data Bank ...... 286

WATER & ENVIRONMENT

61.0 National Forestry Authority (NFA) ...... 293 62.0 National Water And Sewerage Corproration (NWSC) ...... 305

ACCOUNTABILITY SECTOR

63.0 Bank Of Uganda ...... 312 64.0 Uganda Development Bank(2011) ...... 321 65.0 Uganda Bureau Of Statistics...... 340 66.0 Uganda Investment Authority ...... 345 67.0 National Planning Authority ...... 350 68.0 Public Procurement And Disposal Of Public Assets Authority ...... 357 69.0 Insurance Regulatory Authority ...... 358 70.0 Uganda Revenue Authority ...... 364 71.0 Capital Markets Authority...... 393 72.0 Post Bank ...... 393 73.0 Privatization And Utility Sector Reform Project – Divestiture And Redundancy Accounts (PUSRP) ...... 399

SECURITY

74.0 Uganda Air Cargo Corporation ...... 406 75.0 Nec Consolidated & Subsidiaries ...... 407

PUBLIC WORKS AND TRANSPORT SECTOR

76.0 Uganda Railways Corporation(2011) ...... 415 77.0 Civil Aviation Authority(2011) ...... 419 78.0 Civil Aviation Authority ...... 431

JUSTICE, LAW AND ORDER SECTOR

79.0 Law Development Centre ...... 449 80.0 Amnesty Commission ...... 456 Appendix 1 ...... 458

PART ONE

1.0 RESPONSIBILITY OF THE AUDITOR GENERAL AND THE LEGAL FRAME WORK

This is Volume 4 of the Auditor General‟s annual report to Parliament. The report presents a summary of the audit reports issued for Statutory Corporations, Boards, Councils and Institutes audited during the period 1st April 2012 to 31st March 2013.

1.1. Mandate and Legal Frame Work

The 1995 Constitution of the Republic of Uganda under Article 163 (3) as amplified by Section 17 of the National Audit Act 2008, and other various Acts of Parliament establishing Statutory Corporations and State Enterprises require the Auditor General to examine and audit the accounts of these entities and submit annually a report to Parliament on the financial as well as value for money audits. In addition, the Auditor General is mandated to carry out special audits on any matter and report to Parliament. Section 18 of the National Audit Act also mandates the Auditor General to inquire into, examine, investigate and report, as he or she considers necessary, on the expenditure of public monies disbursed, advanced, or guaranteed to a private organization or body in which government has no controlling interest.

1.2. The Auditor General‟s Responsibilities

The objective of the Auditor General„s work when conducting financial audits is to audit and report to parliament by expressing an independent opinion as to whether the financial statements, in all material respects, fairly reflect the results of operations of the entities in accordance with a given financial reporting framework and in the manner consistent with the respective Acts and Statutes establishing these entities as well as complying with the relevant laws and regulations applicable to financial matters. The audits are normally conducted in accordance with the International Standards on Auditing (ISA). These standards require that ethical requirements are complied with and the audit is planned and performed to obtain reasonable assurance as to whether the financial statements are free from material error or misstatement.

The audit also includes obtaining sufficient and appropriate evidence supporting the amounts and disclosures in the financial statements to provide a basis for making an opinion. The audit procedures selected depend on the auditor„s judgment, including the

assessment of risks of material misstatements of the financial statements, whether due to fraud or error. In making risk assessments, the auditor considers internal controls relevant to the entity„s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances. An opinion will also be expressed as to whether or not any matters came to the Auditors‟ attention that causes him/her to believe that material errors and non-compliance with laws and regulations, applicable to financial matters, had occurred.

1.3. Responsibilities of Public Organizations on the Financial Statements

It is the responsibility of the Directors of the audited entities to prepare financial statements which give a true and fair view of the state of affairs and operating results of their entities in accordance with International Financial Reporting Standards and the various Acts and Statutes establishing them. This responsibility also includes designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error, selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances. The audit of financial statements does not relieve management, or those charged with governance of their responsibility.

1.4. Representations by Management

As part of normal audit procedures, the auditor will where necessary, request management of audited entities to provide written confirmations of oral representations that have been received from management during the course of the audit. After conducting audits based on the scope of the auditor„s responsibility stated above, the auditor shall report to management in writing, any significant weaknesses based on observations on the internal control system and other areas that come to his/her notice which he/she considers necessary to be brought to management„s attention by way of a Management letter.

2.0 STATUS OF ACCOUNTS AUDITED DURING THE YEAR

A total of 75 Statutory Corporations, Councils, and Institutes were audited during the year under review. Some of the statutory entities do not have their accounting date co-

terminus with the government financial year. Therefore, four different accounting dates feature in the accounts of the entities as follows:- Year ending 30th June, Year ending 30th September, Year ending 31st October and Year ending 31st December.

3.0 STATUS OF COMPLETION OF AUDITS

As pointed out under paragraph 2.0, during the Period 1st April 2012 to 31st March 2013, a total of 76 entities were audited. Of these, a total of 70 were completed while 6 were under progress by the time this report was issued as shown in the table below:-

Entity Type of opinions Unqualified Qualified Disclaimer Adverse 1. Uganda Electricity Transmission Co.  Ltd. 2. Rural Electricity Agency  3. Kilembe Mines  4. Uganda Electricity Generation Co. Ltd.  5. Uganda Electricity Distribution Co.  Ltd. 6. Electricity Regulatory Authority  7. Amber House Ltd  HEALTH SECTOR 8. Uganda Medical & Dental Practitioners  9. The Uganda Nurses and Midwives  Council 10. National Medical Stores  11. Allied Health Professionals  EDUCATION SECTOR 12. National Council for Sports (2011)  13. National Council for Sports (2012)  14. Uganda National Examinations Board  15. National Curriculum Development  Centre 16. Uganda National Council for Higher  Education 17. Nakivubo War Memorial Stadium  18. Mandela National Stadium  ICT SECTOR 19. New Vision 

Entity Type of opinions 20. Uganda Printing and Publishing  Corporation 21. Uganda Communication Commission  22. Broadcasting Council  23. Uganda Institute of Information &  Communication Technology 24. Rural Communication Development  Fund 25. Uganda National Council of Science &  Technology 26. National Information Technology  Authority 27. Uganda Post Ltd (2010)  28. Uganda Broadcasting Corporation  TRADE AND TOURISM SECTOR 29. Management Training and Advisory  Centre 30. Uganda Wildlife Education Centre  31. Uganda National Bureau of Standards  32. Uganda Tourism Board  33. Nile Hotel International Ltd  34. Uganda Wildlife Authority  35. Uganda Export Promotion Board  36. Uganda Property Holdings  37. Uganda Development Co. Ltd(2009)  38. Uganda Development Co. Ltd(2010)  39. Uganda Wildlife Training Institute  Land Sector 40. National Housing & Construction Co.  Gender Sector 41. National Social Security Fund  42 National Women‟s Council  43 National Council for Children  44 National Council for Disability  45 National Youth Council  46 National Library of Uganda  Accountability Sector 47 Bank of Uganda  48 Uganda Development Bank  49 Capital Markets Authority  50 Uganda Investment Authority  51 Uganda Bureau of Statistics  52 National Planning Authority  53 Insurance Regulatory Authority  54 Uganda Revenue Authority  7

Entity Type of opinions 55 Public Procurement & Disposal of  Public Assets 56 Post Bank  57 Privatization and Utility Sector  Reform Project (PUSRP) Agriculture Sector 58 Dairy Development Authority  59 Cotton Development Organisation  60 COCTU  61 National Animal Genetic Resource  Centre & Data Bank (NAGRIC) 62 Uganda Coffee Development Authority  JLOS 63 Law Development Centre  64 Amnesty Commission  Security 65 Uganda Air Cargo Corporation  66 NEC & Subsidiaries  Water & Environment 67 National Water & Sewerage Corp  68 National Forestry Authority  Public Works and Transport Sector 69 Civil Aviation Authority(2011)  70 Civil Aviation Authority(2012)  Totals 41 25 4 0

Audited but not Certified due to Unsubmitted Signed Accounts:- Entity Financial Year 1 National Drug Authority 2012 2 Uganda Railways Corporation 2012

Audits in Progress:- 8

TRADE & TOURISM SECTOR YEAR Remarks END 1 Crested Crane Hotel & Tourism 2012 Awaiting management responses to Training Institute management letter 2 Uganda National Cultural Centre 2012 Awaiting management responses to (UNCC) management letter HEALTH SECTOR 3 Joint Clinical Research Centre 2012 To harmonise reporting periods between the entity and donor funding ICT SECTOR 4 Posta Uganda 2011 & Audits still in progress 2012

4.0 BASIS AND TYPES OF OPINIONS ISSUED

During the Period 1st April 2012 to 31st March 2013 a total of 70 opinions were issued of which unqualified, qualified, adverse and disclaimer of opinions were as follows;

Category of Audit Opinion Number of Accounts Unqualified 41 Qualified 25 Disclaimer 4 Adverse 0 Total 70

Figure 1 showing the proportion of audit opinions in the current period

Types of Opinions (2012) 0%

8% Unqualified Opinion Qualified Opinion 32% Disclaimer of Opinion 60% Adverse Opinion

Analysis of the financial statements audited and type of opinions issued between 2009 and 2012 revealed the following;

Opinions Year 2009 2010 2011 2012 Unqualified Opinion 53 74 42 41 Qualified Opinion 50 57 25 25 Disclaimer of Opinion 7 9 2 4 Adverse Opinion 1 1 0 0 TOTAL 111 141 69 70

Figure 2 showing comparison of types of opinions issued in the last four years:-

Types of Opinions Issued (2012) 70.0

60.0

50.0 Unqualified Opinion 40.0 Qualified Opinion 30.0

Percentage Disclaimer of Opinion 20.0 Adverse Opinion 10.0

0.0 2009 2010 2011 2012

Unqualified opinions

An unqualified audit opinion is issued when the Auditor is able to express an opinion and 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 stated financial reporting framework and the various Acts and Statutes establishing the State Enterprises, Statutory Authorities and Commissions. In the year under review 41 unqualified opinions were issued.

Qualified opinions

An Auditor expresses a qualified opinion 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. In the year under review 25 qualified opinions were issued.

Disclaimer of Opinion

The Auditor disclaims an opinion when the auditor 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 misstatements, if any, could be both material and pervasive. The Auditor shall disclaim an opinion when, in extremely rare circumstances involving multiple uncertainties, the Auditor concludes that, notwithstanding having obtained sufficient appropriate audit evidence regarding each of the individual uncertainties, it is not possible to form an opinion on the financial statements due to the potential interaction of the uncertainties and their possible cumulative effect on the financial statements. During the year under review; I disclaimed an opinion on the financial statements of four (4) public organizations.

Adverse Opinion

The Auditor shall express an adverse opinion when the Auditor, having obtained sufficient appropriate audit evidence, concludes that misstatements, individually or in the aggregate, are both material and pervasive to the financial statements. During the year I did not issue any adverse opinion to any public organization.

5.0 KEY AUDIT FINDINGS

A summary of the key findings arising from the audit of statutory corporations is highlighted below:-

5.1 As reported in my previous report, Bank of Uganda provided letters of comfort (promissory notes) to four commercial banks on the basis that Haba Group had compensation claims from the Government of Uganda. Haba group subsequently did not honor their obligations to the commercial banks and the Minister of Finance Planning and Economic Development wrote to Bank of Uganda to pay the commercial banks. These payments were made on different dates in 2011 to the various commercial banks. The Ministry offered to indemnify BOU on all the payments once necessary budgetary provisions have been made. As at 30th June, 2012, Bank of Uganda was yet to be reimbursed by Ministry of Finance, Planning and Economic Development. The payment made by Bank of Uganda could be interpreted to mean a temporary advance to Government of Uganda under Section 33 of Bank of Uganda Act. Consequently, BOU should be charging interest on the outstanding balance.

Management explained that discussions are on-going between the Ministry of Finance Planning and Economic Development and the Bank aimed at having this matter resolved. I advised that Management should accelerate recovery measures with the Ministry of Finance, Planning and Economic Development.

5.2 As at 30th June 2012, BoU‟s capital excluding translation reserves was a deficit of Shs.226 billion (2011: 116 billion). The capital has been eroded over time mainly due to operating losses and accordingly the capital is impaired and requires redemption from the Government in accordance with section 14 of Bank of Uganda Act. I noted from correspondences between the Bank and Ministry of Finance, Planning and Economic Development that the capital adequacy issues are currently under discussions but no formal plan has yet been agreed. The bank may not be able to effectively execute its functions as envisaged in the Constitution of Republic of Uganda and Bank of Uganda Act.

Management explained that the Bank has developed a recapitalization plan which was forwarded to the Ministry of Finance Planning and Economic

Development for consideration and that discussions are on-going with the Ministry to recapitalize the Bank in accordance with Section 14(4) of the Bank of Uganda Act. I recommended that Management should expedite the current discussions with the Ministry of Finance, Planning and Economic Development and ensure that the bank is recapitalized.

5.3 At the time of the audit field work, various irregularities were reported regarding the accounts relating to the office of the Prime Minister at Bank of Uganda. The matter was still under investigation by various agencies including Bank of Uganda internal audit, Criminal Intelligence and Investigations Directorate and the Public Accounts Committee, as such the outcome of the investigations by those bodies could not be determined at the time of the audit.

Management explained that they are still awaiting the outcome of the investigations and in addition, the issue is already in court with no conclusive judgment. Management further indicated that appropriate action will be taken based on the outcome of the investigation.

I advised that Management should work with the agencies who are currently investigating the matter and ensure that appropriate action is taken based on the findings.

5.4 In 2010, NSSF procured land measuring about 463.87 acres in Busiro Temangalo at a cost of Shs.16 billion. During the year under review, the Fund engaged the services of another professional valuer whose report indicated that there was a Shs.3.84 billion reduction in the fair value of the said land. This was as a result of presence of squatters on the land and development of a swamp measuring about 67 acres which were not considered in the previous valuation done, on the basis of which the Fund procured the land in question. Although the terms between NSSF and the vendors were that the land would be free of encumbrances including settlement of tenants and squatters on the land, the issue of squatters and tenants on the land had not been resolved as of 30th June 2012 when the valuation was done. It was explained that the vendors instead offered to exchange the affected land with alternative adjoining land that is free of encumbrances which proposal was 13

rejected by the Minister for Finance Planning and Economic Development. The Fund has now opted to put the matter to arbitration.

5.5 A finance contract was signed between the Government of the Republic of Uganda, the European Investment Bank (EIB) and Kilembe Mines Limited (KML) for US$.8,800,000. The proceeds of this loan were used to part finance the purchase of the Equity in Kasese Cobalt Company Limited (KCCL). Accordingly KML opened a Trustee account with Standard Chartered Bank (U) Limited into which all dividends and cash distributions from KCCL in respect of this investment would be credited.

However, it was noted that there was no evidence of any dividend having been deposited onto this trust account. It was further noted that under the agreement a clause was inserted which states that, ”In the event that the loan has not been fully repaid on 25th November 2014, EIB shall cancel the borrower‟s obligation in respect of the remaining balance”. Appropriate justification for this clause was not provided. Besides, such a clause only serves as a dis-incentive to honour repayment by the due date of 25th November, 2014.

5.6 A review of the financial statements of Uganda Communications Commission revealed that it was indebted to URA to the tune of Shs.29,394,038,994 in Corporation Tax Arrears. The Commission has continued to accumulate such tax obligations without settling the amounts due to the Tax Body. Delayed or non-remittance of taxes denies revenue to the Treasury and may lead to surcharges from the tax authority.

5.7 As reported in the previous audit report, Nile Hotel International Ltd (NHIL), the Government of Uganda and TPS (U) Ltd signed a Concession agreement dated 15th January, 2004. According to the agreement, NHIL was to earn 4% from the gross Revenue of TPS (Uganda) limited. It was however noted that the agreement did not provide an independent mechanism under which NHIL could verify the gross revenue earned by TPS (Uganda) Ltd so as to assess the fees to be paid to NHIL.

As a result, NHIL is wholly dependent on information provided by TPS (Uganda) Ltd to determine the gross revenues and therefore compute the concession fees. In the absence of an independent verification mechanism, I could not confirm the completeness and accuracy of the concession income reported in the financial statements. There is a risk that the Concessionaire may under declare the gross revenue and hence remit less fees to NHIL.

5.8 Included in the Statement of Financial Position and note 8 to the Financial statements of Uganda Development Company Ltd is a long term loan obtained from the European Investment Bank amounting to Shs.1,611,787,000. The principal loan amount was Euros.477,693.61 (equivalent to Shs.1,304,003,000) which was used to acquire equity in DFCU and was meant to be settled using dividends from the shares which were held by the Ministry of Finance, Planning and Economic Development (MoFPED). In the circumstances, the loan continues to attract interest on the outstanding amount and further exposes the Company to foreign exchange risk.

5.9 It was noted that as a result of a cabinet directive to revive Uganda Development Corporation (UDC), two entities namely Uganda Development Company Limited (within Privatization Unit) and Uganda Development Corporation located at Soliz House operated side by side during the year under review. In the circumstances, duplication of mandate is highly probable.

5.10 Sections 9 and 13 of the Public Finance and Accountability Act, 2003 require all revenue due to Government to be remitted to the Consolidated Fund and be appropriated by Parliament in accordance with the Appropriation Act. In addition, the International Accounting Standard (IAS) 32 requires that financial assets and financial liabilities are offset if there is an enforceable legal right to do so. However, it was noted that during the year under review, the National Housing and Construction Company (NHCC) withheld dividend due to Government amounting to Shs.2.11 billion which was offset against receivables (rent) due to the company from State House and Ministry of Defence which are occupying the company‟s premises. As a result, the

dividends payable and trade receivables reported in the company‟s financial statements are understated by Shs.2.11 billion, which is contrary to the requirements under IAS 32 as well as the Public Finance and Accountability Act 2003.

5.11 National Housing and Construction Corporation leased from Kireka Estate Limited, 250 acres of land for 99 years from January 1966 and 42.6 acres for 49 years from September 1968. In 2003, Kireka Estates Ltd, sued the Company for breach of the terms of the lease agreement which included failure to pay ground rent, change in user for residential estates and lack of protection of the land hence occasioning degradation. On 5th December 2011, the court ruled in favour of Kireka Estates Ltd and ordered the company to pay Shs.13 billions (equivalent to Us$.5,149,000) to Kireka Estates Ltd, in full and final settlement of the suit as well as acquisition of Kireka Estates Ltd‟s reversionary interest for the land in question, which the company subsequently paid. However, it was noted that the land is highly encumbered with squatters making the repossession and redevelopment of this land difficult. Noted further was the fact that the land has been earmarked by government for redevelopment under the Kireka Slum Upgrading Project. Under the circumstances, there is uncertainty as to whether the company will eventually take possession of the said land which is currently valued at Shs.16.23 billion.

5.12 Section (f) of the Privatization guidelines provides that privatization sales shall generally be on a cash-only basis and extended terms of payment shall be avoided. It further provides that in exceptional cases, other forms of payment, including the issue of shares to employees on non cash or discounted terms, may be permitted.

Contrary to this guideline, the Privatization Unit accepted credit sales resulting into receivables of Shs.101,219,000,000 as at the end of the financial year under review.

5.13 UETCL and UEGCL were incorporated as public limited companies wholly owned by the government of Uganda with the two shareholders being, the Minister of Finance, Planning and Economic Development and the Minister of 16

State for Finance in charge of Privatisation. The direct role of the Ministry of Energy and Mineral Developement (MEMD) in the functions of UETCL and UEGCL is not captured in the PERD Act and yet operationally the two companies liaise more with MEMD than with their current shareholders. There is need that given the level of expertise and skills required to supervise the companies, the company‟s memorandum and articles of association include the participation of the MEMD. This will also clearly outline the company‟s mandate in line with supporting the energy policy.

5.14 UETCL undertakes huge investments on the grid of transmission lines required for the evacuation of power from the large hydropower projects. However these transmission line projects have now become difficult to implement in a timely manner as a result of challenges in obtaining the way leaves. The current land law does not provide government with adequate authority and rights to enable such projects proceed expeditiously. It was further noted that the way leaves problem impacts on the ability of UETCL in reducing system losses since they cannot get the shortest line of access to evacuate power from generation to the market. They instead get to evacuate power the long way, circumventing the unmanageable land owners.

5.15 Lack of Strategic focus: Whilst the vision of UEGCL is “to be the most reliable and most efficient electricity generating company in East Africa that generates adequate electricity that meets the needs of all East Africans”, the strategic objectives indicate UEGCL‟s role as being to “oversee” the efficient production of electricity in the region. UEGCL has turned into a government concession monitoring/management agency of the Eskom concession. Evidence of UEGCL‟s efforts to go into electricity generation is limited despite the dire need for generation capacity in Uganda. This amounts to a mandate drift and a lack of strategic focus on the core business of electricity generation, at UEGCL.

Rather than restrict themselves to concession monitoring, UEGCL is best placed to:-

i. Oversee annual generation planning and in close consultation with ERA advise the Minister; 17

ii. Oversee the development and operation of all electricity generation projects owned by Government; iii. Oversee the performance of those generation projects in which government has equity or any other form of financial interest, iv. Take over all reversionary interests in IPP as well as PPP projects, v. Monitor the performance of generation licensees, research and development in the electricity generation sector.

Much of these roles are currently managed by the Ministry of Energy and mineral development and other government institutions.

6.0 SUMMARY OF GENERAL AUDIT FINDINGS

6.1 Corporate Governance

The framework for accountability in government specified in Section 15 and 19 of the Public Enterprises Reform and Divestiture Act (Cap 98) requires Accounting officers and their Boards to be accountable for their entity‟s activities. It is mandatory for management of public entities to put in place effective internal control systems to safe guard assets and resources from mismanagement and fraud. The commonly recurring corporate governance issues were;

Board members who are Signatory to bank accounts. Public enterprises operating for long periods without Boards of directors. Late renewal and appointment of new Boards by the respective line Ministers responsible for the Public Enterprises and Organizations. Board members of public enterprises involved in day to day management functions instead of providing policy decisions and supervising management. Irregular Board meetings below or exceeding the required minimum. Lack of Internal Audit Department and Audit Committee. Lack of strategic plans. Lack of a financial and accounting manual. Lack of investment policy. Management taking critical decisions without consulting the Boards. Lack of key operational policies including, Fraud Control Policy, ICT Policy, Training Policy, Comprehensive Asset Management Policy, Capitalization Policy for Fixed Assets, etc. 18

During the year under review; a total of thirty nine (39) Public organizations had governance related issues; this is up from twenty two (22) during the previous year representing a 77% increment. The entities involved include the following:-

No Entity 1 Uganda Electricity Transmission Company Limited (UETCL) 2 National Medical Stores 3 National Council of Sports 4 National curriculum development centre(NCDC) 5 National Council for Higher Education (NCHE) 6 Electricity Regulatory Authority (ERA) 7 Nakivubo War Memorial Stadium 8 Mandela National Stadium ltd 9 Uganda Communications Commission 10 Uganda institute of information and communications technology 11 Uganda National Council for Science and Technology (UNSCT) 12 Uganda Broadcasting Corporation (UBC) 13 National Information technology Authority 14 Uganda post Limited 15 Management Training and Advisory Centre (MTAC) 16 Uganda Tourism Board 17 Nile Hotel International Limited 18 Uganda Export Promotion Board 19 Uganda Wildlife training Institute 20 National Women‟s Council 21 National Council for Disability 22 National Libraries of Uganda 23 Cotton Development Organization (CDO) 24 Coordinating Office for the Control of trypanosomiasis in uganda(COCTU) 25 Dairy Development Authority 26 Uganda Development Bank 27 Uganda Bureau of Statistics 28 Uganda Investment Authority 29 National Planning Authority 30 NEC consolidated & subsidiaries 31 Civil Aviation Authority 32 Law development Centre 33 National Forestry Authority 34 National Council for Children 35 Allied Health Professionals Council 36 National Youth Council 37 Bank of Uganda 38 Amber House Ltd 39 Insurance Regulatory Authority

I have recommended that; Ministers responsible for these entities should ensure that appointment of new boards is timely. In order to avoid conflict of interest in as far as the oversight function is concerned, Board members should avoid performing managerial functions. Accounting officers of public enterprises should ensure that their budgets are approved by the Board and line Ministers. The entities should prepare and obtain approvals of management and operational manuals.

6.2 Unaccounted for Expenditure

During the year under review, several statutory corporations had a total of Shs.17,502,252,985 and Us$.188,789 that remained unaccounted for contrary to financial regulations that require all expenditure to be accounted for by the year end. These expenditures were in form of advances to individuals and departments and expenditure lacking adequate supporting documents. I was not able to obtain reasonable assurance that the funds were applied to the intended activities. Delays in accounting for expenditures are caused by laxity by Accounting Officers to enforce timely accountability and weaknesses in the control over those expenditures. This may lead to falsification of accountability documents and loss of government funds.

The Accounting Officers have been advised to enforce strict controls as provided for in their respective Financial and Accounting manuals including enforcing the requirements of not advancing additional funds before accounting for the previous advances and eventual recovery on failure to account. The expenditures which are detailed in the individual reports and the financial statements of the entities are summarized in the following table:-

Name of Entity Remarks Amount Amount (shs) (Us$) 1 Uganda Medical & Dental Unexplained direct 62,942,362 Practioners Council debits Unaccounted for 33,382,750 funds Missing Cash 13,263,061 Unretired imprest 4,700,000 2 National Council for Sports Unaccounted for 18,517,450 3 Nakivubo War Memorial Nugatory 18,546,688

Name of Entity Remarks Amount Amount (shs) (Us$) Stadium expenditure 4 Mandela National Stadium Irregular 114,179,825 Ltd expenditure Doubtful delivery of 63,837,320 goods Unaccounted for 60,460,752 5 Uganda National Council of Delayed 9,291 science and Technology accountability under (UNCST) IFS project 6 UNCST (Millenium Science Advance payment 2,500,000 Initiative Project) Doubtful Advances 53,000,000 to staff Unaccounted for 11,340,000 7 Uganda Broadcasting Unaccounted for 25,011,500 Corporation 8 Uganda Post Limited Unbanked & 325,056,831 (2010) unaccounted for revenue. Cash withdrawals 118,098 616,680,344 without supporting documentation 9 Uganda Post Limited Unvouched 231,571,212 (2011) expenditure Doubtiful/fictitious 404,952,822 expenditure Limitation of Scope 61,400 (Grant) Improperly Vouched 1,074,411,526 Expenditure 10 Uganda Wildlife Authority Unaccounted for 20,591,260 imprest 11 Uganda Export Promotions Outstanding 39,699,192 Board Advances 12 National Women‟s Council Grants not 66,500,000 accounted for 13 National Council for Incompletely 131,585,070 Children Vouched Advance to Suppliers 30,450,000 14 Coordinating Office for Unaccounted for 57,616,645 the Contorl Of Trypanosomiasis in Uganda (COCTU) 15 Uganda Bureau of Expenditure Not 20,659,187 Statistics (UBOS) Accounted For 16 National Planning Missing Vouchers 87,070,370 Authority Advances not 33,427,400 accounted for 17 Privitization and Utililty Recoverable 8,829,424,332.21 Sector Reform project. Advances Divestiture and Redundancy Account

Name of Entity Remarks Amount Amount (shs) (Us$) (PUSRP) 18 Civil Aviation Authority Debt Collection 4,430,788,752 Expenses 19 Civil Aviation Authority Staff accountable 554,205,794 Advances 20 Uganda National Bureau of Nugatory 19,494,800 Standards expenditure 21 Allied Health Professionals Unaccounted for 46,385,740 expenditures 188,789 17,502,252,985.21

6.3 Unpaid Dividends Shs.3,557,602,000

It was noted that several entities were indebted to the tune of Shs.3,557,602,000 in unpaid dividends. These dividends had not been remitted to the Government Consolidated Fund (UCF) account by close of the year under review and I have advised the accounting officers of the entities to immediately pay the dividends in question to the UCF. The entities concerned included the following:-

Entity Unpaid Dividends Proposed Dividends Unpaid Dividends („000s) dividend Paid („000s) for the during the (Shs) (Shs) year Year („000s) („000s) (Shs) (Shs) 1 National 01.01.11 2,400,259 - - 31.12.11 2,400,259 Housing and Construction Company 2 Uganda 01.07.11 500,000 - 50,000 30.06.12 450,000 Property Holdings Limited 3 The New 01.07.11 441,630 2,295,000 2,029,287 30.06.12 707,343 Vision Printing and publishing Corporation 3,557,602 Total

It was further noted that regarding the unpaid dividends from National Housing and Construction Company Ltd, management offset dividends due to government of Uganda

amounting to Shs.2,111,545,000 against receivables due to the Company from Government Agencies without the necessary approval by Parliament.

6.4 Asset Management

A review of public organizations revealed that many of them continued to have poor or improper management of non-current assets. In several entities audited, there was apparent lack of ownership to properties as evidenced by absence of title deeds to many of the properties, absence of fixed assets registers or incomplete and outdated fixed assets registers, non-revaluation of assets for a long period of time and impairment not tested periodically as required by the accounting standards. The details of the entities involved are included in the following table:-

No Entity

Delayed asset disposal updated No assetregister Assetsnot revalued insured Un assets No verification titles No asset No manuals 1. Uganda Electricity  Transmission Company Ltd  (UETCL) 2. Kilembe Mines Ltd  3. Uganda Electricity  Generation company 4. National Medical Stores   5. National Council of Sports   6. Uganda National   Examinations Board 7. National Council for Higher    Education 8. Nakivubo War Memorial  Stadium 9. Mandela National Stadium  Ltd 10. Uganda Broadcasting   Corporation 11. Uganda Post Limited     12. Management Training &   Advisory centre 13. Uganda Wildlife Authority  14. Uganda Tourism Board   15. Nile Hotel International Ltd   16. Uganda Export Promotions   Board 17. Uganda Wildlife Training     Institute

No Entity

Delayed asset disposal updated No assetregister Assetsnot revalued insured Un assets No verification titles No asset No manuals

18. National Social Security  Fund 19. National Libraries of  Uganda 20. Cotton Developement  Organisation 21. NAGRIC  22. National Forestry Authority  23. National Water &   Sewerage Corporation 24. Uganda Bureau of   Statistics 25. Privatization and utility  sector reform project – divestiture and redundancy accounts 26. NEC- Luwero Industries  Ltd 27. Civil Aviation Authority  28. Law Development Centre   29. Bank of Uganda  30. Uganda National Bureau of  Standards 31. Uganda Revenue Authority  (Ntoroko)

I advised the Accounting Officers as follows;

To ensure that legal ownership of properties should be secured and land titles/deeds obtained from relevant authorities. Revaluation of assets should be conducted and impairment testing carried out at periodic intervals. Maintenance and update of fixed assets registers should be carried out. Land encroached upon should be secured through taking the necessary legal means.

6.5 Procurement Issues

As pointed out in my previous report, several public organizations continued to have none compliance with the PPDA Act and Regulations as well as procurement guidelines. The most common non-compliance issues included the following:-

Failure to compile procurement plans and or failure to adhere to the procurement plans Lack of monthly procurement reports; Absence of a list of pre-qualified providers; Lack of procurement structures, e.g. a contracts committee and a professional Procurement Officer; Use of wrong methods of procurement e.g. direct procurement method was used without justification; Failure to keep procurement records; Unplanned procurements; The entities involved included the following:-

S/N ENTITY 1 The Uganda Nurses and Midwives Council 2 National Medical Stores 3 National Council of Sports 4 Uganda Broadcasting Corporation (UBC) 5 Uganda post Limited 6 Management Training and Advisory Centre (MTAC) 7 Nile Hotel International Limited 8 Uganda Export Promotion Board 9 Uganda Wildlife training Institute 10 National Social Security Fund (NSSF) 11 National Women‟s Council 12 National Council for Disability 13 National Planning Authority 14 Uganda Air Cargo Corporation 15 Civil Aviation Authority (CAA) 16 Law development Centre. 17 Uganda Wildlife Education Centre (UWEC) 18 National Council for Children 19 Amber House Ltd 20 Insurance Regulatory Authority

I have again advised the accounting officers, to ensure strict adherence with the Procurement Regulations as applicable.

6.6 Unremitted Statutory Deductions

During the period under review, twenty seven (27) public organizations failed to remit statutory deductions amounting to Shs.142,699,488,782 to the relevant statutory authorities. Of these amounts, un remitted taxes to Uganda Revenue Authority in respect of Pay As You Earn, Value Added Tax and Withholding Tax amounted to Shs.140,001,350,178 while deductions for Employee benefits relating to National Social Security Fund amounted to Shs.2,698,138,604. The details are shown in the table below:-

No Entity NSSF Taxes Total (shs) (shs) (shs) 1. Uganda Electricity 57,743,375,429 57,743,375,429 Transmission Company Limited UETCL(Jacobsen) 2. Uganda Electricity 35,646,757,200 35,646,757,200 Transmission Company Limited UETCL(Aggreko) 3. Uganda Electricity 12,005,369,906 12,005,369,906 Transmission Company Limited Uetcl(Electro- max (U) Ltd) 4. Uganda Comunications 29,394,038,994 29,394,038,994 Commission (UCC) 5. Uganda National Council 64,637,500 64,637,500 For Sceince And Technology (UNCST) 6. Uganda Broadcasting 716,968,757 716,968,757 Corporation ( UBC) 7. Uganda Broadcasting 1,514,830,672 1,514,830,672 Corporation ( UBC) 8. Uganda Broadcasting 489,373,143 489,373,143 Corporation ( UBC) 9. Uganda Broadcasting 218,723,859 218,723,859 Corporation(UBC) 10. National Animal Genetic 25,339,906 25,339,906 Resource Centre And Data Bank(NAGRIC) 11. Management Training 149,864,376 149,864,376 And Advisory Centre 26

No Entity NSSF Taxes Total (shs) (shs) (shs) 12. National Animal Genetic 83,504,873 83,504,873 Resource Centre And Data Bank(NAGRIC) 13. National Planning 10,296,500 10,296,500 Authority(NPA) 14. PPDA 34,048,495 34,048,495

15. Uganda Air Cargo 251,363,186 251,363,186 Corporation 16. Uganda Air Cargo 119,354,362 119,354,362 Corporation 17. Law Development Centre 572,286,235 572,286,235 (LDC) 18. Law Development Centre 1,313,886,726 1,313,886,726 (LDC) 19. National Libraries Of 21,261,496 21,261,496 Uganda 20. Uganda Export Promotion 305,789,306 305,789,306 Board 21. Uganda Export Promotion 17,728,463 17,728,463 Board 22. Amnesty Commission 8,400,557 8,400,557

23. Uganda Export Promotion 26,927,240 26,927,240 Board 24. Millennium Science 13,687,003 13,687,003 Initiative (MSI) Project 25. National Youth Council 511,145,539 511,145,539

26. National Bureau Of 448,473,571 448,473,571 Standards 27. National Bureau Of 992,055,488 992,055,488 Standards

2,698,138,604 140,001,350,178 142,699,488,782

This is a critical situation of non-compliance with the law and remedial measures should be sought to avoid penalties which may be charged or have already been charged by the respective statutory bodies.

6.7 General Internal Control Weaknesses

Internal controls play an important role in preventing and detecting frauds/misappropriations and protecting the public resources in public entities, both 27 physical and intangible. Checking of compliance with internal controls is the role of an internal auditor which implies that the weakness in the functioning of internal audit unit, equally means the weakness in operationalization of internal controls. However during the year under review, several entities were noted to have internal control weaknesses as detailed in the table below:-

Audit Entity No. No. No. Bank & or Internal segregation Ledger audit of duties Reconciliations 1 Uganda Medical & Dental √ Practitioners Council. 2 Uganda Electricity Generation √ Company Ltd (UEGCL) 3 National Council of Sports √ √ √ 4 Nakivubo War Memorial Stadium √ 5 Uganda institute of information √ and communications technology 6 Uganda Broadcasting √ Corporation (UBC) 7 Uganda post Limited √ 8 Management Training and √ Advisory Centre (MTAC) 9 Uganda Export Promotion Board √ 10 National Social Security Fund √ (NSSF) 11 National Women‟s Council √ 12 National Council for Disability √ √ 13 National Libraries of Uganda √ 14 Uganda Development Bank √ √ 15 NEC consolidated & subsidiaries √ 16 National Council for Children √ √ 17 Allied Health Professionals √ Council 18 National Youth Council √ √

I have advised management of the various entities to institute stronger internal control measures so as to safeguard government assets.

6.8 Encroachment on Government Land

During the audit of several government entities, I noted that management has not adequately secured land property from intrusion. From the inspections I carried out, it was noted that there has been massive encroachment on many entity properties unabated with some encroachers erecting permanent structures. I informed management that such encroachment is likely to lead to loss of the land in question. The entities involved included the following:-

Name of entity Land details Remarks Mandela National Stadium Ltd Squaters are spread across the stadium land with no clear position. Uganda Broacasting Corporation Road passing between the Dish and (Kihumuro TV Station Land) Transitter House. National Housing and Land in Namungoona. Construction Company National Housing and Volume 22 Folio 18 Mbuya land occupied by Ministry of Construction Company of the Freehold Defence Register Measuring 16.57 acres. National Housing and Kireka Land encumbered with very Construction Company many squatters NAGRIC 80 acres of the land has been taken over due to unclear demarcation of the boundaries at Ruhengyere NAGRIC 100 acres given to AMOS dairies for extraction of milk products but there were no documents in place to support the transactions. One square mile was given to SAMEER company at Nshaara NAGRIC One square mile has been grabbed by Captain Bashaijja. 20 acres were given away to the Nsanga Town council NFA Plot 4 & 5 Uganda land commission allocated NFA land to individuals with approvals from NFA NFA (Kahurukobwire CRF) Plot 6 Block 19 Registered in the names of Ndahura and brothers NFA (Kasagala CFR) Mr. Kigayaza Eridad possesses a certificate of title occupying 128 ha NFA Sese Palm Beach Resort at Demarcation of the actual area to be Lutoboka CFR on Bugala Island in used; the maximum limit of hectares Kalangala district usually allocated for ecotourism purpose is 5ha but the beach site was found to be 9.07ha. Uganda Investment Plot 150 block 243 ULC surveyed and curved out of plot Authority(UIA) 2A-4A another plot (plot 150 Kyadondo road block 243 Luzira) and allocated it to Victoria Best Ltd, without the knowledge of UIA. 29

I advised management of the entities concerned to ensure that they urgently secure titles to all the land under their organisations and also take legal action where necessary in order to secure the encroached upon land under their jurisdiction.

6.9 Performance Review of Public Organizations

Analysis of performance of the public organizations audited revealed that some entities have been operating profitably while others have been operating at a loss. Financial standing of these entities was evaluated based on the reported accumulated surplus or deficit as at 30th June, 2012, 31st December, 2011, 31st October 2012 or 30th September, 2012 depending on the relevant financial year end of the entities. Details of this performance are highlighted in appendix 1.

Analysis of the financial statements of entities I audited revealed that sixteen (16) public organizations made losses totaling shs.659,888,824,866. A total of Six (6) of these organizations had gross accumulated losses from prior years, a red flag position that indicates a need for timely corrective action to reverse the trend. Details as shown in the table below:-

No Statutory Authority/State Enterprise Surplus/(Deficit) for Accumulated the year Surplus/(Deficit) (Shs) (Shs)

1.Bank of Uganda (BOU) (600,426,000,000) 1,168,661,000,000

2.National Library of Uganda (3,132,559,876) (6,397,853,714) 3.Public Procurement and Disposal of Assets, (441,278,428) 2,608,783,472 Authority(PPDA) 4.Uganda Property Holdings Ltd (UPHL) (120,043,398) 381,425,450

5.Uganda Wildlife Education Centre (288,711,450) 6,713,188,512

6.Broadcasting Council (41,572,867) 309,708,860

7.National Youth Council (106,864,534) ( 447,328,281) 8.National Council for Disability (11,668,139) 36,607,101 9.National Council for Children (28,718,429) 26,161,369 10.NEC Tractor Hire Scheme Limited (863,468,200) (2,112,378,032) 11.Amnesty Commission (55,776,950) 69,300,843 12.Management Training & Advisor Centre (MTAC) (139,318,376) (332,627,666) 13.National Housing & Construction Corporation. (73,679,000) 73,726,832,000 14.Uganda Electricity Generation Co Ltd (UEGCL) (19,926,115,000) (131,244,280,000)

15.Uganda Electricity Transmission Co Ltd (UETCL) (34,173,687,000) (66,548,474,000) 16.Nakivubo Stadium (59,363,219) 35,480,131,408 Total (659,888,824,866)

7.0 SPECIAL AUDIT OF THE UGANDA PRINTING AND PUBLISHING CORPORATION (UPPC)

The Uganda Printing and Publishing Corporation (UPPC) is a State Corporation established by the Uganda Printing and Publishing Corporation Act 1992 (Cap.330 of the Laws of the Republic of Uganda). It started in 1902 as a government printing department that handles both governmental and private sector printing and publishing till 1992 when UPPC Act was passed that gave it a new identity. UPPC is a Class I public enterprise responsible for printing Bills, Acts and official gazette of the Government of Uganda.

Following a request to undertake a special audit of the Corporation from the Minister of State (Privatization), Ministry of Finance, Planning and Economic Development (MoFPED), I accordingly carried out the audit and the major findings included the following:-

Terms of reference Key findings

General observation regarding It was observed that the tenure of the current Board the functioning of expired in March 2012 and was indefinitely management at UPPC extended. The substantive managing director also retired on 5th September 2012 and since then, the corporation is being run by an Acting Managing Director who was the former Finance Manager. I further noted that three key managerial positions are vacant - Sales and Marketing, Production and Finance. We observed that there is a general breakdown in the management team as evidenced by the existence of various opposing groups among the top management and persistent negative media reports.

UPPC‟s marketing policy UPPC has a marketing policy in place, however, I noted that although the policy is dated 2010, it was signed by the former managing director and UPPC‟s Board Chairman on 1st June 2011. I could not ascertain the period in which the policy became operational. I also noted that UPPC had an earlier marketing policy dated 2007, but I could not ascertain if it was in use at UPPC. The commission‟s policy does distinguish between percentage rates for commissions‟ payable and sales amounts. Furthermore, it does not categorically state 31

Terms of reference Key findings if commission is payable for print jobs mandated to be undertaken by UPPC.

Abuse of the marketing policy Sales agents at UPPC were paid a marketing of UPPC commission for direct jobs amounting to shs.10,900,000 for which no evidence was availed to indicate that the particular sales agent had solicited for the work. I also found an instance where two UPPC‟s sales agents were paid commissions amounting to shs.6,726,993 for the same jobs. Payments to third parties UPPC paid shs.343,440,687 as commission to various entities in respect of marketing fees/commissions as detailed below:- UPPC paid shs.197,494,282 to a firm as marketing fees for printing the jobs in the gazette for the Electoral Commission (ECU). These jobs are mandatorily printed at UPPC and therefore should not attract marketing commissions. UPPC paid shs.90,157,152 to the same firm for debt collection of shs. 797,000,000 from Electoral commission. There is no valid contract between the firm and UPPC for the debt collection service. One of the Directors of the firm in question is a former Chairman of the UPPC Board. UPPC also paid another firm marketing fees totalling to shs.29,246,202 for gazette jobs that UPPC is mandated to undertake, and therefore should not attract marketing commissions. UPPC also paid shs.26,543,051 to a Law Firm in respect of ECU jobs which were printed in the Uganda gazette. UPPC is the only printer mandated to print the Uganda gazette and therefore such a job should not have attracted commission.

Flawed procurement of A payment of shs.15,000,000 was purportedly made goods/services by UPPC to a firm for the supply of various items. However investigations revealed that the payment was actually made in the names of another individual vide cheque number 7406 from Entebbe Stanbic Corporate account. I further noted that these

Terms of reference Key findings supplies were actually not delivered to the stores. Shs.44,639,400 was paid to another firm for printing outsourced work for Care International. I noted that the job under work ticket number 17530 had been cancelled due to tight delivery schedules. However, I also noted one officer purportedly acknowledged receipt of the work from Esso Graphix. We also found two cheques worth shs. 22,319,700 each were paid to Esso Graphix. The cheques were signed by Bakaawa and Malinzi. Management of UPPC disposed of a generator to at shs. 4,000,000. However, I was informed that the generator had a reserve price of shs.8,000,000 thus UPPC incurred a loss of shs. 4,000,000. The contracts committee was not involved in this decision and the independent valuers report was not availed to the investigating team. The disposal process was in contravention of regulations 293. (1), 297. (2) 315 and 334. of the Public Procurement and Disposal of Public Assets UPPC suffered an exchange loss of shs.40,320,872 following a cancellation of a letter of credit (LC). The LC was for a supply of printing paper by Mavane. However, Mavane did not honour the contract because of failure to agree to the terms of the LC with UPPC and as a result, the LC expired on 13th January 2012.

Misappropriation of corporation A recomputation of gratuity payments to employees funds that had retired during the period under investigation revealed that an excess amount of shs.72,682,117 was paid over the total entitlement. I also found discrepancies in the similar records maintained at UPPC, and those maintained at EALA. In one instance, I found that UPPC issued a receipt acknowledging receipt of Us$.57,000 from EALA whereas the duplicate receipt at UPPC indicates shs.60,000 received from an employee as recovery of staff advance. In another instance UPPC issued a receipt for recovery of staff advance amounting to shs.867,800. However, the same receipt number issued to EALA indicates that UPPC acknowledged receipt of Us$.40,000. Furthermore, I also found instances where an employee of UPPC acknowledged receipts of cash 33

Terms of reference Key findings from CMA, but did not remit this amount to UPPC. The total amount not remitted to UPPC was shs.1,400,000. A separate report has also been compiled and availed to the Minister and Parliament in this regard.

PART TWO

ENERGY SECTOR

8.0 UGANDA ELECTRICITY TRANSMISSION COMPANY LIMITED (UETCL) - YEAR ENDED 31ST DECEMBER, 2011

8.1 Amounts Due to Related Parties (Shs.30,987,371,102)

Included in the Company‟s financial statements is a long outstanding balance of Shs.30.987 billion payable to UEGCL for price rebates in 2001/2 (at the commencement of the split of the UEB). This is also countered by a long outstanding receivable from UEDCL of Shs.37.1 billion dating back at the same time. These balances have been awaiting Parliamentary approval for write-off since 2006. The validity of these long outstanding balances could not be readily verified. This matter has remained unresolved from my previous reports. In response, Management explained that Government and other Key Stakeholders in the sector are aware of this amount and until Government pronounces itself by settling the amount owed to UETCL by UEDCL, it becomes difficult for UETCL to settle the amount it owes UEGCL. The common Shareholders (Government) have been requested to authorize the write off of the due and payable amounts across the sector. I await for action in this regard.

8.2 Non remittance of VAT on Power Purchases

It was noted that the power purchase agreements from the Independent Power Producers (IPPS) including JACOBSEN, AGGREKO and ELECTRO-MAXX, required that Government of Uganda pays the VAT component on energy supplies on the invoices from the suppliers. However, it was noted that the IPPs charged VAT on their sales to UETCL who in turn charged VAT on sales to its customers. Under the VAT statute the subsidy component contributed by the Government is VAT exempt. This implies that whereas UETCL incurs full input VAT, it can only charge output VAT on the component that is not subsidized, thus leaving UETCL with a large VAT debt. Consequently URA has not refunded the claimed VAT to UETCL from July 2009 to date. Additionally, during the year, no payment was made for the VAT component charged on energy purchases from several suppliers and this has been accruing from 2010 as detailed in table below:-

Unpaid VAT as at 31st December 2011

Power supplier VAT Period VAT amount (Shs)

Jacobsen July 2010 to Dec 2011 57,743,375,429. Aggreko July 2010 to Dec 2011 35,646,757,200 Electro-max (U) Ltd July 2010 to Dec 2011 12,005,369,906 Total 105,395,025,535

I indicated to management that this situation creates a risk of litigation against the company and affects the relationship between the Suppliers and the company.

Management in response stated that previously, there was no VAT on Means of Platt (fuel) as residual oil used by thermal power plants in generating power to the national grid was deemed exempt from VAT [Sect 19, 1 (o)]. However URA subsequently ruled that this was a standard rated supply and hence was subject to VAT at 18%. Under section 21(5) of the VAT Act, any subsidized amount is exempt from VAT. Most of the thermal power Generators bills were paid through Subsidy funds and by implication, the charged VAT can only be paid or waived by Government. Management further indicated that this matter was brought to the attention of the Ministry of Finance, Planning and Economic Development and Uganda Revenue Authority for resolution.

I await management‟s resolution of this matter.

8.3 Fleet Management System

Under UETCL transport policy, vehicles are required to be retired and replaced after attaining a mileage of 200,000 km or after five years whichever occurs first. However, UETCL‟s fleet comprises of old vehicles with 69 out of 116 vehicles having served more than 5 years in operation and therefore are due for disposal as detailed in the table below:-

Category Qty below Percentage Qty above 5 Percentage 5 years years and due for replacement Car 0 0.00% 1 0.97% Lorries 5 4.85% 11 10.68% Motorcycles 1 0.97% 16 15.53% Pick ups 22 12.62% 26 25.24% Specialized vehicles 9 4.85% 7 6.8% Station Wagons 10 9.71% 8 7.77% Total 47 42.00% 69 58%

I indicated to management that an old fleet is less efficient and contributes to higher fuel consumption rate as well as high repairs and maintenance costs.

In response, management explained that adherence to the stipulation has been hindered by the magnitude of the required capital expenditure and the Electricity Regulatory Authority‟s restrictions on allowable capital in the budget which impacts on the tariff. I have advised management to adopt a phased approach to replacement of its fleet and to accordingly continue to engage the Regulator to provide the necessary funding to enable them replace their assets.

8.4 Management of Accounts Receivable

A review of the trade receivables ageing analysis, revealed that the balances outstanding for more than a year comprised more than 43% of the entire trade receivables balance of Shs.97,649,986,673 as shown below:-

0-2 months 3-12 months Over 1 year Total (Shs) (Shs) (Shs) (Shs) Kenya 5,580,179,200 - - 5,580,179,200 Tanzania Energy 2,870,436,875 2,247,979,275 - 5,118,416,150 Tanzania Line 495,411,950 495,411,950 - 990,823,900 rental UEDCL - - 36,813,044,997 36,813,044,997 UMEME Ltd 41,360,926,632 - 4,546,522,526 45,907,449,158 EWASA 130,024,550 437,043,775 536,294,500 1,103,362,825 Ferdsult 508,486,548 424,167,747 - 932,654,295 Engineering Services Kilembe 186,428,765 270,390,103 - 456,818,868 Investments Ltd Pader Abim 29,723,930 117,999,725 - 147,723,655 SNEL 144,336,300 455,177,325 - 599,513,625 Total 51,305,954,750 4,448,169,900 41,895,862,023 97,649,986,673 Percentage 53% 4% 43% distribution

The above is in spite of the company having a collection policy allowing a maximum of only 60 days. I advised management to put in place adequate policies and procedures that would ensure that all the debts are recovered by the due date.

In response, Management explained that all receivables dating more than a year relating to UMEME and UEDCL are fully provided for in the Financial Statements. The amount from UEDCL relates to the matter before Parliament and Ministry of Finance for approval to write off while for the one for UMEME relates to the Special provisions period for the year 2005/06 which is awaiting the Regulator‟s guidance as to its write off or providing funds in the tariff.

8.5 Revaluation of Fully Depreciated Assets

It was noted that a number of fixed assets maintained by the company have been fully depreciated yet they continue to be used by the company to derive economic benefits. This situation is so pervasive that for some of the asset categories, more than 50% of the assets have been fully depreciated but continue to be used by the entity to derive 38

economic benefits. The amounts of fully depreciated assets per category are as shown below:- Asset Category Cost of fully Total cost of % of fully depreciated assets assets class depreciated (UShs) assets Communication Equipment 4,973,897,144 10,306,194,897 48% Furniture and Fittings 259,678,102 691,897,172 38% Information Technological 911,949,442 3,528,503,543 26% Motor vehicle 4,025,696,606 8,074,825,771 50% Office Machines 327,256,606 798,372,107 41% Intangible assets 151,310,789 3,845,727,691 4% SCADA equipment 7,103,953,000 12,478,827,522 57% Tools and equipment 1,200,177,442 3,938,084,236 30% Total fully depreciated 18,953,919,131 43,662,432,939 43% assets

I have advised management to carry out a complete review of the fixed assets register to identify the fully depreciated assets and assess whether they should be disposed off or else consider adopting the revaluation model (under IAS 16) in measuring its fixed assets. In response management stated that a consultant has been appointed to carry out the revaluation of the assets accordingly.

I await for the outcome of this action.

8.6 Power Sales Agreements

UETCL sells energy to Bundibugyo Cooperative Society and Kilembe Investments Limited. However, the company does not have any agreements with these customers. This exposes the company to potential conflicts should there be any disagreements, since their sales agreements (that stipulate the terms and conditions of trade) have not been finalized. Even though I have raised this matter in my previous report, it continues to recur.

Management in response stated that they have drafted Power Sales agreements for Bundibugyo and Kilembe Investments Limited awaiting the Regulator‟s approval since all Power Sales and Power Purchase agreements in the energy sector have to be approved by the Regulator. I have advised management to follow up this matter with the Regulator.

8.7 Power Purchase Agreements

A review of power purchase agreements between UETCL and the various power suppliers revealed that the power purchase agreement with Electricity and Water Sanitation Authority (EWSA) in Rwanda had not been renewed. This implies that purchases are being done based on expired power purchase rates. Lack of up-to-date power purchase agreements resulted in difficulties in validating the rates used for power purchases from the aforementioned suppliers and could result in litigation should misunderstandings arise between the suppliers and the entity in relation to the pricing of power supplied. Although Management stated that there was a renewed agreement agreed to by both parties and approved by the Regulator (ERA) that had been sent to Electricity and Water Sanitation Authority (EWASA) in Rwanda for execution, I was not availed a copy of the same for my verification.

8.8 Independent Confirmation from Related Parties (GoU)

There were no independent confirmations from related parties in respect of a receivable and long term borrowings from GoU of Shs.236.2 billion (subsidy receivable) and Shs.49 billion respectively. In addition the confirmations revealed that balance of ERA was not reconciled with the regulator with the UETCL balance being at variance by Shs.1.1 billion. However I also received a document from ERA indicating the outstanding balance amounted to Shs.237.78 billion which would then result into a variance between UETCL‟s balance and ERA‟s balance of Shs.1.1 billion.

In response, Management attributed the variance to ERA‟s application of different exchange rates and also having a wrong opening balance for the year 2011. They further explained that the Accountant General‟s Office had issues with their system and acknowledged that they could not confirm the balances until such issues were duly sorted out. I have advised management to ensure that this matter is followed up to ensure that an agreed reconciled position is established.

8.9 Lack of a Formal Documented IT Policy

It was noted that UETCL does not have a formal documented IT security policy in place. The Information Systems Policy document is in draft form and had not been approved. A 40

lack of policy guidance and procedures on IT security exposes the company to a risk of loss of vital company information. In response, management stated that the current draft ICT Policies Procedures and Guidelines will be presented to Management and the Board for approval and operationalization. I await for the outcome of this management commitment.

8.10 Status of Prior Year Recommendations

The status of the issues raised in my prior year audit report is summarised as follows:- Prior Year Issue Remarks

1 Amounts due to related parties (Shs.30,987,371,102) Not addressed 2 Performance of the entity in the current economic conditions Not addressed 3 Subsidies and rebates shortfalls from the Government of Partially addressed Uganda 4 Accounting system upgrade Implemented 5 Management of accounts receivable Up dated 6 Revaluation of fully depreciated assets Up dated 7 Ownership of land at Njara Not addressed 8 Inadequate insurance cover for the company‟s assets Implemented 9 Power sale agreements Not addressed 10 Power purchase agreements Not addressed

9.0 RURAL ELECTRIFICATION AGENCY - YEAR ENDED 30TH JUNE, 2012

9.1 Revenue Shortfall

During the year 2011/12, the Agency budgeted to collect revenue amounting to Shs.52,200,000,000 from transmission levy and transfers from Treasury, but only realized Shs.37,276,879,816, thereby registering a shortfall of Shs.14,923,120,184 (about 29% of the budget). Failure to collect all the budgeted revenues constrains management in the implementation of planned activities for the period.

In response management stated that the shortfall was from funds expected from the Treasury which was affected by budget cuts across all government ministries. I have

advised management to always liaise with the Ministry of Finance Planning and Economic Development to ensure that all budgeted funds are released.

9.2 Failure to Collect Rental Fees

REA entered into three (3) separate lease agreements with M/S Ferdsult Engineering Services Ltd (FESL), to manage power distribution Systems as listed in table below:- Date of Agreement Lease area

1. 4th May 2007 Rukungiri and Kabale Districts 2. 5th Jan 2007 Kibale District 3. 14th Jan 2009 Masaka- Rakai- Isingiro and Ntungamo Districts

It was however noted that contrary to the provisions of the agreements, the Agency did not collect Rental fees amounting shs.1,931,000,000 from FESL. The agreement further required FESL to submit to REA:-

Its business plan at the initiation of the lease period. Quarterly performance reports. performance security (issued every year of the lease), and Record/statistics of connections made during each year of the term and Insurance policies.

From the audit, it was noted to the contrary that, the performance security, information on number of connections made and insurance policies were not presented by M FESL in spite of several reminders from REA. I informed management of the need to ensure that the lessor (FESL) complies with the terms of agreement or else invoke the termination clause 4.2 g in the agreement.

In response management stated that previously, FESL claimed they did not have the capacity to meet their lease rentals. Therefore REA is currently undertaking an internal audit review of their operations in preparation for a review of FESL‟s contract. At the time of completing this statutory audit the internal audit had not finalized this review. I have advised management to ensure that they adhere to the terms of the signed agreements in the management of the contracts. In the mean time, I await for the outcome of the internal audit review.

9.3 Unacknowledged Tax Remittances

During the audit, it was noted that remittances to Uganda Revenue Authority in respect of withholding tax and Pay as you earn amounting to shs.1,226,320,147 were not supported by acknowledgement receipts from the tax authority. I could therefore not confirm that the funds were received by the Tax Authority. The funds remain unaccounted for under the circumstances.

In response management stated that Uganda Revenue Authority (URA) has not been promptly issuing official receipts for the past two financial years and instead presented details of EFT numbers for these remittances to URA. I advised management to follow up the matter and secure the receipts from URA.

9.4 Inadequate Contract Management

A review of contract management for works on the construction of power line from Katuge-Kinyogoga-Kiweweta with a tee-off to Ngoma town council, revealed that there were no monitoring reports or consultancy reports on file to support payment certificates 1, 2 and 3 totalling to Shs.3,159,589,342. It was noted that contract management procedures are not being executed in accordance the PPDA regulations and therefore I could not confirm that there were adequate alternative procedures to ensure that work was done satisfactorily.

Although Management explained that the monitoring reports were available, these had not been presented to me by the time of compiling this report. I advised management to ensure that all contracts are always managed in accordance with the procurement guidelines.

9.5 Failure to Adhere to the Health and Safety Provisions by Contractors

A review of management minutes revealed that M/S A2Z maintenance and Engineering Services Limited did not submit a health and safety policy in spite of several reminders from REA. It was further established during inspections of the Buseruka line, that Utility Engineering Services Ltd did not provide the full range of safety gear to its workers. For example, workers were observed operating without gloves. I informed management that failure to adhere to health and safety requirements puts the lives of the employees at risk and violates labour laws.

Management in response stated that whereas REA has put enabling provisions in contracts that promote safety practices, it does not have the means or capacity to enforce these measures on a protracted daily basis. I advised management to formulate and implement a health and safety policy that will guide how such enforcement is to be effected.

9.6 Non-Utilisation of the Commissioned Installations

Inspection of some completed projects, revealed that although the electricity lines were commissioned, there was low connectivity and in some instances no consumers found to have connected to the lines at the time of inspection. The affected projects were:-

Kobwin- Ngora Line(No consumers). Lwala-Kaberamaido-Kobululu-Amolatar and Kelle Port &Lwala-Otuboi-Acinip and Lwala-Dokolo(No Consumers). Katuga-Kaweweta with tee-off to Ngoma(low connectivity) Kayunga – Busana Line(No connections). I informed management that this puts to question the justification and initial feasibility study reports of such projects.

In response management stated that with regard to Kobwin-Ngora, there is a programme funded by the World Bank and Kfw to scale up connections for such lines under the OBA programme. UMEME did not take over the operation of Katuga- Kaweweta line pending the correction of a few snags. Therefore no connections could be realized on the line as it was not handed over to UMEME. I have advised management to ensure that proper feasibility studies are undertaken and these should be subjected to proper scrutiny, before embarking on such investments.

9.7 REA Generator at Ngoma

Ngoma town was served by a 60kv generator from REA operated by Ngoma Town Council. Inspection established that this generator broke down about two years ago and has never been repaired or serviced by REA. I pointed out to management that this creates an impression of neglect and abandonment of institutional assets. In response management stated that the primary purpose of the generator had been achieved and it was not going to be serviced or repaired. Instead, REA was making

arrangements to have it decommissioned by the end of June 2013. I therefore await for the outcome of this management commitment.

9.8 Ngoma Line

Inspection of the Ngoma line where Umeme is the operator revealed that although the line was commissioned and energized in April 2012, there has been no single connection made. In addition the line is not backed by an appropriate distribution network which makes it impossible to make connections. UMEME contends that the line is very old and requires replacement. It was further noted that the transformers were not labelled which made it hard to verify whether the transformers specified in the Bills of Quantities were what was actually installed.

In response management stated that initially, a 60 KV generator was providing power to the Ngoma community managed by a cooperative with 259 registered members on active supply and 120 members willing and able to consume but who could not be connected because of the limitations in the set‟s load capacity. When the 60 KV generator broke down, Management took a deliberate decision to extend the grid instead of procuring a new generator set with bigger load capacity. The LV line in Ngoma was rehabilitated and an agreement for UMEME to sell power in bulk to the Ngoma Cooperative was put in place. The cooperative is responsible for distribution, billing, collection and handling customer complaints based on its clients‟ database prior to the grid extension. REA is also currently working with the World Bank and KfW to further boost Ngoma‟s connection numbers under the OBA Programme.

I was however not availed with the agreement between REA and the Cooperative for review in order to substantiate the above assertions by management.

9.9 Mpanga-Kamwenge (Kahunge Sub Station/Rugonjo Sub Station)

Opuyo Transformer

Inspection carried out at the Mpanga-Kamwenge substation confirmed that the old transformer temporarily transferred from Opuyo in Soroti is still being used at Mpanga and yet it should have been returned to Opuyo one and a half years ago. REA appears to be breaching its own institutional promises and commitments.

Management in response stated that the generator from Opuyo was meant to be a temporary solution, as the Kahunge sub-station was under construction and UETCL invoiced REA for its transportation to and from Soroti. REA paid shs.436 million for this activity (transportation charges included). Upon completion, Kahunge sub-station was subsequently handed over to UETCL. REA has however promised to follow up the matter with UETCL to ensure that the generator is transported back to Opuyo, since the transportation charges were paid. I therefore await for the outcome of this management commitment.

10.0 KILEMBE MINES LIMITED - YEAR ENDED 30TH JUNE, 2012

10.1 Non-Revaluation of Property, Plant and Equipment

Under IAS 16, items of property, plant and equipment which are carried at revalued amounts have to be revalued with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the balance sheet date. The company last revalued its assets 12 years ago in 1996/97 and has not carried out a subsequent revaluation of those assets. In view of the foregoing, the fixed assets balance of Shs.17,826,515,499 may be misrepresented. I have raised this matter in my previous reports and explained to management that due to the above limitation I am unable to confirm the accuracy, completeness and Valuation of the property, plant and equipment shown in the balance sheet. I also indicated to management that this matter is of essence, given that the company has been listed for divestiture by the Privatization Unit.

In response, management regretted the anomaly but indicated that the Board resolved under Minute 73/09/11(i) to have the revaluation undertaken as part of the divestiture process since it is mandatory under the PERD Act. Management further stated that the valuation of assets was part of the Terms of Reference for the Transaction Advisor under the Divestiture Program which had already started. I await the outcome of the valuation exercise.

10.2 Deferred Tax Liability

Included in the non current liabilities are deferred tax liabilities which have stagnated at a constant figure of Shs.3,756,813,191, since 2001. This balance was however not supported by appropriate evidence such as the URA Tax audit report. I could not confirm that the reasonableness of the liability.

In response, management indicated that the balance represents a provision that was made in line with the IAS 12 Income Taxes as a result of temporary taxable differences on Assets and investments revaluation, but since then the company has been making losses and has not revalued its assets and as such there would be no basis (profits) upon which to charge the liability. I advised management to consider reviewing the provision to ensure fair presentation in this regard.

10.3 Long-outstanding Debtors

Included in the reported debtors balance of Shs.1,541,982,806, are staff dormant debtors of Shs.401,096,479 and sundry debtors worth Shs.1,449,366,778 some of whom have since left working with the Company. There is an apparent laxity on the part of management to recover the funds from the staff. This was worsened by the fact that there is no credit policy spelling out credit limits, maximum debtor‟s collection period and penalties for defaulters. It is not clear how management intends to recover these funds from the retired employees.

I informed management that non-recoverability of debts deprives the entity of funds necessary to carry out organizational activities. In response, management indicated that demand notices have always been issued to debtors while legal redress has been sought against some of them. In addition, it was indicated that management was in the process of sourcing for a debt collector. I await the outcome of management‟s interventions in this regard.

10.4 Provision for Write-off of Debtors

Ever since 2008, the provision for bad debts has increased from Shs.697,333,896 to Shs.830,298,434 in the year under review. The criteria, circumstances and assumptions for the increasing provision for bad debts have not been properly explained. I pointed

out to management that this may indicate laxity to rigorously pursue recovery of outstanding debts.

In response, management indicated that they had continued to explore all opportunities to recover the debts. However, they could not achieve 100% recovery thus the need for the provision. It was stated that the debtors are aged periodically to assess the need for write-off. However, the criteria used to arrive at the provision were not availed during the verification exercise. I advised management to justify the reasonableness of the reported provision.

10.5 Copper Tailings at Nominal Value

Included in the value of stock of Shs.22,000,006 (note 4a) are copper tailings and pyrite concentrates recognized at a value of Shs.1,450 only. These are the main raw materials in the cobalt production. Approximately, half of these tailings/pyrites have been the sole source of materials used by Kasese Cobalt Company Ltd (KCCL) in the refinery of Cobalt for the last 10 years. In the last 5 years, KCCL realized an average turnover of more than US$.15,491,510 due to appreciating cobalt prices and attaches a higher value to this raw material in its accounts. I indicated to management that these stocks are grossly undervalued at a paltry Shs.1,450.

In response management stated that the tailings/pyrites in question are not part of what KCCL is using, and that Shillings 1,450 is a nominal value attached to the tailings in order to have them reflected in the company books before a due revaluation soon. I await the results of the revaluation exercise.

10.6 Budget Performance

a) Revenue Performance

The Company budgeted to receive revenue amounting to Shs.2,949,272,460 from various revenue centers during the financial year 2011/2012. However, verification of financial statements revealed that only Shs.2,240,357,782 (representing about 76% of the budget) was realized resulting into a shortfall in revenue collection of Shs.708,914,678 (i.e. 24% of the budget) as shown in the table below:-

Particulars 2011/2012

Budget Actual Variance (U.Shs.) (U.Shs.) (U.Shs.) Sale of Hydro Electric 2,401,889,760 1,934,087,252 467,802,508 Power Sale of Wood Products 36,788,000 11,435,504 25,352,496 Mechanical/Foundry 153,800,000 84,774,770 69,025,230

Sale of Lime 186,000,000 99,904,000 86,096,000 Subleases 170,794,700 110,156,256 60,638,444 TOTAL 2,949,272,460 2,240,357,782 708,914,678

Failure to collect all planned revenues implies that the company could have been constrained in the implementation of all planned activities during the year under review due to insufficient funds.

Management attributed the performance to various breakdowns of the plant and machinery and the dry spell that affected the power generation. I advised Management to strengthen its revenue collection efforts to ensure that all planned revenue is collected. b) Over Expenditure on Budget Lines

It was noted that the company incurred over expenditure of Shs.702,709,244 on two budget lines as shown in the table below:-

Expenditure Budget Actual Variance (U.Shs.) (U.Shs.) (U.Shs.)

Operating Expenses 836,214,740 1,435,516,902 599,302,162 General Expenses 1,513,715,292 1,617,122,374 103,407,082 Total 2,349,930,032 3,052,639,276 702,709,244

Management did not provide any evidence to show that prior authority to incur the above over expenditures had been obtained contrary to the financial regulations.

In response, management attributed the over expenditure to the sudden flood of the Mine causing death of one worker which brought about an emergency to pump out water in order to recover the body. It was stated that the expenditure was approved by 49

the board. I advised management to put in place a standby generator /facilities to avoid such fatalities.

10.7 Unpaid Return on Investment

A finance contract was signed between the Government of the Republic of Uganda, the European Investment Bank (EIB) and Kilembe Mines Limited (KML) for US$.8,800,000. The proceeds of this loan were used to part finance the purchase of the Equity in Kasese Cobalt Company Limited (KCCL). Accordingly KML opened a Trustee account with Standard Chartered Bank (U) Limited into which all dividends and cash distributions from KCCL in respect of this investment would be credited.

However, it was noted that there was no evidence of any dividend having been deposited onto this trust account. It was further noted that under the agreement a clause was inserted which states that:”In the event that the loan has not been fully repaid on 25th November 2014, EIB shall cancel the borrower‟s obligation in respect of the remaining balance”. Appropriate justification for this clause was not provided. Besides, such a clause only serves as a dis-incentive to honour repayment by the due date of 25th November, 2014.

I advised management to ensure that the true value of this loan is considered in light of this clause during the upcoming valuation of the company and due privatization process ought to consider in light of this clause.

10.8 Status of Prior Year Audit Recommendations

Several issues I pointed out in the prior year audit report remained outstanding as highlighted below:- ISSUE SUMMARY STATUS

1. Long Term loans No clear mode of repayment and Not Implemented absence of On lending agreement from Governmen 2 Failure to revalue Fixed The Company Assets were last Not Implemented Assets. revalued in 1997 including the copper tailings.

3. Democratic Republic of There is no on-lending agreement Not implemented Korea Loan between GOU and Kilembe Mines Shs.4,678,087,965 Ltd, the Loan is not appropriately supported in the Company financial Statements. 50

ISSUE SUMMARY STATUS

4. Encroachment on Encroachers have erected Management sought Katadooba Land permanent structures on Kilembe legal redress in courts of land and KML risks incurring law. compensation costs.

5 Loan From PU Loan repaid by PU without KML BOD Not resolved approval

11.0 UGANDA ELECTRICITY GENERATION COMPANY LIMITED (UEGCL) - YEAR ENDED 31ST DECEMBER, 2011

11.1 Government of Uganda Loans

As disclosed by management under note 19 to the financial statements, the company has long term loans from the Government of Uganda amounting to Shs.96.5 billion (2010: Shs.96.5 billion) for which independent confirmations indicate material unresolved differences. As at 31st December 2011, the confirmed Government of Uganda-UEB refinancing Loan amount was less than the general ledger by Shs.3.4 billion and Government of Uganda-World Bank (IDA) confirmed loan amount was lower than the general ledger amount by Shs.1.2 billion. As reported in my previous report, no reconciliations were again available for my review as at 31st December 2011. Accordingly I was not able to satisfy myself as to the completeness and accuracy of the loans due to Government of Uganda.

I have again advised management to ensure that the reconciliations are undertaken accordingly.

11.2 Related Party Balances

Included under note 21 (ii) and (iii) to the financial statements are balances due from related parties as at 31st December 2011 amounting to Shs.31 billion (2010: Shs.31 billion) and amounts payable of Shs.1.4 billion (2010: Shs.1.4 billion). As pointed out in the previous report, these balances have been outstanding for long periods and I did not receive independent confirmations from these Companies regarding existence and accuracy of the balances and where confirmations were received, they differed with the book balance. Management could also not confirm recoverability of the receivables or

validity of the payables. Accordingly I was unable to obtain sufficient appropriate audit evidence that these balances are not materially misstated.

11.3 Due to Government of Uganda

An amount of Shs.32.8 billion (2010: Shs.32.8 billion) as at 31st December 2011 is due to the Government of Uganda and has been outstanding since 2001. This amount was transferred from Uganda Electricity Board (UEB) to UEGCL, who were supposed to collect UEB debtors and use the proceeds to pay the government. I did not receive any independent confirmation from the Government regarding the existence and accuracy of this amount. Accordingly, I was unable to confirm completeness, existence and accuracy of this payable and to obtain sufficient and appropriate audit evidence that the amount is not materially misstated.

11.4 Impairment of Assets

The installed capacity of the power complex (Nalubaale and Kiira) is 380 MW and during the year under review, the average capacity generated was about 155 MW (2010: 147.22). Management attributes the low generating capacity to low water levels, which has resulted to restricted amount of water released to the complex. Management has not carried out an impairment testing for the assets as required by the Company‟s accounting policy No.2 (l) and International Accounting Standards No. 36. Accordingly, I was unable to obtain sufficient and appropriate audit evidence that the carrying amounts of the property, plant and equipment as at 31st December 2011 are not materially misstated. I have advised management to undertake the impairment tests without further delay.

11.5 VAT Receivable

Included under note 14 to the financial statements is an amount of Shs.730 million relating to net VAT receivable as at 31st December 2011 (2010: Shs.730 million). This balance was not reconciled to the VAT returns submitted to Uganda Revenue Authority due to the inadequacies in the record keeping, I was unable to obtain sufficient audit evidence as to the completeness, existence and accuracy of this amount. Accordingly I could not ascertain as to whether this balance is not materially misstated. I have advised management to ensure that the reconciliations are under undertaken accordingly.

11.6 Due to Electricity Regulatory Authority

As disclosed by management under note 22 to the financial statements, the company owes the Electricity Regulatory Authority Shs.6.1 billion (2010: Shs.6.1 billion). This amount is a provision for a tariff stabilisation fund created under the provisions of the Electricity Act, 1999. I did not receive any independent confirmation from the Electricity Regulatory Authority regarding the existence and accuracy of this amount. Accordingly, I was unable to confirm completeness, existence and accuracy of this payable and to obtain sufficient and appropriate audit evidence that the amount is not materially misstated.

11.7 Basis for Exchange Rate Used in Concession Fee

The concession fee billed to Eskom on a monthly basis contains a debt component which is designated in US Dollars and is to be revalued on a quarterly basis. Contrary to the provisions of clause 2.4 section b (iii) of the concession agreement, the exchange rate used was not the average buy rate for the calendar month preceding the month in which the payment date occurred.

Instead the average closing rate of the month before the last month in the preceding quarter was used. This implies that the rate used is not in line with the rate stipulated in the concession agreement and has also not been approved by the Electricity Regulatory Authority (ERA).

Although management stated that they had discussed with ERA the rate to be used, there was no written evidence from ERA to confirm approval of this rate. I have advised management to ensure adherence with the requirements stipulated under the concession agreement.

11.8 Non- Reconciliation of Balances

Corporate governance and best practice of internal controls requires that the sub ledgers are reconciled to general ledger and reviewed monthly to ensure that; • All general ledger accounts are closed off correctly at month end/reporting date. • The month end balances are accurately reported. • An audit trail is maintained to support the balances.

From the audit it was noted that there were instances of non-reconciliation of balances as noted below:- a) Non-Reconciliation of Payroll Sub Ledger to General Ledger

It was noted that the monthly payroll reconciliation for some months was not done as noted in the table below:-

Month Payroll salary GL salary Variance Comment amount (Shs.) amount (Shs.) (Shs.)

January 89,683,697 85,056,512 4,627,185 Account was not reconciled and as such no follow up on difference noted

March 89,683,697 140,074,100 (50,390,403) Account was not reconciled

August 89,417,054 100,049,907 (10,632,853) Account was not reconciled

December 88,212,519 186,050,002 (97,837,483) Account was not reconciled

Management in response stated that the payroll differences arose when, in some instances, the basic salary was erroneously recorded instead of the gross salary. Management added that a reconciled position has subsequently been prepared. b) Long Outstanding Balances on Accounts Payable

It was also noted that there are long outstanding balances on accounts payable with some dating as far back as 2002. Details shown below:-

Account Date of Entries Balance at Comment Name 31/12/2011 (Shs.)

GE Hydro Between 2002 653,504,028 Balances have been outstanding and 2003 since 2002 and have not been reconciled to date

Stirling Rodio 2002 114,166,619 Balances have been outstanding Joint Venture since 2002 and have not been reconciled to date

Acres Between 2002 57,913,526 Balances have been outstanding International and 2005 since 2002 and have not been reconciled to date

Management in response stated that these are all long outstanding balances that resulted from the contracts for building Kiira Power Station. The amounts were accrued then but the consultants never claimed the amounts. UEGCL is putting in place a policy for writing off such long outstanding balances.

I informed management that they should ensure that a review of the long outstanding balances on accounts payable is carried out with a view to clearing out these differences. I also advised that management puts in place procedures to ensure that month end reconciliations of all account balances are prepared and reviewed by an independent person from the preparer to facilitate timely detection and correction of errors if any.

11.9 Annual Inspection of Eskom Uganda Limited Fixed Assets

Under clause 2.14 section C of the concession agreement, UEGCL and its authorized representatives have an annual right to inspect the complex (including installation of the Modifications made by Eskom Uganda Limited). It was however noted that contrary to the provisions of the concession agreement, management had not yet carried out the annual inspection for the year ended 31st December 2011 by the time of this audit (April 2012). In response, management stated that the 2011 annual inspection was delayed due to heavy work commitments of the Eskom engineers. The inspection was carried out during the first week of May instead of February as earlier planned. I have advised management to ensure that inspections are always undertaken in a timely manner in accordance with the requirements under the agreement.

11.10 Status of Prior Year Audit Findings

The status of the matters pointed out in my previous audit report is summarized below:- No. Issue Current Auditor‟s comments status 1. Escrow account Not The company had Us$.2.2m resolved The company was not in compliance instead of the required Us$.2.5m with the concession agreement dollars during the year concerning the minimum amount required of the escrow account. 2. Deferment of concession fees for Not The final communication the last quarter resolved regarding the debt waiver has not The electricity regulator requested the yet been obtained from the Ministry 55

No. Issue Current Auditor‟s comments status company not to collect the debt component of its revenue. However, the ministry of Finance, Planning and Economic Development (MOFPED) did not waive the debt payments for these particular months and therefore default on the respective payments. 3. Disaster recovery plan Not The simulation of the Bujagali Resolved EPP which also includes the The company does not have a simulated UEGCL EPP has not yet been disaster recovery plan in place. carried out 4. Delayed banking of cash received Not Resolved There were cash sales received from the sale of bid documents dating as far back as December 2009 that were remitted to the finance department in February 2010. 5 Fixed asset register: Partially A consultant was engaged to Resolved As at the time of audit, the fixed assets reconcile the register with the GL. register had not been updated with all The final report has not yet been the assets acquired during the year issued and the register is still not reconciled to the GL by a difference of about 74m 6 Non-reconciliation of accounts Not There were no reconciliations at payable and receivable Resolved the time of the audit. As at March 2011, there were no reconciliations for payable or receivable accounts for the period ended 31 December 2010. 7 Existence and ownership of Land Partially The final report from the and Building Resolved consultant engaged to reconcile Land and buildings amounting to a net the fixed assets has not yet been book value of Shs.438.6 million for issued which ownership documentation was not availed.

12.0 UGANDA ELECTRICITY DISTRIBUTION COMPANY LIMITED (UEDCL) - YEAR ENDED 31ST DECEMBER, 2011

12.1 Going Concern Uncertainty

According to Note 5 to the financial statements, the Company‟s current liabilities exceeded its current assets by Shs.139,977,184,000 (2010: Shs.78,648,091,000) and the accumulated deficit amounted to Shs.89,749,685,000 (2010: Shs.95,076,817,000). These conditions indicate existence of a material uncertainty which may cast doubt about the Company‟s ability to continue as a going concern.

However the Company is a holding entity with its non-commercial operations subsidized by the tariff or by other agencies it provides services to. The loans in the statement of financial position were vested to the Company from UEB by the Government while it still managed and operated the distribution and supply of electricity. The principal and interest repayments for loans are fully paid from the tariff as part of the lease payments by the concessionaire. The operations of the off grid stations are subsidized from the tariff. Construction of rural electrification schemes is fully funded by Government of Uganda through the Ministry of Energy and Mineral Development. The Company has also got substantial liquid investments which will continue to generate income in the foreseeable future.

12.2 Treasury Management

a) Investment of Funds on the Escrow US$ Account

The Escrow agreement provides that the company may as of the third Anniversary of its execution amend the agreement as to require the Escrow Agent to invest all or portions of the Escrow amounts in specified types of investments. However, it was noted that this provision has never been invoked thus causing the Company to lose out on benefits that would accrue from such opportunities.

Management in their response explained that the Escrow account has other interested parties including Umeme Ltd, The World Bank and Citibank. Whereas efforts have been made to engage all parties to have the agreement amended, one of the parties involved (i.e. Umeme Ltd) has not been responsive thereby rendering it impossible to invest the funds elsewhere.

I have advised management to continue engaging all the stakeholders involved in order to have the Escrow agreement amended accordingly.

b) Interest on the Escrow US Dollar Account

It was noted that whereas the Escrow account holds significant balances [with Shs.35 billion (US$.14 million) held as at year end], no interest whatsoever was paid by the Escrow Agent into the Account during the year contrary to the provisions of the Agreement. The Agent attributed this to the low LIBID rate during the period which after adjusting for the agreed basis points as per the Escrow agreement yielded a nil

rate. In the circumstances, UEDCL may be losing out on alternative sources of income due to unfavourable interest rates and yet the company is incurring annual charges of up to Shs.118 million (US$.45,000) on maintaining the Escrow account in addition to losses incurred on revaluation of the forex denominated amounts (current year losses amounted to about Shs.1.6bn).

Management explained that whereas efforts were made to invite the stakeholders involved for a meeting to renegotiate the interest rates, not all parties have been responsive.

I have again advised management to continue liaising with all the parties included in the Escrow agreements to explore the option of renegotiating the interest rates included in the Escrow agreement in order to obtain a higher return on the funds held in the Escrow account. Alternatively, the funds could be invested in other ventures in line with the provisions of Clause 5 (4) of the Escrow agreement so as to derive some benefit from the amounts held.

12.3 Non-compliance with Loan Agreements

The loan agreements (for IDA loan, IDA Pwr loan and ADB loan) stipulate the repayment schedules for fixed amounts to be paid on both principle and interest, from the start of the loan until its maturity. However it was observed that no payments were made in relation to the principle of the various loan facilities held during the year. Failure to adhere to the repayment terms could attract unwarranted penalties which would otherwise be avoided.

In response, management explained that loan repayments were dependent on funds released from the Escrow account by the Escrow agent according to the agreement. They also noted that a proposal by the Ministry of Finance Planning and Economic Development (MoFPED) was underway to convert the loans into equity.

I have advised management to ensure that going forward, monitoring of compliance with loan repayment schedules is done, to ensure payments for both interest and principle are made in a timely manner. This should be overseen by a more senior official who should ensure that compliance takes precedence over any internal appropriations of revenues generated by the company.

12.4 Long Outstanding Obligations

A review of the payables balances revealed that management did not prepare an aging analysis indicating the duration of outstanding obligations.

In addition, it was noted that Shs.36,965,718,558 has been long outstanding as shown in the table below:-

Creditor Amount Period Outstanding Outstanding (Shs.) UETCL 36,813,044,997 5 years Digital electronics Ltd 152,673,561 3 years Total 36,965,718,558

Presence of long outstanding creditor balances brings into question the validity of the amounts recorded which could lead to misstatement of the company‟s financials. In addition, delays in settlement of creditors for such long periods may impair relations with suppliers which may adversely affect the company‟s operations if they withhold supplies or even lead to unnecessary litigations.

Management explained that the amount owed to UETCL is no longer a normal trading liability and that MoFPED is addressing the issue. In addition, it was explained that a reconciliation for the Digital electronics debt was being carried out to establish the amount owed to UEDCL in terms of unfulfilled commitments and as such the amount payable was being held as security.

I advised management to ensure that accounts payable are reviewed and reconciled on a monthly basis so that any long outstanding or disputed creditor balances are investigated and resolved promptly. In the meantime, the outcome of the above interventions by MoFPED is awaited.

12.5 Inadequate Maintenance of the Fixed Assets Register

It was noted that there is no evidence of review of the asset register largely because the register is maintained within SUN system which does not have on automatic reviewer sign-off function.

Consequently, the following variances between system depreciation charges were noted:- 59

Depreciation Actual Cost as recorded Depreciation Variance Asset Name Rate (Shs.) by SUN Charge (Shs.) (Shs.) (Shs.) 01S00 Mbale- 860,604,402 9% 105,424,039 27,969,642 06 LV line 77,454,396 Masaka 01S00 West 4% 38 Substati 587,906,331 21,197,748 23,516,253 (2,318,505)

on To- LV line Opening 03N00 Service 13,971,695, (95,884,186 5% 602,700,589 698,584,775 01 Connect 501 ) ion Service 03N00 2002 3,788,083,2 4% 146,925,927 151,523,329 (4,597,402) 03 Connect 29 ions

Lack of review of the fixed assets register could result in errors in the register going unnoticed which may lead to misstatement of the non-current assets.

I advised management to regularly review the existing assets register. The review should be done by a person independent of maintenance of the asset register and should sign off as evidence of performance of this activity. Computations done by SUN system should be reviewed to ensure they are accurate and have been posted appropriately.

In their response, management committed to ensuring that these recommendations are implemented henceforth.

12.6 Non-compliance with IAS 16

It was noted that UEDCL uses different depreciation rates for different assets within the same class of assets contrary to the measurement principles of International Accounting Standard (IAS) 16-Property, Plant & Equipment which require the same rate to be used for all assets in a particular class. A Sample of these is shown below:-

Asset Approved Asset Asset Name Rate Category rate Code applied Substations 6.30% 01S0002 Tororo Rock 9.00% 01S0004 Tororo Main 9.00% 01S0037 Masaka West Substation 4.00% 01S0076 Entebbe 9.00% 01S0077 Kisubi 9.00% 01S0078 AC Distribution unit-IkiIk 4.00% 01S0081 Busunju Sub-Station 4.00% 01S0083 Nkenda Substation - Kasese 4.00%

Buildings 2.50% 05B0019 Plot M1 Sukulu - Tororo D 25.00% 05B0025 Mbara-26 1.67% 05B0027 Bombo-12 10.53% 05B0028 Kabale-127 10.62% 05B0032 Lugazi-11 2.17% 05B0034 Kasese-14 8.45% 05B0035 Tororo-1A and 1B 2.44% 05B0036 Lira-1 12.00% 05B0037 Gulu-28 1.59% 05B0038 28 Lia Street 8.33% 05B0040 Kasese-148 – 150 1.70% 05B0041 Kitumba Busembatya-M 10 F 1.82% 05B0042 Masindi-18 and part of pl 12.50%

Non-compliance with the standard may lead to misrepresentation of the property, plant and equipment reported in the statement of financial position.

In their response, management explained that at the time of splitting UEB into the 3 successor companies (i.e. UEGCL, UETCL and UEDCL), an evaluation of property was carried out by a consultant to ascertain value and remaining useful life. As a result, from a technical due diligence exercise, different life spans for similar assets were determined giving rise to the different depreciation rates used for same asset category.

I advised management to ensure that the asset register is regularly reviewed such that the rates used are consistent over time and any changes are justifiable and in line with company policy as well as the requirements under IAS 16.

12.7 Expired Leases

During the course of the audit it was observed that several of the company‟s leases had expired as at year end but none had been renewed by the time of the audit field work.

Also noted were leases which were due to expire in less than three months for which the renewal process had not yet been initiated as detailed below:-

Lease Title Lease Lease Lease Cost Amortizati start date period expiry (Shs.) on rate Expired Leases Plot 12 Kalagala Road 1-Jan-02 9.50 30-Jun-11 3,100,846 10.53% – B Plot 1A-1B Bazaar 1-Dec-55 49.00 18-Nov-04 3,806,588 2.04% Street Plot 1 Maruzi Road – 1-Jan-00 8.30 17-Apr-08 2,654,088 12.05% Lira Plot 28 Lia Street – 1-Jan-00 12.00 29-Dec-11 1,002,103 8.33% Moro Due for Renewal within one Year Plot 127 Kabale Road 1-Jun-63 49.00 19-May-12 7,105,818 2.04% – Ka Bombo-Kawanda- 1-Jul-63 49.00 18-Jun-12 2,000,000 2.04% Kawanda Total 19,669,443

In absence of valid lease agreements, it is difficult to prove ownership of the assets by the company. Additionally, this could lead to loss of such properties to other interested parties who may express interest in the said properties.

Management explained that the assets were leased to Umeme at the time of takeover. However, in conjunction with local authorities arrangements are underway to renew all expired leases and those that are about to expire.

I advised management to expedite this process.

12.8 Long Outstanding Work in Progress (WIP) Balances

It was noted that management reported some long outstanding WIP asset balances for which no additions or transfers have been made to relevant asset categories to facilitate depreciation. These are summarized below:-

WIP Commercial Schemes; this relates to commercial schemes that were handed over to UMEME but in an incomplete state. At the time of handover, the amount recorded was the amount spent by UEDCL on the commercial scheme – Shs.38,268,696 which was the total amount that was capitalised. On a yearly basis, UMEME is supposed to advise UEDCL on the additional capitalization. However, since

2005, there has been no movement in this balance; and is still being recorded as WIP.

WIP UMEME Power IV; under the loan agreement between Government of Uganda and UEDCL, UMEME purchases construction materials and makes other contributions towards these schemes. Capitalization of the expense is done when UMEME accounts for the moneys. However, no accountability has been made during the year; hence the balance recorded on this asset had no movement during the year.

This shows that UEDCL lacks vigilance in following up and monitoring its assets which could lead to misstatement of the company‟s financial statements if such works are no longer in existence but continue to be recorded in the company‟s books.

I advised management to follow up on WIP balances recorded to ensure timely transfers from WIP to the relevant asset classes to commence depreciation of the amount in line with the appropriate rates.

In response, management indicated that a request for accountability and completion certificates for the WIP had been made to UMEME Ltd but to no avail. I advised them to follow up this matter until an appropriate response is obtained accordingly.

12.9 Long Outstanding Debtor Balances

During a review of the debtors account balances, it was noted that there were several long outstanding debtor balances as exemplified below:- Debtor Amount(Shs.) Government of Uganda 7,269,290,132 URA (WHT –imports) 1,835,944,663 Total 9,105,234,795

The above balances account for about 14% of total recorded trade and other receivables as at the end of the year. The recoverability of such overdue amounts is questionable and could lead to misstatement of the company‟s financial statements.

I have advised management to implement monthly procedures to review accounts receivable for any long outstanding receivable balances which should be monitored closely to ensure that they are collected timely.

In their response, management explained that the GoU debt will be resolved through debt swap procedures once approved by MoFED and that the WHT is advance corporation tax and will be utilized when there is a tax liability. I await for the outcome of this management commitment.

12.10 Inventory Valuation

From my review of the company‟s inventories, I noted that the company holds inventory procured before the takeover of the core business operations by UMEME Ltd, none of which have been utilised to date and yet no review has been done to assess their relevance to current operations to ensure they are not obsolete.

This could lead to misstatement of the company‟s inventory through holding of obsolete stock and thus inadequate provisioning. I have advised management to undertake a thorough review of the inventory held with a view to identifying obsolete stock which should be written off in line with the company policy. An annual review should be done of the company‟s stock and provisions made for obsolete stock to avoid misstating of the company‟s inventory.

12.11 Stock Count Variances

During my review of the inventory balances, I noted instances where there were variances between recorded stock and physical stock as summarized below:- Stock item Quanti Quantity Variance Value of ty per per variance (Shs) valuati Physical on count Tx 50Kva 33Kv/Lv 3Ph 37 35 2 14,046,946 Tx 25Kva 33Kv/Lv 12 11 1 5,842,911 1Phase Tx 50Kva 11Kv. Three 1 0 1 9,072,076 Phase Total 28,961,933

This could lead to misstatement of the company‟s inventory through recording of inexistent stock items. It was noted that no adjustments were made for the above variances as the differences were considered immaterial to the company‟s financial statements.

However, I have advised management to always investigate such variances and also ensure that reconciliations are done for the company‟s stock after every stock count so as to resolve any such variances accordingly.

12.12 General Computer Controls and Applications Review

Off Grid Energy Sales Variances between the Billing system and SUN Systems

Unexplained variances were noted in the energy sales transferred from the Billing system, where they are computed to SUN system as exemplified below:-

District Total Units Total Energy Total Energy Total Energy Variance consumed sales in the sales in the sales in SUN (A-B) in kwh billing Billing system (VAT system (VAT system (VAT Excl) Incl) Excl) (B) (A) January 2011 Moroto 23,998 11,955,938 10,132,151 15,842,304 -5,710,153 Moyo 20,447 9,632,923 8,163,494 16313127 -8,149,633 Adjumani 27,618 13,766,608 11,666,617 19,825,335 -5,710,1538,158,718 August 2011

Kalangala 9,162 4,138,081 3,575,275 3,506,848 68,427 December 2011

Moyo 16,568 7,634,298 6,469,744 5,962,616 507,128 Adjumani 17,496 8,771,181 7,433,204 7,433,310 - 106 Kalangala 9,426 4,215,197 3,572,200.85 3,575,275 - 3,074

In addition, monthly batch processing in the Billing system is not independently reconciled to the customer file and meter readings in excel to confirm completeness of all customers billed and accuracy of rates used. There was no formal documentation to show that the monthly batch processing in the billing system is complete. Incorrect capturing of data into the SUN system could result into misstating the energy sales for the period leading to misstatement of revenue amounts posted in SUN system.

I have advised management to ensure that reconciliations between the data in the Billing system and SUN System are prepared and appropriately reviewed at least on a

monthly basis to ensure the accuracy and completeness of the data captured between the two systems.

In their response, management has committed to address this matter accordingly.

12.13 Status of Prior Year Audit Findings

The status of the matters pointed out in my previous audit report is summarized below:- Recommendations made in Previous Reports Status 1 Non-Compliance with the Financial Policies and Procedures Repeated Manual 2 Preparation of Monthly Management Accounts Repeated 3 Interest on the Escrow US Dollar Account Addressed 4 Investment of funds on the Escrow account Repeated 5 Noncompliance to loan agreements Repeated 6 Long outstanding payable balances Repeated 7 Tagging of fixed assets Addressed 8 Lack of capitalization policy for fixed assets Repeated 9 No physical verification of assets Repeated 10 Improvements on the fixed assets register Repeated 11 Noncompliance to IAS 16 Repeated 12 Withholding Tax Certificates before Concession Addressed 13 Errors in computation of account balances Addressed

13.0 ELECTRICITY REGULATORY AUTHORITY (ERA) - YEAR ENDED 30TH JUNE 2012

13.1 Revenue Performance

A review of the budgetary performance revealed that whereas the Authority collected revenue in excess of the overall target set in the budget, management failed to realize several revenue targets as detailed in table below:-

Particulars Budget Actual Variance (Shs) (Shs) (Shs) Levy Charges 2,069,000,000 1,881,845,173 (187,154,827) Application Fee 73,250,000 65,489,000 (7,761,000) Wire Permits 47,000,000 NIL (47,000,000) Rental Income 45,000,000 40,000,000 (5,000,000) Interest Revenue 84,252,296 NIL (84,252,296) Installation Licenses Not budgeted 221,087,917 221,087,917

I reminded management that failure to fully realise budgeted revenues can impact negatively on the Authority‟s ability to implement its approved work plans during the period. It was further noted that the Authority realized revenue from installation licenses amounting to shs.221,087,917 for which a budget provision had not been made. I pointed out to management that this puts to question the integrity of the budgeting process.

In response, management attributed the shortfall on levy charges to the decommissioning of two Thermal plants equal to 100MW by government. Management added that the interest income shortfall was because the Authority did not realize enough funds to invest in Treasury Bills and fixed deposits. They further explained that it was not possible to forecast with certainty the number of firms that will apply for permits or to revise their licenses in any given year.

I advised management to strengthen their budgetary processes as well as their revenue collection efforts to ensure that reliable budgets are prepared and that all planned revenues are collected accordingly.

13.2 Designation of Staff not on the Approved Organizational Structure

A review of the established staff list and payroll revealed that the designations of seven (7) staff do not tally with the approved structure on the ERA organogram. It was noted that the particulars in their appointment letters, personal files and the staff list, do not match. I informed management that the affected staff are therefore being irregularly paid salaries and emoluments to which they are not entitled.

In addition, it was noted that the Authority recruited two persons in the positions of Principal Economist and Information Analyst which do not exist in the approved organization structure and paid them salaries amounting to Shs.73,516,482 without proper authority. In the circumstances, execution of the approved annual budget becomes a challenge.

Although management in response stated that there was an organizational restructuring that culminated into a revised organization structure, verification revealed that the new organizational structure was not yet approved and functional during the

year 2011/2012. I have advised management to expedite the approval process for the new structure so as to give effect to the new terms of service as well as the new posts.

13.3 Lack of a Substantive Secretary for the Authority

Section 18(2) of Electricity Act, 1999, requires that the Authority shall have a secretary to be appointed on such terms and conditions as may be specified in the instrument of appointment. It was however noted that ERA operated without a substantive secretary to the Authority during the period under review. Under the circumstances, there is a risk that the responsibilities to be executed by the secretary may not be effectively and/or legally performed in absence of a substantive appointee. In response, management stated that after termination of the former secretary, IGG issued a moratorium on the filling of the CEO and Secretary positions which was later waived; the Authority would therefore soon embark on the process for the recruitment of a Secretary. I have advised management to expedite this process accordingly.

13.4 Lack of an Approved IT Strategy

Whereas best practice requires that institutions operate with an approved IT strategy in place in order to maximize the benefits of coordinated and deliberate utilization of IT resources, it was noted that there is no approved IT strategy in place at ERA. I informed management that this creates a risk of duplication and waste in IT expenditures. In response management acknowledged that the authority is still formulating an IT strategy adding that an IT policy was in place to avert the risks of uncoordinated and haphazard expenditure on IT resources. I advised management to expedite the IT strategy formulation process.

13.5 Undischarged Tax Obligation

The Income Tax Act requires that a withholding agent pays to URA, tax withheld within fifteen days after the end of the month in which the payment subject to withholding tax was made by the withholding agent. Contrary to this requirement, it was noted that ERA did not file returns on time in accordance with the Act. Accordingly, deducted taxes amounting to shs.57,753,878 remained un remitted to URA. I informed management that the foregoing may attract penalties as stipulated in the Income Tax Act.

Although management attributed the delays in remittance of the taxes to lack of TIN numbers for the suppliers in question, I did not find this explanation satisfactory, since this is normally a requirement during the procurement process. Their further assertion that the obligation was cleared early in the FY 2012/13, was also not confirmed, as there were no receipts availed for verification by the time of compiling this report. I advised management to always deal with tax-compliant suppliers and also ensure that the funds remitted to URA.

13.6 Review of ERA Performance Matrix for 2011-2012

It was noted that the annual performance report indicated that several activities outlined in the 2-year Institutional Business Plan for the period 2011/12 were not achieved as planned. The key performance areas not achieved are detailed below:-

a) Failure to involve Stakeholders

Under the strategic actions/initiative, the Authority was to take a leading role in electricity sector planning through liaison with other sector players by instituting an electricity sector wide planning forum by the end of the 1st quarter of the financial 2011/2012. The Authority was also supposed to convene sector wide forum to clarify the roles of all sector players in the Electricity Service Industry by organizing workshops to communicate roles and generate a Consensus Document among other issues. However, these activities were not undertaken.

In response, management stated that the Ministry of Energy and Mineral Development (MEMD) embarked on a review of the Electricity Act which among other things was to review the institutional roles with respect to sector planning through liaison with other stakeholders. In addition, ERA is working with the licensees and MEMD to develop a Least Cost Generation and Network plan for the sector as the roles get resolved in the revision of the Act. Whilst I await for the outcome of the review by the Ministry, I however still observe that a stakeholder forum organized by the Regulator (ERA) is important to avoid institutional role conflict, which has been one of the challenges for the various sector players.

69 b) Inadequate Monitoring

Under the Business Plan, ERA set out to conduct quarterly compliance monitoring on technical, environmental, financial and commercial activities of the licensees. During the audit, it was established that the technical regulation department appears to be thin on the ground and did not have sufficient staff and time to visit all the licensees. As a result the Authority only monitored the activities of 2 licensees (Electro- Maxx and Kilembe Mines Ltd) and supervision and monitoring of other licensees such as WENERECO was not being done. I informed management that failure to Supervise and monitor the licensees, gives room for them to operate outside the guidelines. In response management stated that 8 technical officers had been recruited who hopefully would advance the institutional efforts of monitoring and compliance enforcement to a great length. I informed management that in view of resource limitations, there was need to develop a risk profiling of licensees in order to determine where to focus their monitoring efforts. c) Lack of Comprehensive Uniform Construction Standards for the Transmission and Distribution Infrastructure

The Department of Technical Regulation was required to develop uniform construction standards for the transmission and distribution infrastructure by the end of the 2nd quarter of 2011/12 financial year. Although the department reported some progress, the task remains uncompleted well beyond the allocated timeframe. In the circumstances, the standardization is delayed. In response, management stated that this activity was deferred to the next year but the Authority had already began consultations with the key operators in this area. Licensees have been asked to submit their network development and operational manuals. Consultations involving the Bureau of Standards have already commenced in the aspects of the electricity supply to ensure that there is harmony as the process continues. I await management‟s commitment in this regard. d) Absence of Information Education Strategy on Energy Saving Technology

ERA set out to reduce electricity energy losses from both commercial and technical areas to manageable levels through minimization of supply and demand-related losses. This 70 was to be achieved through advocating for use of appropriate energy saving technology and holding public awareness campaigns on efficient use of electricity and energy loss reduction. It was reported that ERA carried out sensitization workshops in Mbale and met with UMEME and Electricity Consumers Committees on related issues of energy saving. It was envisaged that by the end of the 3rd quarter, the two concerned departments of Technical Regulation and Public Relations would have come up with an Information Education Strategy on energy saving technology, which however, was not achieved. In response management stated that the strategy would be finalized in the next financial year. I advised management to expedite this process in order to ensure efficient use of electricity and energy loss reduction. e) Failure to Monitor the Implementation and Progress of the Agreed Loss Reduction Strategy

The Authority set out to agree on a comprehensive loss reduction strategy with distribution companies and to eventually come up with a comprehensive loss reduction strategy document. However, it was noted that the departments of Technical and Economic regulation did not submit comprehensive loss reduction strategies despite the deadline expiring at end of 1st quarter of the financial year under review. The departments further failed in the monitoring of the implementation and progress of the agreed loss reduction strategy and to support the adoption of prepayment metering technology by UMEME, since they failed to make quarterly progress reports on prepayment meter roll out.

Also noted was that ERA set new performance parameters for UMEME Ltd, for the next seven years following a loss reduction study conducted by the Authority. The key focus for ERA in the amended license period was to enforce the performance of the Company vis-à-vis the set targets through rigorous monitoring. I have requested the Authority to rigorously follow up the implementation and progress of the agreed loss reduction strategy. f) Failure to Carry out Audit of System Losses by the Utility Companies

The department of technical regulation was to ensure that the audits of system losses by all the utilities companies is undertaken and to come up with Bi-annual system loss

reports from the companies. It was however reported in the performance report that the Authority only audited UMEME‟S System by engaging the services of a consultant (PB Consulting). Notably, one of the licensees, M/S Ferdsult Engineering Services Ltd, is running a large network under the Rural Electrification Agency (REA) and has never met its financial obligations to REA citing loss making attributed to energy losses throughout the 7 years of its license. The failure by ERA to undertake the audit of energy losses makes it possible for the licensees to under-declare their financial obligation and to default on their obligations feigning energy losses. In response management stated that the audit of the system losses for Umeme Ltd covers over 96% of the national grid and this was the basis for the setting of new performance parameters. Management added that an audit of M/S Ferdsult Engineering Services Ltd‟s operations had already been commissioned. I await for the outcome of this management commitment.

14.0 AMBER HOUSE LIMITED – YEAR ENDED 31ST DECEMBER, 2011

14.1 Non Revaluation of Assets

The entity adopted the revaluation model of its Property Plant and Equipment in accordance with International Accounting Standard (IAS) 16. However, it was noted that the company last revalued its assets more than 5 years ago. In the circumstances, the value of fixed assets of Shs.8,791,427,880 may not be fairly stated in the financial statements. In their response, management stated that they had engaged the Government Valuer to undertake the revaluation. I advised management to regularly undertake revaluation in accordance with IAS 16.

14.2 Lack of a Strategic Plan

It was noted that Amber House Ltd (AHL) does not have a strategic plan which would define its Vision, Mission, Strategic goals and objectives. I informed management that in the absence of a roadmap for growth and prosperity, the Company is exposed to a risk of adhoc decision making with no sense of direction. I advise management to formulate a strategic plan without further delay.

14.3 Outstanding Debtors

A review of the company debtors reflected in the financial statements at Shs.9,483,139,470 revealed the following:-

a) Outstanding Obligations to UEB

UEB, a company in liquidation owes the AHL an amount of Shs.4,167,455,641, comprising of Shs.2,533,502,440 in rent arrears and another Shs.1,633,953,201 in rent collections banked on UEB accounts.

In response, management stated that they had written several times to the liquidator without success, and therefore the recoverability of these amounts appeared doubtful. In spite of this, the liquidator continues to occupy 205m2 of office space thus continuing to incur additional rent arrears.

b) Outstanding Obligations to the Ministry of energy and Mineral Development (MoEMD)

Shs.5,159,264,064 is owed by the Ministry of Energy and Mineral Developmentin rent arrears accumulated over a period of time. It was noted that even though the Ministry‟s occupation of Amber House through the years is not in doubt, there is no valid tenancy agreement to justify the company‟s claim on this amount. The last tenancy agreement expired on 30th June 2008.

A further review of this matter revealed that this amount owing to Amber house is not reflected as owing in the Ministry Financial statements, a position which reflects lack of commitment on the part of the Ministry to pay the outstanding rent. Management has in the past stated that this issue has been brought to the attention of the shareholders. I have advised management to ensure that the matter is followed up and concluded accordingly.

14.4 Budget Performance

a) Revenue Performance

The Company budgeted to raise revenue amounting to Shs.2,364,920,729 during the financial year 2011, but only managed to raise Shs.1,374,373,344 realizing a shortfall of Shs.990,547,385 (42% of the budgeted revenue). Failure to collect budgeted revenue impacts negatively on the company‟s ability to implement its approved work plans during the period.

I informed management that failure to collect budgeted revenue impacts negatively on the company‟s ability to implement its approved work plans.

In response, management stated that the Ministry of Energy and The Atomic Energy Council which together occupy over 50% of office space had persistently defaulted on payment thus the poor performance. I advised management to continue pursuing the matter with the authorities.

b) Over expenditure on administrative expenses Shs. 5,096,855

The Company budgeted to spend Shs.913,809,650 on administrative expenses during the financial year 2011. However, verification of financial statements revealed that actual expenditure was Shs.918,906,505 resulting into an over expenditure of Shs.5,096,855.

Although management attributed the over expenditure increase in advertising, internet and telephone charges, no authority to over spend such as approved reallocation or virement warrants was obtained prior to this spending. The over expenditure therefore, lacked appropriate budgetary authority. I advised management to always comply with the laid down procedures regarding amendments in the approved budget.

14.5 Dormant Bank Accounts

The company had in operation two (2) dormant bank accounts at Citibank and Standard Chartered Banks respectively. I pointed out that such dormant bank accounts create unnecessary maintenance costs and could be a vehicle for fraudulent activities. In response management stated that they were awaiting board resolution to effect the closure. I await management‟s commitment in this regard. 74

14.6 Internal Audit Function

As I pointed out in my previous report, the Company does not have an internal audit department to advise management on the appropriateness and functioning of the internal control systems as well as management of the entity risks. This implies that the effectiveness of the internal controls is not reviewed regularly for timely corrective action to be taken.

Management in response stated that they have budgeted for this function in 2012.

I await management‟s commitment in this regard.

14.7 Depreciation of Leasehold Land

It was noted from the audit of fixed assets that the accounting policies that the company depreciates leasehold land at 2% per annum and yet the Leasehold Land title granted a 99 year lease. I informed management that this depreciation rate does not result in allocation of the cost/value of the lease over its useful lifespan, and violates the matching concept. Therefore the depreciation charge is overstated by Shs.5,000,000 every year. In response management stated that they are in the process of revising the depreciation policy in consultation with the board. I await management‟s commitment in this regard.

14.8 Fully Depreciated Assets

Some of the Company‟s property, plant and equipment categories such as plant and equipment and computer & Accessories are fully depreciated yet the company continues to derive economic benefits from them. The fact that there is no charge in the accounts to reflect this benefit means there is a distortion of the economic reality on the ground.

Under IAS 16 the residual value and useful life of Property Plant and Equipment is to be reviewed each year end and if expectations differ from previous estimates, the change ought to be accounted for as a change in accounting estimate in accordance with IAS 8.

This treatment implies that the revaluation requirements under IAS 16 have not been complied with and Property, Plant and equipment may not be fairly stated in the financial statements.

In response, management acknowledged the anomaly and undertook to seek approval from the Board to revise the book values with a view of disposal. I await the outcome of management‟s commitment in this regard.

14.9 Lack Of Investment Policy

The company reported a balance of Shs.3,896,700,000 as amount due from “Investments maturing in one year”. A review of the Company‟s operating guidelines revealed that there was no clear investment policy in place to guide the entity on investing in these funds or even venture into a more diverse investment portfolio.

I informed management that lack of an investment policy may lead the company into making investments haphazardly without undertaking a good analysis of the potential returns. I raised this matter in my previous report but it remains outstanding.

Management in response indicated that the funds had been placed on a less risky interest earning deposit as Shareholders‟ approval of the proposed investment policy is awaited.

14.10 Failure to Hold Annual General Meeting

Although the company had planned and budgeted to hold an Annual General Meeting, it was noted that no Annual General Meeting was held in the period under review.

I Informed management that the Annual General Meeting is a key function where management and the Board account for their stewardship to the shareholders.

Management in response stated that a notification was filed with the shareholder to approve holding of an AGM but did not get a response. I advised management to pursue the matter to enable compliance with shareholders interests.

14.11 Capital Restructuring/Reorganization

From a review of the financial statements, it was noted that whereas the share capital is reflected as Shs.96,650, the overall capital reserves of the company stand at Shs.22,103,086,082 I pointed out to management that this is a substantial mismatch and distortion in the capital structure of the company. This may misrepresent the true valuation of the company when shares are used as a basis. 76

Management in response acknowledged the anomaly and undertook to present the matter to the Annual General Meeting for approval of revaluation of the capital structure. I advised that a capital restructuring/reorganization to bring the value of share capital in line with other reserves be considered.

14.12 Lack of Approved Human Resources And Accounting Manuals

The company operates without a human resource manual to give guidance/authority over decisions made on personnel matters such as recruitments, counseling, promoting, compensating or terminating of employees. I informed management that lack of formal guidelines may result in adhoc and haphazard handling of Human Resource issues. It was further noted that the company also does not have an approved accounting manual in place, to give guidance and procedure in the processing, recording and reporting of financial transactions. Staff therefore lack appropriate formal guidance in processing recording and reporting of transactions.

In response, management stated that the draft manuals were to be approved by the board in 2013. I await management‟s commitment in this regard.

14.13 Lack of a Procurement Plan

Procurements under the Company were carried out without a procurement plan contrary to the PPDA act which requires that the procuring and disposing entity plans its procurements and disposals in a rational manner in order to avoid emergency procurements; aggregate its requirements wherever possible to obtain value for money and reduce procurement costs.

I indicated to management that this omission exposes the company to inefficiency and wastefulness in procurements. Management in response regretted the anomaly and undertook to rectify it in future.

HEALTH SECTOR

15.0 UGANDA MEDICAL AND DENTAL PRACTITIONERS COUNCIL- YEAR ENDED 30TH JUNE 2012

15.1 Unexplained Direct Debits (Shs.62,942,362)

It was noted that direct debits on the bank statements totalling to Shs.62,942,362 could not be properly explained as there were no payment vouchers filed relating to the debits in question. I explained to management that in the absence of supporting documentation, there is a risk that the amount in question could have been misappropriated since there is no evidence that it was withdrawn from the Council Bank account to undertake approved activities.

It was further noted that bank reconciliations were not being reconciled by the Accountant contrary to the Public Finance and Accountability Act 2003, which requires that the bank reconciliation statements are prepared on a monthly basis to enable management identify and follow up any errors that might have been committed. This reflects lack of control over cash and bank transactions which could lead to loss of Council funds. The Accounting Officer explained that an internal investigation was instituted and a case of possible fraud was opened at Wandegeya Police. The Accountant was arrested and investigtions were still ongoing. I advised management to ensure that this matter is followed up to ensure recovery of any misappropriated funds.

15.2 Unaccounted for Funds (Shs.33,382,750)

It was noted that a total of Shs.33,382,750 advanced to various officers to undertake official activities remained unaccounted for by the time of writing this report. This was contrary to the provisions under the Public Finance and Accountability Regulations and the Treasury Accounting Instructions that require all funds to be accounted for during the year in which the advance was made. In absence of proper accountability, I was unable to confirm that the funds were utilized for the intended purposes.

Although management indicated that the accountability for the advances in question was available, this had not been availed for verification by the time of writing this report. I advised management to always ensure that accountabilities are filed promptly upon completion of the related activities. In addition, I have requested the Accounting Officer 78

to either obtain accountability for the funds in question or else enforce recoveries from the recipients.

15.3 Missing Cash (Shs.13,263,061)

An analysis of cash revenue collections and bankings revealed that during the period between 1st July 2011 and 1st March 2012, revenue amounting to Shs.221,669,000 was collected but only Shs.208,405,939 was banked, leaving a balance of Shs.13,263,061 unbanked. This anomaly could have been as a result of failure by the revenue collector to always promptly bank all cash collections intact, as required by the financial regulations. There is a risk that this amount could have been misappropriated.

Management explained that the Shs.13,263,061 shortfall is part of the ongoing investigations they have instituted in a bid to recover the funds. It was further explained that cash collections were stopped effective July 2012 and that all payments are now being made directly to the bank by clients. I advised management to expedite the investigation process so as to have the funds recovered accordingly.

15.4 Unretired Imprest

The financial regulations require that where Imprest is not settled by the expiry date of the imprest warrant, a staff advances account will be opened in the names of the Imprest holder to which the outstanding Imprest shall be debited and that no further Imprest advances shall be issued to a public officer if he or she is still in possession of an un-retired Imprest previously issued to him or her for a similar purpose. It was however noted that no staff advance account was opened and debited with the outstanding Imprest and the Imprest Holder continued to get more advances/Imprests before retiring the previous ones contrary to regulations. As a result, Shs.4,700,000 remained unaccounted for as shown in the table below:- Month Amount (Shs) July 2011 700,000 September 2011 800,000 December 2011 800,000 January 2012 800,000 February 2012 800,000 March 2012 800,000 TOTAL 4,700,000

Management acknowledged this anomaly and explained that the above amount was also part of the ongoing investigations into the activities of the former accountant who had since been arrested. Management was advised to follow up the case with Police with aim of having the amounts in question recovered accordingly.

15.5 Book Keeping aspects

a) Maintenance of the Books of Accounts

It was noted that the cash books and ledgers were not being maintained up-to-date with transactions being entered several months after ocurrence. For instance by the time of the audit, the Accountant was in the process of updating the cash book for the period 1st March 2012 to 30th June 2012. This implies that there was no prompt follow up and reconciliation of books of accounts by management, which could lead to errors and omissions taking long to be noticed and corrected. Management explained that the Accountant was fired and the Council is in the process of hiring a new Accountant. In addition, the Council is considering acquiring an accounting software to ease the book keeping. I have advised management to update and maintain proper books of accounts.

b) Monthly Bank Reconciliation Statements

It was noted that the books of accounts were not being reconciled by the Accountant contrary to the Public Finance and Accountability Act 2003, which requires that the bank reconciliation statements are prepared on a monthly basis to enable management identify and follow up any errors that might have been committed. This reflects lack of control over cash and bank transactions which could lead to loss of Council funds.

The Accounting Officer explained that an internal investigation was instituted and a case of possible fraud was opened at Wandegeya Police. The Accontant was arrested and investigtions were still ongoing. I have advised management to ensure that they adhere to the requirements under the Act and have bank reconciliation statements prepared monthly.

c) Lack of Segregation of Duties

Inspection of the accounts department revealed that almost all accounting functions in the Council were being handled by the Accountant, who undertakes the collection, banking, posting the books of accounts and preparation of financial statements. I informed Management that this is a control weakness that could lead to fraudulent actions going undetected.

Management explained that the Council was in final stages of recruiting an administrator to enable segregation of duties between Accounts and Administration. I have urged management to ensure that the accountas department is adequately staffed to enable a minimal segregation of duties within the department.

15.6 Use of Manual Accounting System

Contrary to best practice, it was noted that the Council does not maintain an accounting package to record its books of account. I explained to management that the manual accounting system in place was prone to errors and ommissions. It was further noted that the Council maintains a manual register for fees levied on the medical and dental professionals across the country and those in the diaspora. This complicates the process of updating and tracking of the subscriptions and fees by the members.

In their response, Management stated that it was considering acquiring an accounting software in its budget for the FY 2012/2013 and that the procurement process was to be initiated. I advised management to expedite the process so as to have the system in place without further delay.

15.7 Ungazetted Names of Medical and Dental Practitioners

It was noted that the names of registered professionals and Health Units were not published in the gazette as required under Section 19 (2) and (3) of the medical and Dental Practitioners Act 1996. I explained to management that failure to gazette the names of the Practitioners is irregular and may lead to legal suits being leveled against the Council.

In their response, the Council attributed this anomaly to inadequate funding. However, management has taken alternative approaches of disseminating this information through uploading registers on the Council Website and developing a telephone reference

directory for all practitioners and licensed clinics. I have however, advised management to ensure that the requirement under the law is also fulfilled.

16.0 THE NATIONAL DRUG AUTHORITY - YEAR ENDED 30TH JUNE 2012

The audit of National Drug Authority (NDA) had been completed but the financial statements are still subject to approval by the Board. The following matters were observed during the audit and brought to management‟s attention:-

16.1 Improper Filing of Staff Records

A review of personnel files revealed that several files were incomplete. For instance some files lacked appointment letters, contracts and academic qualification documents, while in other instances, due to absence of the necessary documentations, it was not possible to ascertain the procedures used to recruit some personnel.

In response, management explained that this was due to a change in the filing system whereby some personal files had not yet been merged. I advised management to adhere to the set guidelines as stipulated in the staff manual regarding staff recruitment and to ensure that documents are properly filed in the respective personnel files.

16.2 Staff Development and Training

A total of Shs.239,515,817 was spent towards staff development and training during the year under review. However, I was not availed with the annual training plan to confirm that the expenditure was in accordance with approved training plan and budget for the year. Besides, contrary to section 5.3 of the human resource manual, there was no evidence that training reports were filed. It was further noted that the trained members of staff were not bonded to work for the Authority on completion of their trainings contrary to section 5.1.6 of the human resource manual.

In their response, management explained that although there was no approved training plan, all trainings were for courses geared at improving staff performance at NDA and they were undertaken in accordance with staff appraisal recommendations. Management further added that the policy on bonding is not elaborate on the duration that should be considered for bonding; the practice has therefore been to bond only those who train for more than one year. It was further, explained that the HR manual is currently 82

undergoing a review to address these deficiencies. I advised management to expedite the review process and ensure that going forward, the provisions in the new manual are strictly adhered to.

16.3 Responsibility Allowance

During the year under review, a total of Shs.58,388,272 was paid to various officers as responsibility allowances. However, the basis against which the allowance was paid could not be ascertained. Besides, there was no evidence that the allowances were being paid with approval by the Board. In the circumstance, the eligibility of the expenditure was rendered questionable.

Although management indicated that the allowance was approved by the Board to replace housing allowance to Regional District Inspectors which was viewed as double benefit for employees earning a consolidated salary, evidence of this authority was not provided. I have advised management to ensure that payments of all forms of allowances are in line with the HR Manual and authorized by the Board.

16.4 Staff Contracts

I noted that during the period under review, several staff members who were employed had completed their mandatory six months probation period. However, they had not been issued with contracts nor had their services been terminated. It was further, noted that some members of staff whose contracts expired during the financial year under review and their contracts not yet renewed continued receiving their salaries. I explained to management that this practice was irregular.

In their response, Management explained that the above matters were before the Interim Board for consideration and approval. I advised management to expedite the process.

16.5 The Office of the Secretariat

It was noted that the current holder of the above office has never been confirmed. The holder of this office is the Accounting Officer of the Authority and yet he is not a signatory to the Authority‟s bank accounts. I was not able to ascertain how the office bearer effectively fulfills his functions as Accounting Officer without being a principal signatory to the bank accounts. 83

Management however stated that this matter was before the Interim Board for consideration. I advised the Authority to expedite this process, so as to enable him perform his functions effectively.

16.6 Board Retainer

During the audit it was noted that the Interim Board consisting of six members was each paid a retainer fee of Shs.500,000 per month contrary to the Authority‟s manual which provides that only the Authority Chairperson shall be paid an annual retainer fee. Accordingly, in the absence of any other authority to this effect, expenditure totaling shs.30,000,000 was irregularly incurred.

Management explained that retainer is embedded in the individual members‟ appointment letters by the Hon. Minister of Health. The Minister did not appoint a full authority but an Interim Board whose terms may not necessarily be the same as those of the Authority. However, management will bring the relevant section of the Authority Manual to the attention of the Board at its next sitting. I have advised management to either stop the practice or else have the allowance regularized.

16.7 Expenditure for Dossier Evaluation

During the year under review, Shs.132,374,623 was paid out to a technical committee that was constituted to clear a backlog on the dossiers. However, we were not able to ascertain the time frame within which the committee was to spend while evaluating dossiers. Accordingly, it was difficult to verify the basis against which the expenditure was made. A review of Board minutes revealed that this matter had been deferred by the Board. It therefore, implies that the expenditure was not authorized and it was ineligible to stand in the Authority‟s accounts.

In their response, Management explained that the Finance and Audit committee considered the task force working method and recommended it to the Authority. Payments were made in line with this recommendation. Management will however, request the Interim Board to retrospectively approve the task force arrangement. I advised management to always ensure that such payments are only made when there is Board authority.

16.8 Licensing Drug Shops

A review of the licensing guidelines revealed that all Drug Shops should be licensed by the 31st of January of each year. However field inspections revealed that a number of drug shops had not been licensed implying that those drug shops were operating illegally. Existence of illegal operators implies that the population is vulnerable to being exposed to substandard drugs.

Management attributed limited supervision to under staffing and poor mechanical state of the old fleet of vehicles and motor cycles. However, it was explained that a provision had been made in the FY 2012/13 budget to recruit and equip 18 Zonal Inspectors of Drugs to augment the current workforce. Further, more vehicles and motorcycles were planned to be procured to improve staff mobility during supervision. I advised management to ensure adequate monitoring and supervision of operational drug shops facilities.

16.9 Use of DADI‟s for supervision

It was noted that during the year, NDA was using District Drug Inspectors (DADIs) to help with registration, licensing and supervision of drug shops, in addition to other monitoring activities. It was also noted that NDA provides facilitation of about shs.200,000 per month and motor cycles in some instances towards the facilitation of each DADI. However, in some areas the support being offered by the DADI is inadequate. For instance some drug shops are operating as clinics with the knowledge of the DADIs of which several have illegal drugs, while others have class A and B drugs. In the circumstances, over reliance on the work of DADIs seriously compromises on the Authority‟s ability to operate as a regulator.

In their response, management concurred that reliance on DADIs is not effective for NDA‟s operations but this has subsisted due to understaffing. NDA‟s medium and long term strategy is to completely phase out the role of DADIs and recruit and put more reliance on Zonal Inspectors. I therefore await for the outcome of this management commitment.

16.10 Cash and Bank Balances

It was noted that the Authority was holding over shs.16 billion on Non-interest generating bank accounts. Given the inflationary tendencies and bank charges, it implies that the amounts held in these accounts were steadily losing value. I explained to management that if these funds were kept on interest bearing bank accounts, NDA would be able to generate significant amounts in interest earned to support its activities.

Management explained that a draft investment policy was submitted and it was awaiting approval of the Board and that if approved, the surplus funds will be invested to generate more revenue. I have advised management to expedite this process to enable the Authority supplement on its revenue sources.

16.11 Legal Department

During the audit, it was observed that the Authority had quite a number of pending litigations brought against it by several companies and individuals. Some of the major pending litigations included the following:-

a) Mavid Pharmaceuticals & another vs. NDA & 2 others,Civil Suit No 383 of 2010

On 6th July 2011, NDA was served with summons to file a defence in respect of the above mentioned matter. This counter suit arose out of another suit in which Royal Group of Pakistan is suing M/S Mavid Pharmaceuticals for recovery of money arising out of a contractual relationship between the two parties. Mavid Pharmaceuticals, claimed that NDAs actions of effecting a change in the Local Technical Representative (LTR) of Royal Group of Pakistan from Mavid Pharmaceuticals Limited to Abacus Pharma (Africa) Ltd, was done in complete disregard of the Law, Regulations and policy. Mavid Pharmaceuticals is therefore seeking shs.6,000,000,000 (six billion Uganda shillings) as monetary loss that was incurred as aresult of NDAs actions. The matter is ongoing before the Commercial division of the High Court at Kampala.

86 b) Dr. Frank Mwesigye vs. Attorney General and National Drug Authority; Misc. Cause No. 103 of 2011

The applicant (Dr. Mwesigye Frank) filed an application before the High Court for several declarations of judicial review. On 29th March 2012, Court delivered its Judgment in favor of the applicant and granted him the orders sought. An appeal to the Court of Appeal was subsequently lodged by NDA, and the same is ongoing. c) National Council of Traditional Healers and HerbalistsAssociation (NACOTHA) vs. NDA, Attorney General & Ms. Florence Nakiwala Kiyingi; Civil Suit No. 392 of 2011

The plaintiff in this suit is seeking Orders nullifying the appointment of Ms. Florence Nakiwala Kiyingi to the NDA Board. The plaintiff contends that the process by which elections for the herbalist representative were conducted by Ministry of Health officials was marred by irregularities.The matter is ongoing before the Chief Magistrates Court of Mengo. d) Emmanuel Juma vs. NDA, Civil Suit No. 495 of 2006

The claim by the plaintiff is for an order for the return of drugs that were wrongfully confiscated by NDA, loss ofprofits, interest and costs of the suit. The amount being claimed is shs.118,000,000 (one hundred and eighteen million shillings only). The matter is ongoing before the High Court. e) George Peter Ngogolo vs. NDA, Civil Suit No. 183 of 2012;

The above suit is for various declarations by the High Court, arising out of the denial of a License to operate by NDA. The plaintiff seeks general, aggravated, exemplary and special damages in the sum of shs.51,103,000. The matter is ongoing. f) Frank Nyakahuma & others vs. NDA, CB 152/2012;

This is a matter in the labour office at Kampala Capital CityAuthority. It was filed by former temporary employees of NDA and they are seeking compensation for unlawful termination of their contracts of employment. They are seeking about shs.159,000,000

87 g) Kityo Semakula& 4 others vs NDA;

On 15th June 2011, NDA was served with a Statutory Notice wherein the plaintiffs intend to institute a suit for cancellation of the Certificate of Title to land comprised in Block 423, Plot 13 Busiro Mengo, the same having been obtained by NDA in 2005. The intending plaintiffs allege that the transaction relating to the sale of this land is fraudulent hence they intend to seek damages and costs. The value of the subject matter as per the statutory notice is shs.320,000,000. h) Nganwa & 2 others vs. NDA, High Court Civil Suit No. 640of 2005;

In 2002, Nganwa William, Lule John and Francis Otim, the former Chairman, Executive Secretary and Head DAR, respectively, were charged with abuse of office, neglect of duty and falsification of the national register. However, in 2005, the Director of Public Prosecutions withdrew from prosecution of the case and no attempts were made to reinstate the criminal charges. Subsequently, in 2005, the above named persons filed a suit of malicious prosecution against the Attorney General in the High Court. The presiding Judge advised that the parties should explore an out of Court settlement, but the parties were unable to come to an amicable understanding. Resultantly the matter is now before Court for determination. i) Gideon Kisuule vs NDA, Civil Suit No. 513 of 2004;

The above suit was instituted by Gideon Kisuule, former Head, Drug Assessment and Registration Department of NDA. He seeks to recover Shs.6,250,000 as money which was deducted by NDA from his terminal benefits upon his resignation, without his consent. This money was paid by NDA to external lawyers as legal fees for defending the plaintiff in a criminal case in which the plaintiff (Gideon Kisuule) had been charged with offences under the National Drug Policy and Authority Act, Cap 206. In its defence, NDA contends that this money was paid by NDA in error and thus the amount was properly deducted from the Plaintiffs retirement package. Judgment was delivered on 20th April 2012 against NDA. NDA was ordered to pay shs.6,250,000 plus accrued interest from the date on which the plaintiffs cause of action arose, plus costs of the suit.

I explained to management that such a high magnitude and frquency of litigations against the Authority can have serious financial consequences which can cripple its 88

operations. Besides, NDA‟s legal department was also encountering a number of challenges that can hinder successful defence of the Authority; these included the following:-

Human resource constraint in the unit/understaffing, Unit comprises of 1 officer, following the resignation of Head Legal Services in June 2011. Heavy workload vis-a-vis the low staffing levels in the unit, Reliance on guidelines which have no force of law. Section 64 of the NDP/A Act empowers the Minister of Health to issue Regulations to operationalise the Act. However, only 4 Regulations have so far been issued since 1993. Reliance on guidelines is an avenue for litigation since guidelines are not legally binding. Inadequacies in handling of cases by DPP, due to the peculiar nature of offences created by the NDP/A Act. NDA is considering obtaining permission from the DPP to prosecute offences under the NDP/A Act in a private capacity. However, this can only be attained when the legal unit has been sufficiently and adequately staffed. Non consultation of the legal department at times leads to decisions with legal implications being made and this leads to suits being instituted against the Authority. I advised management to always exercise prudence while making decisions likely to have legal implications, including obtaining the necessary legal advice. In addition, there is need to strengthen the Authority‟s Legal Department to enable it attain the capacity to effectively perform its responsibilities.

16.12 National Drug Quality Control Laboratory (QCDEPT)

The National Drug Quality Control Laboratory was encountering several challenges as explained below:-

Delays in Procurement of laboratory supplies and services: The laboratory experiences delays in purchase of its supplies such as equipment, chemicals, reagents, spares and laboratory services such as calibration of equipment; this affects its testing activities. Management attributed the delays to specialized nature of supplies with few local suppliers and the need for international procurements. The delay was further, attributed to the rigorous PPDA guidelines especially for high value supplies. Management was contemplating to seek

PPDA‟s approval to develop and accredit a more user friendly Procurement Policy for specific to NDA. Inadequate space: Despite the fact that a laboratory extension has been set up, the laboratory space is still inadequate to cater for testing of all drug sample categories and storage of retention samples and laboratory inputs such as chemicals, reagents and lab consumables. Management explained that a delivery of mobile racks for storage of chemicals and reagents was being expected, after which, the laboratory will be rearranged to create more space for placement of testing equipment. Plans for further laboratory expansion will also be considered. Lack of enough testing equipment: The laboratory still lacks adequate testing equipment to cater for all medicines including herbal medicine and other categories of medical devices. Lack of adequate human resources: The department lacks adequate numbers of drug quality analysts to carry out testing of drug samples, a laboratory assistant and a designated store keeper. Management indicated that it was in the process of filling vacant positions for six (6) drug quality analysts and three (3) senior drug analysts. Lack of a laboratory Information management system (LIMS): The department lacks a LIMS software that aids in computation and generation of tests reports. This would greatly help to fast track the testing exercise and enhance decision making. Testing of unplanned samples: The department receives various suspected drug samples outside the planned testing schedules from both the ports of entry and the market. This means that the lab has to stock numerous categories of reagents, chemicals and chemical reference substances at any one time to cater for such samples. Lack of adequate funding for training: There is limited funding for training yet laboratory personnel need to undergo continuous training to learn new testing technologies and skills. I have advised management to ensure that adequate budgetary provisions are always made for training of its laboratory staff. NDA has only one Quality Control Laboratory: This means that all drug samples picked at ports of entry and those picked during drug surveillance programs from all over the country have to be brought to this laboratory for testing. This creates

a heavy workload. Setting up of regional laboratories would possibly help alleviate this problem. Management explained that currently, NDA uses mini labs in all regions and Truscan at ports of entry. While fully fledged laboratories in the regions are desirable, their feasibility and sustainability will be planned for long term implementation. Management has however committed to assess the feasibility of this recommendation further.

16.13 Status of Previous Audit Recommendations

The status of the findings and recommendations pointed out in the previous report is summarized below:- Audit Findings Remarks • Long outstanding static The biggest debtor is the MoH. However, the ministry sent an debtors audit team to verify their outstanding debt with NDA in order to recognize it in its accounts for inclusion as government domestic arrears. • The issue of the The Interim Board requested for an independent report on the dormant accounts- all NDA accounts for review.

• Rental payment and NDA made payment for all rental tax arrears and is now tax filing of returns with URA compliant. • Leasehold investment NDA budgeted for the maintenance of this property before property at Nkrumah revision of the rates as short term measure. In the long run, NDA will need technical advice on any changes of a structural nature. Stanbic bank is willing to credit finance developments. • Land and buildings on The property was revalued and it was in existence. Lumumba Avenue, Buganda Road and Nkrumah Un-identified deposits were attributed to drug shops that • Un identified deposit on deposited money on account and never came for receipts and NDA Bank Account licensing. NDA has now put in place a mechanism to identify all deposits on to NDA account from Drug shops. Starting with this licensing cycle, it is mandatory for clients to indicate their Facility Identification Number (FIN) as allocated by NDA. The bank has been instructed not to accept any deposits without this information. In future, NDA working with the banks will perform automated bank reconciliations using the FIN. • Finance and Audit The Authority has not been fully constituted. committee • Un credited This transaction was cancelled and a fresh payment instruction Us$.15,900.70 on the issued by the client. Stanbic Dollar Account.

17.0 THE UGANDA NURSES AND MIDWIVES COUNCIL - YEAR ENDED 30TH JUNE, 2012

17.1 Revenue Performance

It was noted that during the year under review, the Council budgeted to collect a total of Shs.859,325,000 out of which Shs.659,406,000 was actually collected by the end of the year, representing a performance of about 77%. I explained to management that failure to realise all the budgeted revenues may deny the Council the vital resources needed to implement all the planned activities which may therefore hamper the full achievement of the objectives for the period.

In response, Management explained that with the help of development partners, Regional Offices in each Regional Referral Hospital had been instituted and this is expected to ease clients‟ compliance, registrations and access to professional materials offered by the Council. This is therefore anticipated to improve the Council‟s revenue performance levels. I advised management to also strengthen its revenue collection efforts so as to improve on its revenue performance.

17.2 Unutilized Cash Balances - Shs.1,074,885,680

It was noted that the Council had a total of Shs.674,885,680 at year end as cash and cash equivalents at bank. It was further noted that the council maintained a fixed deposit account with Stanbic bank whose balance stood at Shs.400,000,000 by the end of the financial year. I explained to management that in absence of a proper plan to utilise these funds, this exposes such funds to a risk of deterioration in value as well as misuse.

In their response, Council management explained that they had engaged a consultant to design a Business Plan for the Council. I have advised management to expedite this process accordingly.

17.3 Direct Procurements - Shs.87,198,353

It was noted that the Council made direct procurements amounting to Shs.87,198,353, without following the procurement guidelines. For instance, some procurements which

required Request for Proposal Method of procurement were made using Direct method while in other cases Local Purchase Orders were not issued to providers. I explained to management that failure to adhere to the recommended procurement methods does not guarantee attainment of value for money and exposes the Council to a risk of fraudulent procurements.

In their response, management attributed this anomaly to absence of a proper procurement and disposal unit (PDU) adding that, going forward, the Council has been boosted by the PDU of the Ministry of Health with a dedicated procurement officer to help streamline the procurement procedures. It was further explained that the Council now has a contracts committee awaiting approval by the Ministry of Finance, Planning and Economic Development. I have advised management to always strictly adhere to the PPDA laws and guidelines.

17.4 Gazetting of the Registered Persons

Section 23 (2) of the Uganda Nurses and Midwifes Act, 1996 requires the registrar to publish in the Gazette the names of a person registered, as soon as is practicable, between 1st January and 31st day of March in each year. It was however noted that the Council does not publish the names of the registered persons in the Gazette. Failure to gazette the registered persons denies the public access to vital information and also dents the Council‟s function of regulating the profession. In their response, Council management explained that they were in the process of computerizing and cleaning the database for nurses and midwives before they could publish the information. I have urged management to expedite this process so as to fully comply with the requirements under the Act.

18.0 NATIONAL MEDICAL STORES - YEAR ENDED 30TH JUNE, 2012

18.1 Expenditure Performance

An analysis of the expenditure performance revealed that a total of Shs.191 billion was released to NMS for procurement of drugs and other medical supplies for distribution to National referral hospitals and lower health facilities. However, only Shs.166 billion was

utilized in the financial year under review leaving Shs.25 billion (representing 13% of the amount released by treasury) unutilized. I explained to management that the unutilised funds may imply that NMS has a low absorption capacity leading to non availability of drugs and other medical supplies at Hospitals and Health Centers. In response, the Accounting Officer attributed the above scenario of unabsorbed funds on the side of Health facilities. He stated that NMS procured and stored the medicines in the warehouse awaiting orders from the individual Health facilities and that this challenge had been brought to the attention of the Ministry of Health and the in-charges of ordering Health facilities. He indicated that NMS was working with them to ensure that the orders are aligned to procurement plans. I advised management to follow up this matter seriously so as to address the problem of non availability of drugs at the health facilities.

18.2 Vacant Positions

During a review of the approved structure and the current staff establishment, it was noted that out of the approved 165 posts, only 147 posts were filled leaving 18 posts unfilled. I informed management that understaffing constrains and demotivates the existing staff leading to poor service delivery. In their response, management explained that a recruitment process was on going to fill all the vacant posts. I advised management to expedite the recruitment process in order to have all the vacant posts filled accordingly.

18.3 Procurement

a) Lack of a Price List for Common Drugs

A review of PPDA Minute PPDA/M10/BO9/000 of 10th October, 2005 revealed that NMS was given a waiver to use restricted bidding instead of open domestic bidding in the procurement of common drugs. However PPDA advised management to maintain a price list of drugs commonly procured to ensure there is value for money in all procurements. PPDA further advised that the World Health Organisation (WHO) price indicator guide should also be consulted to ensure value for money. However, contrary to PPDA advice, management did not maintain a price list of commonly procured drugs. On inquiry, it

was noted that management sets its own prices based on what the bidders offer. This practice may lead to failure by management to achieve Value for Money spent.

Management explained that WHO only maintains a list of a few prequalified items and not all items that NMS stocks are listed. It was further explained that the prices of all items procured by NMS are maintained in the system (MACS) as purchase orders and can be retrieved when required. These prices are used during estimation of unit prices on PP Form 20 in subsequent procurements. However, NMS has created a position of a Research Assistant (RA) who will be specifically responsible for carrying out price surveys and maintain the price list of common drugs. I advised management to expedite the recruitment of the RA to ensure that PPDA conditions are adhered to.

18.4 Fixed Assets Management

a) Inadequate Fixed Assets Function Policies and Manual

It was noted that the entity does not have comprehensive asset management policies, manual and instructions. As a result the management of its assets are not guided by uniform procedures across the entire organisation. In their response, management admitted the shortcoming and indicated that this would be addressed accordingly. I advised management to follow best practice by having the Fixed Assets Management Policies, Manuals and Instructions developed and operationalized.

b) Non Disposal of Assets

A review of Board of survey and management reports revealed that there are a number of items which had been due for disposal as shown below:-

Item Quantity/reference photograph Motor Vehicles 13 IT Equipment 88 Store Equipment 09 Administrative items 150 Grounded trucks at the NMS headquarters not disposed off

Assorted items lying idle in the entity yard

I informed management that the accumulation of disposable items leads to obsolescence, deterioration in value of the items and hence revenue loss to the entity. Managements stated that the process of asset disposal was started with the appointment of valuers to attach values and determine reserve prices for disposable items. I advised management to expedite the process accordingly.

18.5 Items Stocked Over a Long Time

During an inspection of the stores, it was noted that some items have been stocked in stores for a period of more than two years. The items include Dispersible Cotrimoxazole tablets BP 120mg batch no cxzh0098, dihydroartemisirine/pc peraquirephostrate batch no 1092 pd code 220045, Penicillin procario 3mu+Benzyl 1mu 1 fmpdct code 215440 batch no 1005035 and 19 sets of solar equipments which include solar panels and batteries. I explained to management that overstocking increases the risk of drugs expiring while still in NMS stores, which not only leads to loss of funds but also creates more unnecessary costs for their disposal. Management explained that NMS depends on instructions from MOH to deliver these items to health facilities which instructions sometimes delay. However, NMS had since received instructions from MOH and the said items had been distributed to the facilities. Management further explained that the PPF

is a slow moving drug caused by MOH change of treatment policy from this item to injectable ceftriaxone.

I advised management to have proper measures on slow moving drugs to be procured on request to avoid a risk of them getting expired while still in stores as well as the associated disposal costs.

19.0 ALLIED HEALTH PROFESSIONALS - YEAR ENDED 30TH JUNE 2012

19.1 Opening and Comparative Balances

As stated in my previous report, the Council failed to prepare and submit financial statements for audit for the financial year ended 30th June, 2011 contrary to the requirements of the Allied Health Professionals Statute, 1996. In absence of previous year audited financial statements, the opening and comparative balances of the financial statements for the year under review could not be verified leading to limitation of scope.

I advised management to prepare the financial statements for the period in question to enable verification.

19.2 Expenditure Not Accounted For – Shs.46,385,740

A total of Shs.37,785,740 was advanced to staff for various activities. However, by the end of the financial year, the funds had not been accounted for. In absence of accountability documents, I was unable to confirm that the funds were put to proper use. In addition, Shs.8,600,000 advanced to a bank for loading on fuel cards lacked accountability in form of fuel receipts, coupons and vehicle logs. I advised management to provide accountability documents or have the advances recovered from the recipients.

19.3 Failure to Gazette the Allied Health Professionals

Chapter 268 Section 24 (2) of the Allied Health Professionals ACT requires the Registrar to publish in the gazette the name of a person registered or struck off the register as soon as is practicable and have an up-to-date register of professionals by the 31st day of March in each year. However, it was noted that since the Councils inception in 1996, it has never gazetted the names of Professionals contrary to the provisions of the Act.

Failure to gazette the professionals could lead to legal suits being leveled against the Council.

Management explained that the Council had to first carry out a verification exercise of Academic documents and certificates due to the rampant forgeries. This exercise was still ongoing. However, management anticipated the names of professionals to have been gazetted by March 2013. I advised Management to expedite the process of verification and have the names gazetted as required by the law.

19.4 Unapproved Budget

Part IV Section 17 of the Allied Health Professionals Act 1996, states that the Council shall within three months before the end of the financial year prepare and submit to the Minister of Health for approval, estimates of income and expenditure of the Council for the next ensuing year and no expenditure shall be made out of the funds of the Council unless that expenditure is part of the expenditure approved by the Minister. However, there was no evidence to show that the Council budget was approved by the Minister in line with this requirement implying that the Council operated on an unapproved expenditure budget. In absence of an approved budget, the Council‟s expenditure was considered irregular.

Management attributed the omission to shortage of staff experienced at the time. I advised Management to ensure adherence to the provisons of the law and have an approved budget duly signed by the Minister.

19.5 Budget Performance

An analysis of the budget performance revealed that during the year under review, out of the budgeted revenue of Shs.1,318,497,600, the council collected Shs.831,953,000, leading to a shortfall of Shs.486,544,600 (representing 37% of the budget). I informed Management that failure to realize all the budgeted revenues affects the implementation of planned activities. For instance, a review of the annual reports revealed that a number of planned activities had not been implemented and these related mainly to the administrative functions of the Council. Details are in the table below:-

Output description Planned output Actual Variance Output No of districts sensitized 80 32 (48) Annual practicing licenses 12000 1797 (10,203) renewed(APL) Professional misconduct 20 1 (19) investigated Sensitization through mass 8 adverts in news 4 adverts placed (4) media papers in papers. Council meetings 5 3 (2) Committee meetings 20 15 (5) International conferences 7 2 (5) attended

Managment explained that the Council had opened up eleven (11) regional offices to strengthen regular inspection, supevision, sensitization through local media and have a constant touch with the professionals and easy accessibility of services which will enhance revenue collections. I await outcome of management‟s efforts.

19.6 Unspent Balance

Shs.279,218,302 remained unutilized by the Council although it was noted that the Council under performed on a number of planned activities. I informed management that failure to utilize such funds indicates inability of management to utilize availed resources and could lead to non implementation of planned activities.

In response, management explained that the funds in question were earmarked to procure vehicles for the regional Supervisors offices opened up across the country for inspection and taking services nearer to the professionals. However, the Council had not been able to obtain authority from the prime Minister‟s Office due to a ban on the procurement of vehicles. I advised Management to continue pursuing the matter with the Office of the Prime Minister.

19.7 Absence of a Register for Accountable Stationery

Paragraph 54 of the Treasury Accounting Instructions (TAI) requires registers to be kept for recording the stock and disbursement of all counterfoils. However, it was noted that the Council did not maintain a register for recording the stock and disbursement of revenue receipt books. As a result, I could not ascertain the exact number of receipt books that were utilized during the financial year. Failure to maintain such a register

poses a risk of loss of revenue as a result ofusing unofficial revenue receipt books to collect revenue. I advised management to ensure full adherence to the TAI.

19.8 Lack of a Training Manual

Good practice require that every entity should develop and operate within an approved training manual. It was noted, that the Council sponsors staff for training in different professional courses. However, the Council does not have an approved Training Manual to provide guidance to management on staff training matters.

In absence of the Manual, it is likely that irrelevant courses may be sponsored and/or there may be a risk of unfair selection of some staff for sponsorship.

19.9 Bookkeeping

a) Cash Book

Contrary to Para 319 chapter VIII of the Treasury Accounting Instructions (TAI) which requires that any amendments to the cash book be made neatly in ink without erasure, be signed and dated by the officer making it. It was noted that the Accounts Assistant consistently recorded receipts in the cash book in pencil. In the circumstance, the information contained in the cash book may not be credible. For instance whereas the total revenue as per the receipts was Shs.790,743,100, the cash book reflected a total of Shs.798,023,600. The variance of Shs.7,280,500 could not be reconciled.

Management explained that the Council is now using a new business online system where all revenue is directly banked by the clients who are issued with receipts on presentation of bank slips duly signed and stamped by the Bank.

I advised management to fully adhere to TAI by ensuring proper ink is used in the posting of the cash books. Management was further advised to expedite the investigation.

b) Non-preparation of Bank Reconciliation Statements

There were no bank reconciliation statements being prepared on a monthly basis contrary to the Treasury Accounting Instructions and Generally Accepted Accounting Principles. This practice reflects an override of internal controls leading to errors going

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undetected. For instance, it was established that whereas the total receipts during the year amounted to Shs.790,743,100, an amount of Shs.830,475,310 was banked resulting into an unexplained variance of shs.39,732,210. The Accounting officer stated that the bank reconciliation statements were not being prepared because by that time the Council had only one person, an Accounts Assistant in the Accounts Section to handle all Council activities.

Management was advised to ensure monthly bank reconciliation statements are prepared and reviewed by the responsible supervisor. In addition, the above variance should be investigated.

EDUCATION SECTOR

20.0 NATIONAL COUNCIL OF SPORTS - 30TH JUNE, 2011

20.1 Council Land and Buildings

It was noted that although the Council was allocated plots 2 – 10 Coronation Avenue (Lugogo By-Pass) by the Kampala District Land Board on 9th July, 2008, it has neither secured a formal lease offer nor a land title. Since it operates from the land in question, its security is not guaranteed in the absence of a valid land title. The value of this property stood at Shs.15,307,103,028 as reflected in the Council‟s Statement of Financial Position at the close of the year under review. Additionally, the size of the land was neither stated in the District Land Board‟s offer nor in the valuation report casting doubts as to the actual size and boundaries of the land. This puts the said land at risk of illegal encroachment. This matter was also raised in my previous audit reports.

I have again advised management to expedite the process of acquisition of the lease offer and the land title.

20.2 Capital Development Expenditure

During the year under review, the Council incurred capital development expenditure amounting to Shs.1,700,000,000 purportedly on renovation of the Main Hall. However, no documents were availed to me to support the expenditure in question. In absence of 101

the supporting documentation, I could not ascertain the genuineness and accuracy of the amount in question.

In their response, management explained that this was an injection of funds by MTN Uganda Ltd but the related documents are yet to be availed to the Council. I have advised management to obtain the documentation in question and also ensure that proper written agreements are in place before allowing third parties to make any capital developments on any Council property.

20.3 Budget Performance

A review of the performance of the Council revealed that it registered a revenue shortfall of Shs.196,855,000 as detailed in the table below:-

Particulars Budget (Shs) Actual (Shs) Shortfall (Shs) Perimeter wall 40,000,000 0 40,000,000 Cricket oval 140,000,000 51,370,000 88,630,000 Oasis sports club 35,000,000 32,175,000 2,825,000 Main hall 70,000,000 16,500,000 53,500,000 Hostel/Guest house 10,000,000 0 10,000,000 Rent from MTN mast 16,000,000 14,100,000 1,900,000 Total 311,000,000 114,145,000 196,855,000

Failure to collect all budgeted revenues may have constrained the Council in the implementation of all planned activities during the year under review.

In their response, management explained that the main hall was under renovation during the period while the perimeter wall no longer attracts customers as it is an outdated medium of advertising. I advised management to endeavour to formulate realistic annual budgets and also strengthen its revenue collection efforts.

20.4 Non-availability of Bank Statements

At the time of the audit, the Council did not have complete bank statements for account number 014/00/905044/01 with Stanbic Bank for the year ended 30th June, 2011. Only statements for the month of July 2010 and June 2011 were available for our review. The non-availability of all the statements renders the Council unable to reconcile its cash book balances with the bank statements balances for the period. In addition, the

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accuracy of the reported cash and cash equivalents balance of Shs.92,614,075 could not be ascertained in absence of all the bank statements.

In their response, management explained that efforts were made to obtain all bank statements from Stanbic Bank for the financial year 2010/11 to no avail due to system failure. I advised them to follow up this matter and secure all the bank statements to facilitate the reconciliation process of the Councils‟ cash position.

20.5 Unrecognized Rental Receipts

A review of receipt books revealed that the Council collected Us$.16,800 from Uganda Olympics Committee (UOC) vide receipt No.02411 dated 1st June, 2011 in respect of rent of the Guest House for the period 1st June 2011 to 31st May 2012. However, the consideration received in advance (i.e. Us$.15,400) was not recognized as a liability (deferred income) neither was the rent for the month of June 2011 (i.e. Us$.1,400) recognized as turnover from other sources as required by IAS 18. In the circumstances, the financial position of the Council is misrepresented.

In their response management indicated that the entire amount was erroneously posted in the financial year 2011/12. I have advised management to always ensure that proper cut off procedures are adhered to in line with the requirements of the financial reporting standards.

20.6 Un-accounted for Funds

During the year under review, National Council of Sports indicated in their Financial statements that they disbursed a total of Shs.18,517,450 to Athletics Associations. However, after third party confirmation, Athletics Associations replied negatively that they did not receive any funding from the Council. There is a risk that the funds in question could have been misappropriated.

In their response, management explained that expenses are incurred on behalf of the Associations and sited an example where tickets worth Shs.18,000,000 were bought for Athletes to go to Spain.

I explained to management that the amount in question remains unaccounted for.

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20.7 Status of Prior Year Audit Findings

The status of the prior year audit findings was as summarized below:- Issue raised Remarks

1 Lack of a land title for the Council land and buildings Not addressed 2 Non insurance of council assets Partially addressed 3 Irregular back up of data and unsecure storage of Partially addressed information 4 Lack of internal audit function Not addressed 5 Unretired staff advances Partially addressed 6 Lack of job descriptions Not addressed 7 Non accountability of withholding tax Partially addressed

21.0 NATIONAL COUNCIL OF SPORTS - 30TH JUNE, 2012

21.1 Loan Repayment Shs.200,000,000

The Statement of Financial Position indicates that a longterm liability amounting to Shs.200,000,000 had been fully repaid by 30th June 2012. However, this state of affairs is not reflected in the Statement of Cash flows. In the circumstances, the reported Nil balance could be a misrepresentation of the Council‟s state of affairs in this regard. I advised management to make the necessary adjustments.

21.2 Non preparation of Monthly Bank Reconciliation Statements

It was noted that reconciliation of the cash book and bank statements was not carried out monthly as required by Sec.5.3 of the Councils‟ Financial procedure manual. I explained to management that such reconciliations help in detection of errors early enough so that quick remedial action is taken. In the circumstances, the correctness of the negative cash and cash equivalents balance of Shs.67,335,054 reported in the balance sheet could not be ascertained. Management acknowledged the anomaly and undertook to address the matter by recruiting two more staff for effective and efficient performance in accounts department. I advised management to ensure monthly reconciliations are regularly carried out by a more senior officer not involved in either payments or cash book maintenance.

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21.3 Unsupported Receivables and Payables

It was noted that the Trade and other receivables (Shs.77,574,033), and Trade and other payables(Shs.107,077,792) were not supported with detailed schedules showing individual account balances and movement during the year under review.

Included in the payables is a balance of Shs.71,538,328 due to Bank of Baroda. However, no explanatory note was included in the financial statements to support the transaction.

In the circumstances, I could not satisfy myself that the balances referred to above were correctly stated. Whereas management in their response indicated that the necessary adjustments had been made, there was no proof to this effect. I advised management to adjust the accounts accordingly.

21.4 Inconsistent Reporting of Reserves

Reporting inconsistences were noted between reserves balances stated in the Statement of Financial Position and Statement of changes in equity as follows:

Item Statement of Financial Statement of Changes Position in Equity (Ugx) (Ugx) Accumulated fund 1,698,924,171 1,529,292,862 Capital reserves 13,494,214,537 13,625,243,491 Long term Capital 53,689,940 13,845

On the other hand, Note 16(Accumulated funds) shows a balance of Shs.1,582,968,957. In the circumstances, the reserves are misrepresented.

Whereas management in their response stated that the discrepancies had been corrected, there was no proof to this effect. I advised management to take corrective action.

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21.5 Unsupported Balances in the Cash Flow Statement

The source of the following balances stated against line items in the Cash flow statement could not be established: Item Ugx Purchase of Equipment 76,822,700 Increase in Trade & Other receivables (10,000) Cash and cash equivalents at the 292,614,075 beginning of the period

In the circumstances, the cash flow statement could be ridden with errors. Whereas management in their response indicated that the errors had been corrected, there was no proof to this effect. I advised management to support the reported balances.

21.6 Council Land and Buildings

It was noted that although the Council was allocated plots 2 – 10 Coronation Avenue (Lugogo By-Pass) by the Kampala District Land Board on 9th July, 2008, it has neither secured a formal lease offer nor a land title. Since it operates from the land in question, its security is not guaranteed in the absence of a valid land title. The value of this property stood at Shs.15,220,897,254 as reflected in the Council‟s Statement of Financial Position at the close of the financial year under review. I advised management to expedite the process of acquisition of the lease offer and the land title. This matter was raised in my previous audit reports but no action has been taken yet.

21.7 Irregular payments to SOLECO Limited

An agreement was made between the National Council of Sports and MTN for the refurbishment of the indoor stadium at a cost of Shs.750,000,000 on the 22nd January, 2009. MTN was supposed to meet all the contractual obligations in the agreement in exchange for some rights that were stipulated in the agreement as follows: Naming rights for 10 years (MTN ARENA); 50% subsidies on costs/fees associated with the use of the facility;

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The right to advertise MTN/or the foundation in and around the stadium at all times during the 10 years; The Right to place a permanent mark and monument and The Right to refuse use of the facility by MTN competitors among others.

However the following anomalies were noted: Payment of Shs.114,770,182 to SOLECO contracted by MTN was made from the Council account out of a total contract sum of Shs.151,142,355 for repairs of the floor defects though there was no clause in the contract agreement requiring the Council to make a financial contribution towards the refurbishment. It was not explained as to why the building needed such major repairs hardly after 2 years of undergoing major refurbishments paid for by MTN. The floor defects should have been met from the 10% retention fee provided for in the original construction works. The contract prohibits the Council from hiring out the facility to MTN competitors thus denying the Council other sources of revenue justifying the more reason all funding should have been met by MTN. If this was deemed to be a separate activity; then the Council did not follow the laid down procurement guidelines before contracting the firm to undertake the repairs in question. For instance, there was no Solicitor General‟s approval of the contract. The entire cost of repairs was expensed in the Income statement as opposed to capitalization yet it was a major repair cost. This has unreasonably caused the Council to report a deficit position.

In their response, management explained that SOLECO contract was approved by the Board after MTN Uganda limited had asked NCS to contribute funds towards the construction of the floor of the indoor stadium after it had developed defects.

I advised management to always adhere to the basic procurement principles laid out in the PPDA Act 2003.

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21.8 Unauthorized Over Expenditure Shs.45,815,800

Analysis of the budget and expenditure for the financial year revealed that the Netball Federation had an annual budget of Shs.15,000,000. However, it was noted that total payments to the club amounted to Shs.60,815,800 leading to an over payment of Shs.45,815,800. There was no evidence that approval in form of reallocations or virements were made as required by the financial regulations. The over payment to the Netball federation could have led to diversion of funds meant for other activities.

In their response, management explained that Netball federation had internal wrangles and the Minister in charge of sports wrote and directed council to take over management of the federation. It was upon this directive that management forwarded the matter to the board requesting approval in form of reallocation of funds for effective management of the federation‟s activities. However, the approval was not availed for verification.

I advised management to rectify the anomaly following the provisions of Public Finance and Accountability Act.

21.9 Irregular salary payment - Shs.36,504,528

The head of accounts attained retirement age in 2009 having served in Government from 1973 and the National Council of Sports (NCS) from 1994. However, despite reaching the mandatory retirement age, he continued working and drawing salaries for two years without a formal contract until 2012 when he was given a contract for the year 2012.

Details of salaries drawn are as follows:-

Year No months Pay per month Total (Shs) Payee (Shs) 2010 12 1,521,022 18,252,264 Muwonge P 2011 12 1,521,022 18,252,264 Muwonge P Total 36,504,528

A review of correspondences on his personal file indicated that the officer was not performing his duties implying that the amounts in question were paid for no services

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rendered. The amount was therefore irregularly paid and is recoverable. The Accounting officer explained that the anomaly is to be corrected by management.

I advised management to recover the funds involved.

21.10 Inadequate Controls over Custody and Maintenance of Assets

During the review, it was noted that the Council had quite a number of assets including buildings, motor cars, sports equipment among others. However, there was no specific officer responsible for the safe custody of all the assets as well as recommending repairs, disposals and/or replacements. Besides, Board of Survey was not undertaken at the end of the year to confirm physical balances of all the Council assets. I explained to management that this exposes the assets to a risk of loss or misappropriation without notice. In addition, it could lead to misrepresentation and non-disclosure by omission and/or commission in the financial statements. In their response, management explained that measures have been put in place to control and maintain the assets of the council including store cards and requisitions that have been printed to ensure that all receipts and issuance of assets are properly recorded. However, these were not availed for verification.

I advised management to either assign an officer or consider appointing one to take charge of council assets as soon as practicable and ensure Board of Survey is conducted annually.

21.11 Absence of an Internal Audit Function

An internal audit function assists management in assessing the system of internal controls, risk management and good governance practices and suggests improvements where there are deficiencies. Despite its importance, it was noted that the Council did not have an Internal Audit function to perform the above roles. I explained to management that without an internal Audit function, assessment and evaluation of risk may be difficult. In their response, management explained that the post was advertised but the Council did not get a competent person from the candidates that responded to the advert but added that plans were underway to outsource an Internal Auditor on a part-time basis.

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I await management‟s action in this regard.

21.12 Human Resource Management

a) Lack of Human Resource Department and the Manual

It is best practice that all council employees are guided by the human resource procedures manual with descriptions of their responsibilities. It was however noted that the council did not have a human resource department nor documented policy/manual to guide the employees.

I explained to management that lack of documented human resource guidelines regarding staff recruitment, promotions and termination could lead to role conflict among employees thus causing operational inefficiencies. In their response, management explained that the process of developing a human resource manual was in progress while the restructuring process was catered for in the strategic plan.

Management action is awaited in this regard.

b) Payroll Management

During the review, it was noted that the council did not have policy with respect to payment of emoluments, allowances, increments and general salary management. I explained to management that absence of payroll policies may lead to over or underpayment of emoluments to staff.

In their response, management explained that the Council is in the process of developing a human resource manual that will address payroll management and other related issues concerning human resource. I advised management to address the matter without further delay.

c) Non Deduction of Local Service Tax

During the review, it was noted that the Council did not deduct Local service tax from its employees. I explained to management that this is irregular and could attract penalties from the beneficiary local governments. In their response, management acknowledged the anomaly and reported that consultations with local

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authorities were underway to get guidance as to where the tax should be remitted effective January 2013. I advised management to always adhere to the requirements of the law to avoid unfavourable outcomes.

21.13 Revenue Management

a) Absence of Revenue Policies

Best practice requires an entity to have documented policies relating to revenue management to help in identifying revenue sources, collection of revenues, reconciliation and recording. These should be established and communicated to all concerned employees in writing in policy statements, manuals and or description of responsibilities. However during the year, the council operated without guidelines for revenue identification, tariff setting, and collection of revenue among others. I explained to management that in such circumstances, the Council is exposed to a risk of misappropriation of revenue collected. In his response, the Accounting officer explained that NCS has got a financial procedures manual which addresses revenue policies, segregation of duties in accounts department, control over revenue collection and reconciliation of revenue.

I advised the Accounting Officer to document revenue management policies and ensure they are followed.

b) Lack of Segregation of Duties

During the review, it was noted that there was poor management of revenue function in areas of segregation of duties in billing, custody of receipts, recording and banking of revenue. All these activities were handled by one officer an indication of lack of proper internal control systems. I explained to management that in the absence of proper segregation of duties, there is a risk of misappropriation of cash collections since the person who handles revenue also handles banking and payments. In his response, the Accounting officer explained that the guidelines as contained in the financial procedures manual clearly address revenue policies, segregation of duties, control over revenue collection and reconciliation.

I advised the Accounting Officer to put in place and enforce adequate internal controls. 111

c) Non Reconciliation of Revenue

It was noted that during the year, the council did not carry out reconciliations of the revenues collected from its clients. I explained to management that lack of revenue reconciliations makes it difficult to ascertain how much revenue has been collected, what is outstanding and the aging of arrears of revenue. In addition, there is a risk that collected revenue could get misused without being detected. I advised management to put in place adequate controls over revenue management and carry out reconciliations on a regular basis.

21.14 Lack of a Procurement and Disposal Unit

It was noted that the council did not have an appropriate procurement and disposal unit (PDU) to handle all its procurements and disposals as required by Sec. 26 (c) of the PPDA Act 2003. In the absence of the PDU, most of the Procurement and disposal functions were vested in the hands of one individual. In the circumstances, the Council is exposed to a risk of inefficiencies such as delays in the procurement and disposal processes. I explained to management that there is a high risk of losses as a result of entrusting the entire process into the hands of one individual.

Management explained that the Council has got Procurement and Disposal Unit and a Contracts committee which handles all the procurement functions in the entity and is compliant with the PPDA rules and Regulations. However, I was not availed evidence of approval of the Contracts Committee members.

I advised management to comply with the provisions of the PPDA Act.

21.15 Failure to Implement Planned Activities

During the review, it was noted that a number of planned activities were not implemented during the year. Details are as follows:-

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Planned Cost (Shs) Deadline Management Comment activity Response Renovation of 200,000,000 End of Architectual drawing Not office block FY2011/12 secured, Bill of implemented. Quantities is in place and the structural integrity report done. Acquisition of 200,000,000 End of Given lease by Kampala Not land title. FY2011/12 District Land Board and Implemented. matter before the Court of law. Carry out needs 30,000,000 September 2011 Bids for human resource Not assessment and consultancy service implemented. train staff (3). being evaluated. Meanwhile the human resource manual is being developed. Establish a 12,000,000 November 2011 Not sporting Implemented. marketing department and recruit sports director. Review and 25,000,000 August 2012 Two study tours Partly streamline sports conducted in south Implemented. in Uganda-carry Africa and Peoples out a study. Republic of China by council members. Equip NCS with 50,000,000 July 2012 Not done due to lack of Not video van and funds. Implemented. camera. Train coaches at 157,000,000 End of 2011 Not done due to Not district level financial constraints. Implemented. (210).

I explained to management that failure to implement planned activities affects attainment of the operational targets for the year and the Council objectives. I advised management to ensure that activities are implemented as planned.

21.16 Outstanding Issues from Last Year‟s Audit Report

In my report to Parliament for the year ended 30th June 2011, I made recommendations on a number of observations that were raised. However, by the time of writing this report, it was noted that some of the recommendations had not been implemented by management as indicated below:-

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Audit Issue and Recommendation Current Status 1. Non-availability of Bank statements Not It was noted the Council did not have complete bank statements for addressed. account number 014/00/905044/01 with Stanbic Bank for the year ended 30th June, 2011. Only statements for the month of July 2010 and June 2011 were available for review. The non-availability of all the statements rendered the Council unable to reconcile its cash book balances with the bank statements balances for the period. Moreover, the accuracy of the reported cash and cash equivalents balance of Shs.92,614,075 could not be ascertained in absence of all the bank statements. I advised management to take up the matter with the bankers.

2. Un-accounted for Funds

During the year under review, management indicated in the Financial Not statements that Shs.18,517,450 was disbursed to Athletics addressed. Associations. However, after third party confirmation, Athletics Associations denied having obtained such assistance from the Council. There is a risk that the funds in question could have been misappropriated.

I advised management to provide accountability for the funds.

22.0 THE UGANDA NATIONAL EXAMINATIONS BOARD (UNEB) - YEAR ENDED 30TH JUNE, 2012

22.1 Unsurveyed Boundaries

A review of a report dated 8th June 2007 made by a Private Surveyor appointed by the Board for purposes of securing a bank facility revealed that “the biggest part of the compound, the boundary wall, generator house, plus the security house and Part of the main four-storied office building encroach on the Martyrs and Kakungulu fronting roads while other areas are not included on the title‟‟. The Board was advised to resurvey the area so as to accommodate the encroached area which is enclosed with a boundary wall. It was noted that to date, the Board has not taken any action in securing the parts on the 2 road ways. In his response, the Accounting Officer acknowledged the matter and explained that management was in the process of procuring professional services to undertake the resurvey. I advised management to expeditiously handle this matter to avoid any future challenges.

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22.2 Procurement Anomalies

a) Procurement of Portable Air Conditioners

During the financial year 2010/2011, a firm was engaged to supply Portable Air Conditioners (ACs) to be used by all heads of Departments at a cost of Shs.13,274,847. However during the audit for the year under review, the following post-acquisition anomalies were noted:- Head of department Findings and Comments from users

Executive Secretary Two ACs but not yet installed; Already furnished with ACs but still portable ACs were procured for this office Admin and Human Temperature cannot be adjusted; it was fixed at 25o; Resource Department Faulty pipe which takes out air: the pipe is already damaged, probably due to poor quality material that it was made of; Very noisy.

Secondary Department Not effective as expected and Noisy; Ordinary fans are far better; Should be disposed of; Better ACs should be installed. Primary Department Temperature cannot be adjusted; Not effective at all and Noisy, even fans are better; Faulty pipe; No samples were provided and there was lack of physical check by the evaluation team. Finance and Accounts Noisy; Department Office fans serve better. Research and Data Noisy. Department Need immediate replacement.

Business and Technical Acs not yet installed. Dept

I indicated to management that in view of the foregoing, value for money could have been compromised.

In their response, management explained that they had since reallocated the air conditioners to the Printery for valuable use. In addition, management committed to ensuring that proper assessment of needs before requisitioning for procurements is to be undertaken going forward. I have advised management to ensure that theres is always a confirmation of needs before committment of funds, to avoid wastage of public funds through procurement of unrequired items. 115

b) Classic Paper

Classic paper was supplied to UNEB at a cost of Shs.12,992,000. However, during inspection of the stores, it was noted that less than a quarter of the reams had been used and no further use of this paper was evident. As a result, about 180 reams were lying idle at the printery stores. Also noted was that there was Braille paper that has been idle since its purchase. I explained to management that procurement of items in excess of requirements leads to wastage of public funds. The Accounting Officer regretted this anomally and explained that going forward, emphasis is to be put on users to make proper assessment of needs before requisitioning for procurements. I advised management to always carry out procurements based on proper planning and needs assessment and to also explore a possibility of disposing off the idle materials.

22.3 Nugatory Expenditure - Shs.10,493,780

It was noted that during the month of November 2011, UNEB recovered PAYE from staff amounting to Shs.171,934,019 through M/S Barclays Bank (U), for onward remittance to URA, vide cheque No. 001287 dated 11/11/2011. However, the funds in question were not remitted to URA by the Bank and the Cheque was later withdrawn by UNEB for cancellation. As a result of failure to remit the funds in time, URA recovered a sum of Shs.182,427,799 including a surcharge of Shs.10,493,780 from UNEB. I explained to management that payments of such penalties is considered nugatory as it could have been avoided. In their response, management explained that UNEB processed the payment on time (i.e. by 11/11/2011); however, Stanbic bank misplaced the cheque and did not remit it to URA thus causing the delay. It was further reported that management subsequently raised the issue with the bank and the cheque was eventually found and returned to UNEB. At the time of writing this report in March 2013, funds were not yet recovered from the Bank. I advised management to follow up the matter and ensure recovery of the funds from the Bank.

22.4 Lack of Annual Disposal Plan

It was noted that UNEB had many items/stores in various locations due for disposal but neither a compiled report, nor evidence of any disposal plan for non-serviceable items 116

were submitted to PPDA as required by the PPDA Regulations 2003. I explained to management that lack of a disposal plan could result into keeping assets that are impaired. Besides the continued failure to dispose off such assets also leads to further deterioration in their value and hence the possible proceeds from their disposal. In their response, management undertook to constitute a Board of Survey with effect from the financial year 2013/14 to identify assets for disposal on a periodic basis and make disposal recommendations to the Accounting Officer. I advised management to expedite this process and also ensure that they always comply with the PPDA Regulations.

22.5 Slow Moving Inventory

During the review, it was noted that there were slow moving stocks of 93,055 Maps as at year-end worth Shs.186,110,000 that had occupied a lot of space in the stores. Further examination revealed that only 1,273 maps were sold during the year. This could be attributed to some of the weaknesses observed during the Board of Survey carried out on June 30th 2012 as enumerated below:- Items being ordered for in large quantities when only a small number is needed for use, leading to wastage of both physical and financial resources. Some printery stock, especially spare parts are not priced because some of these items are very old and their prices cannot be readily established. Old/Used printery spare parts being kept together with useful/new ones. This contributed to differences between stock cards and physical stock. Some chemicals (ink) have over stayed in printery stores and they are expired and others are no longer needed, yet they still appear on the stock list. This gives a wrong impression about the condition and value of the existing stock.

By the time of the audit, there was no evidence that management was taking any action to address these matters raised in the Board of Survey report. I explained to management that this is likely to lead to additional losses to government.

In their response, management explained that the maps had accumulated over a number of years for both UCE and UACE as Schools no longer buy them because they retain maps provided during examinations for teaching purposes. It was further stated that the maps are still useful as past papers and that candidates will buy them for their own use as revision material. Additionally, the old and new spares were kept in one

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store due to inadequacy of the storage space but kept in separate boxes while the chemicals (ink) were supplied together with the printer machines for test running during installation. Management further explained that they had not used most of it because the bulk of the print work is black and white and that the necessary steps would be taken to dispose off all the items that are no longer useful.

I advised management to improve on stores management practices and to always maintain updated stock cards. Additionally, used spares should be kept in a separate location while all non-useful items should be disposed off, to free up some store space for other fast moving inventory.

23.0 NATIONAL CURRICULUM DEVELOPMENT CENTRE (NCDC) - YEAR ENDED 31ST DECEMBER, 2011

23.1 Un-recovered Debtors

A review of the trade and other receivables revealed that a total of Shs.578,323,708 remained un-collected by the closure of the year under review. Included in this figure is a sum of Shs.335,826,397 owed by a former Director who left the Centre in June 2002. The advance to the former Director arose out of a fraudulent transfer of the Centre‟s funds from M/S Pearson Longman and Macmillan accounts to his personal bank account number 8670587 with Barclays Bank Queensway, Nairobi-Kenya and it is reportedly still under Police investigations. Failure to promptly collect its debtors can lead to cashflow problems and also loss of the funds in question. This matter was also included in my previous report but management did not address my recommendations thereto.

In their response, management explained that the Centre‟s position on Shs.335,826,397 taken by the former director was that the matter was under investigatation by the police. However, no feedback had been received on the matter despite several reminders and visits to the Inspector General of Police. As for the other debtors, management further explained that staff debts are being recovered from salaries.

I advised management to increase its debt collection efforts and also consider approaching other investigative arms of government for remedial action regarding the amount fraudulently obtained by the former Director.

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23.2 Long Outstanding Royalties

NCDC pays royalties to authors whose books it accredits for publishing for use in educational institutions. However, included in the Trade and Other Payables balance of Shs.204,648,839 is a sum of Shs.125,803,368 worth of royalties due to various authors that have been outstanding since 1998. I explained to management that the continued non-settlement of this liability is likely to lead to litigation costs if the authors opted to seek legal redress. This matter was also included in my previous audit report but no action has been taken by management todate. In their response, management explained that the matter was presented to the Governing Council through the audit committee in its meeting held on 5th July 2012. Council agreed that the obligation should be settled in a phased manner.

I advised management to expedite settlement of the obligation as it pursues recovery of the diverted royalties from the former Director to avoid possibility of the authors‟ seeking legal redress.

23.3 Inconsistencies in the Accounting and Budgeting Periods

NCDC Act Cap 135 states that the centre's financial year shall be 31st December and the Centre has been following this accounting date. Section 28 of this Act requires the council to forward to the minister (the Minister of Education) for his or her approval the estimates of income and expenditure for the next financial year. However, estimates of the Ministry are prepared for the period July to June basing on the Government's fiscal year where Subventions which is the major funding source to the Centre come from. As a result, management produces budget estimates basing on the GOU financial year that ends 30th June which creates an overlap of 6 months. In the circumstances, analysis of the centre‟s trends in performance is rendered difficult.

Management admitted that the inconsustencies emanate from the NCDC Act 2000 as amended, which defines the Financial Year as the calender year. On the other hand, the Centre is dependent on funding from government. The team indicated that efforts have been made to harmonize the two accounting periods through the NCDC Amendment Bill that is currently before cabinet.

The eventual passing of the Amendment Bill is awaited.

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23.4 Budget Performance

Review of the budget performance revealed there was under expenditure on several budget lines during the year under review. These included the following:-

Activity Budgeted Actual Under Management Expenditure Expenditure expenditure explanation for (Shs) (Shs) ( Shs ) the variance

Development of P.4 1,290,346,900 324,973,000 965,373,900 Usual procedure text books in 7 local of panel languages i.e. identification Lebthur, Lubwisi, could not be Lululi, Aringa, used. Kupsabiny, Lugungu and Pokot Orientation of P.5 1,213,000,000 963,778,400 249,221,600 None teachers on P.5 curriculum countrywide Drafting Local The books are the Language Readers 350,920,200 272,680,000 78,240,200 first of their kind, not easy, so they took a long time than expected.

Editing local The books are the language readers. 178,487,250 149,490,000 28,997,250 first of their kind, not easy, so they took a long time than expected. Reviewing Local Long time of Language textbooks 65,327,400 45,270,000 20,057,400 development. and harmonizing illustrations to the content of the Readers Training of Master Unnecessary Trainers for P.7 150,000,000 117,304,000 32,696,000 demands by the curriculum District Officials

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Activity Budgeted Actual Under Management Expenditure Expenditure expenditure explanation for (Shs) (Shs) ( Shs ) the variance

Consultations with None stakeholders 150,000,000 123,800,500 26,199,500 (Southern region) on integrating Technology in the teaching of Mathematics and Science Stakeholders None workshop on 150,000,000 124,900,000 25,100,000 integrating Technology in the teaching of Mathematics and Science (Northern Region) Stakeholders None workshop on 150,000,000 124,900,000 25,100,000 integrating Technology in the Stakeholders None workshop on 150,000,000 128,220,000 21,780,000 integrating Technology in the teaching of Mathematics and Science (Central Region) Stakeholders None workshop on 150,000,000 126,950,700 23,049,300 integrating Technology in the teaching of Mathematics and Science (Western Region) Stakeholders None workshop on 150,000,000 124,900,000 25,100,000 Integrated Science with Technology Editing A‟ level None Syllabi 194,677,500 176,640,000 18,037,500 Finalizing A‟ level None Syllabi and 200,140,000 184,410,000 15,730,000 Teachers Guide

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Activity Budgeted Actual Under Management Expenditure Expenditure expenditure explanation for (Shs) (Shs) ( Shs ) the variance

Writing Orientation None Manual 12,710,400 5,220,000 7,490,400 for A‟ level Entrepreneurship Total 4,555,609,650 2,993,436,600 1,562,173,050

Under expenditure on budget lines implies that management did not fully implement all planned activities, which in turn impacts negatively on service delivery.

I have advised management to always ensure timely implementation of planned activities.

23.5 Status of Prior Year Audit Recommendations

The status of the matters pointed out in my previous audit report is summarized in the table below:- S/N Issue raised Status Addressed 1 Omission of Land and Buildings 2 Not addressed Un-recovered Debtors Not addressed 3 Long Outstanding Royalties Not addressed 4 Lack of Periodic review of the Strategic Plan 5 Not addressed Governance of the Centre

24.0 NATIONAL COUNCIL FOR HIGHER EDUCATION FOR THE FINANCIAL YEAR ENDED 30TH JUNE, 2012

24.1 Students‟ Contributions to the Council

Statutory Instrument No.17 of 2010 requires every student enrolled or intending to be enrolled and registered for the purpose of obtaining an academic qualification at a public or private university, other degree awarding institution or tertiary institution to annually pay one currency point (currently Shs.20,000) plus bank charges into the NCHE bank accounts as a pre-condition for registration and enrolment. It further states that no 122

institutions shall register any student who has not cleared his or her contribution to NCHE. At the time of reporting in Feb 2013, only 40 out of 135 institutions had complied with the above requirement. It was accordingly noted that out of the budgeted amount of Shs.1 billion expected from students, only Shs.904,068,675 was realised giving a shortfall of Shs.95,931,325 (about 10% of the budget).

I explained to management that failure to enforce the above requirement deprived Government of revenue that would have effectively enabled the Council to execute its mandate. In their response, management explained that an officer to handle the students„ contribution had been recruited and mechanisms of tracking these contributions stepped up accordingly. I therefore await for the outcome of this management action.

24.2 Inadequate Staffing

It was noted that the Council has for a long time failed to fill some of the key vacant positions as shown in the table below:-

S/No VACANT POSITION 1. Director Legal and Corporate Affairs 2. Director Accreditation and Quality Assurance 3. Director Finance 4. Principal Legal Officer 5. Principal Higher Educ. Officer – Universities 6. Principal Higher Educ. Officer – Other Tertiary Institutions 7. Principal Higher Educ. Officer – Lib & Resources 8. Principal Higher Educ. Officer – Data Analysis & Statistics 9. Principal human Resource and Administrative Officer 10. Senior Finance Officer 11. Legal Officer 12. Senior Human resource and Administrative Officer 13. Senior Principal Legal Officer 14. Principal Internal Auditor 15. Senior Internal Auditor 16. Principal Legal Officer 17. Human Resource and Administration Officer I explained to management that failure to have all positions filled, over stretches the existing staff and impacts negatively on their performance and the organisation at large.

In their response, management explained that with increased funding and adequate office space, all vacant positions will be filled to enable NCHE fulfill its mandate. I

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advised management to endeavor to have the vacant positions filled without further delay.

24.3 Delayed accreditation of Courses

During the year, it was noted that the Council did not fully implement its mandate as evidenced by failure to accredit some of the courses applied for, by some Tertiary Institutions. A case in point was Busitema University that applied on the 18th April, 2011 for accreditation of five study programmes for both Mbale and Arapai campuses as stated below:-

Bachelor‟s degree in Medicine, Bachelor of Surgery and Bachelor‟s degree in Nursing for Mbale campus;

Diploma in Crop Production and Management, Diploma in Animal Production and Management and Certificate in General Agriculture for Arapai campus.

Although the University developed five study programs for both Mbale and Arapai campuses as planned, the programmes were not accredited in time by the Council and could not be operationalized during the year. At the time of reporting (Feb.2013) after a

1 period of more than 1 /2 years, these programs were not yet accredited and there was no evidence that the University management had been advised on the progress. I explained to management that failure to accredit qualifying programs may force the Institutions concerned to resort to offering unaccredited disciplines rendering the marketability of the graduates difficult as they risk being shunned by potential employers.

In his response, the Accounting Officer explained that the programs under reference were submitted to the respective professional bodies for their input before they could be accredited and that this procedure is part and parcel of the accreditation process. He stated that Busitema‟s case is currently being reviewed and that procedures in place could delay a bit depending on the nature of the program applied for. I advised management to always communicate to the affected institutions so as to assist them to be aware of the progress of their applications and for proper planning.

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24.4 Lack of Operational Manuals/Policies

It was noted that during the year, the Council operated without a number of policies and operational manuals which are necessary for proper management of such an organisation. These included: Fraud Control policy, Risk management policy, Training policy and a Comprehensive Asset Management Policy. I explained to management that such policies are necessary for providing management with detailed guidelines for the operations of the different departments thereby ensuring effective and efficient service delivery. Besides their absence also implies that there is lack of a consistent and standardized way of performing certain operations and activities which may result into poor performance.

In their response, management indicated they will endeavor to put in place the stated policies as recommended. I therefore await for the outcome of this management commitment.

24.5 Weaknesses in the IT System controls

The council introduced an IT System for its operations. However it was noted that it lacks essential elements for effective and efficient software applications as indicated below:-

a. No IT System continuity and Disaster recovery plan in place; b. Information Architecture, Segregation of Duties, Data backup and stand by Facilities are missing; c. Information Systems and Network Administration functions are not adequately monitored by management. It was noted that the IT operations are handled by one person designated as a Higher Education Officer - ICT/Documentation implying therefore that there is no segregation of duties in the IT operations; d. Management did not carry out a risk assessment on the IT system and there was no evidence of continuous monitoring of IT resources to ensure efficient performance; e. No reports on computer usage have ever been produced and scrutinized by management; f. No evidence of the latest operational training to staff since training was last conducted in 2007. Moreover, the IT officer has had no training for the last 5 years. 125

I explained to management that the above weaknesses in IT controls expose vital information and Council equipment to a risk of loss in case the system crashed. In response Management explained that the Council procured backups and they are in place. I have advised management to strengthen its IT controls in order to maximise the benefits of using such a system as well as mitigate any risks that can occur.

24.6 Inadequate Assets Management Practices

A review of the Council‟s asset management controls revealed the following anomalies:-

a. The Fixed Assets Register was not regularly updated contrary to the requirements of the accounting manual. For instance; it lacked additions; the accumulated depreciation and net book value columns were not filled; and assets were not reconciled to the general ledger on a quarterly basis. It was also noted that records were not posted in a timely manner suggesting poor supervision and management‟s lack of commitment in this regard.

b. It was noted that the storekeeper could record, post, reconcile and manage the assets register contrary to best practice that recommends segregation of duties. This meant that there were no checks and balances in place and fraud and error could easily occur.

c. The Assets register is manually maintained yet the entity has all the facilities to enable the use of a computerized Register that would enhance accurate reporting and regular updates.

d. Although the accounting manual requires physical stock count to be carried out twice a year for all items in the stores, this was not done.

e. There were no monthly reports on suprise stock counts that should be carried out at least once a month contrary to Para 2.4.1 of the accounting manual; there were no monthly spot checks carried out on the biggest five items by value as required by the accounting manual.

f. There was no assets management Policy in place to guide staff; and

g. The store keeper lacked adequate qualifications and is not regularly supervised.

I explained to management that failure to strengthen controls in the management of assets may lead to misappropriation of assets.

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In their response management regretted the anomalies and promised to take appropriate steps to remedy the situation. I therefore await for the outcome of this management commitment.

24.7 Lack of a Chart of Accounts

It was noted that the Council does not have a chart of accounts. I explained to management that lack of a chart of accounts creates ambiguity in resource allocation and categorization of the accounts that may easily lead to over expenditure on some items.

In their response, management explained that although the tally system being used does not have an inbuilt provision for chart of Accounts, steps will be taken to provide for a Chart of Accounts. I advised management to expedite the process and have the chart of accounts in place.

24.8 Motor Vehicle Usage

During the year under review, it was noted that monthly vehicle reports were not prepared contrary to the motor vehicle control and tracking policy that requires preparation of vehicle reports at the end of each month. These reports should indicate among other details; total mileage per vehicle, total fuel consumed and repair costs. Besides, the Council does not use Fuel cards contrary to government guidelines. I explained to management that lack of monthly vehicle information reports may lead to failure to assess vehicle performance leading to wastage of resources.

In response, management regretted this anormaly and committed to have the weaknesses addressed going forward. I therefore await for the outcome of this management commitment.

25.0 NAKIVUBO WAR MEMORIAL STADIUM FOR THE YEAR ENDED 31ST DECEMBER 2011

25.1 Erroneous Reporting of Tax Deduction at Source

The Cash Flow statement reflects tax paid of Shs.11,790,018. However, this amount is not reflected in the income statement as taxation paid. Its genuineness was therefore not established. In their response, management explained that the amount was withheld

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at source by a client and paid directly to Uganda Revenue Authority (URA) on behalf of the Stadium and as such net income was recorded in the Income Statement. However, I explained to Management that this action resulted into understatement of revenue since the full amount was not recognized. I advised them to obtain evidence of remittance to URA of the amount in question and thereafter make the necessary adjustments to the accounts.

25.2 Excluded Outstanding Claim

The commentary in the final accounts shows that an outstanding claim of Shs.270 million with Kampala Capital City Authority in respect of 30% rental rebate for the Owino Park yard as at 31st December was excluded from the Debtors. This implies that the debtors‟ position is understated.

Management did not provide a formal response to this observation. I advised management to take up the matter with the Authority with a view of recovering the funds in question.

25.3 Misclassification of Reserves

A review of the Statement of Changes in Equity shows that the revaluation reserve of Shs.34,360,055,220 created when the assets were revalued in 2010 have been combined with the revenue reserves contrary to best practice.

In their response, management stated that the observation had been noted and promised to effect the adjustment in the year ending 31st December 2012.

Management was advised to adjust the accounts to reflect the true financial position.

25.4 Unpaid Corporation Tax

The Statement of Financial Position reflects a sum of Shs.12,650,926 as outstanding Corporation tax. It was noted that this amount has been outstanding for a long period of time. Failure to settle tax obligations promptly attracts penalties and interest as per the Income Tax Act.

In their response, Management attributed the non settlement of the obligation to URA‟s insistence to conduct a tax audit prior to acceptance of the payment, which tax audit has never been conducted. However, i was not availed any documentary evidence to

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support this explanation. I advised management to ensure that they settle the obligation henceforth so as to avoid continued accumulation of interest and penalties.

25.5 Nugatory Expenditure

It was observed that a total of Shs.18,546,688 was expended by the stadium, in respect of interest and penalties on delayed VAT payments as per the VAT Act. This expenditure could have been avoided if management was adhering to the stipulated deadlines within which to remit the related taxes.

I explained to management that their continued reluctance to settle tax obligations as per the laid down requirments is a deficiency which makes them liable to surcharge as per the provisions of Section 25 of the National Audit Act 2008.

25.6 Budget Performance

a) Lack of an Approved Budget

It was observed that although management availed to me a copy of the budget estimates for the year under review, there was no evidence that the said budget was properly approved by the Board of Trustees. Failure to have the necessary approval implies that the activities implemented during the year were irregularly undertaken by management. Additionally, the absence of an approved budget may lead to uncontrolled and wasteful expenditure. I have advised management to always ensure that an approved budget is in place to guide expenditure.

b) Excess Expenditure

It was noted that the Trust incurred expenditure amounting to Shs.375,577,714 during the year under review. However, according to the copy of the budget that was availed, an amount of Shs.338,300,000 was planned to be expended, leading to excess expenditure of Shs.37,277,714. There was no documentary proof of approval of the excesses expenditure. Management responded that the excess expenditure was incurred during the time when fire gutted the neighboring building. Management was advised to always follow the laid down procedures as per the Budget Act in case of any deviations from the original budget.

129 c) Non Implementation of Planned Activities

The following activities included in the stadium budget for the year under review were actually not undertaken:-

Area of Estimated Implementation Remarks Intervention Cost of Period investment needed 1 Furnishing of two new 15,000,000 Not done dressing rooms. April 2011 New Public Address System Not 2 6,000,000 June 2011 procured

3 Purchase of new Motor 18,000,000 July 2011 Not vehicles procured 4 Purchase of printer, CPU & Not Monitor 1,000,000 July 2011 procured

5 Repair of stadium (Labour Not done and materials) 3,000,000 August 2011 Total 43,000,000

Failure to implement all planned activities could lead to inability to fully achieve all the intended goals and objectives for the year.

In their response, management explained that the budget was based on an anticipated grant from government of Uganda which did not materialize. I have advised management to always endeavour to prepare realistic operational budgets and ensure that all planned activities are implemented accordingly. d) Under Collection of Revenue

A further analysis of the budget revealed that during the year under review, the Trust budgeted to collect a total of Shs.383,988,000 from various revenue sources. However, by the year end, actual collections amounted to Shs.316,214,495 hence leading to an under-collection of Shs.67,773,505 (about 18% of the budget). Failure to collect all the planned revenues could lead to insufficient cashflows to enable implementation of all planned stadium activities.

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I advised management to strengthen its revenue collection efforts in order to collect all planned revenues.

25.7 Lack of Chart of Accounts

Contrary to best practice, it was observed that the stadium did not have an approved chart of accounts. Failure to have an approved chart of accounts implies that there is no uniform guidance to staff on the recording and posting of financial transactions so as to ease the summarisation of such transactions during compilation of the financial statements. I have advised management to ensure that a chart of Accounts is compiled and approved by the Governing Board henceforth.

25.8 Governance Issues

a) Staffing Matters

It was observed that the stadium lacked a Human Resources Department. This implied that matters relating to human resource management may not be effectively handled in the absence of such a department. It was further noted that the Stadium neither had an approved establishment structure nor had all key personnel in place as exemplified in the table below:- Category of Observation and Recommendation Staff 1 Stores It was best practice to have an officer to manage stores in an entity. Personnel However, the stadium did not consider the post necessary and thus none was employed to handle stores issues. Lack of a stores officer renders stores vulnerable to misuse. 2 Estates An estates manager in an entity was meant to be responsible for Manager ensuring that infrastructure was properly used and adequately maintained. However, the stadium did not have such an officer in place. There was a risk that loss or misappropriation of assets may easily occur since there is no responsible personnel to account for it 3 Procurement The stadium did not have a Procurement officer to manage all its Officer procurements.

Management was advised to liaise with the relevant authorities so as to have an approved structure in place including all the key departments necessary to effectively manage the stadium.

b) Absence of Key Policies

It was noted that the following key policies were found absent at the stadium:- 131

Policy Purpose 1 Policies on fixed To guide in the management of the fixed assets of the assets stadium 2 Human resource To guide in the management of the human resources policies 3 Credit policy To guide in the effective management of the stadium‟s debtors

Absence of the above mentioned policies implies that management actions in the areas mentioned is haphazard, which may negatively affect the operations of the stadium.

I advised management to ensure that the above policies are compiled and oper1ationalised henceforth.

25.9 Review of Previous Year Audit Findings

The status of the prior year audit findings was as summarized below:- Audit observation Status at the time of audit 1 Understatement of oustanding VAT- Addressed Shs.276,404,082 2 Unsupported Expenditure Shs.22,500,000 Not addressed 3 Lack of a strategic plan Not addressed

4 Lack of an internal audit dept. Not addressed 5 The stadium has continued to be indirectly run by Management promised to present trustees who are also the only signatories to all the matter to the Board for bank accounts. Surprisingly, some of them are civil appropriate action although mandate servants in public entities where duty requires to implement the stadium activities is then to be available full time with no time left to derived from the Trust Act. manage the stadium Not addressed

6 Non maintenance of registers Not addressed

7 Debtors Not addressed a. Staff Advances – Shs.6,247,000 Staff debtors to the above tune remained oustanding by the close of the year. b. Uncollected sundry debtors- Shs.72,690,205 Sundry debtors in respect of revenue which was apparently collectible against legally enforceable contracts to the above tune remained un collected by the close of the year. Furthermore, the debt of Shs.270,000,000 in respect of unpaid rebates for the use of park yard market by KCC raised in the previous reports was excluded from the accounts without explanation 8 Non-remittance of Contributionsto the Sports Not addressed Development Fund

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26.0 MANDELA NATIONAL STADIUM LTD FOR THE YEAR ENDED 31ST DECEMBER, 2011

26.1 Failure to Prepare Financial Statements

Section 57(2) of the Memorandum and Articles of Association of Mandela National Stadium Limited requires the Company within three months of the end of each financial year to prepare and submit a statement of accounts to the Auditor General or a person appointed by him or her on his behalf for auditing. However, by the time of writing this report, the Stadium approved financial statements for the financial year 2011 had not been submitted for audit. I explained to management that this contravened the law.

I advised management to comply with the requirements of the law and have financial statements prepared.

26.2 Governance of the Company

a) Lack of Fraud Control Policy

It was noted that the entity did not have a fraud control policy and procedures in place to guard against fraud and provide guidance to what course of action to be undertaken in the event of fraud. Besides, there was neither an internal audit department nor a risk management system in place. In the absence of such policies the entity is exposed to a risk of financial losses which could impact negatively on performance.

In their response, management explained that an Internal auditor was recruited and would start work on the fraud control policy and risk management system and present them to the Board for approval.

I await for the outcome of management efforts.

b) Lack of an approved human resource manual

It was noted that the entity does not have an approved Human Resource Manual (HRM) and hence lack defined roles and responsibilities for its staff. For example, the Head of Finance was at the same time the cashier and also in control of store‟s issues. Also noted was the high rate of staff turnover and yet management had not taken any steps to establish the causes for possible solutions.

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I explained to management that lack of clear operational systems in place coupled with lack of an approved Human Resource Manual renders the management of human resources haphazard and ineffective which in turn constrains the operations of the stadium.

I advised management to ensure that the HRM is developed and operationalised.

c) Unapproved Organization Structure

During the review, it was noted that the organization structure currently in use has never been approved. I explained to management that failure to have an approved organizational structure implies that there are no approved lines of authority within the entity which can hinder the effective management.

In their response, management explained that a draft Organisation structure was formulated and presented to the Board. I advised management to liaise with the authorities to ensure an approved organizational structure is put in place.

d) Annual General Meeting

I noted that no Annual General Meeting (AGM) has ever been convened despite a requirement under Section 131 of the Company‟s Act. I explained to management that failure to hold an AGM for the Institution is not only a breach of the Company‟s Act but also deprives the various stakeholders of the knowledge about the entity‟s operations and opportunity to contribute and monitor its activities. In their response, management explained that arrangements are being made to hold an AGM before the end of 2013.

I advised management to ensure that an AGM is held in accordance with the requirements of the Act without further delay.

26.3 Management of Stadium Property

a) Unupdated Fixed Assets Register and Unengraved Assets

A review of the assets records during the year revealed that the fixed assets register was not well maintained. The register was not updated and the assets were not engraved. It was further noted that the stock taking list which was availed for audit did not have values attached. I was therefore unable to confirm the completeness of the stock taking lists and/or guarantee the security of the Stadium assets. 134

I explained to management that failure to update the fixed assets register of all stadium assets is likely to result in asset loss without detection. Additionally, non engraving of the assets renders them vulnerable to misuse.

In their response, management explained that efforts to put in place a fixed assets register have been frustrated by lack of financial documentation relating to the previous periods while the engraving of the assets was reportedly awaiting improvement in cash flows. I advised management to update the fixed assets regulary and have all assets engraved.

b) Squatters on the Stadium Land

It was noted that the Stadium land has a number of squatters whose status was not clear. While there was no memorandum of understanding seen between them and management, structures that appeared permanent had been erected. Besides, the list of all the squatters was not availed for review. I explained to management that the continued stay and development of stadium land by squatters may lead to loss of the land in question.

In their response, management explained that a comprehensive list of all squatters has been compiled and shared with the relevant authorities and that the Board has toured the land boundaries and is arranging a meeting with them.

I advised management to liaise with the respective stakeholders to ensure squatters vacate the stadium land without further delay.

26.4 Lack of an Approved Budget

It was noted that the company operated without an approved budget during the year under review. In addition, budgeting procedures were not followed as the user departments were never consulted while developing the budget. As a result, comparison between the actual expenditure and budgeted figures became difficult because of the non reliability of the source of the budgeted figures. I explained to management that execution of an unapproved budget may compromise the achievement of the Stadium‟s operational objectives.

In their response, management acknowledged the anomaly and stated that the subsequent budgets for the year 2012 was approved by the Board while the budget for

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2013 was to be presented to the Board for approval after the strategic plan has been put in place. I advised management to always ensure that budgets are appropriately approved before incurring any expenditure.

26.5 Unauthorized Interbank Transfers - Shs.173,706,000

During the financial year, it was noted that there were several transfers of funds involving Shs.173,706,000 from different bank accounts without any documented authority and no reasons for the said transfers were given.

Besides, maintenance of cash books was poor as collections were recorded in a cash book for a different bank account and deposited in another bank account in a different bank. I explained to management that there is a risk of funds being misused through such unauthorized interbank transfers without adequate documentation. Furthermore, it complicates the reconciliation process.

I advised management to always maintain cash books and carry out reconciliation of all accounts regularly. In the meantime, management should institute an investigation on the unauthorised transfers.

26.6 Irregular Payments Shs.114,179,825

It was noted that management paid Shs.114,179,825 to various individuals as commission for bringing business to the stadium. However during the review, the following anomalies were noted:

a. There is no policy in place regarding payment of commissions. No particular rate is applied to determine the commission. I explained to management that lack of a clear policy on commission is likely to result in the stadium losing funds that would have been put to good use.

b. Individuals or organizations paid were not disclosed and neither did they acknowledge receipt of the said funds. I explained to management that there is a risk that funds were fraudulently expended.

c. A payment of Shs.55,000,000 drawn on cheque 586484 was made to an unnamed officer liaising with Uganda police for the training of Somali police. This payment was made at the same time management was negotiating for an overdraft with Bank of Baroda, of shs.50,000,000. I was not availed documentary

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proof of justification for the payment, which could have saved enough funds to negate the need for a costly overdraft facility.

I advised management to make a clear policy on payment of commission and have it approved henceforth. Meanwhile, the above payments should be investigated.

26.7 Overdraft Facilities

During the financial year under review, management applied for an over draft (OD) of shs.50 Million basing on expected receipts from the Ministry of Education, Electoral Commission, UNDP, and police to offset the OD in a period of four months. However it was noted that there was no evidence that the OD facility was approved by the BOD. Besides, the OD that was to be serviced within a few weeks was not yet fully cleared as at the end of the financial year. I explained to management that lack of approval for such overdraft facilities against which the stadium incurs high rates of interest is likely to result in risks of litigation against the stadium by the bank.

In response it was explained that management is committed to clearing of the overdraft facility where a balance of Shs.32 million remained outstanding and that deposits onto the account were continuing. I advised management to endeavor to clear the overdraft facility to avoid litigation and further interest expense. Board‟s approval for such facilities should always be sought.

26.8 Unbanked Revenue - Shs.429,901,839

An analysis of the company‟s collections and bankings revealed that Shs.429,901,839 was utilized at source without being banked contrary to regulation 6.1 of the company‟s Finance and operational manual.

I explained to management that there is a high risk of misuse of funds under such circumstances.

Management acknowledged the anomaly and stated that some funds were banked while somewere spent at source. I advised management to always observe the financial guidelines and ensure funds collected are banked in the collection account intact. In the meantime accountability is awaited.

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26.9 Doubtful Delivery of Goods -Shs.63,837,320

Goods worth shs.63,837,320 were deliverered for consumption at the Mandela Hotel. However, it was noted that there was no proper documentation for requisitioning, receipts in the stores and eventual utilization. There is a risk that the expenditure may have been incurred for un-delivered goods or that the delivered goods were not consumed at the Mandela Hotel. I explained to management that the expenditure appeared doubtful due to the absence of any evidence concerning their receipt and utilization.

In their response, management explained that with the lack of a full management team in place, there was insufficient supervision and in many instances, proper documentation was not being done and as a result, copies of the documents requested were not prepared.I advised management to always abserve stores procedures and ensure stores ledgers are put in place.

26.10 Unaccounted for Funds - Shs.60,460,752

It was noted that shs.60,460,752 was advanced to various staff to carry out various official activities. However, the advances were charged directly to expenditure items contrary to best practice of creating advances accounts in the officers names until the funds are properly accounted for.

I explained to management that there is a risk that the funds in question may not have been expended for what it was requisitioned for.

In response, management explained that individuals concerned were being contacted to provide accountabilities after which the evidence would be presented for review.I advised management to ensure advances are treated as receivables until accounted for or recovered from beneficiaries at the end of the respective activity period. Meanwhile the above expenditure should be accounted for.

26.11 Dishonored Cheques -Shs.43,800,000

Pioneer bus limited made payments for rental space for the parking of their buses totaling Shs.36,000,000. However, the two cheques of Shs.16,000,000 and Shs.20,000,000 bounced. It was further noted that the dishonoured cheques were made good more than a year later on 15/02/2012 without any interest but less by shs.800,000

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on receipt number 780. In addition EAGCM also made a payment for Shs.7,800,000 by a cheque which also bounced. To date no payment has been made and there is no evidence of action taken by management to recover the said funds despite the fact that the stadium is resource constrained. In addition due to the absence of a cheque register, it is difficult to monitor the movement of cheques. Meanwhile, the cheque stubs were missing.

In response, management explained that efforts to collect from outstanding debtors is met with challenges especially in those cases where they do not have a permanent address but stated that a cheque register was now in place.

I advised management to always be vigilant in following up of all bounced cheques and ensure maintenance of a cheque register.

26.12 Review of Internal Audit Report for the Period 2008-2010

A review of the internal audit report by the internal audit of Ministry of Finance (Directorate of Internal audit), revealed a number of issues that reflected internal control weaknesses. It was noted that most of the recommendations given were not implemented by management during the year as detailed below:-

Audit Observation/Recommendation Current Status a Irregular recruitment and selection: In all staffing matters, relating to the employees of the stadium, No steps have been none of the vacancies were advertised contrary to sec 3.2 of the taken to regularize HR manual. It was noted this could lead to recruitment of recruitment. incompetent and unqualified staff. It was recommended that all posts be advertised in a manner consistent with the HR manual. b Lack of staff evaluation and appraisal None of the staff of the stadium had been appraised and No effort has been evaluated, a requirement before confirmation as per the Human taken on both Resource manual. evaluation and It was recommended that Regular appraisals and evaluation appraisal. should be done in line with HR manual. c Lack of and expired appointments: The appointments A number of staff were serving with no valid appointment letters have not been yet others had their contracts which had long expired but were regularized. still in service It was recommended that every staff be properly appointed. e Redundant staff One member of staff was redundant for long yet she still earned Not retired and still her salary. earns her salary. Management was required to explain why she was not retired. f Differing salary rates and increment Officers at the same level earn different salaries. A Hotel No applicable salary 139

Audit Observation/Recommendation Current Status manager at level 3 is paid shs 4,394,737 while another at the scale standards in same level is earning shs. 1,387,218. There was no policy in place. place regarding salary increments. There should be a standard rate of payments for all levels g Vacant Positions The HR Manual provides for the position of the Finance Manager These key Positions but has been occupied by the Accountant for two years in acting have not been filled. position. It also provides for the Internal Auditor which position has been vacant All positions should be filled. h Expired Acting capacities Some staff were serving in acting capacities for more than three Not implemented. months yet the HR Manual provides for only three. It was advised that all positions should be filled as soon as they fall vacant. i Unmatched qualifications with the job requirements: A number of staff were serving in positions they were not No scheme in place qualified for. A case in point is a procurement officer who was re- yet regarding staff designated as a cashier yet he had no requisite qualifications. placements. It was recommended that schemes of service to guide recruitment and placement of staff be put in place. j. Inappropriate Budgeting & budgetary control measures Lack of approved budgets as a tool for planning & control .The Not implemented. draft budgets were prepared but were not presented to the Board for endorsement, ratification and authorization All activities should be budgeted for & budgetary controls implemented. k. Unremitted Revenues by FUFA Failure by FUFA to remit the agreed percentage of revenue to No transparent MNSL. All matches handled by FUFA did not generate the system and policy in expected returns. A total of Shs.220,000,000 has not been place, not even remitted and revenues from the pitch board advertising & score agreements between board was never declared. The stadium lacked records regarding FUFA and MNSL. attendance of the stated games. Shs.220m not yet It was advised that the stated amount be recovered and all remitted by FUFA. necessary records availed for audit verification. l. Inconsistent rates charged for the use of the stadium. Lack of standard charges .The stadium did not have a No policy or system procurement policy of its facilities. Different clients were charged in place yet. differently for the same facilities e.g. ICPA, KPC, UPDF & All Saints all paid different amounts. It was recommended that a Policy on the use of the assets should be put in place and procurement guidelines followed.

I explained to management that failure to implement recommendations aimed at improving internal controls renders the entity vulnerable to mismanagement. I advised management to always implement internal audit recommendations for better performance.

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26.13 Status of Prior-Year Audit Issues and Recommendations

In my report to Parliament for the year ended 31st Dec 2010, I made recommendations on a number of observations that were raised. However, these have not yet been implemented by management as stated below:

Audit Issue Audit Issue and Current Status Recommendation 1. Outstanding tax It was recommended that tax Whereas management in obligations obligations are settled promptly their response indicated Shs.41,978,526 to avoid unnecessary penalties. that Shs.40m had been remitted, there was no documentary proof to this effect.. 2. Non-payment of It was recommended that Management reported that NSSF contribution prompt clearance of the only Shs.6.7m has been shs.638,830, 396 outstanding amounts to NSSF paid due to cash flow should be made to avoid constraints. unnecessary expenses in terms of interest and penalties. 3. Non remittance of The stadium management Outstanding 10% contribution should make plans to have the to the Ministry of arrears cleared and ensure it is EducationSports up to date with its remittances. Development Fund 4. Uncollected Management should make an Not implemented yet. receivables effort to have these shs.1,141,015,601 outstanding receivables collected to help in the development of the stadium and meet other outstanding obligations like payment of salaries and tax obligations that are in arrears. 5. Outstanding An effort should be made by Not fully cleared. payables management to clear the shs.892,365,987 outstanding payables to avoid litigation. Management should only enter into contracts it is sure of fulfilling. 6. Unaccounted for Management should liaise with Outstanding Goods cleared at the ministry of education to Shs.86,347,812 obtain all the relevant documentation relating to the above goods from the Chinese government.

I have advised management to implement the recommendations for improved service delivery.

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INFORMATION AND COMMUNICATION SECTOR

27.0 UGANDA PRINTING AND PUBLISHING CORPORATION - YEAR ENDED 30TH JUNE 2012

27.1 Statutory obligations

It was noted that UPPC has a tax liability to settle with the tax body-URA of Shs.1,761,532,794. In addition Shs.247,395,434 is also owed to NSSF in respect of social security funds contributions. This exposes the Corporation to penalties from the relevant statutory bodies. The issue was pointed out in my previous audit report but has still remained outstanding.

According to management, the liability has remained outstanding due to lack of funds. In addition, reminders have been sent to MoFPED but with no positive response. I advised management to keep liaising with the Ministry to address the corporation‟s obligations to avoid further defaulting and penalties.

It was further noted that the Corporation employs sales personnel who are paid on a commission basis monthly. However, no taxes are deducted from the payments made to the Sales personnel. Failure to deduct, file and pay Withholding Tax (WHT) from the sales representatives to Uganda Revenue Authority (URA) exposes the Corporation to penalties with the Tax body (URA). I advised management to comply with the provisions of the Income Tax Act to avoid unnecessary penalties.

27.2 Personnel files- Staff Appraisals

It was noted that staff appraisals are not undertaken regularly by the Corporation to assess performance of staff. For the last two financial years there was no evidence to show that this was undertaken. Without the appraisal of staff, management is unable to monitor the progress of staff and also to provide timely guidance in addressing any weaknesses and challenges.

Management was advised to ensure that the appraisals are undertaken regularly.

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27.3 Management of Fixed Assets

The Corporation acquired new assets like computers, office equipment and some plant and machinery worth Shs.14,715,150. However, it was noted that some of these assets were not engraved by the time of the audit. Failure to engrave assets hinders easy identification and may lead to their loss and misuse.

Management has promised to address the matter.

27.4 Non-approval & verification of expenditure by the Internal Auditor

According to the UPPC‟s financial manual, the internal auditor is required to verify payments made by the Corporation. However, the majority of the payments we reviewed during the audit were not verified/initialed by the internal auditor.

Sample of payments not verified by internal auditor: Date Cheque Amount Details Reason No./ Payment Voucher No. Not verified Payment for by the separate Internal 20/06/2012 007769 7,928,533 vouchers auditor Not verified 6,742,000 Payment for by the vouchers Internal 30/02/2012 007743 attached auditor Not verified 3,600,000 Payment of by the printing Internal 22/01/2012 007443 materials auditor Not verified 21/12/2011 007462 1,600,000 Hardware by the repair and Internal Maintenance auditor

Total 19,870,533

This weakens the internal control system and may result in unexplained expenditures being incurred and consequently misuse of Corporation‟s funds. 143

Although management explained that UPPC is a commercial entity whereby urgent payments can be made to avoid delays in the service delivery, internal audit mechanisms should not be viewed as deterrents to efficient operations. I advised management to comply with the manual.

27.5 Payment Vouchers not stamped “PAID”

It was noted that some of the cleared invoices and payment vouchers in the period under review were not stamped “PAID” as tabulated below;

Amount Unaccounted Date Cheque No. Details for Reason

13/06/2012 007765 Legal fees 2,252,000 Not Stamped paid Fuel and 13/06/2012 007750 Lubricants 3,239,850 Not Stamped paid

Total 5,491,850

Failure to cancel all paid vouchers and their supporting documents with the „‟PAID‟‟ stamp presents a risk of resubmission of the same document for duplicate payment.

Management was advised to ensure that all cleared Invoices and together with the payment vouchers are stamped “PAID.

27.6 Incomplete Bank Statements

At the time of the audit, the Corporation did not have complete bank statements for the account number 014/00/545163/01 of Stanbic Bank Corporate branch for the year ended 30th June, 2012. Only statements for the month of August 2011 up to June 2012 were available for our review. In absence of the statements it becomes difficult to undertake reconciliation statements and as such errors that may have occurred go undetected.

Management was advised to ensure that all the bank statements are obtained in order to facilitate the preparation of bank reconciliation statement.

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27.7 Status of Implementation of prior year audit recommendations

A review of the status of implementation of previous audit recommendations was undertaken and the status is indicated in the table below; Recommendation Status Rental agreement Not implemented A tenancy agreement should be written, between the owners of the property in this case the Corporation and a renter who desires to have temporary possession of the property. As a minimum, the agreement identifies the parties, property, and the term of the rental and the amount of rent for the term. A typical arrangement for tenancy will include a security deposit. Management should ensure that all tenants of the premises have copies of signed tenancy agreements and endeavour to obtain a security deposit from each tenant. Accounting software

Implemented The corporation should endeavour to programme the information accounting system to avoid misleading information and time consumption. Obsolete stock

Being Management should consider removing the obsolete stock from the implemented stores to avoid congestion and mix up in stores.

28.0 NEW VISION PRINTING AND PUBLISHING COMPANY LIMITED - YEAR ENDED 30TH JUNE 2012

28.1 Receivables

I noted differences between the underlying receivables listings and the general ledger trade receivables balances to the tune of Shs.7,744,395. The difference is as a result of system errors that are being rectified as can be seen from the prior year differences of up to Shs.49 million that have been reconciled down to Shs.7 million.

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Differences between the underlying listing and the general ledger balances may be used to facilitate fraud or prevent the timely detection and prevention of errors in the financial statements.

Management indicated that the causes have been identified and the new consultants are working on a total solution to eliminate this variance. The efforts had reduced the variance drastically by year end. Management should ensure payables and receivables balances are reconciled to the underlying receivables and payables listings preferably on a monthly or quarterly basis. Any discrepancies noted should be followed up and satisfactorily addressed.

28.2 Inadequate password parameters

Password restrictions to Navision and CIO365 which are the main financial applications are not as recommended by best practices. Restrictions on password length, password history and lock out duration are not enabled on the Navision.

Weak password settings can lead to unauthorised access to the system and this may cause unnoticed alterations that are reflected on the financial statements. Lack of strong password parameters increases the risk of password discovery through repeated access attempts. Weak password settings may be exploited to gain unauthorized access to the organization‟s network and applications resulting in potential loss of confidentiality and lack of financial data integrity.

Management explained that they contacted the service providers Akili-Africa for support on Navision password restrictions, but the support was not forthcoming. Akili- Africa finally closed business in Uganda and Microsoft appointed a new company (HRP Solutions U Ltd) to offer local support from July 2012. They further indicated that CIO was new software and they did not make stringent passwords for it because they were focusing on ensuring users get to terms with the new system first before locking it down. Otherwise it will be done from January 2013.

Microsoft customisation should be obtained so as to have the capability to enforce password restrictions in Navision and ensure settings for password restrictions are set as recommended by best practice.

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28.3 Status of prior year audit recommendations

The status of the recommendations contained in my prior year audit report is summarized as follows:-

Issue raised Remarks

1 Recievables Partly addressed as in 5.1

2 Inaccurate system computation of depreciation on Addressed Fixed Assets

3 Errors in inventory valuation Addressed

4 Compliance with procurement procedures Addressed

5 Access security – inadequate password parameters Not addressed

6 System audit trail reviews Not addressed

7 Data Centre and Network operations Not addressed

8 Logical system access – lack of review of super use Not addressed activity

29.0 UGANDA COMMUNICATIONS COMMISSION - YEAR ENDED 30TH JUNE, 2012

29.1 Lack of follow up of Debtors and Increase in Recievables

Contrary to the provisions of the Finance and Accounting Manual, Shs 17.4bn was outstanding up to 60 days and no debt recovery procedures were taken as prescribed in the manual. Further, it was also noted that trade and other recievables increased from the previous year‟s balance of Shs.15,423,396,326 to Shs.25,373,755,277 (a 64.5% increase) at the end of the year under review, indicating inadequate debtors‟ management. There is a risk of loss of funds under trade debtors.

Management responded that they have undertaken vigorous debt collection mechanisms. I await the outcome of the Management efforts.

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29.2 Provident Fund

It was established that Uganda communication Commission did not open up Provident Fund Account to manage the deductions made during the year. At the close of the year there was a balance of Shs.424,828,849 payable to the Provident Fund and this money was still held in the operational account of the Commission. There is a risk of misuse of staff savings under the circumstances.

Management in their response claimed that this was due to the delay in registration of the Fund due to changes in the Pension Act 2012. The Provident Fund has now been registered and the bank account opening is in progress.

I advised management to ensure that the account is opened to avoid comingling of funds.

29.3 Unpaid Corporation Tax – Shs.29,394,038,994

Shs.29,394,038,994 is a balance of funds payable to URA as Corporation tax. The Commission has continued to accumulate such tax obligation without settling the amounts due with the tax body. Delayed or non-remittance of taxes denies revenue to the Treasury and may lead to surcharges from the tax authority.

Management explained that the outstanding tax amount relates to the period from 2005 – 2012. The accumulation of taxes arose due to a court case with URA which had been ongoing since 2005 and had not been concluded by June 2012. However an agreement has now been reached between Uganda Revenue Authority and Uganda Communications Commission and a Consent Judgment entered between the two organizations

I advised management to ensure that they honor their commitment to avoid further litigation costs.

29.4 Signatories to the Corporation Bank Accounts

It was established that current Executive Director who is the Accounting Officer is not a signatory to the bank Accounts despite the fact that the Financial Manual provides for

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the ED to be a signatory together with other two directors. Such limitations may lead to utilisation of resources without the consent of the Accounting Officer.

In responses management explained that the board is yet to pronounce itself on the matter.

I advised that the Executive Director is the Accounting Officer and as such responsible for the financial resources and stationery as such he should be a signatory.

29.5 Operational Bank Accounts

The entity operates 8 (eight) bank accounts from which payments were drawn during the year. It was however noted that no account was specifically maintained for revenue collection to enable track all the revenues of the Commission. Instead the revenues are banked in operational accounts. It was also observed that the number of bank accounts is on a high side and as a consequence Shs.16,850,449 and US$ 9,636 was incurred as bank charges.

I advised management to maintain a reasonable number of bank accounts in order to minimize on the bank charges and risks that may arise from operating many bank accounts.

29.6 Lack of IT Strategic Plan

It was noted that the entity did not have an IT strategic plan. The IT Strategic Plan would provide guidance on the objectives to be achieved on IT for a given period. It would also guide on the activities to be undertaken to achieve the stated objectives.

In absence of an IT Strategic Plan activities are undertaken in unco-ordinated way leading to wastage of resources.

I advised management that a strategic Information Technology plan should be developed which takes an integrated view of the technological and financial investment requirements of ICT systems across the entity.

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30.0 THE BROADCASTING COUNCIL - YEAR ENDED 30TH JUNE 2012

30.1 Debtors‟ Management

It was noted that outstanding debtors Shs.391,141,389 remained uncollected at the end of the year. There is a risk of loss of funds under debtors.

Management explained that following the merger of UCC and UBC, the UCC Finance department together with the Legal department has embarked on debt collection.

I await the outcome of this process.

31.0 UGANDA INSTITUTE OF INFORMATION AND COMMUNICATIONS TECHNOLOGY - YEAR ENDED 30TH JUNE, 2012

31.1 Lack of Internal Audit Function

It was observed that the Institute does not have an internal audit function contrary to Public Finance and Accountability Regulations 28 and 29. This is likely to lead to poor entity risk management, monitoring and poor control environment.

I have advised Management to ensure that an Internal Audit unit is established and staffed with appropriate personnel.

31.2 Inappropriate IT Application Systems

a) Acquisition of Solomon‟s Accounting Software

The institute purchased Solomon‟s accounting software without proper review of the business process. Such a review would have taken into account both the users‟ requirements and aligning it to the institute‟s business processes. It was further noted that the few staff who were trained in using the system left the institute and yet the institute has also not been getting user support from the vendor due to financial constraints.

I advised management that future IT solutions should be undertaken after proper study of the processes to ensure that they address the Institute‟s requirements.

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b) Acquisition of School Master

On realizing that Solomon does not meet the Institute‟s business requirements, the Institute further acquired another application system, School master, mainly to deal with capturing student records. However, school master could not interface with Solomon software for purposes of information sharing.

I advised Management to link the two systems together in order to have the IT process properly aligned to harness the benefits of the applications.

31.3 Lack of a Training Plan

The Institute sponsors several of their staff for training in a bid to foster career development. However, the institute did not prepare a training plan to indicate the intended training activities, budgets and expected training outputs for the period. As such, the expenditure on staff training was based on individual staff applications rather than an approved training plan.

Lack of a training plan may lead to duplication of trainings, undertaking training that does not support the strategic objectives of the institute and failure to attain value for money from the trainings undertaken.

Management in response stated that the issue is going to be addressed in the near future.

I advised management to ensure that periodic training plans are prepared and approved by the training committee before implementation.

31.4 Un-filled Positions

The Institute‟s approved establishment requires total staff strength of 98. However, at the time of audit only 46 (47%) posts were filled. Some of the vacant posts such as Deputy Principal, Principal Lecturers are crucial for the achievement of the objectives of the Institute and for effective internal controls.

Management in response stated that the process of filling staffing gaps had started and that the few remaining vacancies will be filled as soon as the financial position improves.

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I advised management to liaise with the Council to ensure that the staffing gaps are filled.

32.0 RURAL COMMUNICATION DEVELOPMENT FUND (RCDF) - YEAR ENDED 30TH JUNE, 2012

32.1 Provident Fund

It was established that Uganda communication Commission did not open up Provident Fund Account to manage the deductions made during the year. At the close of the year there was a balance of Shs.8,651,212 payable to the Provident Fund was still held in the operational account of Uganda communication Commission.

There is a risk of misuse of staff savings under the circumstances.

I advised management to ensure that the account is opened and made operational.

32.2 Signatories to the Corporation Bank Accounts

It was established that current Executive Director who is the Accounting Officer is not a signatory to the bank Accounts despite the fact that the Financial Manual provides for the ED to be a signatory together with other two directors. Such limitations may lead to utilisation of resources without the consent of the Accounting Officer.

In responses management explained that the board is yet to pronounce itself on the matter.

I advised that the Executive Director is the Accounting Officer and as such responsible for the financial resources and stationery as such he should be a signatory.

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33.0 UGANDA NATIONAL COUNCIL FOR SCIENCE AND TECHNOLOGY (UNSCT) 30TH JUNE 2012

33.1 Appointment of UNCST Governing Council and Executive Committee

Section 6(1) and (2) of the UNCST statute 1990 provides for a Governing Council appointed by the Minister of Finance Planning and Economic Development (MoFPED) and section 13 of the same Act provides for existence of the Executive Committee appointed by Council from among the members of the Council. However it was noted that the term/tenure of the governing council expired in 2006 and UNCST has been operating without a Governing Council and an Executive Committee since then.

The Accounting Officer explained that UNCST notified the Appointing Authority and that the process of appointing a new Board had been initiated.

The outcome is awaited.

33.2 Unacknowledged Remittance of PAYE and 6% WHT to URA

Shs.64,637,500 in respect of PAYE and WHT did not bear proof of remittance to URA as no acknowledgement receipts were presented for verification during the audit. This was contrary to the provisions of the Income Tax Act and there is a risk of incurring penalties and interest under the Income Tax Act.

The Accounting Officer explained that the delay in remitting of funds to URA was occasioned by the delay to release funds by Government. However, on receipt of funds from Government, UNCST remitted the taxes to URA.

I was not able to verify the above remittance. I urged management to follow up on acknowledgement receipts to ensure proper accountability of tax payments.

33.3 Delayed Accountability for Funds under IFS Project

USD 9,291 was advanced to John Richard Okukei as research fees to cater for project activities under the grant agreement including equipment; US$2,200, supplies; US$2,750, travel; US$2,800 and salaries; US$2,030. Despite the fact that the funds were paid in August 2011, accountability was not presented for audit.

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The Accounting Officer explained that this is a unique scenario because research is conducted on river Kagera in Tanzania and the researcher had been reminded to account for the funds.

I advised the Accounting Officer that funds are recoverable from the officer in absence of accountability.

33.4 Incomplete Research of Artemisia/Artavol Malaria Prevention Beverage Project under IFS Project

The general objective of this research was to develop Artemisia annual-avocado powder–lemon grass beverage (tea) and carry out community trials of the tea in selected villages in Uganda with a view to control malaria through a tea that boosts human host defense against malaria parasite invasion and multiplication in man. It was observed that the development of product into granules for tin and sachet packaging was completed. However; deliverable 7 (Report on the impact of the product on malaria and poverty at household level in trial communities) was not achieved.

The Accounting Officer explained that the activity was not carried out due to lack of funds.

I urged the Accounting Officer to liaise with the various stakeholders and ensure that the activity is completed to avoid wastage.

33.5 Phytolacca Dodecandra (PD) Project - Unimplemented Activities

The main objective of the project was to eradicate rector borne diseases caused by water snails through Industrial Production of Phytolacca Dodecandra. Although the final Project product (SNAILTOX) had been used successfully in final trials on livestock farms in Mbarara, the following project deliverables were partially or not implemented at all:

i) The construction of laboratories had not been undertaken and an office for the project had not been completed. In addition, no appropriate equipment had been installed as per set project deliverables. ii) The factory for processing P.D products and stores had not been constructed. iii) Scientists from Uganda and other countries were yet to be trained.

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iv) Vital procurements like the milling machine and related equipment for processing Snailtox were not yet procured. v) Although Article xvi (insurance) of the research agreement between the council and the researcher (Principal investigator) provides for comprehensive insurance of research vehicles, motor bikes and selected IT equipment, the principal investigator explained that these items are not insured.

In addition, it was noted that although the contract agreement was signed on 22nd July 2007, it was for the period from 1st July 2006 to 30th June 2011 implying that for the F/Y 2006/2007, the research project was running without a formal agreement.

The Accounting Officer explained that a follow up is being made with MOFPED to secure funds to complete activities.

The outcome is awaited.

33.6 Inadequate Projects‟ Funding

During the year under review, it was observed that various projects‟ approved budgets funding were not fully released. Details in table below:

Project Funding Approved Actual Shortfall %age Source Budget receipts Integrated Intelligent Computer GOU 4,962,590,180 2,017,000,366 2,945,589,814 40.6 Malaria Larvae Research Project/ Malaria Endod GOU 900,000,000 653,423,191 246,576,809 72,6 Artemisia/Artavol Malaria Prevention Beverage Project GOU 8,706,940,000 1,971,643,959 6,735,296,041 22.6

Failure to obtain all expected revenues implied that the entity could not fully undertake the projects‟ planned activities. There is a risk that these projects may not achieve their objectives which leads to wastage of resources already committed.

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I advise the Accounting Officer to continue pursuing the funding matters with the authorities.

34.0 MILLENNIUM SCIENCE INITIATIVE (MSI) PROJECT IDA CREDIT NUMBER 4174 – UG 30TH JUNE 2012

34.1 UNCST Head Office Operations

a) Non Deduction of Tax (WHT)

Section 119 (1) of the Income Tax Act (ITA) require a government institution, local authority or any company controlled by government making a payment exceeding one million shillings for supply of goods or any materials of any kind or for supply of any services to withhold tax on the gross amounts of payment at 6% and subsequently remit it to URA.

Contrary to the above provisions of the law, WHT amounting to Shs.13,687,003 was not deducted for onward remittance to URA as shown below;

Particulars Amounts 6% WHT Certificate 3 for Renovation of labs MUK Kabanyoro - 92,400,072 5,544,004 Cereal PJT Design & print of 2011 NSW materials 21,970,000 1,318,200 75% Accommodation facilities19-23 Sep NSW 2011 113,746,650 6,824,799

TOTAL 228,116,722 13,687,003

Failure to withhold tax may attract penalties from the tax authority.

I have advised management to ensure timely remittances of deducted taxes to URA to avoid possible penalties.

b) Contract approval by Attorney General

It was noted that UNCST signed a contract with a construction company for renovation of laboratories at Kabanyoro contrary to Section 225.2 (f) of the PPDA which requires

156 contacts to be approved by the Attorney General prior to signing with the service provider.

Management explained that this contract was presented to the Solicitor General but after evaluating the issues raised by SG and considering the time taken to get a response they decided to proceed with contract in accordance with the contracts committee minutes.

I informed management that the practice is irregular as the Solicitor General in the circumstances did not give a final clearance of the contract.

I advised management to always adhere to the procurement law. c) Unsigned Ethical Forms

The PPDA Regulation 169(9) provides for every member of the evaluation committee to sign the code of ethical conduct in business using PP form 211 in the ninth schedule, declaring that he or she does not have a conflict of interest in the procurement requirement. However it was noted that a number of procurement evaluations were undertaken without members of the evaluation committees signing the ethical code of conduct forms. Details of procurements with unsigned ethical code forms Name Of Provider Description Of The Contract Contract Price China Nanjing International Limited Renovation of laboratories at Shs.214,755,398 Makerere University College China Nanjing International Limited Renovation of Pathology Shs.48,156,944 laboratory and animal house at Makerere University Faculty of Veterinary Medicine Labomedifam Supplies and Technical Supply of Cryostat Euro 21,726 Services Jos Hansen &Soehne GmbH Supply and Installation of Euro 82,679.30 laboratory equipment-molecular Biology Performance Furnishings Limited Supply and installation of office US$161,278.19 furniture Smart International Services Limited. Supply & installation of 100 KVA US$36,500 diesel Generator

This could undermine the principle of transparency while under taking the evaluation of submitted bids. I advised management to always ensure compliance with the requirement in all the procurements. 157

34.2 Creation of Program of Bachelor of Science in Biosystems Engineering Project

a) Registration of Project Vehicle and Tractor

UNCST procured a motor vehicle, tractor and its trailer which were handed over to Gulu University. However, it was noted that motor vehicle registration number UAA 866F and tractor registration number UAJ 326X together with its trailer number UAL 059 were procured and registered in UNCST names.

Failure to transfer the vehicle and tractor in the University names makes it difficult for the University to take full responsibility.

Management explained that the process of online registration is already on for both the tractor and the Project vehicle. I await the outcome of management efforts.

b) Delayed Installation of Equipment

The University requested for various workshop tools and equipment which were procured and delivered by UNCST. These workshop tools included; 600watts drilling machine stayer; Arck welding machine BX 1-400; Pipe bending equipment (not entered in Assets Register); Drilling machine 12 speed Drills Cap. 25mm, Motor 750w, Vol 220- 240V/50h2, chunk 16mw.

However these tools have not been installed for utilization, despite having been delivered more than two years ago. The delay in installation was attributed to lack of a workshop structure where the equipment could be installed. This is an indication of lack of proper planning as the workshop should have been constructed prior to acquisition of the tools.

I have advised project management to liaise with the University administration to ensure that a workshop is constructed to enable installation and utilization of the tools.

c) Utilization of the Laboratory

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It was noted that the Bio systems laboratory in Gulu University which was funded under the project was not being utilized after its construction being completed in September 2011.

Management explained that the original plan did not have a provision for gas and water lines and indeed, the BOQs valued at shs.303,919,455 (VAT exclusive) for the construction of the laboratory did not include a provision for gas and water. The budget for gas and water lines was being funded by the University using local sources, hence the delay in finishing the work. The University has promised to address this issue in line with the project.

I advised that the completion of this facility be expedited to have the facility functional.

34.3 Supporting Establishment of a New Undergraduate Degree Programme in Textile Engineering project

a) Lack of Project Cash book

It was noted that a cash book for the period under review and monthly bank reconciliations were not prepared. I was therefore unable to confirm the accuracy and completeness of the cash/bank balance.

I advised that the project cashbook is kept and maintained in accordance with the financial guidelines of the project.

b) Diversion of Project Funds

Review of the project bank statement revealed that Shs.50,000,000 was transferred to Busitema University subvention account number 014001483690 and had not been refunded by end of the financial year. Diversion of funds contravenes the financing agreement and negatively affects implementation of the project planned activities.

Management explained that this was an error by university management. The university bursar and university secretary were newly appointed and were not acquainted with the project management procedures. Management reported that this error was corrected and the money was banked to the project account. 159

The evidence of banking was not availed to me. I have advised the project management to ensure that project funds are refunded to the project account. c) Delayed procurement of Laboratory Equipment

According to the Grantee‟s budget and work-plan, laboratory equipment and machinery worth USD 290,140 was approved for the project. However, it was noted that equipment worth USD 134,190 had not been delivered as planned by the time of the audit, (November, 2012).

Management explained that UNCST was in advanced stages in the procurement process of the remaining laboratory equipment worth USD 134,190. However on 13th April 2012 the PI wrote a letter to the Executive Secretary to stop the procurement of the remaining equipment stating that the equipment that had been procured was sufficient and the funds be used to cater for other critical areas of the program. I was not provided with an explanation on how the procurements in process were to be utilized. I advised management to verify the matter with the PI so that the extra equipment can be put to proper use. d) Over expenditure on student supervision expenses

According to the approved work-plan, a sum of Shs.3,053,500 was budgeted for industrial training supervision. However, review of expenditure records revealed that Shs.14,825,700 was paid to cater for the supervision. This was above the budgetary provision by Shs.11,772,200. There was no evidence to show that there was a budget revision to allow for this overspending. The over expenditure might have affected the achievement of other planned activities.

Management explained that due to delay in delivery of laboratory equipment from UK, the Project was allowed by UNCST Management to improvise and fulfill student‟s training program. Third year (pioneer) students urgently needed their practicals and the most suitable place identified was Moi University Textile Factory (Rivatex East Africa) for intensive practicals.

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Management was advised to ensure that there is controlled spending within the budget provisions to avoid suffocating other project planned activities.

34.4 Untangling the Biology of Groundnut Rosette Virus Complex and Mechanisms of Resistance to the Disease project

a) Undelivered Laboratory Equipment

At the time of the audit (November, 2012) a number of laboratory equipment and tools in the approved budget worth Shs.80,385,000 that had been planned for delivery in the first year of the project had not been delivered.

Management explained that the delay in procuring laboratory equipment for Round 3 MSI Grantees was generally due to the short fall in funding. The project was initially intended to fund two rounds of research grants but a third round was added as a result of savings made from rounds one and two plus the unallocated project funds. However, after consultations with all the grantees in August 2011, grantee budgets were reviewed, adjusted and procurement of laboratory equipment was approved. Contracts for supply of laboratory equipment were signed on 11th December 2012 and the latest equipment delivery date is expected to be March 2013.

I have advised UNCST management to ensure conclusion of the procurements before the project is closed.

34.5 Study of Trypanosoma in Post Conflict Districts of Adjuman, Amuru and Moyo in Northern Uganda - Gulu University

a) Advance payment Shs.2,500,000

The review of payments revealed that an advance payment of Shs.2,500,000 was made to a student to enable purchase of a personal laptop. The advance was supposed to be recovered from the student‟s stipend. However the funds have since not been recovered. In addition, an advances ledger was not opened to enable tracking of recoveries.

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Management explained that the amount could not be recovered since the students‟ stipend had not been paid by the time of audit. It was indicated that the money is to be recovered on January 2013 when the student‟s stipend is expected to be paid.

I have advised Management to ensure that funds are recovered from the student before the project closes in February 2013. b) Over expenditure on field research allowances

According to the approved work-plan, Shs.66,850,000 was budgeted for field research allowances. However, it was noted that a sum of Shs.199,487,000 was spent on this budget item leading to excess expenditure of Shs.132,637,000 which was not authorized. This could have affected the achievement of other project planned activities.

Management explained that due to inflation, the cost of field activities went up. Similarly, the reduction of the project period meant that activities had to be accomplished within a short period. This did not affect achievement of the project planned activities since the budgeted amount had to be front loaded in order to suit the adjusted period. Management further explained that due to delay in delivery of reagents and equipment some of the reagents required for field data collection had to be acquired as well as simple equipment. This amounted to about USD 60,000.

I advised management that all changes to the workplan should be documented and approved. c) Undelivered Laboratory Equipment

Review of the approved work-plan indicated that tools and equipment worth USD 200,000 had been planned for delivery in the first and second year of the project. However, it was noted that by the third year and near to the close of the project, the tools of the equipment had not been delivered.

reviewed, adjusted and procurement of laboratory equipment was approved. Contracts for supply of laboratory equipment were signed on 11th December 2012 and the latest equipment delivery date is expected to be March 2013.

I advised UNCST management to expeditiously conclude the procurements before the project is concluded.

34.6 Rural Electrification Project in Uganda - Makerere University

a) Absence of the Principal Investigator

During the inspection exercise, it was observed that the Principal Investigator to this Project was based in Nairobi. This was contrary to the terms and conditions of the agreement between UNCST and Rural electrification Project, which placed the responsibility of supervision and monitoring of the project activities on the PI directly.

The absence of the PI and lack of close and direct oversight of the project implementation implied that the capacity to supervise this project was hampered.

Management explained that the PI had been doing some collaborative research in Nairobi but often monitored the project implementation. UNCST was made aware of this arrangement.

I advised management to ensure the project is implemented as provided in the agreements.

34.7 Mango Fruit fly Project - Kawanda

a) Diversion of Funds

Review of payments for the period under review revealed that Shs.10,406,380 was paid for an activity that was outside the project work-plan. The funds were used by NARO to facilitate a trip to Israel for Caroline Nankinga in Agribusiness, post-harvest Marketing and Project Management Course from 2nd to 16th May 2012. This practice could have affected implementation of project planned activities.

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Management explained that the funding for this activity was erroneously charged on MSI. The funds were subsequently refunded on the project account.

However evidence of refund by NARO was not provided to me. I have advised the PI to ensure that the diverted funds are reimbursed to the project account.

34.8 Malaria Vaccine Development Project

a) Deduction of Statutory Payments

The staff under Malaria Vaccine Development Project were paid salaries, however, statutory deductions in respect of PAYE and NSSF were not effected from the various employees for remittance to the relevant authorities. This was contrary to the requirements of the Income Tax Act and NSSF Act. This irregularity could attract fines and penalties from the authorities.

Management explained that the statutory deductions were outstanding due to late release of funds.

I advised the Principal Investigator to comply with the provisions of the Income Tax and NSSF Acts to avoid unnecessary penalties.

b) Doubtful Advances to Staff

On the 20th December, 2011, the Principal Investigator was paid a sum of Shs.53,000,000 to his personal bank account, without stipulating any project activity to be under taken. Further interviews revealed that this payment was a refund to the Principal Investigator in respect of funds he had advanced to staff for their allowances at the time when he was awaiting for releases from UNSCT. However, there was no evidence that the staff had received money before from the PI. There is a risk that the funds could have been deposited on the PI personal account for personal gains.

Management explained that it was ascertained that this was a refund to the PI who had used his personal funds to pay staff due to over delayed funds.

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I was not availed with the details of documentation for verification. The funds there still remain unaccounted for.

34.9 Carcinogenic Genital HPV Surveillance study Project

a) Unaccounted for Funds

Shs.39,886,560 was advanced to project staa to undertake research activities in June 2012. Verification of accountabilities attached in support of the payments revealed that a balance of shs.11,340,000 had not been accounted for.

Failure to account for funds is contrary to the financing agreement which requires effective control and accountability for funds, property and other assets. In addition, I was not able to confirm that the Shs.11.3 Million was used for intended activities.

I have advised Management to ensure that funds advanced are promptly accounted for as required by the financing agreement.

35.0 NATIONAL INFORMATION TECHNOLOGY AUTHORITY-YEAR ENDED 30TH JUNE 2012

35.1 Delay to Approve the Financial Management Manual

Under Section 11 of the NITAU Act the Board is required to put up appropriate governance structures and formulate Policy guidelines for the Authority development and adoption/approval of manuals. It was noted the financial management manual that was developed by a consultant had not been approved by the Board. This creates operational risks on part of management due to lack of guidance/reference for undertaking certain activities.

Management in response stated that the Board differed the approval of the financial management manual pending the ongoing amendments in the Public Finance and Accountability Act 2003 to ensure that the finance manual does not contradict the PFAA. Management further stated that the Board will be requested to consider approving the manual as an interim document.

I await efforts being made to have an approved financial manual in place.

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35.2 Lack of an automated Financial Management System

The Authority did not have an automated financial management system for the preparation of the financial statements. In the year under review the processes for generation of financial statements were purely manual and this led to late submission of the accounts and need to produce a number of versions due to errors.

In response management stated that in the past it was not possible to have an automated system due to inadequate funding, but that currently they were undertaking procurement of an ERP system which will automate its business processes including the financial management system.

I advised management to consult with the Accountant General on the procurement of an appropriate Accounting software.

35.3 Incompatible Toner Cartridges

Inspection of the stores, revealed that there were toner cartridges that had been lying in the stores for some time ever since they were handed over by the Ministry of ICT. According to Management, these types of cartridges were used in older machines and could not be used because they were incompatible with the newly purchased machines. Arrangements are under way to have the toner cartridges disposed off in the near future.

I advised management to expedite the disposal to avoid further deterioration.

36.0 UGANDA POST LIMITED – 30TH JUNE, 2010

36.1 Financial Statements

a) Cash and Cash Equivalents

An analysis of the cash and cash equivalents (under note 5) shows that although cash at hand is reflected as Shs.276,500,130 as at 30th June 2010, the cash count sheets for all the District Post Offices (DPOs) reveal a figure of Shs.69,665,054. No explanation was given for the resultant variance of Shs.206,835,076. Similarly, the reported bank balance of Shs.605,967,290 (under the same Note 5) is also at variance with the verified and reconciled bank balance of Shs.30,606,803. No alternative audit procedures could be 166 undertaken to ascertain the genuineness of the amounts reflected as cash and cash equivalents. There is therefore a risk that the amounts in question are not fairly stated. b) Understatement of Inventory Balance

Included in the statement of financial position was an inventory balance of Shs.338,330,026. However, a review of the stocktaking report revealed that stamps received from a stamp supply centre worth a resaleable value of Shs.18,852,375,907 and stamps received worth Shs.492,843,000 from other Posta outlets across the country, as well as obsolete/damaged stock worth Shs.377,543,990 were excluded and not disclosed. In addition, a review of Note 6 further revealed that Aerogrammes valued at Shs.374,375,000 during the stock taking exercise was reflected as Shs.13,453,780 in the financial statements leading to an understatement of this account balance by Shs.360,921,820. No satisfactory reasons were provided to me for this inconsistence. c) Prior year Adjustments

Included in the statement of Changes in Equity is a prior year adjustment of Shs.1,049,505,000, while in the cash flow statement, another Shs.1,098,160,000 is also reflected as a prior year adjustment. In both cases, neither a disclosure nor supporting documentation have been provided to explain the reasons as to why these amounts are reflected in the two statements. I was therefore unable to satisfy myself as to the genuineness of these amounts. d) Share Capital Balance

A review of the statement of financial position and Note 15 revealed that 779,487 authorised ordinary shares valued at Shs.25,000 each were issued and fully paid for Shs.19,487,175,000. However, there is no evidence of share certificates issued to justify this figure. In the absence of evidence of issued share certificates, I was unable to confirm the accuracy of the balance reported in the financial statements.

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36.2 Asset Management

a) Lack of Approved Assets Management Manuals/Policies

Inspection of the premises and Company documents revealed that the Company has Assets/Properties ranging from Land, Buildings, Motor vehicles and furniture. However, the Company does not have approved Manuals/Policies in place for their protection and streamlined management. I was, therefore unable to ascertain how the assets owned by the Company are being managed without these procedural manuals/policies. I have advised management to expedite the approval process of the manuals/ policies in order to ensure that, the assets are well managed.

b) Land and Buildings

A review of the document in relation to the company land and buildings revealed the following matters:- Valuation of Land and Buildings IAS 16 requires that assets are revalued regularly if an entity chooses to use the revaluation model. Included in the statement of financial position as the value of property, plant and equipment is an amount of Shs.26,975,069,000. It was however noted that the Company land and buildings were last revalued in 2003. In absence of the valuation reports in support of regular valuation exercises and an updated assets register, I could not confirm that the balances of Property, Plant and Equipment as well as the related depreciation charge are fairly stated in the financial statements. In their response, management explained that revaluation of land and buildings will be undertaken during the financial year 2012/2013.

Non Attachment of Values to some Properties (Land and Buildings) It was noted that the Company owns land and buildings in 43 different parts of the Country. However, scrutiny of the related asset schedules revealed that some of the land and buildings included in the schedules did not have values attached to them. Failure to attach values to all the company assets in the schedules implies that their value is not fairly reflected in the financial statements. Management explained that a firm of surveyors has been engaged to assess the condition of the various properties and therefore update the register accordingly.

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Registration of Land A review of the schedule for properties owned by the Company revealed that the Company owns land in Atiak for which it does not have a land title rendering its status/ownership doubtful. Lack of a title to the land in question exposes it to a risk of loss to unscrupulous individuals.

Management explained that Atiak is not in the statutory instrument used to transfer assets and liabilities at the creation of UPL (The Uganda Communication Transfer of Assets and Liabilities instruments, 1998). Management further stated that it was currently engaging the Local Authorities to formalize the acquisition of the land at Atiak. I have advised management to expedite the process and ensure that they obtain the title for the land in question without further delay. c) Motor Vehicles

The company has operational vehicles and separate unit of buses that ply various routes across the country. However, the following matters were noted:- Movement log books were not availed. The bus business had no properly analysed records of their financial performance as to justify the existence of the unit. The Company does not have a monitoring and motor vehicle management policy. There were notable high maintenance costs of up to Shs.755,240,000,000 during the year under review and high rates of breakdowns. There were no properly maintained records on each vehicle regarding repairs and maintenance including all financial and non-financial information for review.

The above matters imply that the Company does not properly manage its motor vehicle fleet in accordance with the regulations and best practice. This may result into misuse of the company vehicles and un necessarily high maintenance costs.

Management was advised to ensure that adequate controls are put in place to safeguard all company vehicles from misuse.

In their response, management explained that a fleet management policy has been introduced to address the concerns. Management further stated that the fleet which was dilapidated had since been replaced. 169

36.3 Revenue Collection

Audit of Revenue for the year under review revealed the following shortcomings:-

a) Unbanked Revenue – Shs.325,056,831

During the financial year under review, Posta Uganda Management budgeted to collect a total of Shs.14,341,374,136 from all its revenue sources. However, examination of records revealed that a total of only Shs.9,035,612,650 (representing 63% of the budget) was collected/receipted, of which only Shs.8,710,555,819 was banked, leaving a balance of Shs.325,056,831 unbanked and unaccounted for.

Audit further noted that amongst the revenue sources which disclosed material variances between receipts and banking included the following:-

Source Receipts ( Shs.) Banking (Shs.) Unbanked (Shs.)

Post Shop 113,144,400 99,280,200 13,864,200

Post Bus 885,163,000 644,121,500 241,041,500

Failure to account for all receipted revenue may imply that the funds in question were misappropriated.

In their response, management explained that the process of reconciling the receipts and banking was ongoing.

I advised management to institute strong internal controls in revenue collection and ensure that all receipts are promptly banked intact. In addition, accountability for the unbanked revenue should be provided or else have the unbanked revenue recovered from the responsible officers.

b) Poor Record Keeping

It was noted during the audit that some daily revenue collection records reflect deferring revenue collections, from that which is recorded in the revenue ledgers. For example, weekly Post Bus Revenue records reflect a total of Shs.806,135,700 for the entire

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financial year, whereas Post Bus collections receipted in the revenue ledgers show an amount of Shs.888,121,500, thus creating an unexplained difference of Shs.82,076,800.

I explained to management that poor record keeping can lead to errors and omissions, going undetected to enable corrective action to be made.

Management was advised to institute proper record keeping system to enable maintenance of proper revenue collection records. In addition, the above errors in the recording of the Post Bus revenues should be investigated and concluded.

c) Uncollected Box Rentals – Shs.474,746,050

According to revenue records, it was established that during the year under review, management should have collected a total of Shs.2,023,280,000 from Box Rentals country wide. However, only Shs.1,548,533,950 was collected. The unrealized revenue amounting to Shs.474,746,050, was not explained. Furthermore, no box rental ledgers were maintained to establish the defaulters and accrued revenue for the year. In their response, management attributed the above to the fact that the company did not realise full capacity due to damaged boxes which could not be rented out and also lack of effective demand especially for upcountry offices as well as defaulters.

However, i was not availed any documentary evidence in support of these reasons made by management. I advised them to ensure that adequate documentation is maintained including ledgers to allow for proper reconciliation and follow up of rental fees from this revenue source.

36.4 Expenditure

a) Cash withdrawals - Shs.616,680,344 and US$.118,098

A review of a sample of expenditure records indicates that the company withdrew huge sums of money in cash purportedly to settle day-to-day obligations. However the following matters were noted regarding payments amounting to Shs.616,680,344 and Us$.118,098:- Several transactions lacked appropriate supporting documents to enable their review and verification.

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There were no policies of cash limits and eligibility criteria of what can be drown in cash or not. There were no cash limits to control cash transactions. There was no insurance cover or any form of security for those that were handling cash. Cash spent on Procurement of items had no evidence of deliveries in the stores, since they were not taken on charge, and lacked Goods Received Notes. All services rendered to the company by individuals and firms, were never certified by competent personnel in order to rule out shoddy works or none delivery. Cash spent on salary advances to staff had no evidence of recoveries, since no salary advance ledger was availed for verifications.

I informed management that Cash payments are potentially risky as they are prone to abuse. I advised management to come up with sound internal controls that will ensure security and proper cash management in the Company. Management was further advised to provide proper accountability for the funds in question. b) Unvouched Expenditure

It was noted that payment vouchers amounting to Shs.231,571,212 were not availed to me for verification. In absence of the vouchers in question, it was difficult to ascertain the purpose to which these funds were put. There is a risk that amount in question could have been expended on unlawful purposes. By the time of compiling this report, management had not yet provided to me the documentation in question. I advised Management to always ensure that all payment vouchers are properly filed as required by regulations and to also provide the expenditure vouchers in question for audit verification. c) Doubtful/Fictitious Expenditure

A total of Shs.404,952,822 was paid to individuals and firms purportedly for supply of goods and services. However, the records of the payees in the books of the Company and those of the actual payees in the bank were at variance. It was not clear how the cheques drawn in other payees‟ names (individuals and firms) were drawn in the names of bank agents. This practice is highly suspicious and potentially fraudulent. Management explained that the matter was being heard in the anti-corruption court. 172

d) Limitation of Scope Grant US$.61,400

A total of Us$.61,400 was received by the Company as a grant from the Universal Postal Union. However, our request to have the accountability documents and a report regarding its utilization provided for verification was not honoured as these were not presented at the time of audit. Accordingly, I was unable to confirm that the funds were put to proper use. Failure to properly apply and account for donor funds could affect the relationship with the donor community thereby adversely affecting the image of the company.

I advised management that donations should always be applied in accordance to the set objectives and be duly accounted for on a timely basis. I further advised management to provide accountability for the funds in question for audit verification.

e) Improperly Vouched Expenditure – Shs.1,074,411,526

A sample of payment vouchers was examined. We noted that payments worth Shs.1,074,411,526 were incompletely vouched as they lacked appropriate supporting documents. Improperly vouched expenditure may imply that the funds in question may have been fraudulently expended.

Management should put in place proper internal controls in the payment process to minimize possibilities of mismanagement of the company‟s resources. In addition, the above expenditures should be investigated further to ascertain whether they were genuinely incurred for the intended purposes.

36.5 Procurement

a) Doubtful/Fictitious Procurements (Shs.393,339,891)

Documents availed for audit indicate that whereas the Company processed documents in the names of the firms that had business with it, the documents in the Banks bore different names. A review of the minutes of the Contracts committee revealed that the firms in question, that were paid a total Shs.393,339,891, neither had evidence of contract awards nor their company profiles. The details of firms are as follows:- Uganda Proper Tyres, Uganda Christian Suppliers, 173

Vision Dot Com, Technology Associates Ltd and Southern Business Solutions There is a risk that the above procurements were fraudulent.

Management was advised to investigate the expenditure to ascertain its authenticity.

b) Procurement of a Station Wagon 4 Wheel Drive – Us$.65,905

The procurement of a station wagon was awarded at a cost of JPY.6,195,104 (Us$.65,905). Although the vehicle was delivered and registered, there was no report from the mechanical Engineer or a verification report to confirm that the type of vehicle that was delivered was the one specified and that it was in sound mechanical condition. Furthermore, there is no evidence that clearance was obtained from the Office of the Solicitor General as required by the PPDA regulations for contracts above Shs.50,000,000. I have advised management to always adhere with the PPDA regulations.

36.6 Accounting Package

It was noted that the Company procured and installed an accounting package called PASTEL. However the procurement of this package did not go through a proper software acquisition or development process. As a result, management did not secure software warranty to hedge against the possibility of failure during its initial operations and there were no arrangements for service support by the supplier.

Although management explained that the software was installed over a period of time and that it is comfortable with its operations, I advised that systems acquisition should always be carried out such that they meet the intended objectives and that mitigating factors are provided to reduce on the risk of systems failure.

36.7 Corporate Governance

a) Failure to Convene an Annual General Meeting

It was noted that the Company never held a Shareholders‟ Annual General meeting (AGM) during the year under review. According to the Memorandum and Articles of

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Association, the shareholders are the Minister responsible for Works (1 Share) and the minister responsible for Finance (999,999 shares). However, it was established that the Company operationally reports to the Minister responsible for Information, Communication and Technology ICT). Management explained that the Articles of Association specifies the supervising Minister as that of the ministry of ICT.

I have advised management to ensure that the AGM is always held as specified in the Articles of Association and to liaise with the responsible authorities to ensure that its reporting responsibilities are harmonized.

b) Policy Manuals

It was noted that Policies such as Fleet and Transport Management Policy, Estates Management Policy, Inventory Management Policy and other related Policies were not in place. Although management explained that they are in the process of having them approved, the continued delay in having them in place implies that the Company lacks adequate guidance in the management of the company‟s resources. Meanwhile, a review of the accounting manual revealed that it is full of extracts of various International Financial Reporting Standards (IFRS). There was nothing to guide management on operation and internal controls that would mitigate risks and safeguard the assets of the Company.

Management was advised to expedite the approval process and to also ensure that the accounting manual is reviewed to make it more useful to the users.

36.8 Strategic Plan

A review of the strategic plan revealed that there were no mechanisms for monitoring and evaluation of performance. In addition, there were no physical outputs to be delivered and set implementation timelines for the activities included in the plan contrary to best practice. It was accordingly noted that no evaluation was done to assess the extent of achievement of the set objectives in the strategic plan.

Lack of proper monitoring and evaluation mechanism may lead to poor plan implementation and hence failure to attain the intended strategic objectives.

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Management was advised to ensure that mechanisms are put in place to enable proper monitoring of strategic plan implementation.

36.9 Human Resource Issues

a) Payroll Management

It was observed that there is no clear division of roles between the Finance and Human resources departments regarding payroll management. As a result there was a clash of duties in the origination, processing, verification and payment of salaries and wages.

Management was advised to streamline the operations of the two departments with regard to their responsibilities in management of the payroll.

b) Restructuring Project

It was noted that the Company carried out a restructuring exercise between 2008 to 2011. It was explained that the exercise was carried out after a Human Resource Functional Study and analysis report that was intended to align the organizational structure to the Company‟s strategic plan 2008-2013. The following issues were noted:- The Human Resource Functional Study and analysis report was not provided for review. The exercise was intended to get an optimal human resource base that was expected to scale down the numbers of staff from 380 to 299 However, by the close of the exercise, the numbers had instead increased to 453 as shown below:- Pre restructuring Expected Actual /Post Variance after restructuring 380 299 453 154

However, justification for the increase was not provided. The exercise dragged on for 3 years causing cost escalation hence loss to the organization. A total of 224 staff in various categories were dropped. However, no capacity building programs were conducted that would have helped them either to retain their jobs or cope with life outside the company after loss of jobs. Emotional and psychological needs were not taken care of. 176

Best practice demands that fair criteria be used and that relevant information be availed to former employees and their Unions. While staffs were made aware of the intentions of the exercise, they were not told that numbers were actually to go up. There were no job specifications and as a result 54 new employees indicated that they were dissatisfied with their new jobs and quit.

The above matters imply that the recommendations of the report appear not to have been fully implemented by management despite having incured the the related consultancy costs. I have advised management to ensure full implementation of the recommendations of the report so as to maximise value for money from the consultancy in question.

36.10 Provisional Tax Returns

It was noted that provisional tax returns for the year under review were not submitted to Uganda Revenue Authority as required by the Income Tax Act. Besides, the final income tax returns for the year ended 30th June, 2010 that were due for submission on 31st December, 2010 were also not submitted to the tax body.

Failure to comply with the Income Tax Act may result into imposition of penalties and interest by URA.

37.0 UGANDA BROADCASTING CORPORATION (UBC) - YEAR 30TH JUNE 2012

37.1 Statement of Financial Position

The Corporation‟s fixed assets are reflected as Shs.42,072,377,000 in the statement of financial position. However the Corporation did not maintain a fixed assets register during the year under review to enable track the Corporation‟s assets. Furthermore, no revaluation was undertaken contrary to IAS 16 which requires regular revaluation of assets. It was also noted that the general ledger record for the non-current assets and documents relating to title of ownership of the stated assets were unavailable.

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Schedules for assets additions during the year amounting to Shs.4,718,155,000 were also not availed.

I was therefore not able to determine whether Assets of the Corporation are fairly reflected in the statement of financial position, and whether the assets are owned as stated.

Management explained that a revaluation process was on-going and land titles for UBC land are being processed by Corporation‟s Lawyers.

I advised management to expedite the revaluation process and the updating of the fixed assets register.

37.2 Trade and other Payables – Shs.10,384,556,000

It was observed that the Corporation owes Shs.10,384,556,000 to trade creditors (Shs.4,751,886,000) and other creditors (Shs.5,632,670,000) and does not have credit management policy in place. Furthermore the incoming invoice records were not availed for verification. I was therefore unable to verify whether the payables with regard to amounts and existence.

I advised management to ensure that all documents relating to payables are properly kept and filed for future reference.

37.3 Cash and Cash Equivalents

It was observed that there were disparities between the reported balances and cashbook balances amounting to a net value of Shs.579,698,004 which were not explained. The details are in the table below;

Title Of Balance per Balance per Variance No Account Cashbook Financial (Shs) (Shs) Statements (Shs) 1. DFCU Account 490,274,881 605,892,000 (115,617,119) 2. ORIENT Account 0 255,000 (255,000) 3. UBA Account 472,803,712 33,582,000 439,221,712 4. STANBIC Account- 406,248,411 107,937,000 298,311,411 Dollar 5. STANBIC Account- 41,963,000 (41,963,000) MEGA Fm 178

TOTAL 1,369,327,004 789,629,000 579,698,004

Management in response explained that historically the opening balances in the cash book figures have not been accurately reconciled and that this financial year, they have tried to perform reconciliations but still have short falls due to non-availability of historical information.

I advised management to undertake proper reconciliation to support amounts reflected in the financial statements.

37.4 Trade and other Receivables - Shs. 4,585,286,000

It was observed that there was neither the debt management policy nor the bad debt management manual in place contrary to the provision of the Corporation‟s accounting manual. A total of Shs.317,944,000 represents receivables aged between 90-120 days, while receivables aged over 120 days amounted to Shs.2,745,960,000 reflecting unsatisfactory collection system. As noted in the previous report, collection of proceeds from the sale of land was still remote. For instance no collections were made out of Shs.400,000,000 collectable from M/s M&B Engineers. Lack of proper debt management policy can result into credit and liquidity risks. I also noted laxity on the part of management in ensuring outstanding amounts due are collected.

I advised management to develop a proper debt management policy aimed at minimizing tying the corporation funds in debtors and also losses through bad debts.

37.5 Advances

Personal Advances to Sales Executives Sales Executives are responsible for soliciting business and follow up on clients‟ payments. Therefore, Sales Executives are freelance commission earners and not corporation staff. However, the Sales Executives were being treated like full time employees of the Corporation enjoying personal advances that would only be granted to full time employees.

According to their appointment letters, Sales Executives are entitled to a weekly advance of Shs.70,000 which is deductible from their payments and such advances should be given upon submission of business proposal to the Managing Director. Examination of 179

the advances on the Commission‟s Ledger revealed that besides the weekly advances, other advances were also made to Sales Executives. As a consequence it was noted that out of Shs.56,357,536 in form of outstanding advances to sales executives, Shs.47,753,375 remained unrecovered from Sales Executives who left and no longer have any business with UBC.

Advancing money to sales executives in anticipation of making recoveries from the sales commission poses a risk of losing funds in the event that they cease to do business with the Corporation. Therefore, the recoverability of Shs.47,753,375 is uncertain.

I advised management to make recovery of the outstanding salary advances and ensure strict observance of the Human Resource regulations regarding management of staff salary advances.

37.6 Governance

i. Absence of Board/Directors and Senior Management The entire Board Members of UBC were suspended by the line Minister in charge on account of financial impropriety and their cases are still being investigated by CIID and Anti-Corruption Court. It was further noted that His Excellency the President appointed the Permanent Secretary Office of the Prime Minister to act as a caretaker. The current Managing Director, Human Resource Manager, Marketing Manager, some sectional heads and a number of other staff are also in acting capacity. Because of lack of a Board, the following have not been undertaken; The budget estimates for the year 2011/2012 were not approved by the Board. All policies, procedures and manuals are in draft form with no Board to approve them. No approvals on investments (for funds not required for immediate use) have been undertaken.

Management explained that the Minister responsible is unable to appoint a new Board of Directors without dismissing the old Board as they are on suspension pending the outcome of the cases which are before court. Termination at the moment would lead to litigation and probable financial loss to UBC.

I await the outcome of the pending court cases.

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ii. Absence of an approved IT Policy The Corporation has heavily invested in the Information and Communication Technology (ICT). However it was noted that the Corporation has not developed an IT strategic plan. The information security policy available is still in draft form pending approval by the Board. Without an approved IT/information security policy and IT strategic plan that aligns the IT requirements to the UBC Strategic plan, there is a risk of making investments in IT that are not well aligned with other business processes and objectives of the Corporation which could lead to wastage of resources.

Management stated in response that there is a draft IT Policy in place pending approval by the Board of Directors. I advised management to table the IT policy as soon as the Board of Directors is in place

iii. Absence of Fraud Control Policy It is best practice in organizations that fraud control policies are put in place. These should be documented and disseminated to all staff to avoid risk of fraud. However, during the audit it was observed that a fraud policy was not in place. Lack of documented fraud control policies could result in failure to prevent and/or detect fraud or taking appropriate action where fraudulent acts have been identified in the organization.

I advised management develop a fraud control policy as soon as the Board of Directors is in place.

iv. Absence of an Approved Salary Structure and Job Descriptions The Corporation's Human Resource Regulations 2006 section 5.1 (2) state that 'Salaries paid to staff shall be in accordance with the salary scales approved by the Board for the corporation'. However, during the audit I noted these were not in place. Human Resources practices require that employees are recruited based on approved job positions, clear job descriptions, and relevant qualifications and paid according to salary scales approved.

Management explained that they are currently in the process of developing a revised salary structure and is working with departmental managers to improve staff job 181

descriptions which will then be presented to the BOD for approval. I await the outcome of efforts being made to have an approved salary structure and job description in place.

37.7 Internal Audit Department

i. Understaffing of Internal Audit Department During the review of the Corporation‟s organizational structure and staffing of internal audit department, it was noted that the department is under staffed. There is only one staff in the department and is also not sufficiently qualified to head the department. It was noted that the acting head of internal audit did not produce reports throughout the financial year under audit. No training plan and budget were made for audit staff during the year. There was also lack of appraisal on the adequacy and effectiveness of internal control systems and this could easily lead to loss of Corporation assets and misstatements/errors in bookkeeping.

Management explained that the recruitment process is underway to adequately staff the department. I advised Management to expedite the recruitment process.

ii. Record Keeping Generally the record keeping in the Corporation is inadequate. The Subsidiary ledgers and records relating to Cash and Bank balances were not reconciling throughout the year though attempts were made to that effect. Both the receipts and payment vouchers lacked the accounting classification codes. The details of monthly revenue collections and targets set for agents were not availed to correlate with the Commission of Shs.482,370,777 paid to the agents.

It was also observed that the Corporation does not have a comprehensive list/register of all its various sources of revenue. Management was relying more on the database made by Commission agents which data was also not availed for audit verification. Relying on sales executive records is risky.

Management in response stated that all revenue sources are projected in the annual budget and are documented. I advised management to establish proper accounting records that should account for the Corporations revenue and expenditure. Regular reconciliations should be undertaken.

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37.8 Procurement and Expenditure

Procurements without adherence to PPDA Regulations It was noted that procurements worth Shs.1,082,013,409 for Goods, Services and Works were undertaken without competitive bidding comtrary to PPDA procuring and contracting procedures. The procurements were in violation of regulations. There is a risk that payments may be made for poor quality goods, services and works and/or at exorbitant prices.

I advised management to strictly adhere to procurement regulations.

37.9 Unaccounted for Expenditure

Shs.25,011,500 paid to staff for execution of activities and payment of allowances while attending meetings remained unaccounted for. The respective payment vouchers lacked necessary support documents such as invoices, receipts, activity reports, statements of fuel consumption and acknowledgement by recipients of allowances. I was therefore unable to verify whether the expenditure was actually spent on intended activities.

I advised management to open up personal advance accounts in the names of officers who failed to account for their administrative advances and recover the amounts involved.

37.10 Corporation Motor Vehicles

i. Absence of Vehicle Maintenance Service Charts/Register Paragraph 16.17 of the UBC Finance and Accounting Regulations requires the Finance Department/Transport Officer to maintain an operating records/register for each vehicle to record its history, performance, servicing, overheads and repairs among other things, in sufficient details for periodic assessments to be made of its performance compared to its cost of up keep.

It was noted that the Corporation neither maintains the vehicles‟ operating record nor a general repair register to record all repairs done on vehicles and spares used. In absence of the records, periodic assessment of vehicles performance compared with their cost of maintenance cannot be undertaken. In addition, funds may be lost through recycling vehicles for similar repairs. 183

I advised management to put in place operating records for each vehicle to enable monitoring of maintenance costs.

ii. Internal Assessment of Vehicles Shs.32,101,133 was paid to various service providers in respect of repair works without formal requisitions for the repairs. It was further noted that, UBC has no internal mechanism in place for a competent Engineer to carry out internal assessments of vehicles that are due for repairs. According to the acting transport officer, repair needs were mainly based on the assessment done by the respective drivers and service providers‟ mechanics. No post vehicle repair inspections were done to confirm that repairs were done as specified in the Repair orders. Payments were based on the drivers‟ assurances on the repairs.

I advised management to have in place a technical officer to assess the requirements and repairs undertaen on the corporation‟s vehicle fleet.

iii. Grounded UBC Vehicles According to the motor vehicles allocation and operational status from the Acting Transport Officer, UBC has 7 grounded vehicles verified beyond repair four of which are currently being kept in various garages and the remaining three are kept at the Broadcasting House. The said vehicles have been grounded for a long time without being disposed of. Failure to dispose of the grounded vehicles can result into incurring Storage costs especially those vehicles kept in garages, loss in value of the vehicles due to depreciation and theft of vehicle parts due to insecurity in the garages.

Management in response stated that all the grounded motor vehicles were not officially transferred to UBC by the office of the President and so they could not be disposed of in their current state. Management further stated that arrangements were underway to transfer the logbooks to UBC and after which they would be disposed as procedures demanded.

I await the outcome of the process to dispose of the grounded vehicles.

37.11 Borrowing from Capital Account for Recurrent Expenses

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It was noted that Shs.500,000,000 was borrowed from the Capital expenditure Account no.01063500184513 held with DFCU Bank to a recurrent expenditure bank account no.0109000017 held at UBA Bank. However, there was no evidence to show that the borrowed funds were returned to the capital account in DFCU. It was also noted Shs.600,000,000 from sale of land borrowed in the previous year was not refunded.

Scrutiny of the documents relating to the transaction revealed that the funds were borrowed to bridge the gap for working capital of the Corporation, however, it was noted that the funds were spent on Salaries (Shs.250,000,000); Utilities-UMEME (Shs.100,000,000); URA Taxes (Shs.80,000,000); and payments of Commission to sales executives (Shs.70,000,000). The working capital gap was not explained by management.

The diversion of funds to recurrent expenditures without appropriate authority affected the implementation of development programs.

I advised management that authority should be sought before such expenditures are incurred.

37.12 Statutory Deductions

Non-remittance of PAYE and WHT- Shs.716,968,757 While computing the net pay for the UBC staff, it was noted that a total of Shs.716,968,757 was deducted and withheld from salaries as PAYE as required by the Income Tax Act. However, the funds were not remitted to the Uganda Revenue Authority. Non-remittance of taxes is a violation of the Income Tax laws which may lead to fines and penalties.

Management was advised to comply with the tax laws to avoid the associated penalties.

37.13 Unaccounted for VAT – Shs.1,514,830,672

It was noted that UBC charged and collected from its client 18% VAT on receipts. However, while recording into the income ledgers the net amounts were recorded. Consequently, the VAT amounts were not recorded in the Corporation records, and the VAT that was collected was not remitted to URA. As a result, VAT invoiced amounting to

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Shs.1,514,830,672 remained unaccounted for. In addition, I did not obtain evidence that UBC was a VAT registered collector.

There is a risk that the funds collected as VAT were not used for the intended purposes.

Management was advised to remit the VAT to the tax authority.

37.14 Non-remittances of 15% NSSF Deductions – Shs.489,373,143

During the year, the Corporation failed to remit Shs.489,373,143 to the National Social Security Fund (NSSF). This was an amount of 15% due to the fund out of 5% staff contributions and 10% Employer‟s contributions from staff salaries and wages as indicated below:-

Annual 5% NSSF deducted = Shs.163,124,381 Add 10% Annual Employer contribution: = Shs.326,248,762 Total 15% Due to NSSF for the year Shs.489,373,143

It was also noted that unremitted contributions to NSSF increased from Shs.990,082,000 for the previous year to Shs.1,399,490,000 for the year under review. This exhibits an increasing laxity in adhering to statutory requirements. Failure to remit UBC‟s NSSF contributions may result into diversion of the funds to other use and risks of deprivation of retirement benefits when employees retire.

Management was advised to remit NSSF deductions in accordance with the NSSF Act.

37.15 Non-acknowledgement of WHT Deductions- Shs.218, 723,859

A total of Shs.218,723,859 was deducted and withheld from suppliers as required by the Income Tax Act. However, there is no evidence that these deductions were received by the Uganda Revenue Authority as there were no acknowledgement receipts for the remittances. It was also noted that the Corporation failed to deduct Shs.40,192,305 as Withholding Tax from Antenna Italia which was paid Euro 79,510 (equivalent to Shs.267,948,700) for supply of UHF and VHF Antenna with accessories.

Non-remittance of taxes is a violation of the Income Tax laws which may lead to fines and penalties. There is also a risk that the retained deductions could be diverted.

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Management explained that payment plans had been negotiated with URA and NSSF to remit outstanding arrears.

I advised management to ensure that statutory deductions are remitted promptly as required by the law and acknowledgment receipts obtained and attached to relevant payment documents and filed for future reference to avoid fines and penalties.

37.16 Disposal of Land

a) Disposal of Land to M/s M&B Engineers Last year, I reported that UBC leased land measuring approximately 1 acre on plot 13 Mpanga Drive Kampala, to a company in the names of M/s M&B Engineers Ltd at a cost of Shs.450,000,000. This was the consolidated figure for premium and ground rent for the full term of the lease and subjected to the covenants and conditions of the lease agreement. M/s M&B Engineers had emerged the best evaluated bidder in an open bidding process. According to the lease agreement the term of the lease was 49 years.

A review of the disposal file, the agreement and other related documents revealed the following matters;

b) Failure of the Lessee to Fulfill the Obligation under the Agreement S.1.2 of the lease agreement required the lessee to pay the entire lease amount of Shs.450,000,000 within two months following the signing of the agreement. Payments were expected to be made in three equal installments as follows:-

Shs.150,000,000 at the execution of the agreement Shs.150,000,000 within 30 days from the date of execution of the agreement Shs.150,000,000 within 30 days from the date of the second installment.

S.1.3 provided that failure to fulfill the whole or any part of the above payment schedule shall lead to termination of the agreement. A review of debtor‟s ledger revealed that only Shs.50,000,000 was paid leaving a balance of Shs.400,000,000.

During the current year audit, M& B Engineers did not make any payments on the outstanding obligation and there was no evidence to show that management had invoked the rights under the agreement to enforce performance or termination of the

187 agreement as provided. There is a risk of loss of the land by UBC under the circumstances.

Management explained that the sale agreement will be revised and a decision taken on the fate of that contract and in any case UBC is still in possession of the land. I await the outcome of remedies sought in accordance with the provisions of the agreement. c) Disposal of Land to Three Ways Shipping Services/(BRO Group) In the previous audit, I reported that on 27th Nov, 2009, the Managing Director requested the Minister to approve the sale of approximately 24 acres of UBC land on Kibira Road in accordance with the UBC Act of 2005. S.6 (a) of the UBC Act requires the disposal of UBC property to be approved by the Minister.

In her response, which was copied to H.E the President, the Minister approved the request to lease the land and directed management to lease the land to specific investors selected by her as detailed below:- i) Lease 8 acres to Bro-Group Holdings Ltd for establishing within 2 years, an inland transportation and logistics terminal centre as well as communications centre that will service the East and Central African Region. ii) Lease 1 acre to Aqua Coollers Ltd for a water distilling plant. iii) Lease the rest (Approximately 15 acres) through bidding to investors. d) Lease to BRO Group A Procurement document (PP Form 209) indicates that the contract committee in its 92nd CC meeting of 14th December, 2009 approved the direct negotiation method and evaluation/ Negotiation team.

According to the minutes of the negotiation, it was agreed that M/s BRO–Group Holdings Ltd should pay Shs.419,954,649 per acre. The total value payable for the 8.138 acres was put at Shs.3,417,590,930 for a 49 year lease. It was also agreed that there shall be no change of land use from what was proposed by M/s BRO Group Holdings ltd as per the Minister‟s letter. Further it was agreed that the Finance and Administration Manager collects the money receivable and the Company Secretary was to be appointed the Contract Manager. On 20th Jan 2010, the contract committee approved the disposal to Bro-group Holdings Ltd at a total value of Shs.3,417,590,930. 188

The following maters were observed:- i) Irregular Allocation of Land by the Minister The Honorable Minister‟s directive to have the 8 acres allocated to Bro group holding ltd and 1 acre to Aqua holdings Ltd was in contravention of the PPDA Act. The act of the Minister amounts to interference with or exertion of undue influence in the disposal process, an act that contravenes the PPDA Act.

ii) Breach of Terms of the Lease Agreement BRO group fundamentally breached the terms of the agreement. I noted that whereas S.1.2 of the lease agreement required that full payment be made within a period of approximately 5 months from the date of signing the agreement (21st Jan 2010), the debtors ledger indicated that by the closure of the previous financial year (30th June 2011), BRO group had an outstanding amount of Shs.987,915,898 .

It was further noted that the intended purpose provided under S.4&5 (setting up of an inland transportation and logistics terminal center and communication centre to serve the East African region), has not been achieved to-date. The current year (year ended 30th June 2012) audit revealed that the outstanding amount had not been paid and the agreement terms had not been fulfilled.

Management in response stated that a payment of 600 million shillings was paid in the Corporation Stanbic Account during the year which offset the overdraft and paid off the lease charges at the time. Management further stated that efforts to collect the outstanding balance of 388 million shillings will be made.

I advised management in consultation with the Solicitor General to invoke the clauses in the agreement.

37.17 Audit Inspections

During the course of my field inspections of some of the radio stations of Uganda Broadcasting Corporation (UBC) in Bundibugyo, Kasese, Buruli, Mega in Gulu and installations in Kabale, Mbarara, Masindi and Kampala, the following observations were made:-

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Voice of Bundibugyo (i) Inconsistent Use of Revenue Receipt Books It was noted that several receipt books were in use at the station at the same time. The use of several receipt books at the same time makes it difficult to trail the records and the transactions in a sequential manner and this may result into misuse and loss of revenue.

Management in response stated that usually receipt books are issued and used in sequential order, however this was not the practice at the station. I advised management to ensure that serially numbered receipt books are used one at a time so that a sequential pattern is followed in posting the receipts in the cash book.

(ii) Cash Book not Posted up to Date It was noted that transactions from 27th Feb to 3rd March 2013 were not posted in the cash book. The delayed posting of the cash book may lead to loss of financial resources.

Management in response stated that transactions were supposed to be posted on a daily basis and the anomaly in Bundibugyo would be investigated. I await for the outcome of the investigation to be carried out.

(iii) Accommodation It was noted that the Radio station is occupying the Bundibugyo Education Department‟s building for the disabled people. In case the District intends to utilize their premises, the occupants may not be able to operate. Management in response stated that the building is the district‟s contribution to the cause and that it is not the mandate of the Central Government alone (through UBC) to single-handedly finance every aspect of the radio but rather the initiative of both the Local and Central Governments.

I advised UBC to plan and acquire their own premises to avoic disruptions in operations.

Ngeya FM in Kasese (i) Receipts and Bankings

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It was noted that no receipts and bankings were availed for the one month the station had been in operation. In absence of the supporting documents in form of copies of receipts and banking slips, I was unable to ascertain the revenue collected and banked.

I advised management to institute strong controls in regard to revenue collection and banking to avoid loss of revenue.

(ii) Accommodation Currently the ratio station is operating in Kasese District buildings and no agreement has been signed. In case the District requires utilizing their premises, the occupants may not be able to operate.

I advised UBC to plan and acquire their own premises to avoid potential disruptions in operations.

Kyeriba Station in Kabale District (i) Land The station has land that has been surveyed. However it does not have the title. Whereas the land has earlier been fenced, some parts of the fence are broken and fallen off. This may lead to encroachers to access the land for settlement. Besides the equipment may not be safe as anybody can access the premises/land. Management in response stated that they have engaged professional surveyors and legal personnel to legalize titles of all UBC properties and demarcate the land after which it will then be fenced off.

I await for outcome of management efforts.

(ii) Non-payment of Water Bills The station is operating without water. There is piped water in the area but it was disconnected due to nonpayment of water bill. Management in response stated that it is in the process of clearing overdue bills as financial constraints have always led to rationing of expenditure and delayed clearances of bills. I advised management to clear station bills to ease constraints in the operations of the stations. (iii) Health Hazard

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The roof housing the station still has asbestos sheets which are in a poor state and pose health hazards/risks to the occupants. Management in response stated that the asbestos roofing will be replaced as soon as possible. I await the outcome of Management efforts.

Kihumuro TV Station Land The station has a large expanse of land however, it has neither been surveyed nor title obtained. Besides there is already encroachment on the land as there is a road passing between the Dish and the transmitter house. Furthermore the gates (lower and upper gate) to the station are open throughout and not locked because people have to pass through to access their homes and gardens.

Management in response stated that it has already engaged professional surveyors and legal personnel to legalize titles of all UBC properties and demarcate the land which will then be fenced off

I await for outcome of management efforts. Mwizi Radio Station in Mbarara District (i) Lack of Agreements This station has a radio transmitter for BBC, UBC and UBC transmitter for the TV. BBC maintains their own transmitter and even repairs. However there were also other transmitters for other radio stations like; Top Radio, Bushenyi FM, Radio West, Capital FM, Vision Radio and Greater African Radio. At the time of inspection, no agreements with the various stations were availed for audit verification, as all the agreements were claimed to be in UBC Headquarters in Kampala. However, these were not presented by management. In the absence of the copies of the agreements, I was unable to ascertain terms and conditions of sharing the masts and the revenue collected for rental of the mast.

I advised management to have agreements in place.

(ii) Non-compensation of Occupants The station land was surveyed, however, it was noted that some of these people were not compensated and are still occupying the land. Management in response stated that the land has been surveyed and UBC will compensate the squatters and fence off the land. 192

I await the outcome of Management efforts.

(iii) Dilapidated Building due to Lack of Maintenance It was noted that apart from the building where the transmitters and equipment were, all the other four blocks were dilapidated and needed urgent repairs. In absence of proper maintenance the station risks interruption of operations if total breakdown occurs.

Management in response stated that the repairs and overhauls will be done as soon as funds are available as the stringent budget that UBC currently operates does not allow for immediate responses to some of the repair needed. I advise management to plan to repair and maintain the upcountry stations.

Buruuli FM in Nakasongola District (i) Lack of Fixed Assets Register Although the station had assets such as computers, generator, transmitter link, call phones, furniture and other studio equipment, it was noted that the station did not have a properly maintained fixed assets register as required by the regulations. The available record of assets only indicates the particulars of the assets and quantity, other details are not disclosed. This poses risk of poor control over the station‟s assets.

Management in response stated that UBC is in the process of assets verification and thereafter developing a comprehensive Fixed Assets Register and that the assets register will be in place by the end of the FY 2012/2013. I await the outcome of the management efforts.

(ii) Un-engraved Assets It was noted that contrary to the Corporation‟s policy, most assets of the station were not engraved. It was therefore difficult to confirm whether all the unengraved assets belonged to the Station.

Management in response stated that it will ensure that all Corporation assets listed in the assets register are engraved where possible. I await the efforts of Management in engraving the assets.

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(iii) Missing components in the Transmitter A visit to the station studio revealed that the transmitter in the studio lacked some components. There was no issue voucher to provide details of the items delivered. The marketing officer also confirmed that some components were missing. In the absence of the material issue voucher, it was difficult to confirm whether the transmitter was delivered to the station in that form or other parts were removed at the station. The missing components may affect the efficiency of the equipment.

Management in response stated that the matter will be investigated to obtain explanations of the missing components of the transmitter. I advised Management to investigate the matter to its conclusion.

(iv) Security of Cash in Transit It was noted that the Corporation is not operating any bank account in Nakasongola or in nearby towns where collections from Buruuli Radio station can be banked. Due to lack of banking facilities, all cash collected by the station is periodically transported to UBC headquarters in Kampala by the station cashier. This arrangement does not only put the life of the cashier and money in transit at risk but also results in wasteful expenditure on transport and subsistence allowance for the cashier.

Management in response stated that an account will be opened in Nakasongola Town to extend banking to Buruuli FM station. I await the outcome of management action.

(v) Status of Infrastructure at Kigulya Mast at Masindi The mast is located on Kigulya hill 19 Kms from MasindiTown (7km off Masindi-Masindi Port road). During the visit of the site, it was noted that the infrastructure facilities of the mast were not in good condition. The compound was bushy with an ant hill near the station premises. The toilet was not only full but was about to collapse:

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An ant hill near the station premises and a collapsing toilet facility

Management in response stated that cleanliness of the compound will be ensured and a new pit latrine will be dug. I await for the outcome of management efforts.

(vi) Hire of space on UTL mast The radio station is continuing to rent space for its broadcasting services from UTL. Whenever the UTL generator runs out of fuel, the radio gets off air until UTL fuels the generator. During the time the radio is off air, service delivery by the station is affected.

Management in response stated that it was cheaper to hire the mast space from UTL than construct one and that consideration will be made on obtaining a generator or solar technology to avoid interruptions in service delivery. I await for the outcome of management efforts.

MEGA FM in Gulu District (i) Inadequate Human Resource A visit to the station revealed that there was no organization chart indicating the various sections/departments and personnel to run the activities of the station. Examination of the staff list availed revealed that the following key posts were not provided for: Internal Auditor-to review the effectiveness of the internal controls put in place by management and advise management accordingly Receptionist- to direct all in-coming customers and visitors and Store keeper- to maintain stores records and safe custody of stores. Staffing gaps affect service delivery.

Management in response stated that a needs assessment will be done and the necessary staff hired to fill the vacant posts. Management further indicated a proper

195 organization structure for MEGA FM falling within the confines of UBC structure will also be developed. I await the results of management efforts.

(ii) Inadequate Internal Controls Lack of Segregation of Duties It was noted that some staff perform more responsibilities outside their schedule of work as per job descriptions. For example, the Accounts assistant who is supposed to assist the station‟s Accountant in maintaining accounting records also receives daily collections from the cashiers and is responsible for banking the collections. In addition, the same person is responsible for withdrawing cash from the bank to run the station‟s operations as well as being the imprest holder. Also noted were station collection cashiers whose designation was not appearing on the staff list also act as receptionists at the reception desk.

Management promised to address the matter.

Lack of Store and Stores Records Audit inspection of stores revealed that Mega FM has no stores accommodation where goods could be kept safely. In addition, stores record keeping was noted to be poor. The only record in place is the Stores Received Note Book. All items received are recorded only in the stores received note book. Records such as; Stores Ledgers, Issue Vouchers, Stock Cards are not available. The person writing the goods received note is the person in charge of human resource.

Management in response stated that a competent store keeper will be recruited to maintain the stores and stores records and properly secure the stores. I await the outcome of management efforts.

Lack of Fixed Assets Register Although the station had assets such as computers, generator, transmitter link, call phones, furniture and other studio equipment, it was noted that the station did not have a properly maintained fixed assets register contrary to the regulations. There is a risk of loss of assets under the circumstances.

Management in response explained that UBC is in the process of assets verification and thereafter a comprehensive Fixed Assets Register will be developed and is expected to 196 be in place by the end of the FY 2012/2013. I await the outcome of Management efforts.

(iii) Delays in Banking Collection During the audit inspection on 5th March 2013, it was noted that the last banking was done on 26th February 2013. A cash survey conducted with a view to establish the correctness of cash collected as per the daily cash tally summary sheets, revealed total unbanked cash of Shs.4,943,850 lying in the safe. The cash found in the safe Shs.4,943,850 could be attributed to either banking less cash than collected or un- receipted cash collections or delayed bankings. There is a risk of loss of cash under the circumstances.

Management in response stated that immediate corrective action will be taken to address the issue of collections.

(iv) Poor custody of cash and counterfoils Redundant Cash Safes During the inspection, it was noted that the cash collected is kept in a small safe/cash box which cannot be used to keep other counterfoils.

However, two unused safes were found at the station. One of the safes with S/No D610 was procured by the Headquarters and sent to the station reportedly about three years ago, but has never been used due to failure to ably operate it. Although it was reported that the safe has never been used, no initiative was taken to have it returned to the supplier as the station has not derived any benefit out of it. Another safe was last used by two Accounts Staff who have since left service with the station leaving it locked. See photos below:

Unused safe kept in Accounts section and safe formally used by former Accountant

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A small safe currently used to keep cash

I advised management to address the matter with a view of withdrawing the unused equipment.

(v) Budgetary controls - Lack of Budget and Procurement Plan Though the station is required to prepare an annual budget which lays down the operational plans to the station projecting the funds to be realized and used in carrying out the operations, no budget was prepared by management. In addition, there was no procurement plan for the year under review. Failure to prepare the budget results into unauthorized revenue collection and expenditure and leading to poor budgetary control.

I advised management to ensure that the station‟s budget is approved to enable orderly operations and measurement of performance.

(vi) Uncoded Revenue and Expenditure It was noted that the respective revenue and expenditure codes were not indicated on all receipts and payment vouchers to identify and distinguish the respective budget items. Failure to classify revenue and expenditure can result into under or overstatement of revenue and diversion of funds through mischarges.

Management in response stated that all revenue and expenditure will be properly coded.

(vii) UBC Land at Oyitolei in Bobi The station has one old mast which was installed in the 1970s. During the Inspection the following issues were noted:- The land is being disputed on by the community including some former employees of the station who claimed that they were not compensated as their services were

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terminated as a result of 1979 war which destroyed the property of the station to date. The Council of Bobi Sub-County wants to collect ground rent on the stand alone mast because it is situated within the sub-County boundary. It was reported that the Sub-County is even threatening to petition court over the unpaid ground rent.

In the absence of legal ownership of this land by the Corporation, encroachment is likely. Management in response stated that the process of legalizing ownership of all UBC properties including land at Oyitolei in Bobi was in progress.

I await for the outcome of management efforts.

Kibira Mast site in Kampala District

An inspection of the site revealed that the site appeared to have been abandoned as there was no person found on the site. The gate was locked and there was no security guard to watch the place. On the side of Nakivubo channel, the land is not fenced and is bushy. Photos below refer.

The entrance of Kibira mast site and a view of Kibira mast in a bush

This poses a security risk to the property on the site as it can harbor thieves from the surrounding area of Namuwongo slum.

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Management in response stated that the greater part of the site was meant for disposal and the intended activities of the buyers of the property are still under scrutiny by NEMA since it is a wet land.

I advised management to liaise with NEMA to have the matter resolved expeditiously.

TRADE AND TOURISM SECTOR

38.0 MANAGEMENT TRAINING AND ADVISORY CENTRE - YEAR ENDED 31ST DECEMBER, 2011

38.1 Depreciation of Land and Buildings

The Centre has been depreciating land and buildings together as a consolidated figure. Land and buildings are separate assets and must therefore be treated differently as required by the International Financial Reporting Standards. This is because, whereas the buildings are depreciable assets, land is not and normally appreciates in value. This implies that the value of the land and buildings of Shs.2,231,876,045 is under stated to the extent of the unwarranted depreciation. This matter was also included in my previous report but management has not addressed it accordingly. Management explained that they were in the process of procuring a private valuer to undertake this exercise and it is hoped that the value of land will be separated from that of buildings on completion of the valuation process. I have advised management to expedite this process accordingly.

38.2 Book Keeping

a) Discrepancy in Cash Book and Ledger Balances

A comparison of the Cash Book expenditure Balances with the Ledger Balances showed a variance of Shs.216,858,347. Although the Accountant explained that the variance was as a result of the prior year accrued items that were paid during the year 2011, it was not possible to verify these paid bills since they were not reflected as a separate Item. In addition, there were no funds specifically allocated in the year 2011 approved budget, to cater for outstanding Bills. Expenditure by the Centre to clear the same would therefore be irregular.

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Managements explanation that the Shs.216,858,347 was a reduction on the 2010 accrued expenditure which stood at Shs.791m as at 31st December 2010, could not be substantiated, since the amount outstanding as at 31st December 2011 was reported as Shs.785,276,874. In the absence of satisfactory explanations, there is a risk that the expenditure amounts reflected in the accounts may be misstated.

33.1 Unauthorized Adjustments A total of Shs.270,799,124 in respect of Bad Debts from Student Defaulters, were charged under Indirect Expenses in the financial records, basing on recommendation for write off by the Finance and Development Committee and awaiting approval by the Governing Council. It was further noted that there was also no approved journal voucher drawn in this regard. Unauthorized adjustments may lead to misstatements of the financial statements.

Management explained that it was reasonable to have the bad debts expensed since the Governing Council had already approved the write-off although the minutes were not signed yet.

I explained to management that the adjustments in question remained unauthorized in the absence of documentary evidence of approval of their write-off.

38.3 Inadequacies in Management of Fixed Assets

The asset register was not well maintained and updated. There was no officer assigned the role of assets management who would have updated the assets register. It was also explained that land previously under the institutional lease had reverted back to Uganda Land Commission after the lease expired but there was no documentary proof to this effect. The date of expiry of the lease and the details of the land in question were not provided. Having assets with no clear status of ownership may lead to miss statement of the value of assets in the financial statements. It was noted the financial statements reflected a figure of Shs.2,414,821,666 as the value of the Centre Assets, including the land in question.

Management explained that they were in the process of recruiting an Administrative Officer whose duties would be among others to ensure that the fixed asset Register is regularly updated. Management further explained that all MTAC assets were going to be revalued soon and the current values will be recorded in the register.

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I advised Management to expedite the above process and also follow up on the land whose lease periods had expired to enable extension of the lease.

38.4 Poor Debt Management

An analysis of the Centre‟s debtor‟s position has revealed that the Institution has poor debt collection practices as the amounts uncollected have been outstanding for a long period as showbelow:- Details Amount (Shs.)

2011 2010 Trade debtors 40,578,344 14,889,424 Rent debtors 81,264,830 185,812,908 Students 680,835,197 681,425,885 Staff debtors 5,325,199 3,365,248 Totals 808,003,570 885,493,465

Also noted was that some of the outstanding amounts date as far back as 2008.

In my previous audit report, I pointed out the lack of a written policy on debtors and advised management to ensure that such a policy was put in place henceforth. However, this had not been addressed by the time of this report. The continued failure to have such a policy in place may imply that these outstanding amounts may remain uncollected for even longer periods of time hence increasing the risk of them becoming bad debts.

Management explained that they were in the process of reviewing the MTAC Finance and Accounting Manual and that a policy on debtors‟ management would be included. Management was advised to ensure that adequate controls are put in place to avoid such arrears in future.

38.5 Anomalies in Payroll Management

A review of the Centre‟s expenditure on salaries revealed that Shs.149,864,376 worth of Staff PAYE deductions was not remitted to Uganda Revenue Authority (URA) contrary to the Income Tax Act. Failure to remit statutory deductions may result in penalties being imposed to the Centre.

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Management attributed the above anomaly to cash constraints experienced in the past but explained that they were hopeful Government would step up funding to enable the Centre clear these arrears.

Management was advised to remit the funds to URA as soon as possible and to always ensure compliance with the legal requirements relating to statutory deductions.

38.6 Revenue Performance

The Centre budgeted to receive revenue amounting to Shs.2, 379,666,000 from various revenue sources during the financial year under review. However, by the end of the year the Centre had only collected Shs.2, 072,320,950, realizing a shortfall of Shs.307,339,050 representing about 13% of the budget. Failure by management to collect all budgeted revenue can lead to failure to implement all planned activities.

The Accounting Officer explained that the non-realization of the budgeted revenue was due to the bad financial situation that prevailed in the country in the year 2011 coupled with a the inadequate financial support from the Government and the big number of students dropping out due to the failure to afford the little fees MTAC charged. However, he stated that strategies were now in place to improve revenue performance further.

Management was advised to improve its budgeting systems and also strengthen its revenue collection efforts so as to be able to collect all budgeted revenues.

38.7 Procurement audit

Weaknesses in Stores Management The Centre made procurements of various items worth Shs.52,333,830 during the year under review comprising Shs.18,399,290 for fixed assets and Shs.33,934,570 for Consumables. However, there were weaknesses observed in the receipt and issuance of stores as follows:- The stores procedures omitted processes like taking on charge goods procured, acknowledgement of procured items in the stores records, use of stores requisition and Issue Orders, use of Goods Received Notes and Stores Ledgers/Cards. This implies that the stores procured could not be verified.

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There was no Board of survey on stores carried out after closure on 31st December 2011 to ascertain the stock balances reflected in the financial statements, their existence, location and condition. Failure to undertake a Board of survey implies that there was no independent confirmation of the quantities, values, existence, location and condition of these stores.

The Centre lacked a substantive storekeeper and neither had policies, nor procedures formally documented in form of policy statements, manuals and/or description of responsibilities. In the absence of policies and procedures for stores management, it was difficult to establish the existence of a stores control mechanism that could enable supervising and monitoring of stores receipts and issuances.

In their response, management explained that the year was characterized with supplies of goods and services based on need and as such, minimal or no stock was kept adding that the Centre was to consider a possibility of hiring a storekeeper in the proposed structure. Management was advised to ensure that stores procedures are streamlined so as to have proper controls over all procurements made by the Centre.

38.8 Non adherence with the Procurement Law

Examination of the procurement files for the procurements made by the Centre during the year revealed that the following procurements had inadequate or partially completed procurement records such as PP Form 20, appointments of committees, invitation of bidders, evaluation, and contract awards:- Reference Supplier Purpose Date/voucher Amount no. (Shs.) MTAC/SUPLS/11/00 M/s Computer 0038 0f 27/9/11 12,600,000 038 Computer Supplies Exp. Ltd MTAC/SUPLS/11/00 Mmudor Printing MTAC 046 of 7/11/11 11,800,000 046 Ent. Ltd Calendars MTAC/SUPLS/11/00 Sight & Supply 053 of 22/12/11 8,332,156 053 Sound Photocopy Comp Machine MTAC/SUPLS/11/00 Computer Supply of 013 of 8/4/11 5,880,000 008 Exp. Computer Ltd Consumables MTAC/WKS/10- Eureka Installation Of 015 of 4/5/11 5,292,300 11/00003 Const ltd Razor

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In absence of proper procurement records, there is a risk that the procurements were not subjected to proper procurement procedures as stipulated in the PPDA Act 2003. None adherence with the laid down procedures during the procurement process does not guarantee attainment of competitive prices and value for money from the procurements undertaken.

Management explained that with the recent recruitment of a procurement officer, they hoped to continue improving as more public procurement training is given to the staff that is charged with the responsibility of managing the procurements of the Centre.

Management was advised to always ensure strict adherence with the PPDA Act and regulations in all its procurements.

38.9 Status of Prior-Year Audit Findings

A review of the prior year audit findings and recommendations was undertaken and the status was summarized as follows:- Observation Status 1 Non-Revaluation of Property Not addressed Plant and Equipment

2 Non Separation of Land and Not addressed Building 3 Maintenance of fully Not addressed; a revaluation is to be undertaken by depreciated assets a private valuer. 4 Under-collection of Revenue Repeated Performance that continued to decline 5 Poor debtors management Not addressed 6 Lack of a Governing Council Addressed 7 Lack of an internal audit Not addressed; the Centre is undergoing department restructuring process and the Internal audit Unit was provided for on the proposed structure 8 Anomalies in management of Not addressed. the Center Properties 9 The Centre still Not addressed. had outstanding statutory deductions (URA Taxes) totaling Shs.359,735,234 for the period dating as far back as February, 2004- the obligation had increased to Shs.485,264,322 by close of the year under review

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39.0 UGANDA WILDLIFE AUTHORITY - YEAR ENDED 30TH JUNE 2012

39.1 Inadequate System for Collecting Concessions Income-Franchise Fees

A review of the concession income- franchise fees, revealed that the Authority depends on the information (concessionaire self-assessment) provided by the various concessionaires to determine the franchisee fees Income. Also noted was that contrary to the Concession agreements which require that UWA obtains copies of the concessionaires‟ audited annual financial statements and have access to their books of accounts to enable UWA establish the correct amounts of concession income, there was no evidence to confirm that UWA ever enforced this requirement. This implies that the correctness and completeness of the concession income stated at Shs.4.2 billion in the financial statements could not be reliably verified. In the absence of the concessionaires‟ audited annual accounts, UWA cannot therefore independently verify if the concession fee being paid is based on actual performance of the concessionaire.

Management in their response stated that the introduction of the cashless revenue collection system will address this problem since all visitor information will be reconciled with the Concessionaires‟ records. I advised management to ensure that the Tourism Wardens in the different protected areas provide timely and independent reports of franchise statistics upon which comparison/reconciliation can be made with reports from the concessionaire as a basis for the Concession Unit to carry out billing.

39.2 Non Compliance with IAS 12 on Income Taxes

Contrary to the provisions of the International Accounting Standards (IAS 12), the Authority did not present to me its Income Tax and deferred Tax workings. In addition, the Authority did not provide for any taxes in the accounts, contrary with the Income Tax Act. It was noted that even though the Authority has been engaging the tax authority on its tax status, URA communicated that UWA is not tax exempt and should file tax returns in accordance with the Income Tax Act requirements. However, management has not quantified the effect of this noncompliance on the operating results of the Authority. Noncompliance with the financial reporting standard not only exposes the Authority to a risk of penalties and loss of a potential Withholding Tax Asset in transactions where it is charged but may also render the operating results and financial position misrepresented.

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In response, management contends that UWA is a non–profit making organization and the mandate is wildlife conservation but has accordingly initiated a procurement process for a Consultant to advise on income tax and related matters. I have advised management to always ensure compliance with the applicable financial reporting standards as well as the Income Tax Act.

39.3 Delays in Accountability for Imprests

It was noted that funds amounting to Shs.20,591,260 advanced for carrying out several activities was not accounted for by 30th June 2012 as shown below:-

Date of Voucher Description of Payment Amount (Shs) Advance no.

4/04/2012 OLC 945 Legal department -facilitation to Mt. 1,508,000 Elgon CA for Court Cases 3/1/2012 OLC818 Facilitation for Launch of HIV&AIDS 1,000,000 policy 21/6/2012 OLC 1365 Purchase of Court attire for Legal Unit 1,000,000

9/1/2012 OFC 038 Travel to Gabon for study tour 1,417,500

13/3/2012 OLC 723 Subscription fees for legal unit 1.943,000

22/7/2011 OLC 1771 Establishment of retail centre in 2,871,000 Murchison Falls CA 20/12/2011 OLC 488 For tourism activities at Igonga 1,031,000 cultural centre 29/3/2011 OFC 103 Day Safari Allowance &Air ticket for 8,572,760 travel 14/10/2011 OLC 203 Visas and Uniform to UK for World 3,191,000 Travel Market. Total 20,591,260

I informed management that delays in submission of accountability could lead to falsification of documents and a possible loss of funds. In their response, management explained that the Authority had written to the respective staff to give reasons for the delayed accountability or else face disciplinary action.

I advised management to ensure that imprest holders are made to submit accountability before they are advanced fresh imprests. In addition, a time limit should be provided within which the money should be returned to the accounts department if not utilised due to changes in the implementation of the intended activities.

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39.4 Revaluation of Assets

A review of the financial statements revealed that Plant, Property and Equipment (PPE) of UWA such as land, Buildings, Aircrafts, and Motor Vehicles among others had not been revalued with sufficient regularity (say 3 to 5 years) as required under IAS 16. Failure to regularly revalue the PPE could lead to misrepresentation of their worth at the balance sheet date.

Management in response stated that revaluation of fixed assets is budgeted for in the financial year 2012/2013 and that the procurement process was already in progress. I have advised management to expedite this process accordingly.

39.5 Classification of Property, Plant and Equipment (PPE)

It was noted that the authority capitalized small equipment worth Shs.264 million which may be non-existent at the balance sheet date. For instance, included in the capitalised amount of Shs.264 million are wheel barrows acquired four years ago at a unit cost of Shs.10,000 and depreciated at 10% per annum with net Book value of Shs.4,000. The existence and location of these wheel barrows however could not be ascertained. Capitalizing small equipment would imply misrepresentation of reserves due to understatement of expenses.

In response, management noted the reporting anomaly and stated that the disposal process would inform Management of the old and obsolete items. Thereafter, an updated inventory list would be compiled and reconciled with the General Ledger balances. I advised management to consider expensing such small assets other than capitalizing them.

39.6 Inadequacies in the Computerized Gorilla Booking System

A review of the Gorilla booking system revealed a number of control weaknesses as highlighted below:- No provision for segregation of duties i.e. one person inputs the booking data, carries out approval, prints and issues Gorilla Tracking Permits. No provision for statistics of cancelled permits apart from 100% paid permits. For instance one cannot obtain report on say 30% deposits. No provision for statistics of those who have forfeited their permits.

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No provision for extraction of customized reports such as statistics of local and international tourists. It does not provide the feature for intending trackers to establish online availability of gorilla space. This is exclusively known to the unit supervisor. The gorilla permit as printed contains misleading information with regard to rates for the three categories of trackers.

The foregoing system inadequacies may lead to production of inaccurate and misleading information. Management in their response indicated that the system will soon be replaced with an upgraded module in the cashless system and that the supplier of the Gorilla booking system has been contacted to provide new software that meets the requirements for advance bookings, refunds and reschedules.

I advised management to advocate for a better gorilla tracking booking system that can provide reliable control and output features such as ability to provide statistics of the 30% or 70% deposit on permits, to show the cancelled permits and the number of permits paid by the citizens and non-citizens and to provide for segregation of duties.

39.7 Inadequate System for Recognising Gorilla Tracking Income

It was observed that the procedures for recognition and posting of Gorilla Tracking Income were inadequate. The Gorilla income procedure provides that gorilla income is recognised upon full payment (Issue of Tracking Permit) and undertaking of tracking by the client. The Authority however recognised income on receipt of deposits as opposed to undertaking of Gorilla tracking activity. This is contrary to International Accounting Standard (IAS) 18 and the Authority‟s accounting manual on income which requires that income is only recognised upon the performance of a service and the amount of revenue considered to be reliably measured when all contingencies relating to the performance have been resolved. In the circumstances, there is a risk of overstatement of income in the financial statements.

Management explanation that recognition is only upon undertaking the tracking activity could not be substantiated. I advised management to record deposits for gorilla tracking as unearned income and only recognize it based on the permits of those who undertake Gorilla tracking.

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A review of the management of the Authority‟s inventory which include Fuel, Food rations, tyres, resale items, stationery and others revealed that it was not adequately monitored for possible misuse. For instance, the Authority does not carry out regular stock counts. The Authority carries out only one stock count at the end of the year. Besides, the available documents supporting the count pertaining to the year under review were incomplete as some items such as food rations were omitted. Some of the Inventory items had no cost values and yet much as they are consumables, there was expenditure incurred in procuring them and as such their value ought to have been indicated. Also noted was the inclusion of obsolete inventory in the stock count. Failure to monitor the actual stock on hand leads to misstatement of the value of stock in the accounts.

In response, management stated that the Board of Trustees approved the disposal process for old and obsolete items and the Board of Surveys had already submitted their report for consideration by Contracts Committee. The team explained that Stock counts are normally carried out at Financial Year end but would in future be done quarterly. I advised management to put in place an Inventory Policy to provide guidance on frequency of stock counts and to ensure better management of obsolete stock.

39.9 Expired Concession Agreements

A review of the ground rent income revealed that there were no valid tenancy agreements with some of the concessionaires for example MTN Uganda, Airtel Uganda Limited and Warid Uganda Limited for hoisting Telecom Masts. These Telecom Companies were already operating in the Protected Areas and informally paying the fees that were negotiated in the expired contracts of 2002. Lack of a binding contract with such concessionaires provides a loophole for dispute resolution in the event that the Authority is not satisfied with the mode of operation in the protected areas.

Management in their response indicated that the Board of Trustees has set up a Concessions Negotiations and Review team to examine the clauses within the old contracts with a view to negotiating for better terms. The exercise is already in progress and the results would form the basis for the new contracts with the Concessionaires. I advised management to endeavour to make valid contracts with all the tenants of ground rent to enable the Authority to recover all its money from the tenants in case of misunderstandings between the two parties.

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39.10 Uninsured Cash at Hand

A review of insurance policies undertaken by management revealed that whereas the Authority holds a lot of cash (Shs.289 million as 30th June 2012), the monies were not insured. The foregoing exposes the Authority to a risk of loss of the cash in the event of thefts including highway robberies. In response, management attributed the huge sums of cash at hand to long distances from its Headquarters to nearest Banks which would delay the day-to-day running of various activities such as patrol allowances for law enforcement rangers. However, the installation of cash points in Reservations Offices would cater for all handling and transportation of cash from UWA Headquarters to the Bank. Management further explained that the introduction of the cashless revenue collection system would also address this challenge since Points of Sale would be well facilitated with transport to ensure timely banking of revenue. Management further indicated that the procurement process for insurance services had been initiated to cater for any transactions handled by the Cash Office.

I advised management to expedite the above initiatives accordingly.

39.11 Status of Prior Year Audit Recommendations

The status of the prior year audit recommendations was as summarized below:-

Issue Raised Remarks 1 Non compliance with the Income Tax Act and IAS 12 Repeated 2 Lack of an independent verification mechanism over Repeated concession income - franchise fees 3 Lack of a Board of Trustees Addressed 4 Anomalies in the appointment of the acting Executive Addressed following Director appointment of a substantive ED 5 Lack of an accounting officer Addressed 6 Running of the authority without substantive heads of Addressed departments 7 Inadequate computerized gorilla tracking booking system Repeated 8 Lack of specific terms for fixed deposits investments Addressed 9 Non insurance of cash at hand Repeated 10 Non deduction of withholding tax on fixed deposits Addressed 11 Non revaluation of assets Repeated 12 Irregular expenditure on the Commission of Inquiry into Outstanding PAMSU Project

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40.0 UGANDA NATIONAL BUREAU OF STANDARDS - YEAR ENDED 30TH JUNE 2012

40.1 Unsupported Prior Year Adjustments

Included in the statement of cash flows is a balance of Shs.349,475,076 in respect of adjustments of errors in accounts receivable and deconsolidation of fuel marking project in the UNBS financial statements. However, additional information by way of a breakdown and the effects of the adjustment on account areas was not provided in the financial statements. As such I was unable to confirm the reflected amount in the financial statement. I advised management to justify inclusion of the adjustment in the statement of cash flows.

40.2 Inadequate Staffing

A review of UNBS establishment records revealed that out of 475 approved posts, 241 positions were found vacant at the time of audit. Included in the list of vacant posts are the key posts like Manager Quality Assurance, Manager Imports Inspections, Audit Manager, Principal Public Relations Officer, Principal Marketing Officer and Senior Procurement Officer. Failure to fill all the vacant posts impacts negatively on the Board‟s ability to fulfill its mandate.

Management in response stated that key posts of Quality Assurance Manager, Imports Inspection, Audit Manager and Standards Officers had since been filled and that further recruitments were restricted by the government ban. I advised management to continue lobbying with the authorities to have the vacant posts filled.

40.3 Revenue Shortfall

It was noted that management budgeted to collect shs.2,002,733,661 from project income but actual collection amounted to shs.104,556,600 causing a shortfall of shs.1,898,177,061. The under collection of the planned resources affects the planned activities of the organization and therefore poor budget performance. Management in response attributed the revenue shortfall to suspension of the Pre- export Verification of Conformity (PVOC) where Bureau had expected to generate shs1.2bn. It was further stated that Non-Tax Revenue is subject to variations and this 212

generally affected activity implementation. I advised management to always endeavor to collect the budgeted revenue as planned.

40.4 Outstanding Statutory Deductions

Contrary to the requirements of the Income Tax and NSSF Acts, statutory deductions totaling shs.1,440,529,059 due to NSSF (Shs.448,473,571) and Uganda Revenue Authority (Shs.992,055,488) remained outstanding as at 30th June 2012. It was further noted that outstanding remittances to NSSF increased to Shs.448,473,571 in the current year up from Shs.356,838,159 in the previous year. Obligations to URA increased to Shs.992,055,488 from the previous year's Shs.856,848,920. The practice can attract severe penalties/fines which would constrain the Bureau‟s operations.

Management in response stated that the outstanding balances in respect of statutory deductions are brought forward figures that arose out of budget cuts and delayed cash releases in the prior years when UNBS budgetary support was a subvention under the Ministry of Tourism, Trade and Industry (MTTI). UNBS budget ceiling has not been uplifted since FY2009/10 and therefore could not accommodate the arrears.

I advised management to liaise with Ministry of Finance, Planning and Economic Development to have the obligations settled without further delay.

40.5 Outstanding Trade Creditors

Included in the accounts payable balance of Shs.2,154,599,434 are outstanding trade creditors amounting to Shs.707,067,375 which increased from Shs.315,929,236 reported in the previous year. The significant increase may imply poor management of creditors.

Management in their response attributed the increase to staff terminal benefits. I advised management to endeavor to settle the Bureau‟s obligations.

40.6 Unauthorized over Expenditure of Shs.166,007,372

It was noted that management budgeted to spend a total of shs.353,600,000 on allowances during the period under review. However actual expenditure amounted to shs.519,607,372 hence causing excess expenditure to the tune of shs.166,007,372 without authority for virements.

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Management in response attributed the over expenditure to increment in the operational field allowances but undertook to ensure that any virements are approved by the relevant authorities before expenditure. I advised management to ensure that funds are spent as provided for in the approved budget and the relevant authority sought for virements.

40.7 Non-disclosure of Accounting Policy on Capital Grants

A balance of Shs.15,002,175 was reported in the balance sheet and Note 4 to the accounts as capitalized grants representing donated equipment. Also noted was that the grant was being amortized on annual basis. However, the accounting policy on treatment of grants of a capital nature was not disclosed in the financial statements. In the circumstances, l could not confirm whether the grants are fairly recognized and subsequently measured as required by the IFRSs.

Management in response acknowledged that the accounting policy in respect to the grants is not provided for in the financial manual and undertook to initiate process to mend the manual. I advised management to expedite the process to ensure compliance with best practice.

40.8 Cash at Bank

It was noted that the reported balance of Shs.2,437,443,394 was arrived at after offsetting Shs.17,844,950 representing an overdraft on Stanbic operation Account contrary to International Accounting Standard (IAS)1- Presentation of Financial Statements which prohibits offsetting of assets and liabilities. In the circumstances, the reported balance is misrepresented in this regard.

In their response, management attributed the position to unpresented cheques. I advised management to make the necessary adjustments.

40.9 Failure to Involve the Internal Auditor During Receipt of Goods

Regulation 28 of the Public Finance and Accountability Regulations, 2003 specifies verification of goods received as one of the duties of internal audit function in a ministry, department, agency or unit of the Government. However, it was noted that this function was omitted in the UNBS Financial Manual. I advised management to review and amend the manual accordingly. 214

40.10 Non Alignment of Chart Of Accounts used in Budget Preparation and Financial Statements

It was noted that whereas management uses GOU chart of accounts to prepare its budget, the financial statements were prepared using a chart of accounts generated from pastel accounting software. In view of the foregoing, evaluation of the Board‟s performance is rendered difficult.

Management in response stated that the process of harmonizing the two charts of accounts had been initiated and UNBS would use GOU charts of accounts. I advised management to expedite the process to enable proper assessment on the organization‟s performance.

40.11 Construction of a Calibration Rig and Extension of Water Supply (Plot 2-12)

Management constructed a Calibration Rig and extended water to plot 2 -12, By Pass Link, Bweyogerere, Wakiso District at a contract sum of shs.559,352,975. However a review of the procurement file revealed the following anomalies: A total of shs.475,000,000 was budgeted for this activity and a contract for shs.559, 352,975 was signed with the contractor. However, it was noted out of the additional funding requirement of Shs.84,352,975, only shs.3,481,099 was approved leaving a balance of Shs.80,871,876 unapproved. It was further noted that the contractor requested for variations totaling shs.84,930,688 out of which only Shs.8,277,169 was approved leaving a balance of Shs.76,653,519 unapproved. I advised management to comply with the procurement regulations.

40.12 Failure to board off assets as recommended

Verification of the fixed asset register revealed that a total of 316 assets including vehicle no. UAA 110N that had been recommended to be boarded off had not been disposed off at the time of audit. According to the store keeper, some of these assets have been in the store for over two years. There is a risk that their value has deteriorated and could easily become obsolete.

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Management in response stated that the disposal of vehicle UAA 110N was complete. However, regarding the 315 items management recommended the disposal process by auction due to their nature and numbers involved. I advised management to expedite the disposal process.

40.13 Human Resource Recruitment and Management Irregularities

A review of staff personal files revealed the following irregularities:

a. Appointments to some positions without the requisite qualifications. b. Lack of documentary proof of competitive recruitments such as interview reports. c. Lack of evidence of regular Staff performance Appraisals d. Formalization of appointments after someone has been absorbed in the system (UNBS). e. Unjustified transfers within departments without considering the relevant qualifications. f. Placement of a Staff to a Senior Position as the other terms and conditions of the service remain the same without additional qualifications.

I advised management to investigate the cases noted during the audit.

40.14 Nugatory expenditure

It was noted that management delayed to pay terminal benefits of former employee. In that regard, a Civil Suit No 63 of 2006 in the High Court of Uganda at Nakawa was opened and court ruled in favor of the employee causing legal charges totaling shs.14, 494,800. Court also ordered UNBS to pay the plaintiff‟s Counsel a total of shs.5, 000,000=. Apparently this was a nugatory expenditure since it was caused by the negligence on the part of management. Management in response undertook to avoid such cases in future and indicated that the Bureau had since established a legal unit to advise on such matters. I await management commitment in this regard.

40.15 Uncertified Products on the Market

Section 21 and 23 of the Uganda National Bureau of Standards Act, CAP 327 requires

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All products to conform and bear distinctive marks. However, a physical inspection of products in the market revealed that a number of the products did not bear the Bureau‟s distinctive marks.

In their response, management explained that currently the Mark available is the voluntary (Q-Mark.). However UNBS is now rolling out a compulsory Mark (S-Mark) to cover all products under compulsory standards. Management further stated that the Bureau is engaging government to consider additional resources to enhance its capacity to enforce standards.

I advised management to always enforce standards in the protection of the public against harmful ingredients and dangerous components as required under section 3(1)(f) of the Act.

41.0 UGANDA TOURISM BOARD - YEAR ENDED 30TH JUNE, 2012

41.1 Lack of a Board of Directors

It was noted that Uganda Tourism Board has been operating without a Board of Directors, since 13th December, 2011 when the term of the previous board expired. This is contrary to section 5 (4) of the UTB Act, 2008, which requires the Minister to appoint new members or reappoint existing members to the Board at least three months before the end of the term of office of the current members. Failure to appoint a board deprives the entity of the requisite oversight role and strategic direction on key issues.

Management in response explained that the Ministry of Tourism, Wildlife and Antiquities submitted a Cabinet Memo on the proposed Board, which is expected to be appointed in the near future. I have advised Management to liaise with the appointing authority to have the Board in place.

41.2 Lack of a Strategic Plan

It was noted that Uganda Tourism Board (UTB) does not have a strategic plan, which would define its goals, objectives, strategies and tactics. In the absence of a roadmap for growth and prosperity, the Board would make decisions on an adhoc basis with no sense of direction.

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Management in response explained that a draft three year strategic plan is in place and is awaiting approval by the Board, once it is put in place. I therefore await for the outcome of this management commitment.

41.3 Inadequate Funding

Whereas UTB budgeted for Shs.7,590,000,000 during the period under review only Shs.2,040,000,000 (27%) was actually received resulting into a budgetary shortfall of Shs.5,550,000,000 (73%) as indicated in the table below:

Activity Budget Actual Unfunded (Shs) (Shs) (Shs) Staff Remuneration 1,900,000,000 300,000,000 1,600,000,000 Quality Assurance 1,000,000,000 250,000,000 750,000,000 Training of Hotel 200,000,000 0 200,000,000 Assessors Branding 400,000,000 100,000,000 300,000,000 Trade Fairs 1,500,000,000 500,000,000 1,000,000,000 E – Marketing 400,000,000 100,000,000 300,000,000 International Public 1,200,000,000 0 1,200,000,000 Relations Rent, Utilities, office 670,000,000 670,000,000 0 operations, welfare, inland travel, vehicle running Office furniture and 50,000,000 50,000,000 0 Computer Equipment Research 270,000,000 70,000,000 200,000,000 Total 7,590,000,000 2,040,000,000 5,550,000,000

Failure to obtain all the budgeted revenues deprived management of the resources to fully implement all the planned activities of the Board.

In response, management explained that the matter had been drawn to the attention of Ministry of Finance (MoFPED) which was however not responsive in this regard. I advised management to consistently follow up the issue of budget shortfalls with MoFPED to ensure availability of funding to enable proper implementation of planned activities.

41.4 Tourism Development Levy

Section 20(1) of Uganda Tourism Board Act 2008, states that the Minister may, after consultation with the minister responsible for finance by statutory order, impose a tourism development levy. However, to date the board cannot impose the levy since its 218

approval has not been sanctioned by the Minister of Finance and this has posed a major challenge in the operation of the board due to loss of revenue. There was no evidence of action taken to issue a statutory order.

Management in response indicated that efforts made to secure the necessary approval by Ministry of Finance have not yielded positive results. UTB has gone ahead to undertake an exploratory study for the implementation of the Tourism Development Levy as a way of justifying both its viability and sustainability. The Ministry of Tourism is following up the matter with Ministry of Finance. I therefore await for the outcome of the ministry‟s course of action in this regard.

41.5 Lack of a Human Resource Department

The organization structure of UTB does not provide for a human resource department. The current structure provides for only a human resource officer who reports to the Administration Manager, but the post was also found vacant at the time of writing this report. It was further noted that the administration manager is currently responsible for human resource matters. In the circumstances, Human resources affairs may not be properly managed.

In response, management explained that this matter has been provided for in the Institutional Review Report and would be handled by the new Board of Directors. I advised Management to put in place a properly constituted human resource function in order to effectively handle all HR matters.

41.6 Expired Employment Contracts

As reported in my previous report, review of staff personal files revealed that seventeen (17) members of staff whose employment contracts had expired were still in office. I informed management that in the circumstances, the officers are not bound by the Board‟s Human Policies or ethical code of conduct. In addition, officers are illegally drawing salaries.

Management in response explained that without a Board of Directors in place, it was difficult to have staff contracts renewed since the powers to appoint and renew the contracts are vested in the Board. I have advised management to take up the matter with the relevant authorities so as to expedite the process of having a Board in place, to eventually have the staff contracts renewed. 219

41.7 Lack of an Asset Management Policy

Best practice requires that an organization puts in place an asset management policy to ensure proper asset management with regard to acquisition, utilization, maintenance and disposal. However, it was noted that UTB lacks a documented guidelines on management of its fixed assets. Absence of such a policy may lead to misuse or loss of assets due to theft and fire as well as acquisition of assets that do not meet the needs of the Board.

A case in point is where two emergency fire extinguishers had not been serviced since their expiry, on 23/03/2010. I advised management to put in place an asset management policy and ensure it is communicated to all staff. The fire extinguishers should be serviced without further delay.

41.8 Stores Management

a) Inadequate Record Keeping

A review of the stores records revealed that there were no procedures for approving issue of items from the stores. Also noted was that records were only available from 4th April 2012. The stores function was being handled by the security personnel as there was no competent store keeper in place. There is a risk that the entity may not be in position to track the movement of its assets. A case in point is the fact that the former stores manager is implicated in the theft of computers and other assets but no proper evidence is available since the value and quantity of what was stolen cannot be ascertained.

Management in response acknowledged that there is a need to strengthen this department by appointing a competent person and are accordingly awaiting for the Board to be appointed in order to have this position filled. I have advised management to manage the stores in accordance with the financial regulations. In addition, the stores function should be handled by a competent officer.

b) Theft of Computers

It was noted that six computers together with their accessories valued at Shs.11,750,000 were stolen during the year under review. Whereas the theft was

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reported to police, vide CRB 1575/12 REF CID53/VOLVII/156/12, there was no report from police regarding the extent of investigation. Given that five months had elapsed since the theft was reported, there is a possibility that the investigation may not yield any meaningful clue regarding the identity of the culprits and their accomplices. It was further noted that the loss was not recorded in the financial statements under the „statement of reported losses of public moneys, stores and other assets whether or not written off during the year ended 30th June 2012‟. I have advised management to ensure that the above matters are followed up and that appropriate adjustments are made to the financial statements.

c) Missing Assets

It was noted that two laptops with serial numbers FIXL9L1- UTB-0002-Aspiron 1545 and F3XL9L1-UTB-0005-Aspiron 1545 were missing from the stores. By the time of writing this report, management had not provided any satisfactory explanation as to the whereabouts of the two laptops. I advised management to follow up the matter and establish the whereabouts of the laptops in question. Additionally, management should improve its asset recording procedures henceforth.

42.0 NILE HOTEL INTERNATIONAL LIMITED - YEAR ENDED 31ST DECEMBER, 2011

42.1 Concession Fees

As reported in the previous audit report, Nile Hotel International Ltd (NHIL), the Government of Uganda and TPS (U) Ltd signed a Concession agreement dated 15th January, 2004. According to the agreement, NHIL was to earn 4% from the gross Revenue of TPS (Uganda) limited. It was however noted that the agreement did not provide an independent mechanism under which NHIL could verify the gross revenue earned by TPS (Uganda) Ltd so as to assess the fees to be paid to NHIL.

As a result, NHIL is wholly dependent on information provided by TPS (Uganda) Ltd to determine the gross revenues and therefore compute the concession fees.

In the absence of an independent verification mechanism, I could not confirm the completeness and accuracy of the concession income reported in the financial statements. There is a risk that the Concessionaire may under declare the gross revenue and hence remit less fees to NHIL.

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In their response, management stated that efforts to streamline the process of monitoring the concession were under way with the team set to meet the concessionaire to discuss various issues including establishment of a monitoring framework to ensure that the provisions of the concession and lease agreement are fulfilled. I await the outcome of management efforts on the matter.

42.2 Non-depreciation of Buildings

IAS 17 requires that assets held for operating leases should be presented in the balance sheet of the lessor according to the nature of the asset. This implies that the buildings leased out to TPS(U) Ltd should be reflected in the financial statements and accordingly be depreciated. However, a review of the financial statements of NHIL revealed that the buildings have not been depreciated contrary to the provision. In the circumstances, the value of Property, plant and equipment stated at Shs.74,661,946,566 in the statement of Financial Position is misrepresented.

Management in their response stated that at the time of drawing up the concession agreement, depreciation of buildings was not taken into consideration because management thought depreciation of the building would have the effect of eroding income from concession fees. However management indicated that efforts are being made to have a unified position on how to treat concessioned assets in the books of accounts. I await further action following their consultation.

42.3 Prior Year Adjustments

It was noted that a prior year adjustment totalling Shs.86,860,795 was reflected in the Cash Flow Statement. However, no explanations were provided for this adjustment. Besides it is not clear how a prior year adjustment would involve movement of cash. Therefore, this appears to contravene IAS 1 which requires only cash inflows, outflows and cash and cash equivalent to be included in the cash flow statement. Whereas management regretted the anomaly and undertook to make the necessary adjustments to the financial statements, this had not been done by the time of writing this report.

42.4 Irregular Payment of Loan Interest

It was noted that a total of Shs.1, 083,135,076 was paid to Privatization Unit for settlement of interest that had accrued on a loan that was borrowed from the

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Privatization and Utility Sector Reform Project in 1997. However, a review of the budget for the period under review revealed that payment for interest on this loan was not provided for. Furthermore, a review of the statement of Cash flows revealed that a loan amounting to Shs.1,224,804,082 had been cleared as at 31st December, 2010. In the absence of satisfactory explanation, I could not confirm the circumstances under which the interest was paid.

In response, management admitted that loan interest was not provided for in the budget. I advised management to always ensure that all expenditures are properly budgeted for.

42.5 Unauthorized Over Expenditure Shs.355,199,853

It was noted that the Company incurred over expenditures on several budget items as shown in the table below:- Item Budget (Shs) Actual (Shs) Variance (Shs) Consultancy 84,194,000 111,322,332 (27,128,332) Rent 42,000,000 47,172,819 (5,172,819) Interest on loan 89,194,000 412,092,702 (322,898,702) (CHOGM) Total 215,388,000 570,587,853 (355,199,853)

There was no evidence that proper reallocations and/or virements were approved before incurring the above over expenditures contrary to the financial regulations. This has the effect of failure on the part of management to fully undertake other planned activities.

Management in their response explained the cause of the over expenditure but did not provide the relevant virement/re-allocation warrants. I advised management to always ensure that they adhere to the approved budget and use recommended procedures, in case there is need to make adjustments.

42.6 Unspecified Tenure of Office of Board Members

The Board of NHIL is composed of 4 (four) members appointed by the Minister of Finance, Planning and Economic Development. Best practice requires that members of the board are appointed on contract for a specified period not exceeding two terms. It was however, noted that some members had been on the board since 1994. A review 223

of the personal files of the board members further revealed that though one member had a definite term of office of 3 years, the other three did not have their period of tenure disclosed in their letters of appointment. I advised management to take up the matter with the appointing authority.

42.7 Signatories to Bank Accounts

It was noted that the Chairperson and one other member of the Board are signatories to the Company bank accounts. This contravenes the principles of good corporate governance which requires the board to delegate authority to management for proper separation powers and smooth running of the concession.

Management stated that their current operation is maily administrative and this requires a lean structure. They further stated that their involvement in the Company operation is due to this lean structure but they are in the process of recruitment of a manager who will take over the running of the Company.

I advised management to ensure that a proper administatrive structure is put in place and all positions filled with qualified staff to enable smooth running of the concession and the detachment of the Board of Directors from the day to day running of the Company.

42.8 Current Staffing Level and Structure

It was noted that NHIL has only one employee at the rank of administrative assistant. The Board needs to establish and fill a proper management structure to execute the day to day management of the affairs of the concession.

In the absence of properly qualified staff to manage the hotel, it implies that the board cannot effectively monitor and evaluate the implementation of policies, strategies and business plans of the concession.

42.9 Outstanding Trade Payables of Shs.34,621,025

It was noted that Trade Creditors totalling Shs.34,621,025 remained outstanding by the time of writing this report. Included in this balance is the money owed by the Board to KCCA (Shs.20,719,675). Delays in settlement of outstanding obligations attract penalties and other related fines.

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In their response, management stated that they were in the process of reconciling the records with KCCA with a view to establishing the outstanding amount.. I await the outcome of this activity.

42.10 Lack of Finance and Accounting Manual

It was noted that the company does not have a finance and accounting manual to guide in the accounting policies, systems and procedures that would ensure that the finance function is managed effectively and that the financial statements are prepared in conformity with set standards

Management stated a consultancy was in place to prepare the manual. I await conclusion of the consultancy.

42.11 Asset Management

Best practice requires that a company put in policies for the management of assets including acquisition, usage, maintenance,safety and disposal. However it was noted that the company lacks written policies for the management of its fixed assets. It also does not maintain a comprehensive Fixed Assets Register that provides necessary information for the carrying value of their assets. . I advised that a policy be put in place to guide the management of assets since the company is an investment company. I also advised that there is need to properly maintain records in the FAR to chronologise the investments of the Company. This will enable proper ascertainment of value periodically and at the end of the concession agreement.

43.0 UGANDA EXPORT PROMOTION BOARD - YEAR ENDED 31ST DECEMBER 2011

43.1 Un-Supported Leasehold Value

As reported in our previous report, IPSAS 16 (27) requires that where an investment property is acquired through a non cash exchange transactions, its cost shall be measured at its fair value at the date of acquisition. However, it was noted that the board acquired land from Uganda Broadcasting Corporation stated at Shs.2.4 billion, but this value is not appropriately supported by a valuation report.

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Although management made a detailed disclosure under note 11 on the treatment of this interest, in the absence of a valuation report, I was unable to confirm that this leasehold interest is fairly stated as is required by the standard.

In response, management indicated that they had communicated to the Chief Government Valuer requesting for a conclusive formal valuation report. The team undertook to avail a copy of the report when received. I await the outcome of management‟s commitment in this regard.

43.2 Unsupported Cash and Cash Equivalents

Included in the cash and bank balance of Shs.106,792,025 is a sum of Shs.104,687,925 in respect of bank balances as at 31st December 2011. However, the balances were not supported with certificates of bank balances and bank reconciliation statements. In the circumstances, I could not confirm the correctness of the reported balances.

Whereas management in response indicated that the certificates had been requested for, they were not available at the time of writing this report. I advised management to append the certificates and bank reconciliation statements to the financial statements for verification.

43.3 Undischarged Obligations

A review of the payable ledgers revealed that NSSF, PAYE and Withholding tax deducted from employee salaries and payments to suppliers had not been remitted to the respective statutory bodies. (See table below). Deduction Amount (Shs.)

NSSF 305,789,306 PAYE 17,728,463 Withholding Tax 26,927,240 Total 350,445,009

Failure to remit statutory deductions may attract penalties and related fines.

In their response, management stated that they had petitioned the MOFPED through their parent Ministry of Trade, Industry and Cooperatives (MTIC) on dwindling releases that had occasioned the unrealized funding totaling UGX958 million since 2010 to date,

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consequently leading to their failure to remit statutory obligations. I advised management to follow up the matter with the Ministries.

43.4 Uncollected Receivables

Included in the debtors balance of Shs.364,171,161 and further expounded under note 4 to the accounts is Shs.290,349,421(representing 80%) in respect of a shortfall owing to Ministry of Trade, Industry and Cooperatives. In the circumstances, the Board is constrained in executing the approved budget. I advised management to take up the matter with Ministry.

43.5 Levy on Designated Imports

Section 13(a) of Uganda Export Promotion Board Statute 1996 empowers the Board to collect a levy of not more than 0.5% on designated imports. Contrary to this requirement, there is no evidence that the board collects the levy as required. Failure to implement such provisions in the statute causes loss of revenue to government.

Management acknowledged the shortcoming and undertook to take it up with MTIC given that the UEPB Act has no enabling policy to implement the collection. I await management‟s action in this regard.

43.6 Lack of Human Resource Manual

A review of the operations of the activities of UEPB revealed that it does not have a Human Resource Manual in place. Such a manual would comprise of the HR policies of the organization along with a wide overview of different HR procedures such as work force planning, enlisting, pay packages and profits, grooming, employee governance and many others. This situation has been aggravated by the fact that UEPB does not have a human resource department contrary to best practice which requires an organization to have a separate department to oversee the affairs of its personnel.

Related to that, it was noted that out of the 44 established posts, 14 posts were found vacant at the time of writing this report. The vacant posts are: Personal Assistant/Executive Director, Administrative Assistant, Human Resource Development Officer, Accounts Assistant/Cashier, Front Desk Officer, Policy Planning Research Officer, Exhibition Manager, Coordinator Projects, Senior Trade Promotion Officer, Senior Trade Promotion Officer/Agric, Trade Promotion Officer (Livestock and Entomology), Director 227

UGET Training School, Trade Promotion Officer (market linked programmes) and Training Coordinator UGETs. Apparently, most of the vacant posts are key and failure to fill such posts may negatively impact on the performance of the Board.

In response, management explained that they are planning to revise the current Terms and Conditions of service which they have been using since 2007 to include aspects of HR policies and procedures. It was further stated that the team was planning to draft a human resource manual for the new board to approve. I advised management to expedite the recruitment process to enable the organization execute its mandate effectively. In an addition, a human resource manual should be put in place.

43.7 Non Alignment of Budget with Reporting Dates

It was noted that Uganda Export Promotion Board prepares its budget using 30th June as the financial year end yet the financial statements are prepared following calendar year (31st December). This contravenes section 2 of UEPB Statute, 1996 which stipulates the financial year as a period of 12 month starting from 1st January and ending 31st December. The non-alignment of the budget closing date and that of the financial statements reporting date renders comparison of estimates against actual results difficult.

Management responded that part 1 of the UEPB statute, under INTERPRETATIONS, “financial year” means in respect of any accounting period, a period of twelve months starting the 1st January and ending 31st December. In compliance with the statute, UEPB accountants have therefore prepared accounts for the period ending 31st December. However, management acknowledged the need for amendment of the Statute with regard to the definition of the “financial year” to comply with GOU accounting period. The team undertook to advise the BOD accordingly. I advised management to rectify this anomaly for ease of comparison between estimates and actual results.

43.8 Absence of a Strategic Plan

It was noted that UEPB does not have a strategic plan. Strategic planning is an organization process of defining its strategy, or direction and mission to drive the growth of its business. Therefore, in the absence of a strategic plan, the Board operates without proper direction.

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Whereas management in their response indicated that a strategic plan had been drafted awaiting board approval after inauguration, a copy was not availed for verification. I advised management to ensure that they develop a strategic plan.

43.9 Outstanding Advances

Business Advances amounting to Shs.39,699,192 remained outstanding as at year end. Delayed accountability of advances may lead to falsification of documents.

Management responded that at the time of preparing the report the business advance figure of UGX 39,699,192 was the closing balance, but when the staff responsible for this accountability submitted part of the accountability it was posted and that reduced the balance to UGX 24,629,962. I advised management to put in place a credit management policy.

43.10 Lack of a Finance and Accounting Manual

It was noted that UEPB does not have an approved Finance and Accounting Manual. The manual is meant to describe the accounting policies, systems and procedures to ensure that financial statements are in conformity with Generally Accepted Accounting Principles (GAAPs) and that finances are properly managed. In the absence of the manual, the basis of preparation of the books of accounts and whether they are consistently applied is not certain.

Management responded that the draft manual that had been in use since 2007 was revised in the first quarter of 2009. However this coincided with the expiry of the terms of the BOD hence delaying approval. Management undertook to present the draft to the New Board for approval. I advised management to ensure that the manual is formally approved by the Board.

43.11 Absence of an Internal Audit Function

Best practice requires that internal audit conduct reviews on activities implemented by the entity and advise management on the effectiveness of the internal controls as well as its risk management strategies. Under the Public Finance and Accountability Regulations (27) (1), it is also stated that internal audit helps the reporting unit to accomplish its objectives by “bringing a systematic and disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes.” 229

However, it was noted that there was no internal audit function in place and even though the board is within the ministry which has an internal audit team, there was no evidence of an internal audit review of the board activities. There is a risk that weaknesses in the internal control structure regarding board management and expenditures are not timely identified and addressed.

In response, management explained that persistent inadequate funding arising from consistent budget cuts inhibited the recruitment of key staff. However, the team was optimistic that the matter would be given the urgency it deserves by the new Board. I advised management to endeavour to have an internal audit function.

43.12 Accounting Software

A review of the financial management Systems revealed that UEPB uses Tally ERP software which does not instantly produce financial statements/reports. It was noted that all transactions including preparation of the financial statements are done manually but later fed to the system merely to generate the required reports. In the process, a lot of mistakes are made for example figures in some of the payment vouchers and those in the corresponding electronic print are sometimes different.

In their response management stated that the purchase of more robust software had been considered a provision had been made in all the budget requests to Ministry of Finance. Management undertook to acquire the software as soon as sufficient funding is received.

I await management‟s commitment in this regard.

43.13 Lack of Asset Management Policies

Best practice requires that an organization puts in place an organization structure and policies to facilitate and regulate the management of assets including acquisition, usage, maintenance and disposal. These policies can also be used as a basis for establishing internal controls for management of fixed assets. However, it was noted that UEPB lacks written policies for the management of its fixed assets.

The above omissions may lead to loss of assets due to theft or even the acquisition of assets that do not meet the needs of the board. In addition, absence of such policy impairs replacement planning.

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Management responded that the finance division was set to develop a draft asset management policy for board approval. I advised management to put in place an asset management policy without further delay.

43.14 Lack of Documented IT Strategy

During the period under review, it was observed that UEPB does not have a documented IT strategy in place. IT strategy provides an overall plan which consists of objectives, principals and tactics relating to use of Information technologies within the organization. Also noted was that the Board does not have IT security policy. The IT security policy deals with Computer system security, physical security, operational security, procedural security and communication security domains. The absence of the IT strategy implies that management may not easily take strategic IT investment decisions

In their response, management stated that the division for management of information system was scheduled to develop a draft IT strategy and management policy for approval by the new BOD. I await management‟s commitment in this regard.

43.15 Direct Procurement

According to procurement file reference number 07855, UEPB procured 5 air tickets at a cost of Shs.10, 880,000 from Bunyonyi Safaris Ltd. A review of the procurement file revealed that this was a direct procurement, but it was noted that the PDU did not obtain quotations from other prequalified suppliers for ticketing services contrary to PPDA Regulation 119. It was further noted that Bunyonyi Safaris Ltd was the major upplier of air tickets during the period under review yet it did not enter into a framework contract arrangement with the Board. In the absence of competition, the Board may have compromised value for the money spent.

Management stated that prices are normally determined by the service providers and they are always the same. However they acknowledged the shortcoming, and as a remedy the PDU and the contract committee were in the process of formulating framework contracts for frequently used items like fuel, printing, air tickets, hotel services, motor vehicle repairs among others. I advised management advised to always ensure adherence to the basic procurement principles as set out under Sections 44 to 54 of the PPDA Act 2003.

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43.16 Payables – Bunyonyi Safaris

A review of the financial statements revealed that the amount owed by UEPB to Bunyonyi was Shs.7, 551,340. However, I could not confirm the accuracy of this figure since invoices to support the outstanding balance were not availed for audit.

Management in their response stated that the balance reflected in the financial statement was a ledger balance remaining after making a partial payment on some invoices. Hence it was not possible to provide a single invoice of the balance in question. Further a reconciliation to ascertain the balances had not been completed at the time of audit. I advised management to provide the creditor‟s file for verification.

44.0 UGANDA PROPERTY HOLDINGS LIMITED - YEAR ENDED 30TH JUNE 2012

44.1 Idle Carport Facility

In the year 2009, Uganda Property Holdings completed the construction of a Carport at Plot 2448, Makupa Causeway in Mombasa, Kenya with a capacity of 2,500 cars. However, physical inspection of the facility on 22nd January, 2013 revealed that it was not operational. In the circumstances, cash flows from this revenue source were significantly curtailed as evidenced by the non-collection of rentals from this facility during the year compared to Ugx 1,483,286,000 realized in the previous year. Management in their response stated that they were requested by Ministry of Finance to establish a car port facility in Mombasa to decongest the Mombasa port and ease movement of goods and vehicles to Uganda. However, the Company has met a lot of resistance from Kenya Revenue Authority (KRA) in regard to acquisition of an operating license. According to management, continued frustration by KRA and other CFS operators was making the venture unprofitable in the short run but this was expected to change soon. Management was optimistic that the car port would be in operation soon as a tenancy agreement had been with M/s. Unifright Ltd, awaiting only operational licence.

I advised management to take up the matter with the relevant Authorities with a view to reviving the facility to generate the much needed rental revenue.

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44.2 Loan Interest Kshs. 134,152,306.80

Management obtained a loan amounting to K.Shs.200,000,000 in 2006 to finance the construction of a car port in Mombasa with a repayment period of 7 years. However due to intricacies surrounding the operation of the carport, UPHL failed to service the loan using rental income as per the loan agreement thus compelling management to reschedule the loan repayment for a further 7 years at a high interest totaling to K.Shs.134,152,306.8. In the circumstances, repayment of the principle amount plus the associated interest is bound to significantly curtail the activities of UPHL.

In their response management stated that they expected their cash flows to improve when the new tenant M/S Unifright Ltd starts operation. With improved cash flows the option of early loan settlement would be evaluated. I advised management to ensure that, they identify alternative sources of funding in order to reduce the loan repayment period and interest to be paid.

44.3 Inadequate Staffing

The entity had an approved staff establishment of 24 posts. However it was noted that only 17 posts were filled leaving a staffing gap of 7. The staffing gaps mostly affected the departments of Finance, Operations and Administration as detailed in the table below:-

Position Department No.

Manager - Finance & Finance 1 Admin

HR Officer 1

Manager Operations Operations 1

Manager - Uganda 1

Estates Officer 2

Personal Secretary Administration 1

Understaffing impacts negatively on the level of service delivery and achievement of the entity‟s objectives. In their response, management indicated that UPHL was gradually building its human resources. Three years ago, UPHL had six staff compared to the current seventeen. The

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team undertook to continue gradually filling the vacant positions in their order of priority seriously considering cash flows and profitability levels.

Management was advised to expedite the process of recruitment to enable the organization execute its mandate effectively.

45.0 UGANDA DEVELOPMENT COMPANY LTD. - 31ST DECEMBER, 2009

45.1 Long-outstanding Receivables

Included in the Schedule of receivables (Note 5) is a sum of Shs.139,815,000 in respect of amounts due from subsidiaries and associates, trade and staff that arose way back in the 1990‟s. It was noted that the possibility of recovery of these amounts is very remote since management has not made any efforts to follow up this matter.

In their response, management indicated that they were waiting for appointment of the Board to approve recommendation for write off. I explained to management that the option for write off should only be made following the authorized procedures if management has exhausted all possible recovery measures available at its disposal, including the courts of law.

45.2 Long-Outstanding Loan

Included in the Statement of Financial Position and note 8 to the Financial statements, is a long term loan obtained from the European Investment Bank amounting to Shs.1,476,908,000. The principal loan amount was Euro.477,693.61 (equivalent to Shs.1,304,003,000) which was used to acquire equity in DFCU and was meant to be settled using dividends from the shares which were held by the Ministry of Finance, Planning and Economic Development (MoFPED). In the circumstances, the loan continues to attract interest on the outstanding amount and further exposes the Company to foreign exchange risk.

In their response, management indicated that the matter was being followed up with MoFPED. I advised the Company to ensure that the loan account is reconciled and to

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liaise with MoFPED to make arrangements to repay the loan since the shares acquired were sold off way back in 2004.

46.0 UGANDA DEVELOPMENT COMPANY LTD - 31ST DECEMBER, 2010

46.1 Long-Outstanding Loan

Included in the Statement of Financial Position and note 8 to the Financial statements, is a long term loan obtained from the European Investment Bank amounting to Shs.1611,787,000. The principal loan amount was Euro.477,693.61 (equivalent to Shs.1,304,003) which was used to acquire equity in DFCU and was meant to be settled using dividends from the shares which were held by the Ministry of Finance, Planning and Economic Development (MoFPED). In the circumstances, the loan continues to attract interest on the outstanding amount and further exposes the Company to foreign exchange risk.

In their response, management indicated that the matter was being followed up with MoFPED.

I advised the Company to ensure that the loan account is reconciled and to liaise with MoFPED to make arrangements to repay the loan since the shares acquired were sold off way back in 2004.

46.2 Parallel Existence of Two Entities

It was noted that as a result of a cabinet directive to revive Uganda Development Corporation (UDC), two entities namely Uganda Development Company Limited (within Privatization Unit) and UDC (Soliz House) operated side by side during the year under review. In the circumstances, duplication of mandate is highly probable.

Management in their response indicated that the position would be harmonized as soon as the legal status of UDC is clarified. The team added that plans were underway to have the Caretaker management transferred to Soliz House.

I await management‟s action on the matter.

46.3 Status of Prior Year Audit Recommendations

The status of the issues pointed out in my previous audit report is indicated below:-

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Issues raised Remarks 1 Outstanding Loan from EIB amounting to Issue not yet resolved Euros.477,693.61

2 Long outstanding receivables Issue not yet resolved

47.0 UGANDA WILDLIFE TRAINING INSTITUTE- YEAR ENDED 30TH JUNE, 2012

47.1 Lack of Land Title

The Uganda Wildlife Training Institute is located on a thirty (30) acre piece of land. However, it was noted that the Institute does not have a land title for this property. There is a risk of encroachment due to lack of title to the property.

In their response, management indicated that the process of acquiring the land title had started and a submission to the district land board had been made. I advised management to expedite the process of acquiring the land title.

47.2 Missing Boat

Scrutiny of the FAR revealed that the Institute has a Fibre Glass Speed Boat Trojan that was stationed at Mweya safari lodge. However the physical existence of the boat could not be verified as the boat was not cited at the lodge during inspection. Later management said the boat had been transferred to Lake Mburo. No explanation was offered for the change of location yet the boat is used for training the students. Besides, the location of the boat was changed without updating the FAR. In the circumstances, I am unable to verify the asset.

Management in their response indicated that Uganda Wild Authority (UWA) took custody of the boat when the FAO project ended because UWTI lacked adequate structures. According to management, efforts to recover the boat have so far been futile. However, more effort will be put to recover the asset.

I have advised Management to follow up the matter further with the authorities..

47.3 Inadequate Staffing

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It was noted that out of the 35 established posts, 26 posts had been filled thereby leaving 9 posts vacant. Included in the unfilled posts are positions of Principal and Deputy Principal which are critical to the establishment, It was also noted that the Acting Bursar writes payment vouchers, passes them for payment, writes the cheques, cashes the cheques, and pays out the money.

Management in their response indicated that the Institute had only 10 staff on government payroll and as such 16 were locally recruited. It was further stated that 5 staff were interviewed and a submission for the post of the principal has been made awaiting interview. I advised management to liaise with Ministry so as to have all vacant posts filled to enable the Institute fulfil its mandate.

47.4 Construction works of the Multipurpose Hall

The Institute engaged a Construction Company to construct a multipurpose Hall and kitchen for a contract sum of Shs.370m. However, the works had apparently stalled given that the completion date was March 2011. It was noted that roofing, plastering, fitting of doors and window frames had been done for which Shs.295m had been paid.

In addition, the procurement file was not availed to establish the scope of the works.

Management in their response explained that the Contractor would be compelled to complete the remaining works according to the agreement once funds are secured.

I advised management to secure funding to avoid contractual provisions that could lead to extra costs in form of penalties.

47.5 Non-existent Procurement Structures and Non-preparation of a Procurement Plan

It was noted that management of the institute did not prepare a procurement plan for the period under review contrary to Section 58 of PPDA Act 2003. Also noted was that management did not put in place a contract committee. All the procurements were done by the principal in person and all purchases were done on cash basis.

According to management the term of office for contract committee members expired and names for the proposed members had been submitted to the ministry for approval. I advised management to ensure adherence to PPDA laws and regulations.

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47.6 Disposal of Old Assets

It was observed that a number of old and obsolete assets were still in the stores. In the circumstances, the assets are exposed to further physical deterioration and diminution in value.

Management in their response undertook to dispose of the assets as required.

I await management‟s action in this regard.

47.7 Incomplete Fixed Assets Register

The Institute does not have an adequate up to date fixed assets register. The columns for vital information like unique identification numbers, values/cost of the assets, depreciation rates, and useful lives and were found lacking in the register availed for audit. It was further noted that all the moveable assets apart from vehicles did not have unique identification numbers. Failure to have an adequate FAR implies that management has no control over assets and in case of theft management may fail to identify the stolen items.

I advised management to ensure that the FAR is updated with the necessary information.

47.8 Improper Budgeting

It was noted that the management of the Institute had not put in place a proper budgeting process as the work plans availed were not to the required detail. Projections on Revenue generated locally and projected expenditures were not clearly identifiable. In the circumstances implementing of the Institute‟s Mandate is arbitrary.

Management in response undertook to ensure that the governing council approves the work plans and budgets on annual basis. I advised management to ensure that the budget is prepared and properly approved by the relevant authorities on an annual basis.

47.9 Inadequate Transport Facilities

It was noted that out of five vehicles owned by the Institute, only one vehicle was in a running condition. The rest of the vehicles were grounded and this has grossly affected

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proper running of the Institute. Lack of adequate vehicles made field work training for students difficult. In addition, the lives of students are endangered while riding in old vehicles through the National Park.

The accounting officer stated that the matter was brought to the attention of the line Ministry. I advised management to follow the matter with the line Ministry.

47.10 Lack of Training Policies and Programmes

It was observed that the institution lacked formally documented training policies and programmes to enhance the development of professional skills of the employees. There was no evidence of periodic analysis of knowledge, skills and abilities to appropriately perform jobs. No training/cross training and counselling was provided to help employees maintain and improve their skills. Lack of a formally documented training policy and programme may negatively impact on the performance of the individual staff and the institution as a whole.

Management in response attributed the state of affairs to inadequate subvention from Government. Otherwise, the matter had been presented to the Line Ministry. I await the outcome of management‟s action in this regard.

47.11 Lack of a Human Resource Policy

Audit noted that the institution lacked policies and procedures for recruiting, orienting, counselling, promoting, compensating and terminating employees. Performance appraisal was not done in the period under review and prior periods and no promotion of staff was done. The institute did not have a human resource manual and lacked a human resource section. In the circumstances, there is a risk that the operational objectives of the Institute may not be achieved as intended.

Management in response undertook to put one in place. I await management‟s commitment in this regard.

47.12 Lack of Risk Management Policy

It was noted that management does not have a risk management policy in place and an effective entity-wide risk assessment and management frame work. There were no formally documented policies, procedures and guidelines for risk management and there

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were no personnel in charge of risk management. Lack of a risk management policy, procedures, guidelines and personnel makes the institution's risk profiling, assessment and management difficult thereby compromising the achievement of the entities goals and objectives.

Management in their response promised to put the policy in place. I await management‟s commitment in this regard.

47.13 Lack of Asset Management Policy

Best practice requires that an institution puts in place an asset management policy to regulate asset acquisition, replacement, usage, maintenance and disposal. It was however, noted that management failed to establish control procedures and policies to protect tangible and IT resources. There was no clear guideline on access to resources, records and accountability for their custody.

In view of the foregoing, the institute‟s assets are prone to misuse and improper functioning. In addition, in the absence of an asset acquisition policy, procurements may not take into account the needs of the entity.

Management in response promised to put the policy in place. I await management‟s commitment in this regard.

47.14 Inadequate Learning Environment

Inspection of the computer lab revealed that, only 1 out of the 11 computers was functional. This could be attributed to absence of an assets maintenance policy. In the circumstances, proper learning is impaired.

Management stated the issue was brought to the attention of the line ministry. The old computers were to be disposed of. I advised management to follow up the matter with the Ministry.

47.15 Lack of Finance and Accounting Manual

Audit noted that management failed to establish proper budgeting, accounting and reporting policies and procedures. There was no finance and accounting manual, chart of accounts, regulations and instructions, no manual or system journal entries, no documented financial closing procedures, no cash books, ledgers and financial

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statements. Management also failed to employ a qualified and experienced accountant during the period under review and prior periods. The Acting Bursar and the cashier who are currently manning the accounting department lacked qualification and the capacity to write books of accounts and financial statements. In the circumstances, there is a risk that the Institute may not achieve its financial reporting objectives.

Management promised to put one in place. I advised management to expedite the exercise.

47.16 Lack of a Fraud Control Policy

During the period under review, it was noted that Uganda Wildlife Training Institute (UWTI) did not have a fraud control policy in place. A fraud policy statement should apply to the managers and employees of an entity and equally important, should demonstrate the organization's commitment to detection and prevention fraud. Lack of a fraud policy may put the resources of the institute at risk of misappropriation.

Management promised to put a policy in place in the coming financial year. I await management‟s commitment in this regard.

48.0 UGANDA WILDLIFE EDUCATION CENTRE

48.1 Unsupported Cash & Cash Equivalents

Included in the cash and cash equivalents balance of Shs.177,204,720 is a sum of Shs.171,440,948 in respect of bank balances. However, the balance was not supported with certificates of bank balances and bank reconciliation statements for the month of June 2012. In the circumstances, I am unable to confirm the stated balances.

I advised management to undertake reconciliation of the balances.

48.2 Unsupported Receivables and Payables

Receivables and payables amounting to Shs.25,223,558 and Shs.171,055,192 respectively were reported in the statement of financial position. However, the balances were not supported with detailed schedules contrary to best accounting practice. There is a risk that the figures could be misrepresented.

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Management in their response stated that the schedules showing individual account opening balances, additions, recovery/payment and closing balances were available for verification. However, at the time of verifying responses the schedules were not availed. I advised management to provide the schedules to enable verification.

48.3 Revenue Shortfall

The Centre budgeted to receive revenue amounting to Shs.1,529,133,000 from Government of Uganda and Entrance Fees during the year under review. However, it was noted that only Shs.1,163,992,884 was realized thereby resulting into a shortfall of Shs.365,140,116 as indicated in the table below:-

Revenue Source Budget Actual Shortfall (Shs.) (Shs.) (Shs.) GoU 300,000,000 142,665,000 157,335,000 Entrance Fees 1,229,133,000 1,021,327,884 207,805,116 Total 1,529,133,000 1,163,992,884 365,140,116

Failure to collect the projected revenues constrains the Centre‟s cash flows thereby impacting negatively on the implementation of the planned activities.

Management in their response attributed the shortfall to low business activity in the economy than expected. I advised management to follow up the matter with the authorities and also develop a strategy to improve revenue collection.

48.4 Unplanned Procurements

Regulation 96 Para (3) states that a procurement and disposal unit shall use the combined work plan to plan, organize, forecast and schedule the procuring and disposing entity's procurement activities for the financial year. However, a review of the payments showed that the following procurements were made outside the plan:

File Name Provider U.Shs. SUPLS/11-12/00239 Firm 13,000,000 SUPLS/11-12/00205 Firm 30,000,000 SUPLS/11-12/00203 Firm 6,450,000 NIL Firm 1,600,000 NIL Firm 1,377,626

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NIL Firm 1,338,120 TOTAL 53,765,746

The practice affects the implementation of planned activities.

Management in their response acknowledged the anomaly and undertook to comply with the procurement law in future. I await management‟s commitment in this regard.

48.5 Irregular Use of Technical Compliance Selection

Regulation 214 Para (1) provides that Technical Compliance Selection is the evaluation methodology that recommends the lowest priced bid, which is substantially responsive to the commercial and technical requirements of the procuring and disposing entity. However it was noted that management ignored the evaluation methodology and decided to award the contracts totalling Shs.347,827,152 to all firms that submitted their bids instead of the compliant ones.

Management in their response acknowledged the shortcoming and promised to improve in future. Management is advised to adhere to the procurement laws.

LANDS & HOUSING SECTOR

49.0 NATIONAL HOUSING & CONSTRUCTION COMPANY (NHCC) LIMITED FOR THE YEAR ENDED 31ST DECEMBER, 2011

49.1 Land Located in Namungoona

The Company has interest in a land lease in Namungoona. The land is encumbered with numerous squatters who have hindered its development because efforts by the company to repossess this land occupied by squatters have not been successful. It was noted that some of the squatters sued the company for compensation as legal customary tenants. From my discussions with management, it was explained that the valuation of the property in Namungoona is currently understated and this would call for its revaluation with consideration given to the squatters occupying parts of the land. Under the circumstances, I was unable to conclude on the value, rights and obligations of the Namungoona land as recognized in the financial statements and any liabilities that

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may accrue as a result of the suit. I have advised management to continue exploring all the available lawful options to enable it secure the land in question.

49.2 Mbuya Land

It was noted that the company holds a registered title of land in Grant No.27571 registered in Volume 22 Folio 18 of the Freehold Register measuring 16.57 acres. This land is currently occupied by Ministry of Defence. The company has not been able to take possession of this land and it was not recognized in its financial statements. Further discussions with management indicated that there could be other pieces of land across the country with no documentation maintained by the company given the historical nature of how some of the land was obtained. As a result, I was unable to confirm completeness of land belonging to the company by the time of compiling this report. I have advised management to undertake a detailed search of all the company assets (land) and ensure that all assets are accounted for appropriately in the company‟s financial statements.

49.3 Investment in Shelter Afrique

In 1994, the Government of Uganda (GoU) through Ministry of Lands and Housing decided to transfer its shares in shelter Afrique to National Housing and Construction Company. The company paid for 500 shares at a cost of Us$.500,000 in addition to the Us$.25,000 that the GoU had deposited. However, this shareholding has remained registered in the names of GoU as the transfer was still pending the Parliament of Uganda approval. The GoU continues to control and use the shares for the benefit of the entire real estate industry where other private companies in the industry have borrowed funds from Shelter Afrique using the guarantee of the shares without the knowledge of the company.

In the circumstance, it was noted that the company does not retain the risks and benefits of ownership and therefore the shares in Shelter Afrique should not have been accounted for as investments but rather as receivables from the Ministry of Lands, Housing and urban Development.

49.4 Irregular Offsetting of Dividends Payable Against Receivables

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Sections 9 and 13 of the Public Finance and Accountability Act, 2003 require all revenue due to Government to be remitted to the Consolidated Fund and be appropriated by Parliament in accordance with the Appropriation Act. In addition, the International Accounting Standard (IAS) 32 requires that financial assets and financial liabilities are offset if there is an enforceable legal right to do so. However, it was noted that during the year under review, the company withheld dividend due to Government amounting to Shs.2.11 billion which was offset against receivables (rent) due to the company allegedly from State House and Ministry of Defence which are occupying the company‟s premises. As a result, the dividends payable and trade receivables reported in the company‟s financial statements are understated by Shs.2.11 billion, which is contrary to the requirements under IAS 32 as well as the Public Finance and Accountability Act 2003. I have advised management to have this matter accordingly addressed.

49.5 Kireka Land Encumbrance

National Housing and Construction Corporation leased from Kireka Estate Limited, 250 acres of land for 99 years from January 1966 and 42.6 acres for 49 years from September 1968. In 2003, Kireka Estates Ltd, sued the Company for breach of the terms of the lease agreement which included failure to pay ground rent, change in user for residential estates and lack of protection of the land hence occasioning degradation. On 5th December 2011, the court ruled in favour of Kireka Estates Ltd and ordered the company to pay Shs.13 billions (equivalent to Us$.5,149,000) to Kireka Estates Ltd, in full and final settlement of the suit as well as acquisition of Kireka Estates Ltd‟s reversionary interest for the land in question, which the company subsequently paid. However, it was noted that the land is highly encumbered with squatters making the repossession and redevelopment of this land difficult. Noted further was the fact that the land has been earmarked by government for redevelopment under the Kireka Slum Upgrading Project. Under the circumstances, there is uncertainty as to whether the company will eventually take possession of the said land which is currently valued at Shs.16.23 billion.

49.6 Matching Costs to Revenue Earned

A review of NHCC policies revealed that the company has a 6 months liability period over which costs incurred on repairs and general maintenance of the completed projects are being borne by the company and not the tenants. It was noted that this in effect 245

implies that the costs incurred during the liability period on these projects (houses) are not matched to the revenue previously recognized. For example, Shs.579 million was incurred by NHCC on Kiwatule as general maintenance and repair costs after project completion during 2011. As a result, the company‟s performance for the period under review was understated by the costs in relation to the previous year performance.

Management explained that the finance manual was recently amended and the additional costs for maintenance are now budgeted for separately in the respective years when these costs are expected to be incurred and subsequently expensed. The labour retention fees are now also accrued and added to the total project construction cost. I advised management to make provisions for such costs in the year of sale based on experience.

49.7 Costs Incurred after Project Completion but Absorbed to Remaining Unsold Units

The finance costs arising from loans initially taken for the purpose of financing projects are allocated and absorbed to only unsold units. This makes the cost of sales higher for the unsold units implying that the company recognizes higher profits in earlier years than in the later years. An example of projects illustrating variations in the unit costs for the respective projects for the different years is as follows:-

Project Original Current Additional Selling – Cost - Shs Cost - Shs Cost - Shs Shs (2010) (2011) (Fixed) Regina Phse 1 448,502,606 492,154,995 43,652,389 558,699,700 Kiwatule Phase 1 124,017,832 148,288,530 24,270,698 155,640,000 Namungoona 60,221,598 71,804,744 11,583,146 78,329,531 Phase 1

The implication of this practice is that the financial performance of the company gets distorted as margins on sale of houses vary with the number of units sold or unsold.

In their response, management explained that the finance manual is to be amended during the year 2012 to include among others; an improved policy on recognition of anticipated project related costs to deal with such distortions. I have advised

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management to ensure that all costs pertinent to a particular project are properly anticipated and applied in the recognition of revenue.

49.8 Projects not Completed Timely

It was noted that some of the projects were completed after the planned completion dates. This indicated a lapse in planning leading to increases in the overall costs of project completion at the expense of profitability. For example, the Regina Estate project phase II for 22 units commenced on 1st March 2010 with a planned completion date of 28th June 2011. This was later extended to 28th February 2012. The Kiwatule project was also completed after its planned completion date of 30th June 2009. Delays in projects completion lead to escalating costs which may not be recoverable from Units proceeds given that the Unit prices are predetermined.

I advised management to ensure that projects are completed timely to minimize on the impact of the fluctuating commodity prices which impact on project profitability.

49.9 Inactive Bank Account

The company maintained an inactive bank account with Standard Chartered Bank. The Standard Chartered Bank USD account (A/c.no.8705610770200) was noted overdrawn by 31st December 2011 due to bank charges. I explained to management that dormant accounts are prone to misuse for personal gains. Management promised to assess the merits and demerits of maintaining dormant accounts and make a proposal to the Board for their closure accordingly. I advised management to ensure that inactive bank accounts are closed promptly to ensure that unauthorized transactions are not conducted on these accounts.

49.10 Un authorized Disaster Recovery Plan

In case of a disaster, updated documentation is needed in order to be able to speed up the data recovery process and minimize the loss of data. However, it was noted that the company‟s Disaster Recovery Plan had not been updated and signed off by management by the time of audit. I advised management to ensure the DRP document is updated with a list of all the service providers‟ contacts as well as all the new hardware that has

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been implemented in the operational environment. The backup policy should also be updated in relation to the DRP and signed off by management.

49.11 Status of Prior Year Audit Recommendations

The status of the recommendations contained in my prior year audit report is summarized as follows:- Issue raised Status 1 None remittance of dividends due to government Not addressed 2 Completeness of the Valuation Reports issued by the Partially addressed Internal Valuer 3 Machinery not easily identifiable Addressed 4 Capitalising of payroll costs Addressed

GENDER SECTOR

50.0 NATIONAL SOCIAL SECURITY FUND (NSSF) -YEAR ENDED 30TH JUNE, 2012

50.1 Unallocated Members‟ Contributions

It was noted that the Fund had unallocated members‟ contributions amounting to Shs.24.6 billion, as at 30th June 2012. The Fund had not yet established the particulars of the employers and the beneficiary members. I informed management that unallocated members contributions are an indication that some individual members fund balances are not fairly stated. Some of the payments to claiming members may therefore not be complete thereby exposing the fund to litigation and reputational risks.

In their response, Management explained that in addition to putting in place measures to curtail the growth of the unallocated amounts, the Fund has exhausted all possible measures to identify the members to whom these amounts belong and accordingly resolved to transfer the Shs.24.6 billion to the reserve account in accordance with Section 36(1)(b)of the NSSF Act. In the event that a member of the Fund presents adequate documentation to prove that there are contributions that should be credited to their account, the Fund will transfer the contributions from the reserve account to the member‟s account following approval by the Minister of Finance, Planning and Economic Development as established in Section 36(2) of the NSSF Act.

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50.2 Non-compliance with the Bidding Process Regarding the Disposal of the Mbuya Property

Six executive apartments on Ismail Road Mbuya were offered for sale on 22nd September 2011 through a competitive bidding process in compliance with the PPDA regulations. The conditions for acceptance of the offer on receipt of the notice of award required a bidder who had accepted the offer to make a cash deposit payment of 10% of the bid price within seven days of receipt of the Notice of Award to NSSF. The balance was to be settled within six weeks of receipt of the Notice of Award failure of which would lead to the award being issued to the next best evaluated bidder and the 10% commitment fee forfeited. However, it was noted that all successful bidders did not comply with this requirement. In the circumstances, management is exposed to a risk of loss in value for money.

In their response, management explained that four (4) out of the six (6) bidders paid the 10% and none had paid the balance due to delays in obtaining the land titles. Payments were to be completed when land titles are eventually issued. I advised management to always ensure full compliance with the procurement regulations and also follow up the above bidders to make good on their commitments.

50.3 Lack of Timely Reconciliations for the Housing Finance Bank Limited (HFB) Staff Mortgages

A review of HFB staff mortgages revealed a lack of timely reconciliations. As a result, there was an unreconciled difference of Shs.19 million between the balance confirmed by HFB and the ledger balance. There were mortgage loan balances that were indicated as cleared by HFB but the amounts were still in the Fund‟s accounting system. Failure to undertake timely reconciliations can lead to misstatement of the staff mortgage balances.

In their response Management promised to follow up this matter the Bank to ensure timely and accurate reports from their side as this is a long standing problem. I advised management to ensure that the reconciliations for the staff mortgages are performed and reviewed in timely manner, say monthly and to also ensure that the mortgage loan listing is cleaned up with a view to removing cleared loans thereon.

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50.4 Use of Inappropriate Foreign Exchange Rates for Income

It was noted that NSSF posts rent invoices for each quarter in the first month of the quarter. The entire amount is posted and the deferred income portion recorded on the debtors account at the foreign exchange rate for that particular month. The amount relating to future periods (deferred income) hence appears as a net off from the receivables balance. The interest income is translated at the foreign exchange rate applicable for the month when it was received and not when it was earned. In the circumstances, monitoring of the rent receivable account is complicated since the receivable balance on the debtors‟ account would be net of the advance payments received. There is a risk of incorrect foreign exchange rates being utilized leading to misstatement of interest income.

In their response, management explained that income booked is apportioned to the months to which it relates but promised to rectify the exchange rate anomaly. I advised management to create a deferred income account in the accounting system where advance payments received from tenants are recorded. In addition, interest income should be translated at the foreign exchange rates applicable to the month in which it was earned.

50.5 Non Reassessment of Useful Lives of Assets

There is no indication that the useful lives and residual values are reassessed at least annually as required by IAS 16, Property, Plant and Equipment. A case in point is where assets with a cost amounting to Shs.774 million were fully depreciated but still in use. This is an indication that the useful lives of some of the assets as currently estimated were not realistic. The depreciation expense is not realistically matched to the period over which the asset is used. The initial years of ownership of the assets are overburdened by high depreciation charges.

In their response, management committed to reassess the useful lives of the remaining assets to determine whether asset lives require adjustment. I have advised them to expedite this process so as to prevent situations whereby assets are fully depreciated but still in use.

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50.6 Failure to Undertake a Comprehensive Post Implementation Review after cut- over Period

Management did not carry out a post implementation review after the cut-over period to ensure that the upgraded system is functioning to the required standards. There is a risk that users of the upgraded system may have challenges navigating through the system and any failures arising from the upgrade may not be rectified immediately.

Management in their response indicated that a consultancy firm had been procured to do the post-implementation review. I await for the outcome of this management commitment.

50.7 PAYE Due on Airtime Benefit

It was noted that airtime given to staff using personal mobile phones was not subjected to PAYE. The Fund does not have a mechanism that separates the proportion of airtime used by employees for private purposes and that used for business purposes. I explained to management that this is likely to create a tax exposure to NSSF, in the event that the Uganda Revenue Authority undertakes a tax audit of the Fund operations.

Although management asserts that all airtime provided is business-related, I advised management to consider seeking guidance from the Tax Authority in this regard, since it has no mechanism of ensuring that all the airtime paid for is utilized for business purposes.

50.8 Non-existence of Transfer Pricing Documentation

NSSF transacts with a number of its associates mainly Housing Finance Bank Uganda Limited and Uganda Clays Limited. For example the Fund provides financing to these entities and also has an arrangement with Housing Finance Bank Uganda Limited where the Fund‟s employees can have access to credit. Since these transactions are between associates and exceed the Shs.500 million threshold as per the transfer pricing guidelines, NSSF is required to have documentation, with sufficient information and analysis, which verifies that the controlled transactions are consistent with the arm‟s length principle as defined by the Income Tax Act, cap 340 before the due date of filing its self-assessment return for the year under audit. However, it was noted that NSSF does not have the required transfer pricing documentation in place. 251

The tax authorities could re-characterize any transactions between the Fund and its associates in a manner that is not favourable to the Fund, if there is no support that these transactions are in line with arm‟s length. Without the documentation, those charged with governance at NSSF are liable to imprisonment for a term not exceeding six (6) months or the Fund is liable to penalties not exceeding 25 currency points.

In their response, management regretted the anomaly and explained that they were in the process of sourcing for a tax consultant to guide the fund in this regard. I await for the outcome of this management commitment.

50.9 Reduction in Fair Value of Land in Busiro Temangalo

In 2010, the Fund procured land measuring about 463.87 acres in Busiro Temangalo at a cost of Shs.16 billion. During the year under review, the Fund engaged the services of another professional valuer whose report indicated that there was a Shs.3.84 billion reduction in the fair value of the said land. This was as a result of presence of squatters on the land and development of a swamp measuring about 67 acres which were not considered in the previous valuation done, on the basis of which the Fund procured the land in question. Although the terms between NSSF and the vendors were that the land would be free of encumbrances including settlement of tenants and squatters on the land, the issue of squatters and tenants on the land had not been resolved as of 30th June 2012 when the valuation was done. It was explained that the vendors instead offered to exchange the affected land with alternative adjoining land that is free of encumbrances which proposal was rejected by the Minister for Finance Planning and Economic Development. The Fund has now opted to put the matter to arbitration.

I await the results of arbitration.

50.10 Follow Up of Prior Year Recommendations

Issue raised Status 1 Unallocated members‟ contributions Partially implemented 2 Long outstanding reconciling items in the bank reconciliation statements 3 Lack of a documented management policy for determining Partially implemented provisions for bad and doubtful debts. 252

4 Lack of a manual or other documented internal investment Addressed acquisitions and disposal guidelines 5 Some branches had high imprest limits which do not Addressed compare with the benefits claimed and paid out 6 Outstanding employee schedules for contributions paid Not addressed 7 Lack of a comprehensive asset register and periodic Addressed physical verification of assets 8 Delay in disposal of idle assets Addressed 9 Un-reconciled suspense account balances Not fully resolved 10 Failure to deduct Withholding Tax (WHT) on software Addressed license payments

51.0 NATIONAL WOMEN‟S COUNCIL - YEAR ENDED 30TH JUNE, 2012

51.1 Grants not Accounted For

Income generating grants totaling Shs.66,500,000 transferred to 19 districts at a rate of Shs.3,500,000 per district remained unaccounted for. As a consequence, I was unable to confirm whether the funds were used for intended activities.

Management explained that they were working together with the District Community Development Officers and District Women Councils to see to it that the funds are accounted for as soon as possible. I informed management that in the absence of proper accountability, funds are recoverable from the concerned parties.

51.2 Inadequate Staffing

According to National Women`s Council Terms and Conditions of Service 2005, each district is supposed to have an Assistant Executive Secretary to help in the running of Council affairs. However, this post has remained vacant in all the 120 districts. In addition, the positions of Executive Secretary, Programme Officer and Accounts Assistant at the Council have also been vacant for a long time. In the circumstances, the Council may not be in position to adequately fulfill its mandate. Management explained that recruitment is a mandate of the women‟s council as per the National Women‟s Council Act creating the council and as such this can only be concluded when the council is fully constituted. I advised the Council to liaise with the relevant Authorities with a view to filling these posts. 253

51.3 Non Utilization of the Internal Audit Function

It was noted that although the Council has an Internal Audit Function, reliance is placed on the Internal Audit Department of the Ministry. However, it was noted that internal audit reports on the operation of the Council were not availed. In the absence of such reports, it becomes difficult to ascertain whether controls were properly evaluated to ascertain adequacy.

Management responded that whereas the internal audit function was provided for in the financial guidelines, there was no provision in their staff structure due to inadequate funds. In the meant time management was using the services of the Ministry internal audit which is also overwhelmed with a heavy workload. I advised management to take up the matter with the relevant authority.

51.4 Lack of Procurement Function

It was noted that during the period under review, Council operated without an established PDU contrary to Section30 of the PPDA Act 2003. Also noted was the failure on the part of management to avail a procurement plan for the year under review and yet a sum of Shs.63,007,040 in respect of hotel services, computer, motor vehicle repairs and services, advertisement services and stationery as well as other items were procured. In the circumstances, value for money may not be achieved.

Management in their response explained that they are currently using the ministry procurement unit but this is not applicable in cases like procurement of hotel services outside Kampala where most of their activities are carried out. I advised management to put in a place procurement function and adhere to the procurement laws and regulations to avoid haphazard procurements.

51.5 Expiry of Term of Office for Women Council Office Bearers

It was noted that the term of office of the current members of women councils expired in May 2007. The absence of a legally constituted council impacts negatively on the fulfillment of the Council‟s mandate.

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Management acknowledged the shortcoming and explained that they are waiting the Electoral Commission to conduct the election of women council office bearers. I advised the Council to take up the matter with the electoral commission to expedite the process of electing the office bearers.

51.6 Stores Management

It was noted that Council lacked a qualified store keeper and the stores function was performed by a personal secretary who did not have any formal training in stores management. The storekeeper only maintained a counter book where she recorded receipts and issues. It was further observed that there were no authorized stock requisition notes and issue delivery notes raised on some items issued and the recipients did not acknowledge receipt. In the circumstances, the Council is exposed to a risk of mismanagement of stores.

Management explained that they are in the process of acquiring an accounts assistant seconded by the Ministry and also establish a proper stores function. I await the outcome of management‟s commitment in this regard.

51.7 Segregation of Duties

It was noted that the incompatible duties within the accounts section were not segregated since there was only one staff in the accounts section. For example, the payroll is prepared and approved by the Accountant contrary to the Finance and Accounting Manual which requires the payroll to be prepared by the accounts assistant and approved by the Accountant and then authorized by the Executive Secretary. Management explained that this situation has persisted for some time but they expect to temporally solution this problem through the services of an accounts assistant to be seconded by the ministry. I await for the outcome of management efforts.

52.0 NATIONAL COUNCIL FOR CHILDREN - YEAR ENDED 30TH JUNE, 2012

52.1 Incompletely Vouched Expenditure

It was noted that payment vouchers totaling to Shs.131,585,070 lacked supporting documents like requisitions, acknowledgement and delivery notes. In the absence of

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supporting documents, I was unable to confirm whether the funds were utilized as intended. I advised management that in absence of accountability documents the funds should be recovered from the concerned parties.

52.2 Prior Year Adjustment

It was noted that a Prior year adjustment of Shs.50,490,740 was reflected in the column for Revenue Reserves in the statement of changes in equity. However, the adjustment was not recognized as payables in the balance Sheet. Therefore, the payables balance of Shs.9,050,580 does not reflect accurately the Council‟s indebtedness.

I advised management to properly present the adjustment in the financial statements.

52.3 Inadequate Staffing

A review of the Council‟s staffing position revealed that out of the approved staff structure of 21 employees, only 11 posts had been filled at the time of audit leaving a staffing gap of 10 posts. Existence of such staffing gaps negatively impacts on the council's ability to deliver on its mandate.

In their response, management attributed the staffing position to lack of financial resources to remunerate staff and lack of space to accommodate them. However, they indicated that negotiations with development partners were in progress to ensure that the gap is reduced and a National Resource Centre built. I await the outcome of the negotiations in this regard.

52.4 Advance Payment to Suppliers

A total of Shs.30,450,000 was advanced to suppliers prior to delivery of goods without a signed contract. Unsecured advances expose the Council to a risk of financial loss in the event that the Suppliers do not deliver.

Management explained that suppliers were given advances after orders had been signed and issued. However, they noted the anomaly and undertook to stop the practice or

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have the advances secured where necessary. I advised the Accounting Officer to ensure that procurement guidelines are adhered to.

52.5 Salary Advance not recovered.

As reported in my previous report, it was noted that a total of Shs.2, 500,000 advanced to the former Secretary General remained outstanding at the time of writing this report. Attempts to recover the money have failed to yield any positive results.

Management in response indicated that several reminders had been sent to their former boss and to date a total of Shs.1,000,000 had been recovered. Efforts are being made to pursue the matter to ensure recovery of the balance. I await management‟s commitment in this regard.

52.6 Depreciation of Non-Current Assets

Under Note 1 (C) to the accounts, depreciation is provided for to write off the cost of the fixed assets on a straight line basis. However, it was noted that the depreciation charge of Shs.1,500,000 on motor vehicles was not treated as an operating expense in Note 8 to the accounts. In the circumstances, the reported reserves balance of Shs.26,161,369 is misrepresented.

Management did not provide a response in this regard. I advised management to effect the necessary adjustments.

52.7 Cash and Bank Balances

Included in the Balance Sheet is a cash and bank balance of Shs.1,611,949 as at the end of the year. However, certificates of bank balances as well as bank reconciliation statements for the month of June 2012 were not attached to the financial statements. In the circumstances, the accuracy of the reported balance could not be verified.

Whereas management in their response indicated that bank statements and reconciliation statements were attached to the financial statements, there was no proof to this effect. I advised management to append the certificates and bank reconciliation statements financial statements for verification.

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52.8 Procurement Irregularities

Shs.133,584,803 was spent on procurement of goods and services. However, the following anomalies were identified:

a) Use of Third Party Procurement and Disposal

Sec 40 (1) of the PPDA Act provides that where it is deemed that there is lack of technical capacity and subject to guidelines and prior approval of the authority, a procuring and disposing entity may engage third party procurement and disposal services. Contrary to the above it was observed that much as the Council did not have an established PDU, management did not engage the procurement and disposal services of the Ministry' PDU.

Management acknowledged the irregularity and promised to continuously liaise with the PDU of the parent Ministry. I await management commitment in this regard.

b) Initiation of Procurement

Regulation 104 (1) of the PPDA regulations 2003 provides for procurement requirements to be documented using PP Form 20 and shall include; (i) A clear indication of the works, services or supplies required; (ii) The estimated value of the works, services or supplies; (iii) Confirmation of availability of funding in accordance with regulation 105 (iv) The approval of the procurement requirement.

Contrary to the above requirement, it was noted that all the procurements during the year under review were not requisitioned on a PP Form 20. In their response managed pledged to liaise with the Ministry of Gender PDU to address the shortcomings. I await management commitment in this regard.

52.9 Stores Management

An audit inspection of the stores revealed the following weaknesses: i. Lack of a designated store. The items procured are kept in the resource centre. Some are piled in a congested room next to the toilets, without any ventilation, burglar proofing or provision for fire extinguisher. 258

ii. The council has no qualified store keeper and the store function is performed by the Resource Centre Assistant without any formal training in stores management.

iii. The functions of receiving, custody, issuing and recording of stores are done by one person.

The above weaknesses expose the Council to a risk of loss of stores.

In their response, management explained that the lack of a store was due to inadequate space but this challenge will be overcome once they move to their new offices premises located in Ntinda. With regard to the post of the store keeper this was not provided for in the current structure but the capacity needs assessment had identified this gap which is to be presented to Council for consideration.

I await for management outcome of management‟s efforts on the matter.

52.10 Lack of Segregation of Duties in the Accounts Department

It was noted that the council has only two staff in the accounts department ( an Accountant assisted by an Accounts Assistant). Under this narrow structure, the Accounts Assistant handles all key functions in the accounts office including the following:- Receipt of cash Custody of the cash Banking Posts the cash book Prepares bank reconciliation statements Cashing cheques and paying cash to beneficiaries

There is a risk that fraud or innocent errors in the financial statements may go undetected due to lack of segregation of duties in the collection, custody and recording of cash transactions.

In response, management attributed this scenario to the rigidity of their structure. I advised management to consult with the authorities to have an adequate structure.

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52.11 Expired Term of Office of Council Members

A review of the board minutes revealed that the terms of office of the council members expired in the December 2011. Although the Secretary General made a submission to the Minister for the Council to be constituted and appointed, it had not been constituted at the time of writing this report. The Secretary General explained that letters for nomination of members had been dispatched to the various line ministries but only five out of eleven had so far responded.

I advised management to follow up on the matter with the stakeholders to ensure Council is fully constituted.

52.12 Lack of Internal Audit Function

As reported in the previous year, it was noted that although the established structure of the council provides for the post of an internal auditor, this post has remained vacant. Instead the council relied on the internal auditors of the ministry but no internal audit reports were availed for review. Lack of Internal Audit function weakens the councils internal controls and risk management systems.

Management explained that the council approved the post of Internal Auditor to strengthen its internal control systems. But at the moment, the council had not secured office space and funding to remunerate the officer.

I advised management to put in place a functioning Internal Audit unit so as to strengthen the internal controls and risk management systems.

52.13 Lack of IT Strategy

There was no IT strategy which incorporates a business continuity plan, disaster recovery plan, and IT training plan and policy to secure information from unauthorized access. The IT personnel to regulate its activities were also lacking. The following was further noted:-

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Management does not regularly review IT hardware and software for possible obsolescence due to changes in technology and that other assets are not regularly reviewed for possible impairment or diminution in value.

That risks assessments are not undertaken by management to determine the likelihood and impact of various threats to the physical security of the assets.

It was further noted that operating procedures for operating IT and other equipment have not been documented. Lack of such a strategy on information systems may hinder the smooth performance of an entity and may also impair the internal control systems. This exposes the IT resources to risks of unauthorized access, theft and breakdown.

Management acknowledged the need for an IT strategy and had also prioritized the recruitment of a data management officer. I await management‟s commitment in this regard.

53.0 NATIONAL COUNCIL FOR DISABILITY - YEAR ENDED 30TH JUNE, 2012

53.1 Inadequate Staffing

The Council‟s approved staff establishment provides for 12 posts. However, it was noted that 4 key positions including 2 program officers, Accounts Assistant and a security guard were vacant. In the circumstances, service delivery is undermined. In their response management explained that the recruitment has been constrained by inadequate funding. I advised management to take up the matter with the relevant authorities.

53.2 Chart of Accounts

It was observed that the item codes were not reflected on all the payment contrary to para 8.2 of the Council‟s finance policy and procedures manual. In the circumstances, there is a risk that the amounts reported against each item of revenue and expenditure in the income statement was incorrectly stated. Management in their response undertook to adhere to the Chart of Accounts in future.

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I advised management to ensure that the financial reporting framework of the Council is strictly adhered to.

53.3 Segregation of Duties

The concept of segregation of duties requires that no one person should initiate, approve, record, reconcile balances, handle assets and review reports. This is aimed at ensuring reduction of an entity‟s operational risks. However, it was noted that the preparation and verification of the payroll and payment of salaries was done by the Head of Accounts. In the circumstances, the council is exposed to a risk of inaccurate reporting due to innocent or deliberate errors. In their response management undertook to separate and improve the functions.

I await management‟s commitment in this regard.

53.4 Inadequate Stores Function

Paragraph 7.5 Of the Stores record and procedures of the NCD Finance Policy and Procedure requires the recording of all goods received in the stores ledger. The section also requires that a perpetual Inventory card System is established which should tally with the records in the Stores Ledger. Each card should show receipts and issues, quantities as well as quantified amounts. Monthly reconciliation should be made to tally with stores control Account. Contrary to the foregoing, management of NCD only maintains a stores Ledger. Management acknowledged the shortcoming and undertook to adhere to the prescribed procedures.I await management‟s commitment in this regard.

53.5 Lack of a Research Strategy/Policy

During the period under review, NCD conducted Research on Employment of Teachers and poverty eradication. However, it was noted that Council did not have a concrete Research framework to guide the roll out of the Research. In the circumstances, there is a risk of undertaking research in areas that are inconsistent with the strategic intent of the Council.

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In their response, management acknowledged the anomaly and undertook to formulate a research strategy to guide them in conducting research in the future.I await management‟s commitment in this regard.

53.6 Annual General Meeting

Sec 6(1) (g) requires the Council to hold Annual General Meetings(AGMs) of representatives from lower Councils for persons with disabilities for the purposes of reviewing the Council‟s performance and also plan for the subsequent year. Contrary to the above requirement, there was no evidence that AGM was held for the period under review. In the circumstances, the council‟s operational efficiency is negatively affected. In their response management attributed the shortcoming to lack of funding. I advised the council to review its performance for the period and consider meeting regularly in accordance with the Law.

53.7 Lack of Policy Analysis

The management of NCD is required by Sec 5 (d) of the NCD Act 2003 to advocate for the enactment of laws and the review of the existing laws with a view to complying with the equalization of opportunities as stipulated in the United Nations Standard Rules on the equalization of opportunities for persons with disabilities, the Constitution and other laws and international legal Instruments. However, there was no evidence of such advocacy and review. Without a policy analysis, this law becomes inadequate and therefore the Council cannot completely fulfill its mandate. I advised management to conduct Policy analysis to establish the gaps and address how the existing laws should be amended to favor PWDs.

53.8 Inadequate Monitoring and Evaluation

Sec 6(1) (b) of the NCD Act 2003 requires the Council to monitor and evaluate the extent to which Government, NGOs and the Private Sector include and meet the needs of persons with disabilities in their planning and service delivery. Contrary to the above requirement, it was noted that monitoring is done only in the Districts. There was no evidence of monitoring in the Government ministries, Civil Society organizations and all the Disabled people‟s organizations in the Country. In the circumstances, the needs of persons with disabilities may not be adequately addressed.

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Management in response stated that, during the period under review, monitoring was concentrated in the districts.

I advised management to comply with the Council‟s legal framework.

54.0 NATIONAL YOUTH COUNCIL - YEAR ENDED 30TH JUNE, 2012

54.1 Undischarged Tax Obligation

It was noted that the council has not been remitting PAYE deductions and withholding tax from suppliers to Uganda Revenue Authority (URA) contrary to the requirements of the Income Tax Act thus leading to the accumulation of tax arrears and interest inclusive to the tune of Shs.511,145,539 as per URA audit report dated 26th April, 2012. Included in this figure is an interest charge amounting to Shs.230,335,025 that has been imposed on the council by URA as a penalty. In their response, management stated that the tax arrears owed to URA by the council was caused by the insufficient release of wage subvention to the council by MOFPED. This created difficulty in paying the PAYE as whatever is deducted is used to pay staff salary and other activities.

I advised management to comply with the provisions of the Act to avoid penalties and fines. In the meantime, the matter should be pursued further with the Ministry of Finance, Planning and Economic Development for additional resources.

54.2 Prior Year Adjustment

It was noted that a Prior year adjustment of Shs.13,203,865 was reflected in the column for Revenue Reserves in the statement of changes in equity. However, the nature and purpose of the adjustment was not disclosed in the form of an explanatory note. In the circumstances, the accumulated deficit of Shs.447,328,281 may not be fairly stated. I advised management to justify the adjustment.

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54.3 Bank Balance

Management reported that Orient Bank account number 1065260201 was overdrawn by Shs.10,712,659. However, the authority to overdraw the account was not availed at the time of audit. In addition, the bank balance certificate and reconciliation statement for the month of June 2012 were not availed for verification. In the circumstances, I could not confirm whether the cash and cash equivalents balance was fairly stated. I advised management to avail the necessary documents for verification.

54.4 Inconsistent Reporting

It was noted that whereas the balance of cash and cash equivalents at the beginning of the year was stated as Shs.9,967,982 in the comparative balance sheet, Shs.35,571,847 is reflected in the statement of cash flows. Therefore, the amounts remained unreconciled. I advised management to undertake a reconciliation of the two statements.

54.5 Failure to Provide for Depreciation of Equipment.

Whereas the Council depreciation policy on furniture and equipment is 12.5% per annum on reducing balance method [Note 1(d)], it was noted that no provision was made in this regard (Note 2). In the circumstances, the reported value of Shs.37,505,421 in respect of non-current assets may not be fairly stated. I advised management to make the necessary adjustments.

54.6 Inadequate Staffing

A review of the establishment records of NYC secretariat revealed that out of 11 established posts, six posts were found vacant. Also noted was that the posts of administrative assistant and stores assistant are not provided for in the current structure of the council. This implies that the officers were irregularly recruited. Further the organization structure of the council was not in line with the establishment of the NYC as stipulated in the Regulations. According to the Regulations, the secretariat of the council is supposed to have 3 programme officers. However this is different from the organization structure which provides for a programme officer, administrative assistant and a records officer. There is need to realign the structure with the regulations to avoid

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creations of posts that may not add value in the pursuit of the objectives and goals of the council.

Management acknowledged the state of affairs and indicated that a request to recruit four more additional staff had been submitted to Ministry of Finance. I advised management to fill all the vacant posts and scrap all the illegal posts so as to ensure the smooth running of the council.

54.7 Inconsistence in Account Codes

It was noted that the codes in the chart of accounts were different from the codes provided for in the accounting and financial manual of the council. The Accountant was using the codes in the chart of accounts to prepare the monthly expenditure reports. It was further noted that the budget of the council were prepared without using codes. The budget is therefore not properly classified. Non-uniformity of codes in the accounts and the budget makes comparison difficult hence it may not be possible to ascertain whether council funds were spent as per the approved budget.

In their response, management noted the concern and promised to take the necessary steps to ensure that the anomaly is rectified. I await management‟s commitment in this regard.

54.8 Lack of Training Policy

According to the National Youth Council (Terms and Conditions of Service) Regulations, 2000, the council shall always promote and support staff training and development for improvement of staff performance and career development within the available resources. However, it was noted that the council did not have a training policy in place during the period under review. Lack of training impacts negatively on the productivity of staff.

In their response, management acknowledged the lack of a training policy but indicated that arrangements were underway to formulate one. I advised Management to establish a staff training policy for all the employees of the secretariat as required by the regulations.

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54.9 Absence of an Internal Audit Function

It was noted that the Council has been operating without an internal audit function and the post is not provided for one in its organization structure contrary to paragraph 7.3.2 (v) of its Accounting & Financial Management manual which outlines it as an internal control system.

Lack of an internal audit function impacts negatively on the Council‟s ability to evaluate internal controls and advise on how to mitigate risks. In addition misstatements due to error or fraud may go undetected.

Management in their response acknowledged the shortcoming which they attributed to severe lack of funds to recruit an internal auditor. However assistance is sought from the ministry internal audit. The council is committed to recruiting an internal auditor subject to availability of funds. I advised management to consider setting up an internal audit unit to strengthen its control environment.

54.10 Absence of Strategic Investment Plan

It was noted that the Strategic Investment Plan(SIP) of the council expired in 2008 and at the time of the audit, management had a draft strategic plan that required to be approved by the National Youth Executive Committee. There is risk that the Council's goals and objectives may not be properly formulated, effectively measured and monitored.

Management in response acknowledged the observation and stated that the Council was in the process formulating a new SIP which has taken long due to logistical difficulties. However a draft SIP covering the period 2012 – 2016 is in place awaiting funds to facilitate printing of a hard copy. Management was advised to ensure that the draft SIP is approved.

54.11 Lack of Segregation of Duties

It was noted that key successive functions in the accounting process within the Accounts Department were not segregated since there was only one staff in the accounts section.

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Segregation of duties/functions if not achieved, exposes the Council to a risk of financial misstatements due to fraud or error.

In their response, management stated they were unable to recruit more staff due to inadequate funding. I advised management to consider engaging additional staff in the accounts department so as to achieve basic segregation of duties in the processing of transactions.

55.0 NATIONAL LIBRARY OF UGANDA FOR THE YEAR ENDED 30TH JUNE 2012

55.1 Undisclosed Land

It was noted that land measuring 0.857 hectares located on plot 4-6, Estate Road, Nakawa allocated to National Library of Uganda (NLU) by Uganda Land Commission and the title given to that effect was not reflected in the balance sheet. In the circumstances, the reported fixed assets balance of Shs.1,702,381,096 is not fairly stated. Although in their response, management indicated that the land title had been handed over to a developer to enable the development of Nakawa/Naguru area as one development project, there was no Memorandum of Understanding presented to this effect. I advised management to have Memorandum of Understanding on the responsibilities and obligations of the parties involved to avoid disputes that may arise in future.

55.2 Unamortized Capital Grant

An accumulated fund account was created to record the value of donated books. However, it was noted that whereas best accounting practice would require that the capital reserves are amortized (reduced) by an equivalent amount of the 20% annual depreciation charge on the books, this has not been done by management. Failure to amortize the capital fund has led to distortion of the operating results and financial position of the Library and as a consequence, the deficit of Shs.3,132,559,876 and accumulated fund balance of Shs.7,932,851,409 are not fairly stated.

I advised management to make the necessary adjustments to ensure a fair representation of the operating results and financial position of the Library.

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55.3 Book Discards Provision

It was noted that the accumulated fund balance of Shs.7,932,851,409 reflected in the statement of changes in equity was arrived at after taking into account a provision for book discards amounting to Shs.233,633,274. However, I could not establish the reasonableness of this figure since the policy regarding book discard is not stated in the accounting policies of the library.

I advised management to put in place a policy regarding provision of book discard to enable consistency in its application.

55.4 Commingling of Donor Funds

NLU was receiving funding from donors for two projects that is WDL-World Digital Library from the Library of Congress-USA and EIFL-Electronic Information for Library from the Netherlands. However, it was noted that management maintained one bank account for both projects. This practice makes it difficult to monitor expenditure and implementation of the respective funding.

Management was advised to ensure that designated bank accounts are opened to enhance donor funds accountability.

55.5 Undischarged Statutory Obligations

Included in the liabilities balance of Shs.275,500,530 is shs.21, 261,496 in respect of staff contribution to NSSF. Failure to remit statutory deductions exposes the Library to a risk of interest and penalties which would otherwise be avoided.

Management explained that contribution to NSSF is in arrears because NLU has not been receiving enough funding to consistently meet this obligation. I advised management to take up the matter with NSSF with a view to agreeing on a payment plan for arrears.

55.6 Lack of a Finance and Accounting Manual

It was noted that management of NLU has failed to develop the Finance and Accounting Manual to guide the Library on the Financial and Accounting aspects of the entity. Lack

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of the Manual presents a risk of inconsistencies in decisions regarding financial management.

In their response management stated that the finance and accounting manual is being developed for the board approval. I advised management to expedite the process of having the Manual in place.

55.7 Lack of an IT Strategy

During the period under review, it was observed that NLU does not have a documented IT strategy. IT strategy provides an overall plan which consists of objectives, principals and tactics relating to use of Information technologies within the organization. In a related development, it was noted that the board does not have IT security policy. The IT security policy deals with Computer system security, physical security, operational security, procedural security and communication security domains. The absence of the IT strategy implies that management may not easily take strategic decisions regarding investment on IT.

In their response, management acknowledged the anomaly and undertook to have the strategy developed during 2012/13 financial year.I await management‟s commitment in this regard.

55.8 Stock Taking

Whereas the National Library of Uganda has a stock of books among its core assets, there was no periodic board of survey report and stock taking exercise to ascertain the value, condition and state of books. It was noted that whilst the most recent stock taking exercise was conducted 2008, there was no formal appointment of stock takers and there were no stock taking sheets availed for audit. In the circumstances, there a risk of mismanagement and inaccurate reporting of the stock of books.

Management responded that the most recent stock taking was carried out in June and July 2012. I advised management to ensure that a board of survey /stock take is conducted at least once in a given financial year.

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55.9 Lack of a Human Resource Manual

A review of the operations of the activities of NLU revealed that it does not have Human Resource Manual in place. In the absence of properly documented policies to manage Human Resource affairs, the Library is exposed to a risk of operational inefficiencies.

Management stated that the board had recently approved the terms and conditions of service of the National Staff Library on the basis of which the Deputy Director was drafting a human resource manual. I advised management to ensure that a human resource manual is in place.

55.10 Internal Audit

During the period under review, it was observed that, NLU did not have Internal Audit function to provide independent assurance that an organization‟s risk management, governance and internal control processes are operating effectively. In the circumstances, operational inefficiencies, fraudulent practices and mismanagement of assets may go undetected.

Management noted the need to have an internal audit section. However, it was stated that since the transactions of the Library were not very many, assistance of the Ministry audit department would be sought. I await the outcome of management‟s commitment in this regard.

AGRICULTURE SECTOR

56.0 COTTON DEVELOPMENT ORGANIZATION (CDO)- YEAR ENDED 31ST OCTOBER 2012

56.1 Debtors‟ Management

The financial statements reflect a total of Shs.7,601,153,609 as outstanding debtors as at 31st October 2012. Out of this, an amount due from Government (Min of Finance, Planning and Economic Development) of Shs.5,936,615,223 has remained unrecovered. Further to this, the report of the Committee on Commissions, Statutory Authorities and State Enterprises (COSASE) on the performance of CDO from 1999 to 2008 recommended that the Ministry of Finance, Planning and Economic Development to seek 271

Parliamentary approval for the debt to be cleared before interest becomes compounded. No action was found to have been taken in line with the recommendation.

The Accounting Officer explained that this debt dates far back to more than 8 years and arose from accumulated borrowings from CDO by Uganda Cotton Exporters Association in order to finance seed activities as a result of shortfalls from 2002/03 to 2004/05.

I urged the Accounting Officer to continue pursuing the implementation of the COSASE recommendation with the responsible Ministry.

56.2 Assets Management

a) Lack of a Fixed Assets Management Policy/Manual

It was noted that the organization does not have a fixed assets management policy/manual to guide all staff in the utilization and maintenance of the organization assets. Such a manual would detail issues like asset usage, insurance, depreciation, disposal and others. Failure to have guidance in the above areas can lead to misuse of organizational assets.

The Accounting Officer explained that management will fast track development of the fixed assets manual and present it to the Board for approval.

I advised the Accounting Officer to expedite the process.

b) Assets that Require Urgent Repairs

According to the assets register, a number of items in form of generator and motor cycles are reportedly in poor state and require repairs to enable the organization to continue using them for service delivery. At the time of preparing this report, no planned action was received from management of the organisation regarding having the assets repaired.

S/N Asset Condition/Remarks 01 Generator set -Ngeta dressing station Poor condition 02 Motor cycles

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UDK-660J-Lira UDK-608L-Masindi UDK-662J-Kachumbala All in poor condition. UDK-656J-Busitema UDK-672J-Kitgum

The Accounting Officer explained that the assets will be reassessed and those that are in serviceable condition will be repaired and used while those that are too old will be recommended to the Board for disposal. The above action is awaited.

57.0 COORDINATING OFFICE FOR THE CONTROL OF TRYPANOSOMIASIS IN UGANDA (COCTU)

57.1 Lack of Accounting and Human Resource Manual

COCTU has operated for twenty years without an accounting and human resource manual contrary to best practice. The manuals are aimed at providing the specific guidelines for various situations that face organizations. Lack of such guidelines puts the managers of the organization and the whole organisation at a risk of inappropriate decision making. The Accounting Officer explained that the manuals had been prepared and awaited Technical and Council endorsement.

I urged the Accounting Officer to ensure that the process is urgently completed.

57.2 Lack of a strategic plan

Corporate governance practice requires that an entity should have a strategic plan detailing how the organization‟s strategic objectives are to be achieved over a given period of time. It was noted that the entity does not have a strategic plan to guide it in achievement of its short and long term objectives.

There is a risk that the policy decisions may lack guidance for their implementation.

The Accounting Officer explained that a National Tsetse and Trypanosomiasis had been prepared and awaiting Council approval.

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The Accounting Officer was urged to ensure the process is expedited.

57.3 Organization structure-Vacant posts

A review of the organisation structure of the entity revealed that there are gaps which have not been filled such as the internal audit function, economist, IT department, procurement unit, and human resource section. Lack of such important human resources may affect the operations and internal controls in the entity.

The Accounting Officer explained that the process of recruiting the personnel was ongoing and the posts were advertised in the first quarter of 2012/2013.

The outcome of the process is awaited.

57.4 Lack of IT Policy

A review of the entity‟s information system revealed that there was no policy to manage its IT resources. The National data bank for control and management of the tsetse fly related issues are entrusted to the systems administrator and does not have its own back up to safeguard disasters of any kind.

There is a possibility of loss of data in cases of any disasters like fire or burglary.

The Accounting Officer explained that the responsible officer for IT is in consultation with the Ministry responsible for ICT to help in development of a policy and IT framework that will help in safeguarding the institutional information.

I advised the Accounting Officer to continue liaising with MoICT/NITAU for help to develop guidelines for the IT policy.

57.5 Funds not accounted for

According to the Treasury Accounting Instructions and the Public Finance and Accountability Act 2003, all public money should be expended using payment vouchers, and thereafter be clearly accounted for. However for the year under review, a total of Shs.57,616,645 remained unaccounted for at the time of audit.

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The Accounting Officer explained that efforts to have the funds accounted for by the responsible officer had failed.

I advised the Accounting Officer to ensure the funds are recovered from the officer.

58.0 UGANDA COFFEE DEVELOPMENT AUTHORITY YEAR ENDED 30TH JUNE2012

58.1 Payables

The Authority had outstanding obligations of Shs.2,321,650,054 at the end of the financial year under review. The payables have accumulated over a period of time. The Authority may end up losing credible customers and incurring legal costs if creditors are not settled in time. I advised the Accounting Officer to avoid accumulation of payables in future and ensure that resources are sought to settle the outstanding obligations.

58.2 Spending of revenue collected

The Authority collected Non-Tax Revenue (NTR) amounting to Shs.10,726,166,321 during the year as indicated in the schedule below:- Revenue source Amount collected (Shs) Cess (1%) 9,810,705,861 Rent income 604,185,934 Interest Earned 128,775,000 Export &processing license 116,802,000 Sundry income 65,697,526 Total collection 10,726,166,321

It was noted that the Authority spent the revenue collected without the authority of Secretary to Treasury and the Accountant General. In the circumstances the related expenditure is considered irregular.

The Accounting Officer explained that following engagements the Authority has held with the Office of the Accountant General and Permanent Secretary/Secretary to Treasury on compliance with the vote status requirements, management shall endeavor to obtain specific authorization from Permanent Secretary/Secretary to Treasury to utilize NTR at source. I urged the Accounting Officer to ensure that all future revenues are spent with the authority of the Secretary to the Treasury.

58.3 Printing of receipt books

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It was observed that Management of the Authority printed and used its own receipts books without seeking authority from the Accountant General contrary to the Treasury Accounting Instructions Chapter 1 Paragraph 53.

The Accounting Officer acknowledged the anomaly and explained that Management shall endeavor to obtain authorization and or exemption from the Accountant General.

The above action is awaited.

58.4 Inadequate Accounting records at regional offices

It was observed that Management of the entity did not institute systems to control the collection of fees from coffee processors and stores licenses. There was no control over the data for clients by the regional offices and no cash books were prepared. There was also no proper recording of revenue from the regional offices.

There is a risk that revenue could have been lost during receipting.

The Accounting Officer explained that the areas that require improvement in the collection of fees from coffee processors and stores licenses had been noted and Management shall institute further controls by establishing cashbooks at each regional office.

I await management commitment in this regard.

58.5 Data bank at the regional development offices

During the year, it was observed from field inspections that there was no data bank for the coffee stores and coffee processors at all the regions in the country. As a consequence, some local processors in Kasese region were operating without licenses.

Lack of a databank on coffee processors and coffee stores at the regional offices contributes to low quality coffee outputs and low collection of revenue from this source.

The Accounting Officer promised that Management of the data bank was to be decentralized to regional offices. The action is awaited.

58.6 Inadequate staffing

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A review of the staffing positions of the Authority revealed staffing gaps as highlighted below:

The Authority has got only one internal audit staff (Principal Auditor) in the section who is in charge of reviewing all the internal controls in the organization and also carrying out value for money inspections in all coffee operating regions in the country as well as carrying out routine audits.

Though the Authority has stores, it does not have a qualified store keeper to receive and issue goods using the standardized documents as required by Financial and Accounting Regulations.

The Authority has a Senior Procurement Officer who heads the PDU. Though the structure recommends one person, it was observed that there is a high volume of work in the department which cannot easily be handled by one individual. It was further noted that the Authority engaged the services of short term contract staff to assist the Unit which staff has been carrying out these duties for three (3) years without confirmation in service.

The Accounting Officer promised to present the issue of understaffing before the Board for consideration. The action is awaited.

58.7 Purchases not taken on charge

Chapter IV section 199 of the Treasury Accounting Instructions requires that payment vouchers for the purchase of stores be supported with all the relevant documents including requisitions, purchase orders, delivery notes and goods received notes as a confirmation for occurrence of the transactions. It was observed that UCDA Management purchased goods and materials which were not taken on charge and relevant documents like goods received notes (GRN) were not prepared and as a result, purchases to the tune of Shs.161,092,869 were not supported.

The Accounting Officer promised to put in place a fully operational and centralized stores system. The action is awaited.

58.8 Assets Management

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Properties in various places; Bugolobi flats block 33, Basker Avenue Kololo, Elizabeth Avenue Kololo, Windsor Cresent kololo, Mutesa 11 road Ntinda and Bazara drive Bugolobi had not been renovated contrary to the provision in the development plan drawn in 2007. Lack of regular maintenance could lead to enormous maintenance costs in future as well as reduced earnings in their current state.

The Accounting Officer explained that funds were secured for repairs and maintenance and the Authority is undertaking renovations on Bugolobi flats block 33, Baskerville Avenue Kololo, Elizabeth Avenue Kololo, Windsor Cresent kololo, Plot 35 Jinja Rd and Mutesa II road Ntinda. The property redevelopment plan has also been made and is awaiting Board Approval. I advised the Accounting Officer to follow up the matter for approval and implementation.

58.9 Lack of a policy on fixed deposits and a fixed Deposit Investment Plan

According to the availed records, the organization operated various fixed deposit accounts in the year under review. The balances of the entity‟s fixed deposit accounts during the year amounted to Shs.4,163,780,000.

The decision to undertake investments in fixed deposits is based on the UCDA Board minutes of the 141st meeting held on Thursday 30th November 2006. Good practice would require that the organization puts in place guidelines regarding investments to be undertaken and fixed deposits in particular. There has been no revision since then and there are no detailed guidelines developed to guide the process of undertaking the investments. There is a risk that the investment may not be undertaken at the optimal benefit of the Authority.

The Accounting Officer explained that Management shall document detailed guidelines to be followed in undertaking investments in fixed deposits for Board approval. The action is awaited.

58.10 Use of a non prequalified service provider for travel tickets

The Authority prequalified Uganda Travel Bureau 2004 Ltd and Bunyonyi Safaris Ltd as the official travel agents. However, all the travel services were provided by a firm other than the above which had not been prequalified. Therefore a sum of Shs.391,049,319

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paid to the firm for provision of air tickets in the period under review was paid without following the normal procurement procedures. The practice was irregular and is contrary to the PPDA.

The Accounting Officer explained that on comparison with other service providers they continued to use the service provider in question on the basis of their vast market knowledge and their ability to grant them credit facilities. However, they shall ensure that procurement guidelines are adhered to. I advised the Accounting Officer to ensure that PPDA laws and regulations are adhered to.

58.11 Human Resource-Recruitment of staff

The Authority‟s recruitment process was reviewed and it was noted that from 2001 the recruitment process was contracted out to a firm. A selected sample of personal files of staff was reviewed for recruitment, selection and appraisal process, qualifications and responsibilities and the following were noted:

a) Appointment of two temporary staff

The above officers were appointed on temporary terms as Assistant Procurement Officer and Administrative Assistant respectively. This is contrary to the terms and conditions of service of the UCDA which require that temporary staff can only be recruited when there is need by the Authority against an existing position or to fill an identified employment gap based on the terms and conditions as the Board may determine.

It was noted that the Board did not identify the need to recruit staff on short-term contracts, the posts were not advertised to attract competition, and the method of recruitment used was not clearly stated.

It was further noted that the terms and conditions of service 3.4 (b) states that temporary appointments do not accrue any service benefits like retirement benefits, duty allowances, loans, advances and promotions. However the above officers were each given medical insurance schemes of Shs.490,000 annually.

b) Data Officer

The Officer was recruited as a data officer in the department of Strategy and Business. The proper recruitment procedure was not followed as the post was not advertised.

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Although the job was not advertised and no specific qualification stated, I could not ascertain whether a holder of a Bachelor of Business Administration (Accounting) would have been the most suitable officer to fill that post.

The Accounting Officer explained that the above persons were identified through internship and deployed in the relevant departments. He further stated that as an employer he is obliged to provide and maintain a working environment for workers that is as far as is reasonably practicable safe, without risks to health, regarding facilities and arrangements for the welfare of workers at work (Section 13(e) of the Occupational Safety and Health Act, 2006). I advised the Accounting Officer to adhere to the employment regulations set by the organization.

58.12 Joint ventures

The entity has interest in three joint ventures namely: TESCO Union – Egypt. The Joint Venture Company formed was Uganda, Egypt Coffee Manufacturing Company (UGEMCO). UCDA has 60 % share holding. Joint venture in Denmark where UCDA had 50%. Joint venture with Beijing North Star Industrial Group (BNSIG). Joint Venture Company is Beijing Chenao Coffee Co. Ltd. UCDA has 99 % share holding.

The joint venture agreements were reviewed and the following were noted:-

a) Egypt joint venture

A review of the Egypt joint venture revealed that it has not been operational for over a year and all the terms and conditions of the joint venture have since ceased. Section 14 of the joint venture agreement in Egypt states that upon the expiration or premature termination of the joint venture company, the joint venture company shall be liquidated and allocation of the proceeds/assets shall be made to each party‟s ratio of share contribution to the capital.

It was however observed that since the Joint Venture ceased to operate, the Authority has not prepared any financial statements to show the performance and financial position as such the returns from the venture could not be ascertained and were not disclosed.

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The Authority also maintained staff in Egypt for promotional activities and spent a total of Shs.113,464,072 for staff salaries and promotional expenses as shown in the table below:

Item Amount (Shs) Foreign staff 77,056,877 Local staff 19,593,995 Promotional expenses 16,813,200 Total 113,464,072

No official closure or dissolution of the joint venture has taken place to share the assets and liabilities of the Joint venture. UCDA may lose the value of its property and interests in the joint venture due to non-adherence to the joint venture agreement.

The Accounting Officer explained that there is no status report on the joint venture due to unwillingness of the partners to close but a resolution to derecognize the investment is to be presented to the Board for approval. The above action is awaited.

b) Joint venture with Denmark

An audit was conducted on this joint venture in 2007 by this Office. It was recommended that UCDA was to write-off its shareholdings in UCDA –UGANDA COFFEE HOUSE APS from its books of accounts, since there had been no activity at all for the previous three financial years and the going-concern was in doubt. However, the Authority continues to recognize the assets in the books of accounts even though there is no evidence of ownership as ownership depends on the shareholding which is no longer valid.

It was further noted that one of the assets, a roaster machine, is wasting away at the former Coffee Marketing Board, Bugolobi. UCDA is likely to lose the investment in the joint venture. The Accounting Officer explained that the Board resolved to exit the JVC and discontinue JV operations. However, a resolution to derecognize the investments is to be presented for approval. The results of the above actions are awaited.

58.13 Financial contribution in the joint ventures

The financial contribution and assets of UCDA in the joint ventures included:-

281 a) UGEMCO: the share capital of L.E 500,000 (Egyptian Pounds five hundred thousand only) UCDA contributed 45%. Other parties in Uganda (Roasters 5%, Farmer‟s Association 5% , Creations Ltd 2%, Exporters Association 3%.) have 15%. b) Beijing Chenao Coffee Co. Ltd: The joint venture was registered with a capitalization of US$300,000. UCDA was to contribute Us$.153,000 representing 51% and BSNIG Us$.147,000. On June 14th 2005, by a unanimous decision of the directors of the JVC and in accordance with the laws and regulations of the Peoples Republic of China, a resolution was made to restructure the JV and transfer 48% shareholding of BSNIG and all the liabilities to UCDA for a bond amounting to RB 1 (YUAN) which increased UCDA shareholding to 99%. c) UCDA –Uganda Coffee House APS-Denmark: with share capital of 125,000 DKK with shareholders and share of returns as indicated below;

(i) UCDA 35% (ii) Akiba 25% (iii) Storm foods I/S 20% (iv) Abdul Karim Dedya 7.5% (v) Kwame Ruyondo 7.5% (vi) Niels Bahner 5% It was noted that the Denmark and Egypt joint ventures are not operational and their objectives as joint ventures as stated in the agreements had not been achieved. The China joint venture though operational is still incurring losses. Altogether the Joint ventures contributed a loss of Shs (117,087,546) to the Authority during the year under review as indicated below:- i. Share of Joint venture in China Shs (86,078,934) ii. Share of Joint venture in Egypt Shs (7,285,192) iii. Share of Joint venture in Denmark Shs (23,723,420) Failure by the Management to stop incurring expenditures at the non operational ventures leads to financial losses to the Authority.

The Accounting Officer explained that Management shall pursue all the legal requirements to ensure withdrawal from the operations of loss making joint ventures. I advised the Accounting Officer to ensure that the arrangements with the joint ventures are terminated without delay. 282

58.14 Prequalification of seedlings suppliers

The suppliers were identified from the relevant regions by community leaders who forwarded them to head office for verification and to ascertain whether the suppliers had the facilities such as water supply and enough land to maintain coffee nurseries, and also to meet the demand for coffee seedlings. It was observed that the PPDA procedures and regulations of procuring service providers were not adhered to as the entity did not follow PPDA‟s competitive system of procuring suppliers of goods and services. Consequently some areas especially in the Northern region lacked suppliers resulting into inequitable distribution of services.

The Accounting Officer explained that UCDA uses private nursery operators who are identified by field technical staff with the help of community leaders. I advised the Accounting Officer to obtain technical advice from PPDA to avoid flouting of the laws and regulations.

59.0 DAIRY DEVELOPMENT AUTHORITY (DECEMBER 2011)

59.1 Levy Arrears Written-Off

Shs.280,000,000 arising from levy arrears was written off during the year under review. The debt had arisen due to a Presidential directive dated 24th October, 2007 which stipulated that cess should be abolished. This resulted in debtors who were subjected to levy refusing to pay. In the same directive, it was stipulated that Government should take up any shortfalls in the funding of the activities of the Dairy Development Authority but correspondences between the Accounting Officer and PS/ST reveal that Shs1.2bn is still expected from cess compensation. The failure to obtain compensation from the Ministry of Finance, Planning and Economic Development has greatly stifled the activities of the entity. Further to this, the abolition of cess collection is not effective unless the Act that established it is amended. The amendment has not been undertaken.

The Accounting Officer explained that management of DDA is engaging both the Ministry of Finance for compensation as directed by His Excellency the President as well as submitting for harmonization/ streamlining the policy conflict to the relevant authorities.

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I urged the Accounting Officer to continue to pursue compensation for cess with the relevant authorities and accordingly undertake the required amendments to the law.

59.2 Non-Tax-Revenue (NTR)

Shs.443,400,839 in form of NTR was realized and spent at source. Utilisation of NTR at source should have been granted by Parliament through the budget which was not done. The funds were therefore spent without the relevant authority.

The Accounting Officer explained that the Dairy Industry Act 1998 under Part V Section 15 (2) allows the Authority to spend the funds collected from various sources for the sustainable development of the dairy industry throughout Uganda and indicated that consultations with MOFPED on formalizing this arrangement are ongoing.

I urged the Accounting Officer to continue pursuing the granting of authority to spend NTR at source.

59.3 Non-accreditation of Dairy Analytical Laboratory

According to the Ministerial Policy Statement for Financial year 2011/12, one of the priority Vote actions to improve sector performance was to maintain a functional and highly facilitated analytical laboratory.

The Dairy Analytical Laboratory plays a great role of Quality Assurance and Regulation within the Dairy Sector. It ensures quality for milk and milk products, by carrying out laboratory testing and analysis during market surveillance including monitoring. In order to effectively undertake this role, the laboratory should be accredited. However this has not been done yet. There is a risk that laboratory analysis results can be challenged.

The Accounting Officer explained that pre-requisite activities have been undertaken towards accreditation and the Authority is in the process of inviting the accreditation team to evaluate the laboratory for subsequent accreditation.

I urged the Accounting Officer to expedite the accreditation of the laboratory.

59.4 Lack of Risk Management Mechanisms

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It was noted that DDA does not have a risk identification and management system. There appears to be lack of documentation of the eminent risks that the entity may face both internally and externally. Failure to identify and plan for risks poses danger to the activities of the entity and may result into unplanned for expenses.

The Accounting Officer promised to put in place a risk identification and planning mechanism. The action is awaited.

59.5 Lack of Capital Development Budget

A review of the entity‟s budget revealed that there was no provision made for capital expenditure. However, a verification of the fixed assets schedule in the financial statements showed an addition of fixed assets of a capital nature in respect of buildings (Shs.299,395,658), Plant and machinery (Shs.3,836,199), motor vehicles (Shs.88,873,500), furniture and fittings (Shs.1,718,080) and Computer Equipment (Shs.9,543,756). This implies that funds meant for activities of operational nature were diverted to acquire assets of a capital nature which may have affected service delivery. The Accounting Officer explained that discussions with the Ministry of Finance, Planning and Economic Development for a development budget are ongoing.

I informed management that reallocation of funds should be done in accordance with the regulations, failure of which is punishable under Sec. 42 and 43 of the PFAA 2003.

59.6 Non-functional Milk Collecting Centres and Processing Plants.

The authority's major objective is to provide proper coordination and efficient implementation of Government policy to achieve and maintain self sufficiency in the production of milk. The authority has 40 Milk Collection Centres (MCC) to which raw milk vendors take their milk for cooling, sale or final transportation to the processing plants. An inspection of a sample of 19 MCCs, revealed that only 5 MCCs in Soroti, Busia, Iganga, Gulu, and Hoima were functional while the rest are redundant.

It was also observed that the entity has 2 milk processing plants in Mbale and Entebbe. A physical inspection revealed that Mbale is non-functional with equipment deemed obsolete while the one in Entebbe is functional but was closed at the time of inspection

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due to business failures. It was further ascertained that the Entebbe plant is currently rented by Nirma food and Industries up to 2016 and encumbered by a court injunction.

The Accounting Officer explained that the milk collecting centres and processing plants were handed over to DDA without creating capacity to operationalize them and the authority lacks a capital development budget to rehabilitate them.

I urged the Accounting Officer to liase with the relevant authorities to have the plants and centres operational.

59.7 Lack of an IT Policy and General Weakness in IT Controls

Best practice requires the entity to designate an officer to ensure that adequate information and communication technology policies are established and are applied to enable adequate security and protection over computers and of data held on computers or information systems operated. A review of the IT general and application controls revealed that management has not formulated an IT policy and there was no evidence of any effective measure that had been undertaken to create awareness regarding IT security amongst staff. There is no effective system of logical and physical access of computers and no backup systems created to protect computers and their software.

Lack of an IT policy may result in improper usage of computer equipment, loss of vital data and information, and theft.

The Accounting Officer explained that the authority is taking steps to strengthen and improve IT controls. The results of this action are awaited.

60.0 NATIONAL ANIMAL GENETIC RESOURCE CENTRE AND DATA BANK YEAR ENDED 30TH JUNE 2012

60.1 End of year Balances not Remitted to the Consolidated Fund

The entity had unspent balances with the banks of Shs.35,706,969 as at 30th June, 2012 which were not remitted to the Consolidated Fund contrary to the Financial Regulations. Management explained that this resulted from the freezing of the centre‟s account at Njeru Stock Farm. 286

I advised the Accounting Officer to follow up the issue with the relevant authorities to have the funds freed and remitted to the Consolidated Fund or seek the authority of the Accountant General to utilise the funds.

60.2 Shortfall in Non-Tax Revenue Collections

The organisation planned to collect Shs.1,276,839,500 but only Shs.617,245,070 was collected leading to a short fall of Shs.659,594,430.

The Accounting Officer explained that this was a result of understaffing in the Finance Department that is supposed to enforce revenue collection and indicated that this has been addressed by recruiting an Accountant and Internal Auditor.

I urged the Accounting Officer to ensure that projected revenue collection targets are attained.

60.3 Lack of Board of Survey reports

Chapter 6 Section 607 of the Treasury Accounting Instructions part II -Stores states that the stock holdings of all public inventories must be verified at least once a year by stocktaking by an independent stock verifier or by a Board of Survey appointed by the Accountant General. Contrary to this, the Accountant General has not instituted a team to conduct a Board of Survey at NAGRIC for many years which made it difficult to verify the stocks as at 30th June 2012.

In the absence of a board of survey report, it becomes difficult to ascertain whether any of the stocks are unserviceable or obsolete and whether the records of assets are accurate.

The Accounting Officer promised to bring the matter to the attention of the Accountant General to have the exercise conducted. The outcome is awaited.

60.4 Weaknesses in Human Resource Management

It was noted that 42 employees out of the total work force of 261 had personal files with appointment letters with terms and conditions of service; while 219 employees had no personal files at all. This implies that out of the Centre‟s total monthly net wage bill 287

of Shs.61,543,935, payment amounting to Shs.40,698,273 was made to employees without personal files. It was further noted that the Centre did not develop a recruitment policy and it lacked human resource manager to handle the function at the centre.

The Accounting Officer explained that this issue was being addressed since the Centre was in the process of recruiting a human resource manager.

I urged the Accounting Officer to expedite the process.

60.5 Non Remittance of PAYE and WHT Deductions

Section 124 of the Income Tax Act, Cap 340 requires a withholding agent to deduct withholding tax (WHT) and remit it to URA within 15 days of the next month following the month of deduction. It was however noted that management did not deduct the 6% WHT from various suppliers of goods and services amounting to Shs.25,339,906. In addition, Pay As You Earn (PAYE) amounting to Shs.83,504,873 deducted from monthly staff salaries during the period under review was not remitted to URA.

There is a risk that the tax body may penalize management for the non-remittance and non-deduction of the above mentioned taxes.

I advised the Accounting Officer to ensure the money is remitted to URA to avoid unnecessary penalties from the tax body.

60.6 Lack of Land Titles

Records for the Centre indicate that it owns land in various areas of the Country which is utilized by stock farms and contains sizeable investments by the Centre mainly in form of breeding animals. It was however noted that some of the stock farms of NAGRIC such as Maruzi and Aswa do not have land titles in the names of the Centre or the Ministry. This puts the land to risk of grabbing and encroachment by squatters who may resist removal in future.

The Accounting Officer explained that the land titles are in the names of Uganda Livestock Industries which was liquidated and the centre is seeking cabinet approval to transfer ownership to its name.

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I urged the Accounting Officer to ensure that land titles to all existing stock farms are obtained and transferred into the names of the Centre.

60.7 Lack of Tax Invoices

Section (1) of the VAT Act states that a taxable person making a taxable supply to any person shall provide to that other person at the time of supply with an original tax invoice for the supply. During the audit, it was observed that suppliers of goods and services charged VAT of Shs.2,189,513 on the supplies without using tax invoices. Details in table below: 005/190021 6,211,744 of Superb Engineering Extra works for which VAT of works Ltd rehabilitation of bull Shs.998,316 at NAGRIC and charged Data bank at NAGRIC EBB) 066 9,900,170 Empire contractors Repair of access Certificate is Ltd road to NAGRIC attached the amount was VAT inclusive of Shs.1,191,197 charged

There is a risk that the VAT was paid to unregistered supplier leading to loss of revenue.

The Accounting Officer promised to follow up the matter and have the wrongly deducted amounts recovered. The outcome is awaited.

60.8 Inspections

a) Poor infrastructure at the farms

Audit inspection of Nshaara, Nsanga and Rubona stock farms revealed that these farms were faced with a problem of poor infrastructure, poor roads, lack of administrative offices for the farm managers, stores for keeping the drugs and office consumables, no electricity and no perimeter fences. Maruzi ranch is bushy with no structures to demonstrate that there is a farm.

The Accounting Officer explained that the centre faces a problem of inadequate funding and no development budget is allocated to the Centre by Ministry of Finance, Planning 289 and Economic Development. He indicated that for the financial year 2012/2013, the Centre faces a funding gap of Shs12.3bn.

I urged the Accounting Officer to continue pursuing various ways aimed at obtaining resources for improving the farms. b) Bush clearing

Review of expenditure records revealed that Shs.26,370,000 was spent on bush clearing at different stock farms. Details in table below: No. Amount (Shs) Activity 052 3,800,000 Bush clearing at Njeru stock farm 051 9,050,000 Bush clearing at L.E.S EBB NTR 012/006757 2,500,000 Bush clearing at kasolwe stock farm 006799 1,000,000 Bush clearing at Njeru farm 017/006813 7,840,000 Bush clearing work at Njeru farm 013/006828 2,180,000 Bush clearing at ruhengyere ranch Total 26,370,000

However at the time of inspection, the farms were still bushy.

The Accounting Officer explained that 30 casual labourers plus a supervisor and tools to be used for bush clearing at all stock farms have been put in place.

The results of this action are awaited. c) Lack of accounts and store personnel at the farms

It was observed that all the farm stations under NAGRIC lack accounts and stores personnel who would maintain books of accounts. There was collection of revenues from the disposals of animals and milk sales at the farms but no cash books were maintained for the recording of daily revenues and controlling of office imprest. This inhibits verification of the revenues received by farms.

The Accounting Officer attributed this to underfunding resulting into understaffing.

I advised the Accounting Officer to provide elementary accounting training to the staff managing the farms so that basic accounts and stores records are kept at the farms.

290 d) Theft of Animals

It was noted that a total of 68 cows and 54 goats were stolen at Kasolwe stock farm and 15 cows and 7 goats were stolen from Nshaara stock farm. Management explained that this was as a result of having few herdsmen at the farms to monitor the movement of the animals.

The Accounting Officer explained that the theft was reported to police and investigations were on-going.

I urged the Accounting Officer to strengthen the safeguards of the farms by adequate fencing and sensitizing the herdsmen. e) Land grabbing at the farms

Inspection of the various stock farms and interaction with their management and the management of the Centre revealed that cases of land grabbing by different individuals and organizations of the farmland are on the increase. Details of some of the land affected are in the table below: Farm Area Remarks 1 Ruhengyere 21 sq 80 acres of the land has been taken over due to miles unclear demarcation of the boundaries. 2 Nshaara 27 sq 100 acres given to AMOS dairies for extraction miles of milk products but there were no documents in place to support the transactions. One square mile was given to SAMEER company. 3 Nsanga 2.5 One square mile has been grabbed by a Senior square Army Officer. 20 acres were given away to the miles Nsanga Town council by a Hon. Minister.

There is a risk that the Centre may continue losing valuable property under the circumstances.

The Accounting Officer explained that the giving away of the land at Nshara was a directive.

The management of the Centre should liaise with the management of Ministry of Agriculture to put in place mechanisms of how to protect the land from further grabbing and devise ways of securing back the grabbed land.

291 f) Uncompleted works at Ruhengyere stock farm

A construction company was contracted to do works at Ruhengyere stock farm during the financial year 2011/2012 at a cost of Shs.894,149,655. At the time of inspection on 11th September, 2012, the following had not been completed and the contractor was not at the site while most of the works had been destroyed by rain.

The water troughs were not completed hence night paddocks were not sufficiently served with water as originally planned. There was no improved pasture planted after the bush clearing. The perimeter fencing to protect the trench boundaries had been planned; however all the poles have collapsed due to the supply of untreated poles. The tyre wash structure for the disinfection of vehicles at the entry of the farm collapsed after heavy rain due to shoddy work by the contractor. There was no work done for fencing of all the six night paddocks and boundary fence. The Accounting Officer explained that the works were carried out under the National Livestock productivity Improvement Project (NLPIP) under the Ministry of Agriculture, Animal Industry and Fisheries (MAAIF). The action for any shortfalls in the works is therefore expected to be undertaken by the Accounting Officer of MAAIF.

I advised the Accounting Officer of the Centre to liaise with the Accounting Officer of the Ministry to have the funds recovered and the Company reported to the authorities. g) Maruzi ranch-Unutilsed fencing materials

During the financial year, Shs.139,671,580 was paid to a supplier as shown in the table below for purchase of materials for fencing of the farm.

Voucher Amount paid Name of supplier Nature of supplies No 011 91,007,580 Company Supply of fencing poles barbed wire and assorted nails for the farms and ranches 021/ 48,664,000 Company Supply of fencing materials (poles, barbed wire and Nails) Total 139,671,580 292

At the time of inspection it was noted that the poles supplied were still lying at the farm and work had not started.

The Accounting Officer explained that funds for fencing had not been secured.

I urged him to find ways of ensuring that the fencing materials secured are utilized to avoid wastage and financial loss.

WATER & ENVIRONMENT

61.0 NATIONAL FORESTRY AUTHORITY (NFA) FOR THE YEAR ENDED 30TH JUNE 2012

61.1 Fraudulent Acquisition of NFA Land

a) Implementation of Licence Agreement

National Forestry Authority (NFA) signed a licence agreement with a company on 21st July, 2008 for one hectare of Nakawa Central Forest Reserve for establishment of a timber drying plant and a modern Artisan Training Centre for a period of 49 years, at a premium of Shs.400 million with an annual rent of Shs.10 million. In addition, the licence was also given for purposes of constructing new buildings to replace the demolished ones at an agreed amount of Shs.380 million.

However, it was noted that after the signing of the licence agreement, the company fraudulently processed and acquired a lease title from the Uganda Land Commission without obtaining clearance from NFA Board. As a result, NFA lost its rights to the land, the related annual rent and premiums. In addition, construction of the new buildings to replace those demolished was not undertaken, instead a supermarket shops and offices for rent were constructed contrary to the provisions in licence agreement.

In response, management stated that the technical committee of the NFA Board is undertaking an investigation into the matters surrounding the implementation of the licence agreement.

I advised management to expedite the process with the view of repossessing the Authority‟s land.

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b) Doubtful Acquisition of Plot 4 and 5

Plots 4 and 5 that belonged to NFA have had titles transferred to an individual and a firm by the Uganda Land Commission. Although land titles were issued to the occupants, it was noted that this land is located within the gazetted area of NFA headquarters.

It was explained that the matter was still under discussion between top management and the Board. I await the outcome of these discussions.

61.2 Budget Performance

A review of the Budget performance schedule availed by the entity, revealed that the NFA experienced a budget shortfall of Shs.3,044,976,074 on most of the revenue items. This occurrence threatens the self sustenance of the Authority since its business plan is geared towards becoming financially self sufficient.

In response, the Accounting Officer explained that the Authority had started exploring new sources of funding/revenue generation and had also embarked on an aggressive marketing strategy in a bid to boost revenue. I await the outcome of management efforts.

61.3 Management of Forests Plantations

During inspections of some plantations, it was noted that maintenance was not carried out in most of the plantations during the financial year under review. For instance, at the time of visit, most of the plantations were covered by weeds and the plants were not pruned. Non–maintenance of forest plantations exposes them to bush fires especially during dry seasons. The pictures below refer.

(A section of Mafuga plantations covered by weeds) (A section of Budongo plantations covered by weeds)

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(A section of Katugo plantation covered by weeds)

In response, the Accounting officer stated that subsequent to audit recommendation, funds from the sale of mature crop had been set aside for maintenance of the new and immature crop.

I advised management secure sufficient funds for adequate plantations‟ maintenance.

61.4 Non Implementation of Board Decisions

Good practice requires that organizations‟ Boards meet to make strategic decisions and top management meet regularly to decide on implementation strategies amongst other matters. However, a review of top Management and Board minutes revealed that a number of recommendations and decisions made during their respective meetings were not implemented.

I advised the Accounting Officer to ensure implementation of recommendations by both management and Board to register improved performance.

61.5 Cash Payments (Sh.19,692,500)

A review of National Forestry Authority expenditure records for the financial year under review revealed that a total of Shs.19,692,500 was paid in cash to various staff to carry out various activities. However, payment of cash to individual members of staff instead of paying the money directly to the Service providers was not justified. Besides, the

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expenditure was not subjected to the procurement procedures contrary to the PPDA requirements.

Although the Accounting Officer explained that these were micro procurements that were aggregated at the time of payment, this was done without reporting these procurements to Contracts Committee contrary to the procurement laws.

I advised management to always ensure compliance with the requirements of the procurement laws and PPDA user guidelines.

61.6 Encroachment on Forest Reserves

The audit revealed that most of the Forest Reserves were still encroached. For example, at the time of visit, there was no clear position on existence of the encroachers in Budongo and West Nile Forest Reserve, pictured below. With no clear position on encroachers the Authority stands a risk of losing the said land.

In response, management stated that the process to remove encroachers using legal means was ongoing though slow. I advised management to expedite the process to avoid loss of land.

(A sugar plantation in Budongo forest reserve) (A school and UPDF base camp in West Nile Forest Reserve

(A maize plantation and a refugee camp in Achwa Forest Reserve) (SOS Children‟s‟ Village in Gulu Plantation)

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(A residential house in West Nile Forest Reserve)

61.7 Boundary Issues on some Selected CFR

a) Kahurukobwire CRF

Kahurukobwire CRF is located in Hoima district. The CFR was surveyed and mapped in 1963; listed in the CFR and gazetted in 1998. However, the same CFR, plot 6 Bughaya blocks 19 is registered in the names of Ndahura and brothers by the Uganda land commission. The land is being rented out to graze animals. A joint survey was carried out. A civil suit No. 024 of 2010, Cyprian Ndahura & Others versus NFA was opened up and the case is awaiting judgment.

b) Kasagala CFR

The CFR falls in the district of Nakasongola. It was established as a CFR in 1968, measuring approximately 10298 ha. It was observed in the report that Kasagala CFR has two differing maps; where in one area Mr. Kigayaza Eridad possesses a certificate of title occupying 128 ha. However, management is not aware of how the land title was acquired and the person has not come out openly to discuss with management. I advised management to follow up on the matter.

c) Sese Palm Beach Resort

The resort is located in Lutoboka CFR on Bugala Island in Kalangala district. The proprietor initially entered into development of this land with the then forestry dept. in 1997 but some of the conditions have not been fulfilled namely:- Demarcation of the actual area to be used; the maximum limit of hectares usually allocated for ecotourism purpose is 5ha but the beach site was found to be 9.07ha.

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Details of infrastructure; the copy of the site plan was not approved by the relevant authorities; the buildings were built in permanent materials which don‟t blend well with nature as required in ecotourism development.

Environment Impact assessment; EIA wasn‟t carried out as no certificate was availed to the surveyor.

Contractual agreement; no ground rent has been paid since the inception of the business.

I advised management to follow up the matter with a view to enforcing compliance.

The following issues were also noted with regard to the operation of the resort.

Sanitation and waste management; There is poor disposal of waste; for instance there are no rubbish pits in the area which is dangerous to the environment. Plastics, polythene bags, rubbers, etc. were found on the floor of the forest. These hinder natural process in the forest ecosystem.

Agricultural activities were being carried out on the beach like piggery and farming.

Management of the beach was delegated to another proprietor without the knowledge of management of NFA.

I advised management to follow up on the maters to ensure compliance.

61.8 Obsolete Vehicles

A review of the board of survey report revealed that a number of vehicles are either grounded or are having high maintenance costs. This observation is corroborated by the analysis carried out in the income and expenditure statement which revealed that repairs and maintenance rose from Shs.296,967,864 in the previous year to 346,469,006 in the year under review which translate into 17% increase. This could be attributed to lack of a fleet management policy. In response, the Accounting Officer explained that management is in the process of boarding off obsolete and uneconomical vehicles. Periodic maintenance of fairly operational fleet is to be done.

I advised management to develop a fleet management policy that will guide them in addressing the above challenges.

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61.9 Inspection of National Tree Seed Centre (NTSC)

Inspection of NTSC located at Namanve on 8th January 2013 revealed the following matters:- Some revenue is utilized at source, which is later refunded when the money for daily expenses is approved and paid by NFA headquarters. For instance, on the day of inspection, sh. 1,800,000 was missing. The cashier explained that these funds had been utilized to meet petty payments at the centre.

The Range Manager is not a signatory to the Range Revenue Collection account No 0140010886201 in Stanbic bank.

The Range was allocated two vehicles (pickup). However, at the time of inspection one vehicle had allegedly been involved in an accident near Kafugo plantation, while the other had been called back to NFA Headquarters.

Sh. 18,800,000 was stolen from the safe on 8th September 2012, possibly attributed to delayed banking. A review of the contract agreement between the security firm and NTSC revealed that clause 3(b) provides for compensation of a maximum of Shs.500,000 of the loss in case of a loss caused by negligence of the security firms‟ personnel. This was noted to be unrealistic.

In response, the Accounting Officer explained that NTSC is a semi-autonomous and its manager is a signatory to the operational Bank account and not to the collection account. A fleet comprising of a lorry, Suzuki and a pick up is allocated to the centre. Other vans were being deployed as need arises. I advised management to improve on the internal control weaknesses identified to improve on the centre‟s performance.

61.10 Court Cases on Revenue Sources

It was noted that the National Forest Authority was involved in a number of court cases. The cases have taken unnecessarily long and management does not seem to have made adequate follow ups for the recovery of its revenue. Below are some of the cases; SUIT CASE OBSERVATION

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NFA Vs. World Debt stands at USD.41,404 including interest. NFA licensed Evangelical Ministry. the defendant‟s mast in Oruhar Central Forest Reserved in Civil suit no.5/2011 2004 and received initial sum of USD.3,510 in 2004. The case came up for hearing on 3/9/2012. NFA Vs. Airtel Uganda Illegally erecting a telecommunication mast in Ogera CFR. Ltd. Civil suit no. 17/2010 NFA Vs. MTN (U) Ltd. Illegally constructing a mast in Alerek CFR in Abim district. Civil suit no. 18/2010 NFA Vs. Uganda Debt outstanding USD.354,000. A notice of intention to sue Telecom Ltd. and invoices were issued and received by UTL. This renders management less effective because of low revenue generated and yet funds are lying idle with these illegal encroachers.

In response, the Accounting Officer explained that management was is closely following up all court cases either through its internal legal Officer or with the appointed external lawyers.

I advised the Accounting Officer to follow up these cases and liaise with the relevant authorities to have the cases disposed of promptly.

61.11 Second Environemtn Capacity Building Project (EMCBP II)

a) Delayed Submission of Draft Accounts for Audit

The Project funding agreement requires management to submit the annual audited accounts to the Bank within six months of the financial year end. It was noted however, that the draft Project financial statements were submitted for audit on 17th December 2012, almost six months after the end of the year under review. I explained to management that failure to submit the draft financial statements within the stipulated timelines not only leads to delays in conclusion of the audit process but also the submission of the final audit report to the stakeholders. I have advised management to ensure that in future, the draft accounts are submitted within the stipulated timelines.

300 b) Non Utilization of Established Nurseries for Provision of Seedlings to the Project Area

National Forestry Authority (NFA) entered into two contracts with M/s. Mani Engineering Services Ltd for the establishment of nursery sites and development of water supply systems for North Rwenzori (Musizi range) and Kasagala (Katuugo range) on 28th August 2010 at a cost of shs.99,155,311 and shs.103,398,335 respectively. In addition, M/S Beene Muganga Engineers Ltd were hired as Consulting Engineers for both contracts at a cost of shs.19,216,777. It was noted that there were delays in completion of the contracts which was done in May 2011 instead of the earlier scheduled date of December 2010. The nurseries were intended to provide seedlings to the project area during the project implementation period of July 2010 to November 2011.

During the audit, it was explained that the seedlings take four months to sprout and be ready for planting. However, despite completion of the works, management procured 778,649 Pinus Caribea seedlings from private nurseries at a cost of shs.272,772,024 (shs.400 each) between September 2011 and February 2012 instead of using the above nurseries to develop the seedlings. No proper justification was given by management for not having utilized the completed nurseries to develop the seedlings.

Further review of related documents revealed that it was only North Rwenzori nursery that produced 290,000 seedlings for the project requirements (valued at shs.116,000,000 at a market rate of shs.400 per seedling). There have not been any other seedlings produced by the nurseries reportedly due to lack of alternative markets for the seedlings. This implies that management had not undertaken adequate appraisal for the investment in the said nurseries.

In their response, management explained that the North Rwenzori nursery had been anticipated to provide seedlings for the project and thereafter for the Government funded Community Tree Planting Project (CTPP) and for sale to the community even after the closure of the project. I have advised management to ensure that the nurseries are put to use so as to maximize the benefits from the investment therein and to always undertake proper appraisals before embarking on such costly investments. c) Delayed Completion of Contracts 301

A review of running contracts under the EMCBP II revealed that the contracts shown in the table below were not completed within the contract periods resulting into breach of the contracts:- Contract Details Contractor Contract Start Expected Actual End Price (Shs) Date End Date Date

Boundary opening Realtec 52,720,000 June Sept 2010 July 2011 and remarking of 2010 N/Rwenzori range Boundary opening Realtec 106,310,000 June Sept 2010 July 2011 and remarking of 2010 Kasagala range Establishment of a Mani 99,155,311 Aug Nov 2010 May 2011 Nursery site & Engineering 2010 development of a Services Ltd water supply system for N/Rwenzori range. Establishment of a Mani 103,398,335 Aug Nov 2010 July 2011 Nursery site & Engineering 2010 development of a Services Ltd water supply system for Kasagala range Construction and Triangle 104,887,548 June Dec 2010 July 2011 Installation of Engineering & 2010 permanent boundary Construction markers at Co Ltd N/Rwenzori range Construction of Triangle 122,773,600 10/02/12 15/03/2012 Not yet Charcoal Kilns , Engineering & handed over records house and Construction store at Kasasgala Co Ltd CFRs EIA for Musisi and Urban 46,604,000 3/05/11 24/05/2011 29/08/2011 Kasagala ranges Research and Training Consultancy

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This might have been due to failure by management to appoint contract managers to prepare implementation plans and make proper supervision and monitoring of the implementation of the contracts as required by the procurement regulations. I explained to management that delays in completion of contracts ultimately leads to delays in service delivery.

In his response, the Accounting Officer explained that management had taken note of the observation and would ensure that such matters are addressed in future. I advised management to always appoint contract managers for each contract to ensure close supervision and compliance with contractual terms and conditions.

d) Irregular Award of a Contract for the Construction of a Forest Station at Karugutu – Shs.48,685,500

The construction of a forest station at Karugutu – North Rwenzori Central Forest Reserve (CFR) was awarded to M/s Prona Company Ltd, on 31st August 2011 at a contract price of Shs.48,685,500 inclusive of VAT. However, the review of the procurement file revealed that the successful bidder did not meet the following technical compliance requirements:-

The company did not meet the criteria of having undertaken at least two projects of not less than shs.200 million of a similar nature and complexity compared to the proposed contract in the last 5 years. It was noted that the company provided two projects of having roofed four National Housing quarters in 2007 at Shs.162,225,500 and fencing Mulago Hospital in 2009 at Shs.102,836,610.

The technical compliance requirement of the bidding company having had an annual turnover of shs.200 million in each of the last 3 years was also not met. It was observed that the company‟s turnover for 2008 was only shs.152,564,123.

The technical evaluation committee did not therefore follow the evaluation criteria specified in the bid document. It was further noted that instead of the contracts committee referring the evaluation report back to the evaluation committee it just went ahead and awarded the contract. This was irregular and was unfair to the other bidders who could have satisfied all the above requirements. 303

The Accounting Officer explained that the contracts committee awarded the contract to the above company because the evaluation committee found the company technically compliant. I reminded the Accounting Officer of his overall responsibility for the successful execution of the procurement, disposal and control management processes in the Procurement and Disposing Entity (NFA) as contained under Regulation 41 of the Public Procurement and Disposal of Public Assets Regulations, 2003. e) Doubtful Procurement of Seeds – Shs.80,000,000

On 9th November 2011, NFA procured 40kgs of Pinus Caribbaea F1 and F2 seeds for its nurseries, at shs.80,000,000 from M/S Busoga Forestry Company Ltd using the direct procurement method without seeking for the necessary approval from PPDA. I explained to management that such a practice exposes the Authority to a risk of obtaining unfair prices in the absence of competition and transparency during the procurement process.

In addition, it was observed that since the last supply of seedlings to the project by NFA nurseries was done in December 2011, it was evident that the seedlings from the above consignment were not supplied to the project since the nurseries never supplied any seedlings to the project thereafter, given that the seeds take four months to sprout and be ready for planting. This was further confirmed by the list for the distribution of seeds to mainly non-project areas rendering the procurement of the above seeds for the project doubtful.

The Accounting Officer explained that the Authority could not procure the seeds from the pre-qualified supplier M/s Schuckar and CIA Florestal Ltd because NFA had an outstanding debt that needed to be settled before this procurement could be made yet its accounts had been garnished. He further explained that since M/s Busoga Forestry Company Ltd had placed an order for seeds from the above prequalified supplier, NFA requested them to scale up their order to cover the captioned requirements. The company agreed to the request and used its own funds to import the seeds and NFA only made a refund for the cost of the seeds.

However, I find the Accounting Officer‟s explanation not satisfactory in the absence of proper documentation including a Memorandum of Understanding between NFA and M/s Busoga Forestry Company Ltd confirming the above explanation as well as how the Authority became aware of the Private Company‟s impending purchase of seedlings from the said supplier. This procurement therefore remains doubtful. 304

f) Status of Prior Year Audit Recommendations

The status of the prior year audit recommendations was as summarized in the table below:-

Finding Remarks

1 Flouting of procurement procedures Repeated during 2011/12

2 Failure to regularly prepare bank reconciliation Addressed statements

3 Unaccounted for advances to staff Not repeated

62.0 NATIONAL WATER AND SEWERAGE CORPRORATION (NWSC)

62.1 Loss of Revenue on Non-Revenue Water (NRW)

Disclosed under Note 5 to the financial statements, is that the Corporation recorded non-revenue water (NRW) of 32.75% of the total water produced in the year (2011: 32.8%) arising from technical factors which do not have revenue potential and non- technical factors which represent potential revenue. NRW arising from technical and non-technical factors does not meet the criteria for revenue recognition. Accordingly, whilst costs associated with production of NRW are fully accounted for as incurred, no revenue has been recognised in the financial statements with respect to NRW. I have advised management to continue exploring ways of reducing the losses arising from non-revenue water, as they directly impact on the Corporation‟s level of profitability.

62.2 Delayed Capitalisation of Project Assets

It was noted that there were instances where completed projects were not capitalised in time as exemplified in the table below:- Project Date of substantial completion Year of capitalization

Gaba Intake 07/09/2010 2011/12 Jinja Intake 31/10/2010 2011/12 Bushenyi-Phase 1 22/01/2010 2011/12

Similar exceptions were also noted in prior period audits which resulted in adjustments to prior period financial statements to record the impact of these exceptions to the 305

values of reported assets, depreciation and deferred income. For instance, deferred income arose on projects that were financed or donated to the Corporation by donors. The donated assets were recorded in the Corporation books with the corresponding credit to deferred income. The income is deferred on the balance sheet and amortized to the income statement as the donated assets are depreciated. Late capitalization of project assets may lead to financial misstatements due to errors in reported assets, depreciation and deferred income.

In their response, management stated that it had instituted a new system for close-out of completed projects where the project accountant shall be part of the handover team to ensure timely capitalization. I advised management to ensure that those projects (including those financed by donors) that take a long time to be completed should be regularly monitored to ensure that they are capitalized as soon as they are completed and ready for use in accordance with the Corporation‟s accounting policy.

62.3 Application of International Financial Reporting Standards (IFRS)

A review of the Corporation‟s financial statements revealed that the accounting standards relating to the following areas might not have been applied appropriately:-

a) Revenue Cut-Off

Due to the nature of the Corporation‟s billing cycle, certain customers are billed at different points in the month. This creates an overlap at the end of the reporting period [June] where revenue earned from water consumption in June is not billed until the following month [July] when the readings are taken. Currently the Corporation records revenue at the point of billing. It was noted that in the previous periods, management has adopted an assumption that the overlapping revenue at the beginning of each financial year will offset with the unrecorded revenue at the end of the year. Although this assumption may be reasonable, it was noted that it may not hold in instances where there are changes in parameters like consumption trends, charge per unit consumption and number of customers. I advised that an estimate should be made annually of the overlapping revenue to ensure that revenue earned during a particular period is accurately recorded. Such an estimate is accepted industry accounting practice.

b) Impairment of Government Debt

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I have noted that debt arising from water consumption by government ministries and departments is not collected in full within the due dates applicable to the rest of the customers. For instance, the total amount outstanding from government as at 30th June 2012 was Shs.26.8 billion of which shs.10 billion was expected to be collected within one year [2012/2013]. I noted that the Corporation is not compensated for the delay in settlement by charging interest on amounts outstanding. Accounting standards require that where receivables/debtors are not collected within the due date, consideration should be taken for the time value of money to recognize the loss in value of the money over time. In the circumstance, I advised management that the current outstanding balance should be written down to recognize that expected loss in value overtime.

c) Accounting for Ring-fenced Terminal Benefits Scheme

During the year 2006/2007 the terminal benefits scheme was suspended and replaced with the annual service gratuity scheme. The accumulated balance relating to the terminal benefits scheme at that point was ring-fenced. Under the collective bargaining agreement between the Corporation and the Uganda Public Employees Union, members of the scheme are being paid at various points until the year ending June 2016 based on an agreed payment plan. The unpaid balance attracts interest at a rate of 3%. It was noted that management had not taken into account the effect of time value of money in recording the terminal benefits liability as at 30th June 2012 as required under International Accounting Standard 39 which recognizes the effect of time value of money that the amount to be paid in future will be less in value currently.

Failure to comply with relevant International Financial Reporting Standards may lead ton misstatement of the related balances in the financial statements. Management was advised to ensure appropriate application of accounting standards [IFRS] particularly in complex areas of the Corporation‟s operations and areas that require judgment.

62.4 Reasonableness of Depreciation Rates

A review of the depreciation rates applied by the Corporation for its fixed assets, revealed that Civil structures were depriciated at a rate of 1% while technical structures, pipe works and electromechanical equipment was at 3%. These rates were found unreasonable. For instance, a depreciation rate of 1% implies that the useful life of civil structures is estimated at 100 years. In the absence of evidence from management to

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support this estimate, I believe that a rate of 1% may not be reasonable. In addition, a rate of 3% has been applied to all items of electro mechanical equipment. However, different components of electro mechanical equipments should have different useful lives and therefore should attract different depreciation rates. In their response, management concurred with the observation and explained that arrangements are underway to revalue the assets and segregate them further, to ease the application of different dipreciation rates. I advised management that the useful lives of assets should be reviewed. Depreciation on electro mechanical equipment should be computed on a component by component basis to ensure alignment with the varying useful lives of each of the components.

62.5 Fixed Assets Management

A review of the Corporation‟s fixed assets management revealed the following weaknesses:- Instances were noted where the area trial balances showed negative book values of assets; For example Gulu, Kabale, Lira, Masaka, Mbarara and Mubende had negative asset book values. During discussions with the Finance team, it was noted that this was as a result of misallocation of assets between areas.

There was no adequate documentation used to verify assets and there was no evidence that the results were linked back to the fixed assets register.

The assets are not tagged with unique numbers that can be utilised to identify them on ground and on the Fixed Assets Register. While the company has a detailed listing of assets, it is currently difficult to link each physical asset to the listing, as tagging is not uniquely done for each item.

Lack of adequate controls over fixed assets may result in loss of assets through theft or other forms of misappropriation/misuse. In their response, Management promised to explore the options of tracking the assets subject to availability of funds. I advised management to implement adequate asset management procedures covering all assets in the network and assets held at area offices.

62.6 Compliance with Operational Procedures at Areas Offices

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Visits to a sample of area offices, revealed instances of non-compliance with procedures put in place by management. These included the following:- Disconnection of customers from the water network were not authorised by the Commercial Officer/AreaManager. This exception was identified in Lira area where out of the 60 disconnections tested, 46 were not signed by the Commercial Officer/Area Manager as evidence of authorisation.

Stores issue vouchers were not authorised by the Area Manager.

Non compliance with operational procedures could result into loss of assets and reputational risk. Area management was advised to ensure compliance with operational procedures.

62.7 Accounts of Staff that left the Company not Appropriately Disabled

A review was carried out on all terminated staff against active directory, Scala, Hi Affinity and E-procurement user lists, to provide assurance that all access rights had been appropriately revoked on termination/resignation of staff. It was noted that several staff who were no longer employees of NWSC were still „active‟ in the directory or still had user accounts. Failure to disable the accounts could easily lead to misuse to defraud the Corporation.

In their response, management explained that they were in the process of implementing an automated HR system that will ensure staff who have left the Corporation are disabled from the system timely. I have advised Management to ensure that staff accounts are disabled instantly upon staff departure.

62.8 Implementation of Prior Year Recommendation

A follow up was made of the previous audit recommendations. The status is summarised in the following table:- Ref Audit findings/Recommendation Status of Implementation 01 Depreciation rates: Not implemented. The useful lives of assets should be reviewed. Depreciation on electro mechanical equipment should be computed on a component by component basis to align with the varying useful lives of each of the components. 02 Internal audit department: Not implemented. The internal audit department should be independent of 309

Ref Audit findings/Recommendation Status of Implementation management. In addition, the number of internal auditors should be increased to facilitate coverage of all operational areas. 03 Non-compliance with the terms of the collective Implemented bargaining agreement (Terminal Benefits): Management should ensure compliance with the terms of the collective bargaining agreement with regard to terminal benefits. 04 Timely update of Grants and Work in progress: Not implemented. Management should ensure that transactions are booked during the period in which they occur. 05 Duplicate entries in the terminal benefits schedule: Implemented Management should consider a thorough review of the terminal benefits and service gratuity, including an audit of the information used in computing the benefits, maintaining centralized staff lists and computation schedules.

06 Verification of fixed assets: Not implemented. The company should commission a comprehensive asset verification exercise to ensure accuracy and completeness of the Corporation‟s fixed assets register. The exercise should also include a reconciliation of the fixed assets register to the GL. 07 National Social Security Fund remittances on gratuity Not implemented. and bonus: Statutory deductions should be remitted to the relevant third parties by the due dates. 08 Bank reconciliations process: Implemented. Identified reconciling items should be followed up and resolved. 09 Timeliness of review of updates to the Implemented system(Inventory): Management should ensure that reviews of transactions to be posted to the general ledger are performed on a timely basis to ensure accuracy of system records at any point in time. 10 Reconciliation of cash collections through e-payment: Implemented Management should ensure that a process is put in place to perform spot-checks on the reconciliations of cash collections to the billing system. 11 Reconciliation of new connections as per Engineering Implemented department's report/records and the new connections as per system: Records of new connections from the Engineering department should be reconciled to the system on a regular basis. 12 Segregation of duties: Implemented The corporation should ensure that there is adequate segregation of duties both manually and in the system. 13 Review of daily cash collection reconciliation: Implemented The daily cash collection reconciliations and monthly summaries should be prepared and reviewed on a timely basis. The review should be performed by a person independent of the preparer. 14 Double payment of service gratuity: Implemented 310

Ref Audit findings/Recommendation Status of Implementation Management should ensure that a comprehensive list of gratuities paid out or due is centrally maintained outside of the general ledger in order to ensure that amounts due to staff are accurately and completely accrued for. Ref Late remittance of Withholding tax: Implemented 15 Withholding tax deductions should be remitted to Uganda Revenue Authority by the 15th of the month following the month of deduction. 16 Posting of transactions to the wrong GL Codes: Implemented Management should perform more robust reviews of the postings made by junior staff to minimize posting errors and ensure reliability of financial information. 17 No policy on aging and write off of other receivables: Not implemented: Long outstanding balances in other receivables should be provided for or written off. However, management has procedures in place to review assets and write-off debts for which recoverability is in doubt. 18 Reconciliation of payroll costs to the general ledger: Implemented Management should ensure that the reconciliations of the payroll costs to the entries posted to the general ledger are performed regularly by all area offices. 19 Statutory deductions: Not implemented. Management should ensure that deductions are remitted in a timely manner. 20 Record of intangible asset values: Implemented. Management should ensure that the record of asset values is made inclusive of withholding tax. 21 Prepaid operating lease rentals: Implemented. The Corporation should obtain titles for all property under operating leases. 22 Computation of Leave transport accrual: Implemented Better coordination between finance and the human resources department ensure sufficient information is availed for proper computation of the leave transport accrual. 23 Change management procedure not followed: Implemented The proper change management and software development procedures should be followed in ensuring that only properly tested changes/ applications are rolled out to the live environment. 24 Account for staff who left not disabled: Not implemented. Management needs to carry out regular user access review (maybe quarterly) to ensure that all accounts for staff who leave are disabled and that access rights for existing staff are in line with assigned job role. 25 Global password setting: Not implemented. The setting for passwords to meet complexity requirements needs to enabled to strengthen the password controls of the domain. 26 No review of audit trail reports: Implemented Audit trails should be logged and reviewed regularly by a person independent of the IT department. Results of the review should be maintained and any exceptions followed up.

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ACCOUNTABILITY SECTOR

63.0 BANK OF UGANDA (JUNE 2012)

63.1 Recovery of Shs.140 billion Paid to Haba Group

As reported in my previous report, Bank of Uganda provided letters of comfort (promissory notes) to four commercial banks on the basis that Haba Group had compensation claims from the Government of Uganda. Haba group subsequently did not honor their obligations to the commercial banks and the Minister of Finance Planning and Economic Development wrote to Bank of Uganda to pay the commercial banks. These payments were made on different dates in 2011 to the various commercial banks. The Ministry offered to indemnify BOU on all the payments once necessary budgetary provisions have been made. As at 30th June, 2012, Bank of Uganda was yet to be reimbursed by Ministry of Finance, Planning and Economic Development. The payment made by Bank of Uganda could be interpreted to mean a temporary advance to Government of Uganda under Section 33 of Bank of Uganda Act. Consequently, BOU should be charging interest on the outstanding balance.

63.2 Investigations into the Misuse of Funds in the Prime Minister‟s Office (OPM)

At the time of the audit field work, various irregularities were reported regarding the accounts relating to the office of the Prime Minister at Bank of Uganda. The matter was still under investigation by various agencies including Bank of Uganda internal audit, Criminal Intelligence and Investigations Directorate and the Public Accounts Committee, as such the outcome of the investigations by those bodies could not be determined at the time of the audit.

Management explained that they are still awaiting the outcome of the investigations and in addition, the issue is already in court with no conclusive judgment. Management

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further indicated that appropriate action will be taken based on the outcome of the investigation.

I advised that Management should work with the agencies who are currently investigating the matter and ensure that appropriate action is taken based on the findings.

63.3 Capitalization of the Bank

As at 30th June 2012, the bank‟s capital excluding translation reserves was a deficit of Shs.226 billion (2011: 116 billion). The capital has been eroded over time mainly due to operating losses and accordingly the capital is impaired and requires redemption from the Government in accordance with section 14 of Bank of Uganda Act. I noted from correspondences between the Bank and Ministry of Finance, Planning and Economic Development that the capital adequacy issues are currently under discussions but no formal plan has yet been agreed. The bank may not be able to effectively execute its functions as envisaged in the Constitution of Republic of Uganda and Bank of Uganda Act.

Management explained that the Bank has developed a recapitalization plan which was forwarded to the Ministry of Finance Planning and Economic Development for consideration and that discussions are on-going with the Ministry to recapitalize the Bank in accordance with Section 14(4) of the Bank of Uganda Act. I recommended that Management should expedite the current discussions with the Ministry of Finance, Planning and Economic Development and ensure that the bank is recapitalized.

63.4 Board Appointments

Section 7(3) of the Bank of Uganda Act, states that a member of the Board may hold office for a period of four years and different members shall be appointed at different times so that the expiry date of the members shall fall at different times. During audit, I noted that the term for all the Non-executive Board members expired on 4th June 2012. Appointment of board members with uniform tenure is inconsistent with the provisions of the Bank of Uganda Act. The process of appointment of directors is lengthy which creates a vacuum in the Bank‟s governance structures and that could negatively impact on the smooth conduct of the bank‟s business.

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Management responded that the appointment of the Board of Directors of Bank of Uganda is at the discretion of the Appointing Authority and outside the mandate and control of Management. Management advised the Minister of Finance Planning and Economic Development on the issue. I advised Management to liaise with the appointing authority to explore the possibility of staggering the office tenures of the directors as enshrined in the Bank of Uganda Act.

63.5 Disclosure of Financial Instruments

Based on my review of the fund manager‟s report, I noted that there were Financial Instruments such as forwards and futures which had not been separately disclosed in the Financial Statements as required by the International Financial Reporting Standards No 7. My discussions with fund managers revealed that those Financial Instruments are specifically used for purposes of managing foreign currency risks/exposure for foreign reserves. It would also imply that management relies on the fund managers for the completeness of the Bank‟s investments without performing a detailed review. Non- disclosure of Financial Instruments may lead to non-compliance with International Financial Reporting Standard No. 7 Financial Instruments.

Management explained that the derivatives are part of the portfolio valuation statements provided by the custodian and which are booked in the General ledger under investments held for trading category and these have subsequently been disclosed in the financial statements. I have advised that Management should also engage with the fund managers to ensure that they fully understand the figures reported in the fund manager‟s report and that in future, there is adequate supporting documentation for all entries posted to the general ledger.

63.6 Remittance of NSSF on Bonus Payment to Staff

During my review, I noted that the National Social Security Fund had written to the Bank asking it to remit NSSF on Bonus paid to employees for the periods January 2008 to September 2011 amounting to Shs.12.849billion. In response, the bank obtained a legal interpretation upon which Management decided not to remit NSSF. As at the time of the audit, NSSF had not responded to BOU‟s legal interpretation as regards the remittance.

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Whereas there is a legal interpretation that the bank has based its decision not to remit NSSF, there is still a chance that it can be overruled in case of a challenge which may expose the bank to penalties and fines.

Management responded that the Bank obtained a legal opinion on the matter where it was indicated that staff bonus does not attract NSSF contributions. At the time of the conclusion of the audit, the Bank had scheduled to meet with NSSF management to reach an understanding. In addition, the Bank intends to seek legal opinion from the Attorney General on the matter. I recommended that Management should ensure that it follows the matter to its final closure to ensure that there are no exposures to the bank.

63.7 Outstanding Leave provision

The bank uses Oracle Human Resource Management System to manage staff leave days. The system is also used to generate outstanding leave days as at financial year end in order to compute outstanding leave provisions. As at 30th June 2012, the bank had a provision of Shs.10.8 billion of outstanding leave days. During my review, I noted inconsistencies between the Human Resource management system and the manually reconciled leave days using leave forms which could not be readily explained. I further noted that the system does not provide historical reports to facilitate reconciliations. Inaccurate leave days may lead to a misstatement in the outstanding leave provision balance. In addition, employees with less leave days than they are entitled to may feel disadvantaged.

Management explained that the issue of inconsistencies in leave days will be resolved once the upgrade of the Oracle human resource management system is completed. In addition, software, HR Analytics module will also be implemented to effectively track leave management. I advised that Management should ensure that a thorough reconciliation is performed for each employee as regards outstanding leave days. In addition management should ensure that the system can provide relevant reports to enable reconciliation.

63.8 Review of Fixed Asset Register – Expired Land Leases

Based on my review of the fixed asset register, I noted the following;

The title deed for the Fort portal currency centre was not available at the time of audit. A land title provides evidence of ownership of land and assigns the benefit 315

thereof to the holder conveying the exclusive right to use the land. This issue is known to management and their efforts to obtain the titles have not yielded positive results. In addition, included within the fixed asset register is plot 5, Saddler Road Naguru, Kampala that had been reallocated by KCCA to someone else. The carrying book value of this plot as at 30th June 2012 is shs.150 million. The circumstances under which the land was reallocated by KCCA were not available on file. Whereas, the issue had been discussed at the Board level, I did not see clear demonstration of the bank‟s effort to reclaim the land.

In the event that a claim is brought against the bank challenging its ownership of Fort Portal land, the bank may not easily defend its position without a land title or certificate of ownership. Failure to write off assets that the bank no longer owns may lead to misstatements in the financial statements.

Management explained that the mentioned plot on Saddler Lane was property of the Bank of Uganda which were not developed or disposed off due to the existence of high voltage power lines above them. Subsequently, when leases were about to expire, the Bank applied for extensions which were rejected by Kampala District Land Board on grounds that Bank of Uganda had not adhered to the development conditions and all attempts to renew the leases flopped. The carrying value of Shs.150m will be written off. For Plot 1, Kaboyo Road, Fort Portal, the Bank‟s application for freehold tenure was approved by the Kabarole District Land.

I recommended that the bank should endeavour to obtain land titles for all its properties and any changes to the terms of ownership should be updated in a timely manner.

63.9 Long Outstanding Reconciling Items

The central bank maintains suspense accounts for the purpose of enabling it to carry out day to day operations. Whereas these accounts are reconciled regularly (daily, weekly or monthly) depending on the nature of the account, there were instances of long outstanding items some of which had been recommended for write off as they were not recoverable. Some of the differences above are attributed to the Purchase and Inventory Management System which uses inconsistent average cost prices as highlighted by a consultant in the IT system review report to management. Suspense accounts with long

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outstanding items may be used to process unauthorized transactions or fraud which could potentially cause financial loss to the bank.

Management explained that the long outstanding reconciling items on the GL and PAI system were caused by the system valuation/pricing flaws which were brought to the attention of the system vendors. I recommended that Management should endeavour to take immediate action and clear all long outstanding items. Management should also investigate all reconciling items and take appropriate action.

63.10 Disclosure of Software Costs

During review of the fixed asset register, I noted that the Bank has IT systems such as Bank of Uganda Banking System (BBS), Foreign Exchange Reserve Management System (FERMS) and Integrated Financial Reporting System (IFS) among others which are accounted for together with computers. IAS 38: Intangibles Assets, requires that cost of software be disclosed separately from the physical assets. Based on discussions with management, the bank has been accounting for the two items together. Given that the bank is upgrading some of its IT system and working towards full automation in the future, the costs of software may become material hence causing a presentation misstatement in the financial statements.

Management explained that they are aware of the issue and will be fully resolved with the upgrade of the fixed assets module in the IFS. I advised that Management should going forward monitor all software costs and ensure that they are recorded and presented separately from other items of Property, Plant and Equipment.

63.11 Monitoring of Loans

When the Bank extends loans to commercial banks, it uses the Central Depository System (CDS) to monitor maturity of the loans. This is achieved by the Payments and Settlements Department (PSD) attaching a lien with a date of maturity on the securities provided by the bank. On maturity, the CDS raises an alert that notifies a user that there is a loan due for repayment but neither specifies the actual loan that is due for repayment nor the securities against which the loans were granted. The bank has to rely on an excel spread sheet to capture the various maturities which is prone to error at data entry. The Bank may not detect loans that have matured in a timely manner since

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both the system and manual spread sheets are not a reliable source of information for matured loans.

Management commented that the loans extended to commercial banks are generally short term and are very few. Therefore, the use of CDS alerts and a spread sheet to monitor these transactions has been cost effective. The Bank is currently testing a new Central Securities Depository system (CSD) which will automate the monitoring of short- term loans to commercial banks. I recommended that Management should upgrade the Central Depository System to enable proper monitoring of loans and advances.

63.12 Records of Surveillance on Restricted Areas

The bank has a CCTV security system which is used to monitor and record activity in various strategic locations in the bank. The system helps the bank to prevent attempted crime and also detect committed crime by ensuring constant surveillance and also provide clear record of activity. From a review of the bank security system, we noted the following exceptions;

The bank has three CCTV storage systems of which two systems store data for an average period of 58 days each while one system stores data for an average period of 30 days after which the recorded data is erased/overwritten. The bank does not have backup system to which the CCTV system data can be stored after the average storage period. I also noted that the vendor of the CCTV security system still has the exclusive administration rights of the system until the end of the warranty period. This means that the vendor is the only one with access to CCTV records and as such the bank has no control over the recordings. In the event of an incident, the Bank has to rely on the availability of the vendor.

Failure to have sufficient record of security details at the bank may lead to the bank incurring losses in instances of fraud and/or theft without easily tracing the perpetuators. In instances where the bank has an incident, the response time may be impacted as it has to rely upon the vendor‟s availability

Management responded that the Bank is in liaison with the vendor and maintenance service provider to provide optimal comprehensive solution of storage for the CCTV system. The final solution was expected by the end of December 2012. I advised that

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Management should review the security details and systems of the bank in view of ensuring adequate security cover of the Bank‟s assets.

63.13 Review of Exchange Rates

The bank uses the Integrated Financial System (IFS) for financial reporting purposes. The system is also used in the revaluation of foreign denominated balances using exchange rates obtained from the Reuters website and input in the system by a senior banking officer in the Payments and Settlement Department. I however noted that there was no evidence of independent review of the rates which are input in the system. Inaccurate rates may be input into the system and may not be detected in a timely manner.

Management explained that the current set up of the IFS module for currency update provides for only one person, a senior officer who is supervised by the Division Head, the second approver is currently outside the system. The exchange rates are generated by separate Department different from the Payment and Settlement Department and in addition the rates are published on the website on a daily basis. I have advised Management to ensure that exchange rates input in the system are reviewed by at least senior and independent personnel on the system.

63.14 Delays in Posting of Deals into the General Ledger

The bank through the financial markets department has various monetary policy instruments. Among the instruments is a Reverse Repo that involves lending to commercial banks. The Payments and Settlements Department is in charge of settling the Reverse Repos made by the financial markets department with the commercial banks and posting them into both the Bank of Uganda Banking System (BBS) and the Integrated Financial System (IFS).

During review, I noted instances where Reverse Repos whose date of posting was after the date of issue. Untimely capture of financial information may lead to inaccurate financial reports and therefore sub optimal decisions. There is also a risk of human error as the posting date may be captured as the trade date.

In their response, management explained that Repo transactions are verified and booked on the IFS on the same day in case they are received earlier in the day. In some cases, it may be towards a weekend where the transactions are completed late and are 319

therefore posted the next working day. As a matter of practice, the transactions should not go beyond two working days. I advised that Management should endeavour to have all transactions posted to the general ledger in a timely manner.

63.15 Review of the Human Resource function

My review of the Human resource function revealed the following;

• Best practice requires the use of employee performance appraisals as a basis for assessing employee performance, rewarding efficiency and hard work in order to enhance employee motivation to achieve the entity objectives. Chapter 9 section 9.2.2 of the Administration manual stipulates that its mandatory for all employees to be appraised at least once a year. From my review of a sample of files for executive directors, I noted that there was no documented evidence of performance appraisal during the year ended 30th June 2012. Chapter 4 section 4.11.1 of the Administration manual states that an employee of the bank proceeding on leave, transferred or promoted shall hand over documents and other tools in their possession to the head of department. In addition, section 4.11.3 of the Administration manual states that prior to an employee leaving employment of the bank, the Director security shall ensure that bank property that is in possession of the employee if any is handed over. Based on my review of a sample of files for staff that left, there was no signed form on file to indicate whether they had handed over bank property if any in their possession. • Section 4.5.11.1 of the Administration manual states that all employees must sign a declaration of secrecy form. A review of a sample of staff files revealed that new joiners in the year ended 2012 had not signed secrecy forms. Failure to follow the human resource manual could be deemed as an override of the internal controls, which may lead to financial loss to the Bank. Management should ensure that all employees adhere to the set policies and practices.

63.16 Reputation Risk

As part of its mandate as banker to Government, Bank of Uganda processes Letters of Credit for Government Ministries, projects and agencies. In some instances, Letters of Credit issued in favour of Government agencies have been identified to contain

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discrepancies within the supporting documentation. Whereas the bank has taken steps to ensure that the global standards that guide Letters of Credit Practices are observed, there is a significant inherent reputational risk of association in the event that payments are made on Letters of credit with incomplete/inaccurate documentation.

Management responded that the operations relating to letters of credit are governed by the rules provided under UCP600 and the memorandum of understanding entered between Ministry of Finance Planning and Economic Development. In addition, the Bank will implement measures to sensitize the relevant stakeholders in respect of the role the Bank plays in management of letters of credit. I advised the Bank Management to remain vigilant on all engagements with all Government departments with regard to ensuring that the level of discrepancies on Letters of Credit are minimised.

63.17 Status of Previous Year Audit Recommendations

A review of the issues raised in my previous year audit report revealed that a number of issues were implemented or were being implemented except for the following:-

- The bank was guaranteeing and raising loans without authorization from Parliament: Whereas all commercial banks were paid, the funds disbursed to Haba Group are yet to be recovered from Ministry of Finance. - Customer statements for commercial banks which deal in treasury bills and bonds are generated manually. This is because the statements generated balances by the CDS system are usually incorrect: The problem still persists.

I have advised management to ensure that these matters are addressed without further delay.

64.0 UGANDA DEVELOPMENT BANK- YEAR ENDED 31ST DECEMBER 2011

64.1 Year End Financial Reporting Process

The following weaknesses were noted in respect of the Bank‟s year end reporting process.

a) A large number of transactions posted in the general ledger (GL) after year end which resulted in delayed closure of the GL for year end reporting;

b) Delayed completion of valuation of the Bank‟s investment properties;

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c) Significant manual journal entries posted after the year end to correct various errors in the GL; and

d) Incomplete impairment computation. The Finance team only provided a computation for individual impairment. International Accounting Standard (IAS) 39, Financial Instruments: Recognition and Measurement, requires both individual and collective impairment to be estimated for the Bank‟s loan portfolio.

e) Delayed preparation of the year end IFRS financial statements.

The delays in financial reporting could dilute the relevance/usefulness of the Bank‟s financial statements to the various stakeholders.

Management explained that this issue had appeared in the last four management letters and that they had put in place measures to ensure that entries are posted on time and also undertake valuations timely and also determine and recognise both individual and collective impairment. They further stated that the practice of not posting entries into the system on time, caused delays in the preparation of year end financial statements, but measures had been put in place to ensure that financial statements are prepared on time.

I have advised management to ensure that the year end financial reporting process are streamlined. The finance team should ensure that all transactions are posted on a timely basis and the GL is closed in time for the year end reporting. In addition, ensure that the annual impairment computation and valuation of investment properties are done on a timely basis and the required journals processed accordingly.

64.2 Impairment Losses

In the course of audit, a high level of impairment provisions on the Bank‟s loan portfolio was noted. The ratio of impairment provisions to the Bank‟s total loan portfolio stood at 21%. A similar level had been reported over the last two years. It was further determined that approximately 39% of the bank‟s loan portfolio was non-performing implying that a significant portion of the bank‟s portfolio possessed various indicators of impairment including default.

In addition, an internal investigation commissioned by the Board of Directors into the bank‟s trade finance revealed highly significant deficiencies in the credit appraisal, 322

approval and post-disbursement processes of the bank. The findings further pointed to the culpability of key senior members of management as being personally involved in or responsible for errors, omissions or commissions. The findings indicate a strong likelihood of fraud within the trade finance portfolio. These ratios reflect a poor quality portfolio which could result in actual losses to the Bank.

In addition, the internal audit findings have not been conclusively investigated to enable me form an opinion on matters raised. Management explained that they had noted the matter and treated it as a special focus area and several structural changes had already been put in place in the Bank specifically to deal with portfolio quality right from origination through credit analysis, credit structuring, monitoring and collections.

They further stated that the Banks‟ lending guideline was under review in this regard and three separate units had already been created out of the Development finance department including Business development Unit, Credit Risk/Underwriting unit as well as monitoring and recoveries unit.

I have advised management to clean up the Bank's loan portfolio to ensure that credit risk on the existing loans is minimised by for instance, perfecting collateral and regular monitoring of borrowers. In addition, management should review the Bank's credit policies to ensure that they are consistent with best practices in credit and banking generally. Policies and procedures in place should be adhered to. Further investigations should be undertaken to establish the extent of fraud.

64.3 Correction of Prior Period Accounting Errors

During the course of the audit, instances of uncorrected prior period errors were noted in the Bank‟s financial statements, for example; Deferred income tax amounting to Shs 3,798 million arising on prior period fair value gains on the Bank‟s investment properties was not recognised. The Bank‟s investment properties were not measured at fair value as of 31 December 2009 and 2010, contrary to the requirements of IAS 40: Investment Property. 323

Recoverable commitment fees amounting to USD 100,000 deposited with the African Export-Import Bank were recorded as an expense in the 2010 financial statements.

This implies that the Bank‟s prior period financial statements were misstated.

Management explained that as a way forward, deferred tax will be properly accounted for in all instances, and that measures had been put in place to ensure that fair value of investment properties was ascertained at each year end. Errors in the Bank‟s prior period financial statements should be corrected in accordance with the guidance under IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors.

64.4 Know Your Client (KYC) Policy

It was noted that the bank does not have a Know Your Customer (KYC) Policy which is considered “Best Practice” by financial institutions globally. As result no due diligence is done on the identities and physical addresses of directors and key shareholders of the companies seeking credit from the Bank and parties related to them. The bank‟s due diligence procedures only involve confirmation of registration of the borrowing entities with the Registrar of Companies and identification of the registered directors. No further work is done to confirm identities of directors, addresses and credit history.

In the absence of KYC Policy, the bank may deal with individuals having a poor credit history that could expose the bank to losses as such individuals are more likely to default on facilities advanced by the bank.

Management explained that a draft KYC policy was in place, awaiting management review and approval of the board.

I have advised management to expedite the review process and approval by the Board of the KYC policy so that a thorough client due diligence is performed before any facilities are rendered.

64.5 Special and other Funds

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The Bank‟s financial statements include certain special funds, administered funds and other managed lines of credits. Review of the agreements establishing these funds and managed lines of credit, revealed that the agreements require varying accounting treatment for each of the funds and also create differing levels of risk for the bank. For instance, under the Kuwait Fund, the bank was required to create a special fund to which disbursements and income accruing on the fund should be credited. Administered funds and managed lines of credit involve the bank receiving money for on-lending to borrowers in selected sectors under certain terms and conditions.

It was noted that the bank did not have processes and procedures for managing lines of credit and special funds to ensure compliance with the respective terms and conditions of financing.

The bank stands a risk of non compliance with the financing agreements which could lead to penalties or potential loss of future funding from the respective funding bodies.

Management explained that the bank had formed the ALCO committee to formulate policies and procedures to address the risk.

I have advised the Bank Management to put in place adequate processes to monitor special funds and to ensure compliance with the financing agreements. This could include putting in place separate general ledgers for each special fund to ensure appropriate segregation from own funds for proper accountability. In the absence of such separation, management could consider establishing accounting processes to separate balances and transactions in relation to special funds from the transactions and balances of the Bank.

64.6 Bank Reconciliations

Review of bank reconciliations for the months of February, April, August, September and December 2011 revealed that no reconciliations were performed for bank accounts at Citibank-Afriexim, Citibank/NY-Revolving Fund and the Afriexim Bank Cash Margin-USD. See table below for details.

In case of errors and irregularities on bank accounts could go undetected exposing the bank to financial losses.

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Account Number Account name Amount in Shs. 11130 Citbank-Afriexim 56,502,016 11139 Citibank/NY-Revolving Fund 38,406,151

Management explained that the bank had procured SWIFT system and was in a process of acquiring a matching software which would enable the bank receive the monthly statements on time in MT500 format. In the short term the bank had to rely on the posted statements that are obtained a few months late.

I have recommended that bank reconciliations should be prepared on a regular basis and reviewed by a person independent of the preparer. Reconciling items should be followed up for subsequent clearance.

64.7 Staff Provident Fund

It was noted that the bank did not have a formal policy for its staff provident fund which as at 31 December 2011 had accumulated funds of Shs.322 million. The fund is currently managed internally.

The fund may not be effectively managed which could result in disputes by members in areas such as investment made by the fund, apportionment of interest earned on investments, accuracy of pay-outs, etc.

Management explained that the fund was registered and also a Board of Trustees appointed to manage the fund.

Formal guidelines should be put in place around the management of the Bank‟s staff provident fund. Management should also review the requirements under the new Retirement Benefits Act and ensure that this fund complies with those requirements.

64.8 Insurance Policies for Loan Facility Securities

Review of controls around the lending process, revealed that there were loan facilities for which no up to date insurance policies were in place. Refer to table below for examples of such facilities;

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Account Number Account Name Facility with Up to date insurance 50347 White House Ltd No 50364 Nalugom No 50357 Quality plastics No 52007 Linknet Agencies No 51001 Phoenix Logistics No

There is a risk of financial loss arising from failure to recover loans advanced in case of any eventualities.

Management explained that a system had been put in place to track and ensure up to date policies were in place.

I have advised management to ensure that procedures are put in place to monitor the renewal of all insurance policies and to ensure that the bank is registered as the loss payee.

64.9 Appraisal of Staff Loans

From the review of staff loans, instances were noted where documentation to support appraisal and approval of staff loans by the staff loan committee was missing on the staff loan files.

Staff Name Amount of Type of Facility Loan approval Loan (UShs.) decision filed? NYENJE HAKEEM 50,779,525 Housing Loan No MUFUMBA FLORENCE 102,500,000 Housing Loan No NAIGAMBI WILBER 8,000,000 Housing Loan No MUCUNGUZI CHARLOTTE 36,000,000 Housing Loan No KASANGO RICHARD 19,000,000 Housing Loan No

Non-compliance with the existing lending guidelines could result in controls around appraisal and approval of staff loans not being effective.

Management explained that the loans were granted at a period when filing was not streamlined and the documentation for the mentioned loans were attached to the respective payment vouchers. They further stated that filing

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had since been streamlined and current staff loans have all supporting attachments.

I have advised that management should maintain sufficient documentation with regard to the appraisal and approval of staff loans by the staff loans committee.

64.10 Monitoring of Borrowers

During the review of the lending cycle, instances were noted where there was no evidence of regular monitoring of borrowers. Such monitoring is expected to include evidence of field visits, review of up to date financial reports and meetings with the borrowers. Where these were done, there was no evidence of follow up activities performed on results of visits or reviews of financial information. Refer to the table below for examples. Account number Account Name Monitoring activities performed ? 050305A Western Meridian Hotel No 050268B Kumi Hotel No 52039 Farm Support No 50308 Oasis Nursery No 50370 Budadiri Arabica Coffee No

Lack of monitoring of borrowers as stipulated in bank‟s lending guidelines is likely to reduce the ability to proactively detect loans that are not performing as expected, the reasons for the difficulties being faced and hence take timely corrective action.

Management explained that the monitoring function had since been streamlined, and reports prepared for any follow up activities performed. I have advised that guidelines for conducting monitoring visits should be put in place, while results and information from the project visits should be clearly documented and appropriate follow up actions taken.loaacilities

64.11 Restructuring of Loan Facilities

During the review of the lending cycle, instances were noted where there was no evidence of documentation for the rationale for loan restructuring. Where this rationale was provided, there was no evidence of independent verification performed to confirm information provided by borrower.

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For instance, the review of the loan facility offered to Oasis Nursery Limited to revamp flower farm after initially being placed into receivership revealed that the borrower reported a storm that downed their warehouses hence severely limiting their ability to service their loan. However there was no evidence filed of independent verification by the bank to ascertain the nature of losses reported by the borrower before agreeing to restructure the loan facility.

Requests for loan restructuring may be an indication of financial distress of the borrowers. Therefore, restructuring loans without verification of the reasons put forward by the borrower could delay the bank‟s action to recover potentially bad loans.

Management explained that the bank has restructuring guidelines although not effectively implemented in the past. They promised to ensure that these were to be enforced.

Management should ensure that the guidelines are enforced and that independent verifications are undertaken by the bank on the conditions requiring restructuring of the loan facilities.

64.12 Financial Information from the Borrowers

From the review of the lending cycle, it was noted that there were loan facilities for which the borrowers had not submitted up to date management accounts and audited financial statements as required by the loan agreements. No sanctions had been enforced by the bank on such non-compliance.

Table showing borrowers‟ files without up to date Management Accounts Account Name Financial statements submitted? Taa Engineering services No MayiKayegi Hotel Ltd No Farm Support No Health Care and Management solutions No Hot loaf Bakery Kabale Ltd No

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Lack of up to date information on the financial performance and position of the borrowers, as required by the loan agreements, is likely to impede the ability of bank to detect signs of difficulty faced by the borrowers and taking timely corrective action.

Management explained that they had put in place systems to ensure full compliance by borrowers with conditions of the loan agreements.

I have recommended that management should ensure that up to date financial statements and management accounts are submitted by all the borrowers as per the loan agreement signed with the bank. Appropriate sanctions should be imposed for non- compliance

64.13 Recoverability of Debtors

Instances were noted of long outstanding debtors on the bank‟s debtors listing but whose recoverability was doubted. Receivable Date of receivable Amount in Shs.‟000‟ W/tax on T. Bills interest 2006 40,886 Ministry of foreign Affairs- Legal fees Nangwala& Co. 2004 19,875 ACE Audit a/c Begumisa Enterprises 2008 18,763 Debtors For LC Charges 2008 12,185 There is a risk that long outstanding debtor balances may not be recoverable.

Management explained that this had been resolved, and the respective adjustments derecognising the respective receivables passed. They further indicated that in future, all debtor balances shall be aged and their recoverability assessed on a regular basis to ensure that adequate provisions are made.

It is advisable that debtor balances should be aged and their recoverability assessed on a regular basis, and ensure that adequate provisions are made and effective measures are put in place to recover long outstanding loan balances.

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64.14 Adherence to the Company‟s Procurement Manual

During the review of the bank‟s purchases cycle, instances were noted where certain procurement procedures (e.g., signed contract and approved LPO) were not adhered to. Although these were indicated as part of a category of purchases that were exempted from the standard procedures, there was no evidence to support this.

S/N Doc Supplier Name Amount PR Contract Approved No signed LPO Seen (Yes/No) 1 6485 Monitor Publications 3,500,000 No No No Limited 2 6502 Victoria Engineering 6,379,764 Yes No No limited 3 6505 Katera and Kagumire 8,673,000 No Yes No Advocates 4 6541 Computer Point Limited 5,200,000 No No Yes 5 6563 Nile Energy Limited 3,500,000 No No No

The practice could lead to financial loss arising from unauthorised purchases.

Management pledged to ensure that all purchases are made within the standard guidelines, and to put in place proper documentation to support any exempt procurements undertaken.

Management should ensure that the existing procurement guidelines are followed while undertaking any procurements.

64.15 Identification of Provisions and Contingent Liabilities and Assets

It was noted that there were pending cases which had not been captured by management as provisions, disclosures or contingent liabilities in the financial statements.

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These cases comprised of significant amounts which required to be disclosed since the ruling was highly likely in favour of the other party. See table below for examples; Case Name Exposure in Comment Shs UDBL agreed to pay the sum Rift Valley Railways vs. UDBL sued for. A provision has and Karlson‟sAgrovet 233,270,500 subsequently been made. Christopher Baleke Senogavs Plaintiff has high chances of UDBL Not disclosed success against the bank.

Pending court cases which require provision or disclosure in accordance with IAS 37; Provisions, contingent liabilities and contingent assets could go undetected.

Management explained that it will be getting frequent progress reports from the Bank‟s lawyers, and make appropriate provisions where necessary. Communication with the Bank‟s lawyers should be done more regularly to enable management follow up on pending cases which would result in either provisions, disclosures or contingent liabilities in the financial statements in accordance with IAS 37.

64.16 Lack of IT Strategy and Departmental Objectives

It was noted that bank, despite the investments in IT, does not have an IT strategy to guide management in making decisions regarding IT investments.

Lack of formally established IT strategy could lead to management not gaining a better understanding of the way information technology (IT) is operated and the likelihood of its being leveraged successfully for competitive advantage. In particular, senior management may not know if information is being managed by the organisation so that is it: likely to achieve its objectives; resilient enough to learn and adapt; judiciously managing the risks it faces; and appropriately recognizing opportunities and acting upon them.

This may lead to a situation where IT goals are not aligned to the overall business goals, leading to diminished IT performance, loss of revenue, inability to track and identify IT problems or deficiencies, lost time/resources, and an inability for IT department to meet business objectives.

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I have advised management to develop an IT strategy that aligns the IT processes to the overall business goals of the Bank.

64.17 Lack of a Project Management Policy

It was noted that the bank did not have a formal project management framework in place to enable management identify, prioritise and manage project risks. Risk management is adhoc and reactive.

Therefore management could not be unaware of risks that would impede on project management operations.

Management explained that a formal project management framework was to be put in place to enable the bank identify, prioritise and manage project risk on a continuous basis.

I have advised management that strategic financial, operational, legal and compliance risk assessment be conducted and a project management framework development process be expedited.

In addition, an appropriate function should be tasked with implementation and maintenance of risk management framework.

64.18 Periodic Review of User Access Rights to Systems

A review of controls around restricted access to programs and data revealed that a review of access rights to the systems and applications is not performed by the compliance department in a formal and regular manner.

There is a risk that without periodic reviews, it is difficult to ensure that access rights are still appropriate, particularly if roles and responsibilities are often changing within the organisation.

This can result in users having inappropriate, unauthorised access to the data and programs consequently exposing the organisation to the likelihood of fraud.

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Management promised to ensure that heads of departments of users review and sign off the access rights reports monthly.

Formal and periodic review of user access rights should be performed and the reviews should be signed off by the respective heads of department to ensure that access remains commensurate with job responsibility over time.

64.19 Obsolete IT Policy

Discussions with the Head of IT and review of the existing IT policy revealed that the policy is obsolete and therefore not in line with best practice

In the absence of an up to date IS Policy, it may not be possible to enforce best practice or required standards to govern access to Information resources at UDBL. It is also challenging to standardize IT security practices at resource level without a clear formal policy to guide implementation

Management explained that a draft policy had already been reviewed by management, awaiting a final draft to be submitted to the Board for approval.

I have advised that the process of finalisation, approval and implementation of the IT policy should be expedited.

64.20 End of day General Ledger Updates

It was noted that the end of day General ledger update is not run daily as expected but as and when transactions have been posted. This means that at any point in time there could be a backlog of a few days. An end of month update is however run to update all transactions into the General ledger.

Monthly management reports could be rendered inaccurate due to the backlog of unposted transactions. In addition, the year end reporting process could be delayed in the absence of timely posting of transactions. Important audit trails may also not be available on a timely basis.

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Management explained that systems had been put in place to ensure that all transactions were captured daily. This will enable running of end of day processes on a daily basis.

I have advised management to ensure that the systems put in place are followed and that the end of day General Ledger update is run on a daily basis.

64.21 Inability to Obtain Error Reports from the System

It was not possible to obtain error reports from the system once the end of day general ledger update had been run successfully.

This was because on rectification of errors initially noted, the end of day general ledger update was run again and in the event that it was successful, the successful error report overwrote the original error report.

Overwriting error reports could erase audit trails for errors corrected during end of day GL update. As a result, unauthorised transactions can be processed through the system.

Management explained that this was a system limitation and promised to ensure that the planned procurement of a new MIS, will incorporate the report. I have advised management to ensure that error reports are generated and kept so that a review of all the events that took place at a particular time can be performed.

64.22 Reliability of the Arrears Report

The following exceptions were noted from review of the loan arrears report. • Arrears report aged all loans including those which had been closed and should therefore not be aged; • manual intervention was required to ensure that the report reflected the correct position at a particular point in time; • Ageing settings in the system were set to age loans up to 24 months yet the system only aged loan in arrears up to 12 months; • System settings allowed for back dating of postings to customer accounts (e.g., payment transactions); and

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• Whereas all the loans in the loan loss provisioning report should be in the arrears report since it was on the basis of the arrears report that the provision was made. This was not the case and therefore there was a risk on the completeness of this report. Therefore, the loan loss provision generated using this report might not be accurate.

There is a risk that the arrears report could be inaccurate leading to errors in the bank‟s impairment computation.

Management explained that this was a system limitation, and promised to ensure that the planned procurement of a new MIS caters for this limitation.

Management was advised to update the settings of the loan management system to ensure that the arrears report captures complete and accurate loan details, and also work with the software vendor to enforce controls around system‟s ability to allow backdating of transactions.

64.23 Computation of Interest

From the review of settings in Microsoft dynamics it was noted that interest was not computed on all loans. There were loans on which interest had been frozen. From our understanding of the system, interest can only be computed when the following options are enabled as described below; • Calculate late interest on interest: This option must be checked. When this option is checked this implies that the interest computation will be based on interest arrears, that is, interest computation is compounded. • Calculate loan interest on Interest Principal: This option must be checked. when this option is checked it implies that interest should be computed on the principal in arrears. • No flag on freezing interest: This field should remain blank: in other words this field should be left blank and no date should be input because if a date is input then the interest computation on the accounts where a date will have been input will be frozen and the account has to be flagged as open.

There is a huge risk that system computed interest may not be accurate resulting into financial misstatement.

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Management explained that interest was frozen for loans with a high probability of non recovery. Such interest was suspended and continued to accrue, but not recognised as income.

I have advised that the system application set-ups should be revised for all loan types to ensure that interest is computed accurately.

64.24 Review of the Loan details as per the Loan Agreements/form to those entered into the System

During the audit, it was noted that the system controls relating to segregation of duties during loan disbursement were inadequate. The system does not allow for another senior staff to validate entries posted regarding the loan amount and interest rate and tenure.

There was also no report produced and checked against the approved terms and conditions by an independent person following disbursement to check that approved details are the ones disbursed.

There is a risk that credit could be granted to non-deserving applicants leading to escalation/growth of non performing loans. Unauthorised activities could also go undetected.

Management explained that they were implementing the segregation of duties, and the new MIS shall address all challenges relating to system access controls. They further indicated that a report of loans disbursed will be produced and checked against the terms and conditions.

I have advised management to ensure that a detailed report of all loans disbursed is generated and checked by an independent person on a regular basis (e.g., monthly).

64.25 Computation of Foreign Exchange gains and Losses

It was noted that realised gains and losses were computed based on the difference between the payment voucher date and the cheque date hence the gain or loss based on the difference between the payment voucher date(date the payment voucher was raised) and the date the actual payment is made. 337

The invoice date was not entered into the system and as a result there is a possible misstatement of the foreign exchange gains and losses recognised in the P&L.

The risk arising from such practice is likely misstatement of the realised and unrealised gains and losses.

Management asserted that it was going to ensure that exchange differences were computed correctly reflecting the movements in exchange rates between invoice booking and subsequent settlement dates.

I have advised management to ensure that the realised gains and losses are computed appropriately.

64.26 System Exception Reports

From the review of the system it was noted that the system does not generate exception reports which can be used for the management of the exceptions on loan accounts that are generated either intentionally or erroneously or as a result of the system malfunction. These may include changes in interest rates, loan amounts and expiry dates disbursed.

In addition, the system does not generate exception reports which can be used for the management of the exceptions on foreign currency transactions generated either intentionally or erroneously or as a result of the system malfunction.

There is a risk that exceptions or unauthorised activity on accounts may not be proactively managed to prevent resultant financial losses due to fraud.

Management stated that it was going to explore the possibility of generating exception reports from the current system. However the new MIS will go a long way in addressing this.

I have advised that appropriate exception reports should be developed, generated and checked by an independent officer at an agreed frequency. Procurement of the new MIS should also be expedited.

64.27 Approval or Review of Interest Rates entered into the System 338

From the discussions with management, it was noted that there was no approval or review of interest rates entered into the system to ensure that they were accurate and in line with the approved rates. As a result, errors in interest rates posted in the systems may not be detected in time for corrective action.

Management asserted that a report of loans disbursed will be produced and checked against the approved interest rates.

Management was advised to ensure that the interest rates entered into the system are reviewed by an independent person.

64.28 Segregation of Duties

It was noted that there were no segregation of duties between the person disbursing to borrowers and the person who initiated/input loans information into the system.

Lack of adequate segregation of duties presents an opportunity for fraud and errors going undetected.

Management explained that they were implementing the segregation of duties, and the new MIS was expected to address all challenges relating to system access controls.

The initiation, approval and disbursement of loans should be assigned to separate individuals.

64.29 Disaster Recovery Plan (DRP)

It was noted that the remarkable investments in IT, the bank did not have a documented Disaster Recovery Plan and as such no DRP tests were carried out during the year to ascertain the readiness of the bank to withstand a major breakdown of its present systems and operations.

There is a risk that in the event of a disaster, the bank is unlikely to recover its data and continue operating normally.

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Management explained that the process of having a BCP/DRP was in progress.

Management should expedite the process of having a properly documented, tested and communicated BCP/DRP.

64.30 Help Desk Function

It was noted that the Bank did not have a help desk, hence faults reported by users were not logged and monitored to ensure that they were resolved in a timely manner.

A help desk tool will also allow management to build a history that helps to establish and identify problem areas with equipment, software or staff training needs.

Failure to log faults and follow them up may lead to operational inefficiencies.

Management explained that it was going to put in place a help desk where all faults would be reported and logged.

Management was advised to expedite the process of purchasing a help desk tool where all faults reported by users should be logged and the issue log to be regularly reviewed by the IT Manager to ensure that faults are resolved in a timely manner.

65.0 UGANDA BUREAU OF STATISTICS

65.1 Unauthorized Cash Withdrawals

Shs.890,667,000 was withdrawn in excess of the cash limit during the year under review without prior authority of the Accountant General. Although the funds were accounted for, withdrawals of large sums of cash are prone to abuse.

The Accounting Officer explained that the authority was sought for subsequent payments.

I informed the Accounting Officer that all cash withdrawals should be undertaken with prior authority of the Accountant General.

65.2 Mischarges

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It was however noted that Shs.360,240,285 was found to have been charged on inappropriate item codes without authority. The practice renders the budgeting process redundant, undermines the intentions of the appropriating authority and leads to misleading financial reporting.

The Accounting Officer explained that the mischarges were caused by arbitrary budget cuts against existing commitments and this impacted across the respective activities.

I urged the Accounting Officer to always ensure that authority is obtained for any reallocations.

65.3 Payments through Personal Staff Accounts

Examination of a sample of payments revealed that funds totaling to Shs.594,144,000 was utilized on various UBOS activities as per the approved budget. It was however, established that the execution of these activities was done through transferring funds to the individual staff accounts contrary to Sections 227, 228 and 229 of the Treasury Accounting Instructions.

Although the funds were accounted for after performance of activities/programmes, it should be noted that use of individual accounts to carry out official work poses a risk should the staff vanish with money which may result into failure to achieve planned activities.

Management explained that these are field activities that require staff to move with allowances to various parts of the country, where at times banking services do not exist. The allowances are mainly payable to temporary staff that are located in rural areas such as guides, Local Council personnel and others.

I advised management to advance funds in accordance with the procedures in the regulations.

65.4 Procurement Issues

A sample of procurement files was reviewed and the following procurement issues were identified:-

65.5 Procurement of Data Processing Centre 341

a) Unjustified Waiver of Insurance S.29 of the General conditions of the contract had included a vital provision where the provider was to undertake insurance coverage against risks in order to safeguard the Bureau‟s interests (Data). However, this was waived in the special conditions without due justification.

A waiver of the insurance cover exposes the Bureau to risks in case of any unforeseen risk event crystallizing.

The Accounting Officer indicated that the audit observation was noted and promised to ensure that risks are safeguarded against in future procurements.

b) Underutilization of the Data Centre The Bureau procured a processing data centre which was partially idle as a result of the extension of the Population Census. It was also established that while the contract was for two and a half years, an extension of the contract for an extra one year was anticipated by Management. The extension of the census may cause Government a loss of one year‟s rent (Shs.1,507,228,632).

The Accounting Officer explained that the extension of the Census was beyond the Bureau‟s Management involvement and indeed it is already costly both to the Government and the Bureau.

I advised the Accounting Officer to ascertain the planned period for the census to establish whether part of the rent can be recovered.

65.6 Expenditure Not Accounted For

Contrary to financial regulations which require that all expenditure should be accounted for by the end of the financial year, it was noted that expenditure totalling to Shs.20,659,187 lacked accountability. In absence of accountability documents it becomes difficult to verify the validity of the expenditure.

I informed Management that in absence of accountability the funds are recoverable from the concerned officers. Further, the Accounting Officer needs to enforce controls regarding accountability of advances.

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65.7 Governance Issues

a) Board Composition Section 4 (1) of UBOS Act provides that the Governing body of the bureau shall consist of 7 members namely; the Chairperson, Executive Director, a representative of the Ministry responsible for Finance, a representative of the Institute of Statistics and Applied Economics of Makerere University and not more than three members appointed from among the major producers and users of statistics. However, the Board has continued to operate with only six members instead of seven.

The board that is not fully constituted may not operate efficiently in accordance with its mandate. The Accounting Officer explained that the appointing authority had been notified and action was awaited.

I advised him to continue pursuing the issue to have the board fully constituted.

b) Inadequacies in Risk Management Corporate Governance principles require Management to take responsibility of identifying, assessing and managing risk. Risks are events, actions, or inactions that could cause the business objectives not to be achieved. Management of risk would also require assigning a risk manager and maintaining of a risk register. The board would also have a committee responsible for setting up a risk policy and ensuring that the policy is adhered to by Management among others.

It was however noted that UBOS Management does not carry out risk assessment as there was no Risk Manager and a risk register was not being maintained. It was also noted that the Board did not have a committee responsible for risk Management and a risk policy was not in place at the time of audit.

Inadequate risk management may lead to failure to achieve some of the organization‟s objectives. The Accounting Officer promised to take up the matter with the board and have it implemented.

65.8 Unfilled Positions

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The Bureau had an establishment of 289 staff as at April 2012 of which 87 were vacant including 78 senior positions. For instance the positions of Director of Agriculture Statistics, Manager Geo-Information Services, Senior Accountant GoU Consolidated fund and Senior Accountant Projects were vacant.

The delay in filling the approved organization structure negatively affects timely implementation of planned activities and the overall performance of the Bureau.

The Accounting Officer explained that the filling of the structure was on-going and was expected to be concluded by the end of the financial year 2013/2014.

I await for the outcome of management actions.

65.9 Under Utilization of Fleet Management Software

UBOS procured software Web Fleet Log a Vehicle Fleet Management System for the maintenance of motor vehicles. It was established that the software had three broad packages namely, Fleet log (responsible for motor vehicle tracking, monitoring vehicle usage and driving habits of staff); Fuel log for fuel control and Road base ( Responsible for service and repair monitoring).

It was established that only one package (Fleet log) had started being implemented but has since been discontinued due to failure to secure funds to pay for the operational costs. The other two functionalities/modules including; fuel log system and Road base packages to control fuel usage and consumption, Service, repairs and fittings (tyres and batteries) have not been utilized. It was also noted that no specific person has been assigned a responsibility to ensure full implementation of the system and potential users have not been trained.

The Bureau is not obtaining value for money on this expenditure as the intended objectives have not been achieved.

The Accounting Officer explained that some funding for this system had been allocated in the budget for the next financial year and usage of the system will be implemented.

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The action is awaited.

65.10 Land and Buildings

The Bureau has not secured titles for the land on plot 9-13 Airport Road and a building in Kampala, Colville Street. It was also established that the properties have not been assigned values.

In absence of titles, it is not possible to confirm that the Bureau has legal ownership of these assets. The Accounting Officer explained that communication was made to Uganda Land Commission and action is awaited.

I advised the Accounting Officer to pursue the matter further to avoid possible loss of the land.

66.0 UGANDA INVESTMENT AUTHORITY JUNE 2012

66.1 Shortfall in Non Tax Revenue

The Authority budgeted to collect total revenue of Shs.999,993,370 but only Shs.335,342,602 was realized leading to a short fall of Shs.664,650,768 (66.46%). It was noted that this was far below revenue collected during the financial year 2010/2011 of Shs.2,332,664,976.

The Accounting Officer explained that the shortfall in the amounts collected was because part of the revenue that UIA expected to receive was subsequently written off after the Board of Director‟s approval.

I urged the Accounting Officer to always make a realistic budget and ensure that projected revenues are collected.

66.2 Absence of a Strategic Plan

UIA operated under a 5 year strategic plan running from July 2007-June 2012. At the time of audit, the process to develop a new one was yet to be completed. No review report of the expired strategic plan was prepared.

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The Accounting Officer explained that the process of drawing up the strategic plan including the assessment of the expired one has been ongoing since November 2012 and was expected to be ready by mid March, 2013.

The outcome is awaited.

66.3 Inadequacies in Management of Debtor‟s Policy

The Authority has guidelines in the accounting manual to assist in receivables management. However, it was observed that the guidance in the policy is not followed. Aged debtor analysis was not produced and reminders were not regularly sent out to the debtors. An inefficient system of debtors‟ management may lead to delays in their collection and loss of revenue.

The Accounting Officer explained that for the past periods UIA had a challenge managing their debtors due to inadequate staffing in the Finance Division but revenue Accountant was to be recruited after the ongoing restructuring process expected to be accomplished by June 2013.

I advised the Accounting Officer to ensure that the guidelines in the accounting manual are strictly complied with.

66.4 Lack of investor monitoring and aftercare services

An analysis of the investment register revealed that between 1991 and 2012, UIA issued 4867 investment licenses with a planned investment value of US$ 15,404,622,201. It was however noted that while investors were given investment licenses with conditions attached, monitoring was not effectively done to ensure that all the conditions were met by investors and that aftercare activities were carried out by the authority. It was also noted that there was no system to track and assess the actual investment value realized.

A review of the annual report indicated that during the financial year under review, a projection was made to undertake monitoring of 413 projects but only 27 projects were visited. There is a risk that many of the planned investments may not materialize 346

into real/actual investments and that the conditions in the investment license may not have been adhered to.

The Accounting Officer explained that this critical activity has not been undertaken according to plan because of limited funding. It was further explained that UIA has partnered with Bank of Uganda and Bureau of Statistics to carry out monitoring on sampling basis.

I advised the Accounting Officer to ensure that this activity is prioritized and regularly undertaken.

66.5 Budget Performance

The Authority prepares annual budgets to finance activities related to implementation of national investment strategies. However, it was noted that while Shs.11.113 billion was budgeted for, only Shs.6.2 billion was actually released reflecting an out-turn of 56%. This affects implementation of activities

For example, under the lease agreements, one of the obligations of UIA is to ensure the development of infrastructure in the industrial parks but whereas Shs.7,363,225,000 was budgeted for in the year 2011/12 only Shs.2,986,412,000 was released leading to a budget shortfall of 64.6% on the activity. This implies that the Authority does not get adequate funding to implement the planned key activities which could in turn affect implementation of the country‟s investment plans.

The Accounting Officer explained that UIA recognizes the likely risk arising out of budget underfunding and will continue to request for funds from MoFPED to cover the implementation of their investment mandate.

I urged the Accounting Officer to engage other stakeholders in addition to MoFPED in the implementation of UIA mandate.

66.6 Failure to Recover Outstanding Balance on Land Sale

UIA acquired land under lease hold tenure at Kinoni, Ntutsi, Mawogola District, and a certificate of title in UIA names was acquired on 16th December 1997. This land was later sold to Abeki farmers Ltd in the year 2007 at a consideration of Shs.405,000,000

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with a down payment of Shs.205,000,000 leaving an outstanding balance of Shs.200,000,000.

The matter was pointed out in my audit report to Parliament for the year ending 30th June 2011. Management had indicated that a law firm had been instructed to recover the money and had already issued a demand notice to M/s Abeki Farm Enterprises.

The Accounting Officer explained that the lawyers commenced recovery and issued a demand note but having got no reply from the debtors, they have recently advised that UIA goes to court.

I urged the Accounting Officer to vigorously follow up the matter to ensure that the debt is recovered.

66.7 Irregular allocation of Land in Luzira Industrial Park by Uganda Land Commission

UIA leased 3.101 acres of land comprised in plot 2A-4A, third ring road in Luzira industrial and Business Park to Surgipharm (U) Ltd in September 2007 for three years. The piece of land was curved out of plot 2125 block 243 Kyadondo measuring 25.58 hectares (63.208 acres) that was allocated to UIA by Uganda Land Commission in December 2005.

Records at UIA show that ULC surveyed and curved out of plot 2A-4A another plot (plot 150 Kyadondo road block 243 Luzira) and allocated it to Victoria Best Ltd, without the knowledge of UIA.

Surgipharm (U) Ltd later filed a case (civil suit no.38 of 2011) against Victoria Best Ltd and joined UIA as a co- plaintiff. Uganda Land Commission acknowledged that the allocation to Victoria Best Ltd was done in error but instead of causing the Commissioner, land registry to cancel the title, UIA was instead asked to shift Surgipharm (U) Ltd to another place within the park. This action is considered irregular given that the park was allocated to UIA for a specific purpose.

Further to this, the allocation of land by Uganda Land Commission without the knowledge of UIA demonstrates a management weakness in control of assets.

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The Accounting Officer explained that the matter is before court and management is awaiting the outcome of court proceedings.

I urged the Accounting Officer to ensure that all assets of the Authority are properly safeguarded.

66.8 Overpayment on Land Purchase

Uganda Investment Authority purchased 50 Acres of land from an individual at a cost of Shs.675,000,000. According to the purchase agreement signed on 18th December 1998, the size of the land was 50 acres situated on plot No.233 block 227 (40.30 acres) and plot No.982 block 227 (9.70 acres). However, the report by the Department of Surveys and Mapping shows that the actual size of land was only 44.75 acres. There was no evidence that UIA undertook to establish the actual size of the land before effecting the payments. As a result, there was an overpayment of Shs.70, 875,000 for 5.25 acres.

The Accounting Officer explained that UIA paid for and obtained a land title measuring 50.2 acres but the difference was due to an error made by the surveyor.

I advised the Accounting Officer to recover the overpayment.

66.9 Non-compliance with the Payment Terms in the Lease Agreements

A review of a sample of lease agreements for land allocated to various investors in industrial parks revealed that some investors who were supposed to pay full amount of land premium before or on signing of agreements were instead paying in instalments and a number of them had outstanding balances as at 30/6/2012. Examples are in the table below:- Name of investor Full amount Effective Outstanding expected date of lease balance (Shs) (Shs) Bweyogerere hospital 354,960,000 4/08/2008 144,960,000 LTD Tarpo industries U Ltd 158, 640,000 21/05/2009 Arnold Brooklyn and Co 176, 400,000 10/12/2012 72,514,237

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Ltd David Engineering Ltd 85,980,000 19/10/2009 40,986,005

Non implementation of payment terms in the agreements could be an indication of laxity on the part of UIA management and could lead to loss of revenue.

The Accounting Officer explained that demand notes had been sent out and that Legal action will be undertaken in case of non compliance.

The outcome is awaited.

67.0 NATIONAL PLANNING AUTHORITY- YEAR ENDED 30TH June 2012

67.1 Mischarge of Expenditure

Analysis of expenditure revealed that Shs.1,192,825,887 was charged on items to which the activities did not relate. This practice does not only distort the intentions of appropriating authority but also results into misreporting in the financial statements.

The Accounting Officer explained that this was due to budget cuts but management has strengthened controls and the budgeting process to avoid mischarge. In future, reallocations will be sought from the Secretary to the Treasury.

The outcome of the above actions is awaited.

67.2 Missing Vouchers

Payment vouchers amounting to Shs.87,070,370 were noted as missing. I was therefore unable to ascertain whether the funds were properly spent.

The Accounting Officer explained that the vouchers were taken by officers of CIID during an investigation. I advsied the Accounting Officer to retrieve the payment vouchers after use by CIID to enable verifications.

67.3 Rental Recovery

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In my previous report to Parliament, Management was advised to ensure that funds amounting to Shs.160,996,814 were recovered from National Housing and Construction Company (NHCC) in respect of rent of office space in excess of the period it occupied.

Management had promised to follow up the issue with NHCC but at the time of the audit, a refund had not been received from NHCC.

The Accounting Officer explained that efforts to recover the funds were futile since it lacked legal backing but had written to the Solicitor General for legal advice. I urged the Accounting Officer to ensure that this matter is resolved.

67.4 Advances Not Accounted For

Contrary to regulations which require that advances to staff should be accounted for promptly, it was noted that a sum of Shs.33,427,400 advanced to various officers of the Authority to carry out various activities remained unaccounted for at the time of audit. In absence of accountability documents, it was not possible to confirm that the money was used for the intended purposes.

I urged the Accounting Officer to ensure that the funds are accounted for or recovery effected from the responsible staff.

67.5 Domestic Arrears

During the period under review a total amount of Shs.151,591,082 was paid to cover activities that were undertaken in the previous financial year 2010/2011, including a payment of Shs.122,046,210 relating to PAYE. It was noted that these expenses were charged on various unrelated activities as there was no provision for arrears in the budget.

The Accounting Officer explained that the tax amount could not be budgeted for as domestic arrears as this is not acceptable and that a disclosure had been made in the financial statements.

I advised the Accounting Officer to always ensure that PAYE deductions are remitted to URA timely in accordance with Income Tax Act. Authority should be sought for any reallocations.

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67.6 Governance issues

a) Absence of Regulations

NPA Act section 19 provides that the Minister may on the recommendation of the Authority or on his initiative, by Statutory Instrument make regulations for giving full effect to the provisions of the Act. However, 10 years after the enactment of the Act (2002), the Authority does not have regulations in place to operationalize the Act. There is a risk that a number of sections in the Act may be redundant and may not be implemented without the requisite regulations.

The Accounting Officer attributed the failure to produce the regulations to budgetary constraints.

I urged the Accounting Officer to consider the enactment of the regulations among the major funding priorities.

b) Absence of an approved Board Charter

Corporate governance principles require that a board charter should be in place to guide and regulate the operations of Board. It was noted that there is no approved Board charter in place. Given that the board is a full time one, there is a risk that lack of Board charter may lead to operational challenges between the Board and management.

I urged the Accounting Officer to ensure that the Board Charter and guidelines for operations are put in place.

c) Non submission of the Annual report to the Minister

Section 18 of NPA Act states that “the Authority shall submit to the Minister an annual report of its activities containing such information as the Minister may direct”. This report is construed to be an assessment by the Authority of its achievements in relation to the performance targets set and utilisation of the available funds. However, there was no evidence that the authority prepared and submitted these annual reports to the Minister as required by the Law.

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By not producing the annual reports, the Authority‟s performance is not assessed by the Minister and eventually Parliament to which this report should be submitted by the Minister.

I urged management to prepare and submit annual reports to the Minister as required by the Act.

67.7 Delay to Develop Management Information System

In its strategic plan, NPA indicated that in order to be able to monitor and evaluate the Strategic Plan against the set strategic objectives and Key results areas, a monitoring strategy would be developed involving development of an NPA Management Information System (NPAMIS) to facilitate periodic reporting of progress on all the strategic objectives. However, this system is yet to be developed, implying that any deviations from the implementation plan of the strategy cannot be detected and measures taken early. This could derail the implementation of the entire strategic plan.

The Accounting Officer explained that the Authority is running on a low budget and has only prioritized activities like production of the National Vision 2040, the National Development report 2011/2012, hence unable to undertake NPAMIS activity.

I urged the Accounting Officer to recognise the importance of monitoring and evaluation and consider it among the funding priority areas.

67.8 Procurement

A number of procurement contracts were entered into by the Authority with various suppliers of goods and services during the financial year. A review carried out on a sample of procurement files revealed the following:

a) Procurement of Health Services

During the year, the Authority entered into a contract with a Health Services Provider for provision of medical services at a unit cost of Shs.360,000 per person resulting into a

353 total contract price Shs.119,839,000. Review of the procurement process revealed the following shortcomings:

It was noted that while the best evaluated bidder was evaluated at unit price of Shs.360,000, this amount was neither in the bid submission sheet nor in the price schedule.

While the law does not allow for changes in the format of bid document, the best evaluated did not follow the format of the price schedule.

There was an over invoicing by the service provider amounting to Shs.21,229,077 which was not explained.

Contrary to Regulation 225 (2) (f) of the PPDA Regulations which requires that any procurement of Shs.50,000,000 and above should be submitted to the Solicitor General (SG) for clearance, there was no evidence that this contract was cleared by the SG.

I advised the Accounting Officer to ensure that the overpaid amount of Shs.21,229,077 is recovered and to comply with PPDA Laws and Regulations in future procurements.

b) Consultancy Contracts undertaken without following competitive bidding process

It was noted that 5 consultancies (individuals) worth Shs.93,750,000 for APRM activities were undertaken without subjecting to competitive procurement process contrary to PPDA law. Details are in the table below.

Nature of consultancy Contract amount (Shs) For consolidation of 2nd and 3rd year progress report of the 30,000,000 implementation of the APRM POA Consultancy to prepare and produce a financial analysis of 18,750,000 the public funding of the APRM POA for the 2nd and 3rd year of implementation. Consultancy for assessment of the progress of 15,000,000 implementation of the thematic area of economic governance and management of APRM POA. Consultancy for assessment of the progress of 15,000,000 implementation of the thematic area of economic 354

governance and management of APRM POA for. Consultancy for assessment of the extent of integration of 15,000,000 APRM PoA to the NDP 2010/11-2014/15 and MTEF 2010/11/2012/13. 93,750,000

The Accounting Officer explained that the National Governing Council of the APRM apointed the consultants but the procurement procedures were not adhered to. I informed the Accounting Officer that all procurements in respect of public funds should be in accordance with the PPDA law.

c) Consultancy Services for Designing and Development of NDP Cost Implementation Matrix

The Authority entered into contract agreements with six individuals to design and develop the National Development Plan (NDP) Cost Implementation Matrix and interface budget framework paper at a total of Shs.90,000,000 as shown in the table below; Purpose Amount (Shs) Consultancy for design & development of NDP cost 15,000,000 implementation matrix and interface budget framework paper Consultancy for design & development of NDP cost 15,000,000 implementation matrix and interface budget framework paper Consultancy for design & development of NDP cost 15,000,000 implementation matrix and interface budget framework paper Consultancy for design & development of NDP cost 15,000,000 implementation matrix and interface budget framework paper Consultancy for design & development of NDP cost 15,000,000 implementation matrix and interface budget framework paper Consultancy for design & development of NDP cost 15,000,000 implementation matrix and interface budget framework paper 90,000,000

However, the procurement was made without due regard to the procurement law as per the observations noted below without justification.

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The Authority used direct sourcing of the contractors instead of using other competitive methods of procurement.

The procurement had not been included in the procurement plan contrary to the PPDA Law.

No procurement file was opened. It was therefore not possible to ascertain how the procurement was initiated, conducted and concluded.

A lump sum price of Shs.15, 000,000 was paid to each of the 6 individual Consultants. However neither the basis for determining this rate was indicated, nor the details of how it was negotiated were available.

While the procurement activity was one, six consultants were engaged without clear explanation as to why it was not handled as a single procurement.

The Accounting Officer explained that there was an emergency after the software (excel) failure and the matter was referred to the Board which appointed the consultants on short-term basis.

I advised the Accounting Officer to always ensure that all procurements are undertaken in accordance with the PPDA law.

67.9 Non-deduction of Withholding Tax

Contrary to the Income Tax Act which requires that 6% Withholding Tax should be deducted from qualifying supplies of goods and services and funds remitted to URA, it was established that WHT of Shs.10,296,500 was not deducted. Details in table below;

Exp. Vr Payee Amount Purpose Remarks SB28/OCT/11 Prime 1,751,000 Servicing Firm was not Automobile & repairs prequalified & no WHT Workshop of M/V was deducted Ltd SB38/JUN/12 Ms Bukoto 8,545,500 M/V Firm was not Motor repairs prequalified & no WHT spares was deducted Total 10,296,500

This may result into penalties imposed by the URA. 356

The Accounting Officer explained that non-deduction of the WHT was an oversight and promised to recover the tax and remit it to the URA.

The action is awaited.

68.0 PUBLIC PROCUREMENT AND DISPOSAL OF PUBLIC ASSETS AUTHORITY (PPDA) 30TH JUNE 2012

68.1 Understaffing

The establishment list of the Authority shows the staffing level to be a total of 104 employees but at the end of the period under review, the staff strength was at only 69 (66%) leaving a staffing gap of 35 (34%). This impacts negatively on the service delivery of the Authority.

The Accounting Officer explained that a new structure was put in place as a result of a restructuring exercise in 2011 but funds to implement the structure have not been allocated by MOFPED despite a request by management.

I urged the Accounting Officer to continue pursuing the matter with the MoFPED to avail the necessary funding required.

68.2 Outstanding WHT Obligation

Section 123(1) of the Income Tax Act requires the withholding agent to remit any tax so withheld within (15) days after the end of the month in which it was withheld; while Section 136(10)(c), provides for a 2% penalty per month for any delays. However, it was observed that management had accumulated a sum of Shs.34,048,495 in unremitted WHT deductions from eligible payments to suppliers. It was noted that these deductions were effected during the previous financial year 2010/2011.

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The Accounting Officer explained that the tax obligation resulted from budget cuts but would be paid in February 2013 after the audit. The action is awaited.

69.0 INSURANCE REGULATORY AUTHORITY

69.1 Revaluation of Land

Included in the financial statements is land valued at Shs.2,000,000,000. However, the valuation of this asset was undertaken in May 2008. IAS 16 requires this asset to be valued regularly (every three years). Given the changes in land values over time the value reflected in the books may be misleading.

I advised management to undertake revaluations in accordance with the accounting standards.

69.2 Procurement of Office Space

The Authority procured office space of 487 square metres from Rutungu Investments at a cost of Us$.124,126 per annum. However, it was noted that in its meeting of 11th May 2011, the Contracts Committee approved the use of direct procurement without due justification to indicate the exceptional circumstances required by the Law. Further to that, there was no evidence produced to show that authority was sought from and granted by PPDA as required by the law.

The Accounting Officer explained that direct procurement method was used because NAADS had already obtained office space in the same premises using a competitive procedure. I advised the Accounting Officer to always adhere to the law as an entity because circumstances in various entities may not be similar and the law does not allow the use of a valuation report of another entity.

69.3 Office Partitioning

The tenancy agreement signed between the landlord and Uganda Insurance Commission for provision of office space provided that the landlord would partition the premises at an additional cost. Subsequently, a proposal for Shs.373,574,190 (VAT inclusive) was submitted by the landlord and received by the Authority on 9th August 2011. The following were noted with regard to the partitioning contract;

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69.4 Non adherence to procurement procedures

It was noted that the procurement was made without due regard to the procurement law. S.55.of the PPDA provides that all public procurement and disposal shall be carried out in accordance with the rules set out in the PPDA Act, any regulations and guidelines made under the Act. Contrary to this provision, the contract for partitioning was entered into without being subjected to competitive process. In addition, no evidence was provided to show that the bills of quantities were reviewed by an independent authority (Ministry of Works) and there was no formal contract signed for the undertaking implying that the Solicitor General was not consulted on the matter.

I advised the Accounting Officer to adhere to the procurement law and ensure that any losses incurred under this procurement are made good by the responsible parties.

69.5 Overpayment of Shs.12,844,750

A technical review was undertaken to establish whether the works were undertaken in accordance with the BoQs and it was noted that there was an overpayment of Shs.12,844,750 in respect of partition walling, flash doors and shelves. In addition, the client did not have inspection reports on the progress of works. This implies that the client did not have technical capacity to supervise the works.

I advised the Accounting Officer to make recovery of the over payment of Shs.12,844,750 from the contractor.

69.6 Payment of Transit allowance

Transit allowance is an allowance paid per round trip to cover costs due to waiting for flight connections exceeding six hours. It was noted that transit allowance of Shs.18,770,870 was paid to a number of officers of the Authority who travelled to Nairobi, Khartoum and Mombasa on official duty. In all cases there were no flight connections and therefore no justification for payment of transit allowance.

The Accounting Officer explained that the gaps in the Human Resource Manual had been recognized and promised to undertake necessary amendments including redefining of transit allowance. Meanwhile, I advised the Accounting Officer to recover the amounts paid for the unjustified transit allowance. 359

69.7 Vacant Positions

Review of the approved structure showed that the Authority had six (6) key vacant positions. Those include; Director Human Resources and Administration, Director Finance, Assistant Director Health Insurance, Manager Health Insurance and a Legal Officer. It was also noted that the PDU and the Finance Department are inadequately staffed with one and two staff respectively.

Delays in filling the approved positions in organization structure may affect timely implementation of planned activities and the overall performance of the Authority. The Accounting Officer explained that the immediate need positions had to be filled first and now the Authority is in the process of filling the remainder. The action is awaited.

69.8 Medical Expenses

The Authority spent a total of Shs.42,257,870 on medical refunds without a clear system of verifying the authenticity of the claims. In the absence of a proper verification mechanism, it was not possible to confirm that the refunds were made for genuine medical claims. It was also noted that the Authority was to establish a medical insurance scheme in which every employee and five immediate family members including spouse and four own children below 23 years would benefit. However the scheme is yet to be implemented.

The Accounting Officer explained that the process of procuring a medical service provider was already underway. This is expected to address the challenge of verifying claims. I urged the Accounting Officer to expedite the process.

69.9 Delays in Reviewing the Authority‟s Policies

The Authority set out a number of policies to guide its operations in certain areas. These include the HR policy, the Accounting manual, the Debtors management policy among others that were developed in 2006. However, it was noted that over time these policies have not been reviewed to cater for emerging issues in the industry. There is a risk that the Authority may be using obsolete policies that are not applicable in the current circumstances and environment in the insurance industry.

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The Accounting Officer explained that many policies were under review or formulation including Board charter, Audit Charter, HR manual, investment, risk manual, Vehicle management policy and HIV policy. The results of the above action are awaited.

69.10 Special Audit

A special audit was undertaken in IRA on the request of the Board Chairman made on 25th July 2012. The key findings are as follows;

a) Procurement Process Of Consultancy Services for Design and Construction, Supervision of Office Building, and Funding for the Procurements

A review of the procurement process of consultancy services for design and construction supervision of office building revealed that the procurement was started way back in 2004, but could not take off because of limited funding at the time. It was repeated in 2007 and 2009/10 when the final terms of reference were received by the former UIC but was again not finalised until 2011 when it was reinitiated and the contract signed on 9th July 2012. IRA has since 2003 saved and accumulated funds to the tune of over Shs.10bn for this project.

It was observed that a contract of Shs.520 million was signed with the best evaluated bidder against a budget provision of Shs.421.5 million. The funding gap of Shs.98.5 million was not authorized by the board. It is imperative that confirmation of funding in the budget is done before signing of contracts.

b) Procurement of the consultancy for Health Membership Organisations (HMOs), Health Insurance Organisations (HIOs) and Micro Insurances (MIs)

A review of the procurement of the consultancy for Health Membership Organisations (HMOs), Health Insurance Organisations (HIOs) and Micro Insurance (MIs) also revealed that the procurement process was initiated way back in 2005 with a budget of only Us$.10,000 while the best evaluated bid returned Us$.196,164. The process was repeated in 2007 when the best evaluated bid was for Shs.297 million. In both cases,

361 the bid amounts were found to be high and the process stalled until 2011 when it was revived and concluded by signing the contract on 29th June 2012. The following was noted;

i. Contrary to S.12.4.4 which requires budgets for the next financial year to be presented, discussed and approved at least 3 months before expiry of the financial year, the budget for the financial year 2011/12 was approved 3 months after expiry of the stipulated time. In addition the budget for the financial year 2012/13 was yet to be approved.

Management explained that the delay arose as a result of delay in approval of the strategic plan with which the budget had to be aligned. I advised Management to ensure that budget processes are commenced early enough to have budgets approved timely as required.

ii. Further, only Shs.72,000,000 was available in the budget for conducting a study on HMOs, HIOs and MIs. The amount provided was insufficient and in the budget under note 23, a rider had been included to appeal to government for more funding to meet the remaining part of the budget but this was never concluded because MOFPED did not commit to provide the funds after a request by IRA management was submitted in December 2011. A variation in the budget was then considered by management and subsequently approved by the board committee of Finance and Procurement in accordance with S.12.5 of the IRA Accounting Manual. However, the board later rescinded this decision after management had signed the contract.

Management explained that given the fact that the Board Committee had approved the budget variation, they assumed that the commencement of activities had been endorsed and they construed the approval of the committee of Finance and Procurement as Board approval and went ahead to sign the contract.

c) Non Compliance with Budgetary Control Policy and Guidelines

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Contrary to Section 12.4.5 (iv) of the Accounting Manual which requires that reallocations be made with the authority of the finance committee, management overspent by Shs.350 million on various accounts without obtaining this authorisation.

Management explained that reallocations were made though not ratified. I advised Management to ensure that budget management and execution follows the required procedures. It is also advised that the Board ratifies the reallocation of funds requested by management to allow implementation of IRA activities.

d) Delays in Development of a Strategic Plan

The previous Strategic Plan (2007-2011) under which the Authority operated for five years expired at the end of the financial year 2010/11. The plan was approved on 13th September 2012, more than a year after the expiry of the previous one implying lack of strategic direction for a period of two years.

The delay according to management affected the approval of budgets of the 2012/13 financial year. I advised management to ensure that procedures are put in place regarding strategic planning so that in future the Authority does not operate without a strategic plan. e) Lack of Internal Audit Charter

The roles and mandate of the Internal Audit function are normally spelt out in an Internal Audit Charter. However, it was observed that the Authority does not have a charter to guide the internal audit unit in its operations. It was also noted that the Board‟s intent of having an internal audit unit within the Authority would enable provision of timely reports for Board action.

Management agreed to consult and ensure that the Audit Charter is prepared and approved by the Board. I advised management to ensure that the process is fast tracked. f) Management of Investments

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The investment policy requires that the Authority should at all times minimize its exposure to various financial risks of the institutions in which it invests its funds. However, there was no evidence to show that assessment of these risks was carried out every time the Authority invested funds in the various financial institutions. Failure to periodically undertake this vital requirement could lead to investing the Authority‟s funds in highly risky financial institutions. The investment policy requires that Finance and Procurement Committee should review the investment policy at least once a year. However, this was not undertaken.

Management explained that the investment manual was under review and would incorporate annual reviews. I advised management to expedite the investment manual review process and ensure that annual reviews are undertaken.

g) Lack of Operational Guidelines for the Board

It was observed that the Board of the Authority operates without a charter. Lack of the charter makes the Board operate in a vacuum leading to lack of appropriate guidance to management as there are no guidelines to facilitate the operations of some of the committees of the Board.

Management explained that the Board and its committees‟ operational guidelines will be included in the Board Charter to be submitted to the Board for approval. I advised management to fast track the finalization of the draft Board Charter including operations guidelines to enable the IRA Board Committees operate with proper guidance.

70.0 UGANDA REVENUE AUTHORITY CORPORATE SERVICES

70.1 Un-Recovered Revenue Collections from closed Banks

Uganda Revenue Authority had several Bank accounts in the former Uganda Commercial Bank (UCB) and the defunct International Credit Bank (ICB) with balances to the tune of Shs.467,202,229 as detailed in the table below. Closed Banks 2010/2011 2011/2012 UCB Branches – CUE 381,193,813 380,521,233 UCB Branches – IRD 43,785,389 44,457,969

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UCB Branches – VAT 7,823,888 7,823,888 ICB Branches – IRD 12,724,491 12,724,491 ICB Branches – CUE 1,328,480 1,328,480 UCB Foreign Exchange – 20,346,168 20,346,168 CUE TOTAL 467,202,229 467,202,229

While ICB was taken over by BoU and its assets disposed off, UCB was privatized in 1997 and taken over by Greenland Bank (through Westmont Land Asia Berhad) it was however noted that the Government revenue on these bank accounts was not remitted to the UCF after the take over and sale of the two banks assets. Given the time lapse, it is highly unlikely that this revenue will ever be recovered. Management explained that the balances have been recommended to the Minister of Finance for write off in accordance with Sec 41 of the Public Finance and Accountability Act, 2003.

I await the Minster‟s authority for write off of these balances from the accounts as they continue to represent non-existing assets (cash).

70.2 Revenue Collection Account balances for write off

Schedule 2 to the Financial Statements relating to UCB Customs and Excise Branch balances of Shs.380,521,233 include a figure of Shs.313,445,190 which has been proposed for write off. The specific branch balances for write off are for Kyotera customs, Nkrumah Goodshed, Lwakhaka and IPS Kampala Longroom. Continued disclosure of the unrecoverable balances in the financial statements distorts the asset balances.

It was explained that management had not yet been authorized by the Minister of Finance to write off the balances. I have advised Management to follow up with their request to the Minister and ensure that the balances are written off and the accounts are adjusted to disclose the actual position of the cash balances.

70.3 Un-Credited Collections

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A review of a sample of bank reconciliation statements revealed that collected revenue amounting to Shs.760,970,610 posted to the ledgers was not credited on the bank statements by various banks as at 30th June, 2012 as detailed below. 1. Orient Bank (Airport) Shs.175,283,319 2. Standard Chartered Bank (Speke) Shs.190,000,000 3. Barclays Bank (Mukono) Shs.328,599,445 4. Bank of Uganda Shs. 67,087,846 Shs.760,970,610

There is a risk that these balances may not be recovered because of possible use of forged bankslips.

Management explained that except for Shs.67,087,846 included in the amount sent to the Minister for write off, the balance of Shs.693,882,764 was still considered recoverable, and the Authority was continuing to pursue the matter through all avenues including legal means.

I await the out come of Management‟s action in pursuing the matter.

70.4 Long Outstanding Receivables

Review of the debtors‟ report revealed that there were delays in collecting debts. At the end of the financial year, Shs.2,136,144,577 remained outstanding in respect of sundry debtors and bounced cheques. Of this amount, Shs.1,729,611,242 is owed by 4 firms and individuals for 9-11 years as shown below. The debt for Uganda Grain Traders Limited alone of Shs.1,611,469,104 accounts for 75.5% of the total outstanding amount.

Aging Analysis of certain Sundry Debtors

Outstanding Since Since Reference Name Amount 2003 Since 2002 1991 United Nations Development 1 113U01 Programme 75,229,209 75,229,209 Uganda Grain Traders Limited 2 113UG01 (GOU) 1,611,469,104 1,611,469,104 Kitoogo 3 01579 Fredrick 6,417,291 6,417,291 Byamukama 4 01918 James K. 36,495,638 36,495,638

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Total 1,729,611,242 42,912,929 1,611,469,104 75,229,209

There is a risk that these long outstanding receivables may never be collected.

Management explained that; Shs.75,229,209 was balance on URA account with UNDP for purchase of motor vehicles whose demand for payment had been given to UNDP and was being followed up. While Shs.1,611,469,104 owed by Uganda Grain Millers Ltd in respect of rent was expected from Ministry of Finance Planning and Economic Development. The other two outstanding cases were in courts of law.

I have advised management to assess the collectability of these long outstanding receivables and either take measures to recover or write off.

70.5 Accrued Rent (Payable)

It was noted that there were considerable delays ranging from 2 to 39 months in payment of rent expenses for rented premises that had accrued to Shs.306,338,482 by end of the financial year. Conversely the Authority had paid rent in advance for other properties totaling to Shs.1,046,589,503.

There is a risk that the then property owners may resort to legal redress resulting into unnecessary costs to the Authority.

Management explained that in one case, there was a wrangle about the ownership of the property, while in another one, the landlord picked tenancy agreement from URA and never returned it. Management promised to follow up and resolve the rent matters.

I have advised management to ensure that the long outstanding rent payments are settled to avoid possible litigations.

70.6 NSSF Contributions

As reported in the previous audit report, in 2005 NSSF conducted an audit of URA payroll for the period March - June 2001 with a view of establishing the outstanding NSSF arrears. At the conclusion of the exercise, the outstanding arrears stood at 367

Shs.7,404,601,840 including interest of Shs.767,147,133. Consequently, URA management agreed to make an annual payment of Shs.1 billion for seven years towards offsetting the outstanding arrears. However, it was noted that at the end of the financial year under review, the debt had risen to Shs.10,026,401,468, and continues to accumulate more interest.

The interest expense is deemed nugatory as it could have been avoided had the Authority paid NSSF funds in time.

Management explained that in the last five financial years the Authority has been including an item of NSSF Arrears as one of our priority areas in the budget that needed funding. However, the funding has never been provided to enable the Authority settle the arrears.

I advised Management to consider seeking supplementary funding and clear the arrears to avoid further accumulation of interest.

70.7 Valuation of Fixed Assets

Review of the fixed assets register revealed that the Authority owns quite a number of assets whose actual values were not reflected in the Asset Register. A nominal value of Shs.1,000 was disclosed for each of these assets. This affected mostly land and buildings acquired in 2007 and generators acquired in 2008. It was further noted that the Authority had fully depreciated assets relating to plant and machinery, motor vehicles, motorcycles, office equipment, floating craft and computer equipment. The assets had not been revalued to reflect their current value in use.

The value of the Authority‟s assets is grossly understated in the financial statements.

Management pledged to continue pursuing the Government Valuer to undertake the valuation of the assets in a phased manner in the next financial year 2012-2013.

I have advised the Accounting Officer to liaise with the Chief Government Valuer to engage/procure private valuers to expedite the exercise.

70.8 Titles of Ownership to Authority Assets

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An audit verification of Asset Register of Uganda Revenue Authority revealed that the Authority had acquired assets like floating crafts, land and buildings overtime. However, it was noted that some of these assets do not have legal titles of ownership while others had expired leases as illustrated by the examples below. The details of these assets are as below:-

Asset Asset Description Location BOOK Condition/ Remarks code type VALUE status 1010033 BUILDING Goli Border Goli 134,732,764 Lease lease Post expired certificate expired 31st July 2001 1020008 BUILDING Jinja Block Jinja 514,579,931 Title not 7 Jinja availed Block

1020009 BUILDING Oraba Office Oraba 150,250,880 Expired Lease 8 Oraba Block title lease certificate Office expired on Block 31st December, 2006

In absence of legal titles of ownership the assets are susceptible to encroachment.

Management explained that an application for renewal of all expired leases had been filed with the respective land offices. However this process was taking a long time to follow through.

I have advised Management to have the leases renewed for the expired leases and to process title documents for the assets that do not have.

70.9 Review of Comprehensive ICT security and Corporate Network Audit Report

URA management contracted AH Consulting to undertake a comprehensive ICT security and corporate network audit in 2010. A report containing the audit findings and recommendations was submitted to URA in November 2010.

A review of the report revealed that the security of information assets in the Authority is weak and is characterized by either complete absence of key controls or the presence of weak controls that are insufficient in protecting the organization from the risk of loss of data and revenue. It was however noted that the report was received and shared but

369 management was taking long to address the weaknesses that were identified. The recent events where the URA systems were hacked into and vehicles fraudulently registered are an example of the system vulnerability. It is probable that this could have been prevented had the recommended actions in the report been implemented.

Management explained that they had studied the report and some of the implementations were gradually being implemented.

I advised Management to ensure that the recommendations in the report are implemented to plug the loopholes/control weakness that could lead to huge loses of revenue.

DOMESTIC TAXES

VAT Paid by MALGs to Companies not appearing in URA database

A sample of 255 companies was selected from payments made by MALGs and compared to URA database. Details showed that 62 companies that were paid a total inclusive of VAT had no Tax Identification Numbers (TINs) under e-Tax and therefore were not part of the URA data base. Details in the summary table below;

Companies not appearing on URA Data Base

District No of companies Kampala 12 Busia District 1 Iganga District 47 Soroti District 2 Total 62

There is a risk that these companies could have either changed business names or closed business without accounting for the VAT paid to them by Government through the various MALGS.

I advised Management to subject the listed companies to investigations to establish their existence/location and also follow up the VAT paid to them by Government.

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70.10 Tax Avoidance in Rental Tax

The powers to assess and collect rental tax are derived from Sections 4, 5, and 20 of the Income Tax Act 1997 (as amended). On the other hand Section 18 (g) of the same Act defines business income to include rent derived by a person whose business is wholly or mainly the holding or letting of property.

It was noted that while for individuals rental income is segregated from other income and charged rental tax as though it were a sole source of income, for companies, rental income is aggregated with other income to determine chargeable income and taxed at a corporation tax rate.

This creates a tax avoidance scheme giving legitimacy to the companies to offset their losses against the would-be taxable rental income. It also implies that rental income is subjected to different rates of taxation depending on whether the tax payer is an individual or a company.

Management explained that the Authority had made a proposal to Ministry of Finance to segregate taxation of rental tax for companies from other business profits to avoid losses from other businesses eating into the rental tax.

I advised management to pursue the matter further with the authorities in order to have rental income taxed separately.

70.11 Implementation of Internal Audit Recommendations

Review of Internal audit reports for the period under review revealed that there were considerable delays in implementation of the recommendations made. Analysis of the status as at 3rd September, 2012 indicates that most of the outstanding internal audit recommendations required administrative interventions.

The delays in implementing internal audit recommendations weaken the internal control systems. I advised management to ensure that all outstanding internal audit recommendations are followed up and implemented.

70.12 Fraudulent validations at Katuna Customs station

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Customs procedures require that goods being exported are presented at the exit station together with the transit document where they are released through proper customs procedures. Goods with a total BIF of Shs.55,960,432 were fraudulently validated at Katuna customs station. Although the user names used to validate these entries appeared on the ASYCUDA list of users, the goods were not cleared through proper customs procedures. It is therefore probable that the taxes due on these goods were not collected.

Management explained that culpable persons had been identified and was in consultations with prosecution at Legal. The culprits had been identified the case was progressing at the Anti-corruption court for some of the suspects. I await outcome of this case.

70.13 Settlement of Cases out of Court

According to best practice, regarding settlement of cases out of court, assessments should be done to value the case and based on this, risk analysis of out of court, amounts to be paid out or proceeding with the case on the success of other cases in court is determined. On the 17 files reviewed where cases were settled out of court, the litigation assessment of advising management to settle the cases out of court were found on case files through MEC reports. These were not extensive enough as only the case needs were considered and issues like Attorney/Law Firm Strategic Profile, Judicial Strategic Profile, the experience and Level of an Opposing Counsel or Judge and evaluation of Litigation History of Key Players were not considered.

This was due to the minimal time allocated to the officers to undertake extensive research about the cases and their management. This implied that out of court settled cases could have been won if court proceedings were taken hence financial losses through settlement terms. There was no basis of future referral for each of the cases in case similar cases do appear in future, hence insufficient knowledge management.

Management explained that strategically they had commenced with preparing a matrix on all decided cases where URA was a party going as far back as 1999. Once this is complete, then the cases settled through MEC approval will be handled.

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I have advised Management to ensure that the cases which are earmarked for out of court settlements are extensively evaluated as per the best practice requirements.

70.14 Implementation of Tax Investigation Findings

A sample of tax investigation reports were reviewed with an objective of ascertaining whether their findings are followed up by the respective departments in the Authority. It was noted that a number of cases were not followed and concluded. Examples include the following cases;

a) Un-Reconciled Case

In this case the Tax Investigations findings indicated that the importer had only sought permission from URA to import used electronics. But when permission was not granted, he decided not to proceed with the importation of the said goods. The investigations were triggered by the Customs Department advice to the Importer in a letter dated 7th July, 2010, to the effect that the goods would not be released since they were prohibited. In the same note, the Tax Investigations Unit was also required to facilitate the importer in the disposal or re-exportation of the items.

However, review of the case details revealed that the findings by the tax investigations unit contradicted the advice by the Customs Department. For example; while Customs Department requested the tax investigations unit to facilitate the importer in the disposal or re-exportation of the goods, the conclusion by the tax investigations unit seemed to indicate that the goods had not arrived in the country.

There is the risk that these goods were actually imported and dumped into the local market without paying taxes. Management explained that it was investigating the case further.

I await the findings of the investigations by management.

b) Un-Concluded cases of re-exports of goods

The Tax Investigations (TI) handled two customs cases regarding fishnets and used fridges and recommended for their re-export. However, there was no evidence to show that the responsible department followed up the two cases to ensure the goods were

373 actually re-exported in their countries of origin. There is a risk that these goods could have been dumped in the local market in disregard of the ban.

Management explained that they were investigating this case further. However, by the time of writing this report, no reports with further details were available. c) Non-Disclosure of Cishonored Cheques

A case concerning PAPCO Industries Ltd was investigated by Tax Investigations Department under reference URA/CID/GEF03/2011. Records show the seemingly tax compliant company requested to pay VAT tax liability for August, 2011 amounting to Shs.62,443,937 in two installments.

Consequently, two cheques, number 004274 for Shs.32,443,937 and 004274 for Shs.33,173,190 were issued to Jinja DT payable on 20th November and December, 2011 respectively. However, it was noted that payment of taxes in installments was supposed to be authorised and documented in an MoU, which was not done.

It was noted that the cheques were dishonored and remained outstanding by the time of audit. The two bounced cheques were not disclosed in the arrears schedule in the financial statement. This understated the receivables position.

There is a risk that these taxes may never be collected as it was reported that the Directors and signatories to the cheques were on the run after selling the company to Uganda Pulp & Paper Mills.

Management explained that an assessment was raised by DT, legal only requested TID to handle the criminal part of the case for the bounced cheques. LSBA is currently working on filing a civil suit against the successor company for the whole outstanding liability.

These cheques were omitted on the list of bounced cheques because DCU never had physical possession of those particular cheques.

I await the outcome of this case.

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CUSTOMS DEPARTMENT

70.15 Outstanding Taxes – Shs.39,630,936,431

There were tax arrears that arose due to government transactions with URA and through authorized installments by individuals and companies by use of MOUs. Analysis of tax arrears at the year-end revealed that government tax arrears had accumulated to Shs.31,477,391,282 while those under MoUs amounted to Shs.8,153,545,149.

70.16 Outstanding Government Taxes – Shs.31,477,391,282

The Government budgets for and pays taxes for its direct imports through the Gross Tax Payments system. The current practice is that all customs taxes due from imports by Government Ministries, Departments or Agencies are deferred and goods cleared on credit using commitment forms as a guarantee that the respective Accounting Officers do commit to clear these obligations within the financial year in which the tax obligations arise.

Shs.31,477,391,282 remained outstanding during the year under review as compared to Shs.17,932,464,027 for the previous year. This was against the fact that various MDAs returned funds meant for Gross Tax settlement to Treasury at the end of the financial year and the Gross Tax Payments account had a balance of over Shs.236 billion at the close of the financial year. The accumulation of huge debt stocks could be a result of delays in submission of documentation to the Accountant General, to enable timely processing of payments. It could also be due to weaknesses in the procedures regarding clearance of Government imports. For instance, there is no prescribed time period the credit would be allowed, beyond which penalties would be imposed, thereby compelling MDAs to make timely settlement.

URA Management explained that the timeframe for submission of Tax payment Commitment forms in a financial year is stipulated in the revised Arrears Management Guidelines. URA had established a system that blocks further clearance of transactions after a specified time.

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During my discussion with URA Management, they undertook to initiate arrangements with the Accountant General for monthly reconciliations of Government tax payments by February 2013. a) Individual arrears under MOUs – Shs.8,153,545,149

In circumstances where a tax payer is unable to settle tax obligations at a go, a provision for payments to be made in installments is available to those considered compliant in all tax matters. All requests to pay customs taxes in installments should be authorized by the Commissioner Customs and an MOU prepared and approved by the Commissioner General. Under this arrangement, upto four equal monthly installments are allowed. It was noted that;

The arrears under MOUs had increased from Shs.456,445,692 in the previous year to Shs.8,153,545,149, in the current year. The details in the schedule show that one company alone accounted for 89.6% of the total debt of (i.e Shs.7,305,221,376). There were also balances which related to the previous financial years ranging from 2007 and others in respect of bounced cheques. This could be an indicator of poor management of debtors and is contrary to the customs procedures which require such MOUs to be honoured within four months after signing.

Management explained that a revision has been made to the management guidelines. The current installment payment policy is that up to 6 monthly installments are authorized by Commissioner Customs and approved by Commissioner General; payments beyond 6 monthly installments are authorized and approved by Commissioner General.

I have advised Management to adhere to the laid down customs‟ procedures for proper and timely management of debtors and to take action and recover the outstanding debtors. b) Outstanding Assessed Customs Entries

Customs entries are the Single Administrative Documents (SAD) which Customs uses to capture all the relevant data regarding imported goods to facilitate their clearance through the customs procedures for tax purposes. When the customs entry has been

376 processed through the Customs Business Centre (CBC), the taxes due from the imported goods are considered to have been assessed and become due.

Analysis of data obtained from ASYCUDA++ system revealed assessed customs entries totaling to Shs.1,213,658,231 which were still outstanding at 30th June, 2012. These outstanding assessments arose because of additional tax being assessed after post clearance audits, amendments to entries and availability of new information necessitating adjustments on the taxes for particular entries. Some of these entries had been outstanding since July, 2011.

Delays in accounting for the already assessed entries, poses a risk of loss of collectable revenues and encourages accumulation of large volumes of small value transactions which may be difficult to enforce realization. It could also affect the achievement of monthly revenue collection targets.

The ASYCUDA had been configured to address the challenges that had existed in the system. c) Irregular Mode of Transport for Export

According to T1 number D11420 of 13/4/2012, Portland cement reportedly exported cement to Southern Sudan via Oraba from Kampala. The mode of transport was by road on a trailer.

However, on verification it was established that registration number UAA 530X which was meant to be part of the said trailer belonged to a Mitsubishi L200 pick-up of only gross weight of 2,690. The goods involved had been bonded for Shs.999,582. Given the weight of what was being exported, it was not possible that the pick up could be used to transport it (cement).

It is likely that the number plate of the pick-up was fraudulently used to register the reported exports which never took place. There is a risk that the cement was not exported but dumped in the local market without payment of due taxes, leading to loss of revenue.

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Management explained that the goods did not exit and the exporter paid a BIF of Shs.999,582 on receipt PRN 2130000401795. URA had also instituted an investigation into this matter and a report is still awaited.

d) Through transits to Rwanda

“Through Transits” are consignments of goods which pass through Uganda to other countries. They are expected to exit the country within (7) days and are controlled by use of T1s and security bonds and are validated on presentation of such goods at the border point of exit.

Analysis of “Through Transits” indicated that (5) consignments originating from Malaba on the 21/8/2011 were in transit to Rwanda via Katuna border post but had remained outstanding by the time of writing this report.

PORT DESTN T1 DATE VEHICLE Bond DESCRIPTION CONSIGNEE BIF UGMAL UGKAT D93269 21/08/2011 UAL 130R THRU-TR Other wine; gra Horse Movers Int 10,363,377 UGMAL UGKAT D93274 21/08/2011 UAL 130R THRU-TR Liqueurs and c Horse Movers Int 20,223,235 UGMAL UGKAT D93276 21/08/2011 UAL 130R THRU-TR Wine (not spar Horse Movers Int 2,227,028 UGMAL UGKAT D93282 21/08/2011 UAL 130R THRU-TR Other wine; gra Horse Movers Int 11,255,367 UGMAL UGKAT D93286 21/08/2011 UAL 130R THRU-TR Liqueurs and c Horse Movers Int 19,789,008 Total 63,858,015

It was noted that all the (5) consignments were transported on the same day using a Mitsubishi Fuso truck.

Management explained that this was a Court Case and Goods were deposited with Customs warehouse. I await the out come of the court case.

70.17 Fraudulent use of motor vehicle number Plates

(i) During the audit inspections, a motor vehicle with registration number UAB 272M was spotted on the road. Being a Toyota Corolla Allex, model 2002, the old number plate appeared suspicious on a new vehicle, yet the UAB series were released in 2000. The photograph refers.

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A confirmatory check was then undertaken in the motor vehicle registration database and it revealed that registration number UAB 272M had been allocated to a Toyota Hillux with engine and chassis numbers, 3L-4526953 and LN166-0010185 respectively with date of first registration being 17th March, 2000, and not the Corolla sighted on the road.

This showed that the registration number plates were fraudulently fixed to the Toyota Corolla Alex. There is a risk that this corolla did not pay taxes on importation, leading to loss of revenue. There is also a possibility that many more vehicles are evading to pay taxes in a similar manner.

Management explained that the issue of vehicles bearing false number plates had been subject of a major investigation by URA and Police. A list of such vehicles was published in the media and some of the vehicles were impounded. Some of the cases were at the time under prosecution. The Toyota Corolla bearing number UAB 272M has been highlighted for interception.

(ii) Seized Motor Vehicle Number UAA 263K – Jeep In another incident during inspections at Busia Customs station, a motor vehicle with registration number UAA 263K was found parked among the seized units at Busia customs station. The In-charge station explained that it was being smuggled to Kenya without going through the normal customs clearance procedures which is an offense. However, further verifications revealed that this number plate belonged to a lorry Bedford and not a Jeep. The Bedford lorry was registered under Terain Services Ltd with engine and chassis numbers NK252662714912 and 17492808 respectively.

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It appears the registration number plate was fraudulently removed from the lorry and affixed to the Jeep for purposes of smuggling it to Kenya.

Management explained that the seized Motor vehicle Number UAA 263K has been put on the Want of Entry under lot number Lot 3618 and is due for Auction in March 2013.

Terrain Services Ltd has been requested to account for the Number Plate UAA 263K of a Bedford that was used on the said JEEP by 23rd January 2013. I advised management to; Investigate the circumstances under which these registration number plates were reallocated to the Toyota Corolla from the Toyota Hillux. To undertake vehicle revalidation exercises frequently to stem out misuse of vehicle Number plates, and Put in place a mechanism of surrendering number plates for vehicles that are no longer in use.

Inspection of Customs Border Posts

70.18 Lack of Well Established Parking Yards (Eligu, Mutukula & Lwakhakha)

Most of the activities at border posts require established parking yards to enable the drivers to clear with the customs office before leaving/entering the country. Audit inspection of the border posts revealed that a number of them lacked well established/maintained parking yards. For example; At Elegu the area used as a parking yard was not well established for the purpose. The land being next to River Aswa required leveling and gravel but this was not done and was full of stagnant rain water, muddy and slippery and also abandoned. At Mutukula border post the parking yard was in a poor state and becomes unusable especially during the rainy season. Consequently truck drivers prefer to park along the road, making it congested and blocking other road users. This makes transshipments and verifications of goods on the trucks difficult and poses a risk of inaccurate verifications.

At Ntoroko border post, the parking yard where trucks park awaiting offloading and loading into and from the local boats for onward transportation to the Congo is also

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used for parking of motor vehicle units in transit and vehicles on temporary importation (C32s).

However, it was noted that the yard is in a poor state, slanting towards the lake, but the running water had created gullies through it which poses challenges for loaded trucks to park or turn safely. There is a risk of trucks overturning within the yard. At Orabe, it was noted that the parking yard was in a very poor state, forcing truck drivers to park along the road side and blocking other road users.

Management explained that URA has no land in Elegu, land is being sought for the development of a One Stop Border Post (OSBP) Project to be funded by Trade Mark East Africa (TMEA). Under this project, a parking yard shall be provided for this border post and that of Mutukula, while in the case of Ntoroko remedial repairs were delayed because of inadequate funds. The parking yard at Oraba is owned by Koboko Town Council.

I have advised management to ensure that parking facilities at all border posts are improved.

70.19 Unsecured Land at Border Posts

Uganda Revenue Authority own land at a number of customs border posts. However, during audit inspections it was noted that in a number of cases, for example at Lwakhakha and Ntoroko border posts the land is not secured by way of fencing leading to uncontrolled access by the local communities and their animals. For the case of Ntoroko, the land was not recorded in the assets register and lacked a land title. There is a risk of the land being encroached on. For the case of Lwakhakha the land and building were included in the asset register at a gross cost vaue of Shs.120million and both of them subjected to depreciation since 1996 (acquisition date). The value of the land could not be separately identified from the reported net value of Shs.77,667,018. Land is a non depreciable asset. The current treatment may eventually wipe away the value of the land.

Management explained that they were in the process of securing and fencing the land at the border posts but were still limited by budgetary constraints.

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I have advised management to ensure that the land is secured by way of having titles to the land and fencing it to prevent uncontrolled access and encroachment.

ENTEBBE CUSTOMS

70.20 Temporary Imports (CB10s)

The CB10s regime is used for clearing temporary imports which at the end of the authorized period may be re-exported or entered for home consumption and taxes paid. It involves equipment and machinery for particular projects, entertainment equipment and any other goods for exhibitions. In all cases, the overriding factor is that these goods are either re-exported or taxes are paid upon conversion for home use.

During audit inspections of the custom‟s office at Entebbe, a sample of CB10 entries was obtained for review and the following matters were noted;

(i) Outstanding CB10s (Shs.85,495,334) According to section 117 of the East Africa Community Customs (EACCM) Act, 2005, goods imported under CB10 regime for temporary use or purpose shall be exempted from liability to import duties. The law also requires that the importer executes or deposits security equivalent to the import duty to which the goods would otherwise be liable. Such goods shall be exported within such period, not exceeding twelve months from the date of importation, as is consistent with the purpose for which the goods are imported. Where the conditions of the importation of goods have been complied with, then on the exportation of the goods any deposit or security given shall be refunded or discharged, as the case may be.

During inspections, some CB10s executed were found still outstanding as of 14th September, 2012, despite the period of stay for which the bonds were executed having expired. There was no evidence to show that these goods were re-exported and the respective bonds retired or were entered for home consumption on IM4 with the due taxes collected. The regulations require that annual renewals should be made in case goods are still in use for more than a year, however, there was no evidence that this was done. Outstanding CB10s pose the risk of goods being dumped in the local market without payment of collectable taxes.

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Management explained that a reminder had been issued on regular reconciliation and that a follow up are underway to ensure that accountability was provided.

I have advised Management to ensure that there are regular reconciliations of CB10s to the bond validity periods and in cases of default, penalty to bonds be called or security cheques banked.

(ii) Delays in entry for home consumption of expired CB10s A sample of CB10s on which taxes were paid was obtained and reviewed for timely payment of taxes. It was established that there was a delay in registering IM4s (entry for home use) for three (3) entries as detailed in the table below;

Entry No. Importer BIF Value Reference No. Rec. Date C6988 of 5/3/10 UNBS 3,359,941 R36004 20/10/11 C8477 of 18/3/10 Phone Plus 115,986 C44474 21/10/11 C42959 of 2010 - - R23491 & 18 & 14/7/11 R23125

For instance, entry number C6988 & C8477 that were registered in March, 2010 and expiring in December, 2010, had their taxes paid in October, 2011, leading to a delay period of more than nine (9) months. There was no evidence that the expired security bonds had been renewed for the nine (9) months period, before payment of due taxes.

I have advised Management to ensure that all security bonds are monitored for timely renewals and payment of taxes.

(iii) Non-disclosure of Values of Security Deposit A review of the register for CB10s revealed that security deposit details were always disclosed. For instance, cheque numbers and values, cash amounts and bond references and their respective values alongside the BIF amounts bonded. However, it was noted that certain CB10 entries worth Shs.126,600,596 did not disclose the values of the security deposits. The cheque numbers and their respective banks were merely indicated without disclosing the actual values in the register.

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In addition, the cheques deposited were not presented for audit verification. It was therefore not possible to confirm that the goods covered by the executed CB10s had been adequately secured by the respective bonds.

There is a risk that the goods in question were not appropriately covered by security deposits.

Management explained that it was an omission but the amounts were being indicated on all transactions cleared under cash security. I have advised Management to ensure that the CB10s registers are well maintained by disclosing all details and that the security deposits (cash, cheques etc) should be securely kept.

(iv) Expired Security Cheque Deposits The objective of requiring importers benefiting from the CB10 facility to execute security bonds & cheque or cash deposits is to safeguard the collectable import duty which would accrue in the event that the importer defaults on re-export or entering the goods for home consumption on payment of taxes.

Review of the CB10s register revealed that certain outstanding CB10s worth Shs.205,647835, had expired as disclosed in their respective cover period. Expired bonds and security deposits pose the risk of likely loss of collectable taxes in the event of default by the importer.

I have advised Management to investigate the status of all executed bond covers and security deposits for CB10S.

70.21 Inspection of Drugs by NDA

When drugs are deposited at Customs Airport Prevention Team (CAPT) clients are given a white copy (the original deposit slip) for a follow up with NDA for clearance. An audit inspection of URA CAPT store 2 revealed that there were drugs which had been deposited in customs warehouse but had expired. This was attributed to delays by NDA to inspect and clear the drugs. Examples of expired drugs are shown below;

Date Reference No. Description Importer 14/07/12 253387 01pkg - drugs Zargaron Hosseini

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22/03/12 251007 02pkgs - drugs Mazuruk Bogdan 17/03/12 250831 01 ctn - drugs Rereh Larawest

Pictures showing expired drugs at CAPT

Delays in clearing the drugs by NDA leads to their expiry, and their destruction by incineration may eventually become a cost to URA.

Management explained that the drugs were handed over to NDA for destruction and discussions were under way with NDA Officials to avoid delays in future. I have advised Management to liaise with NDA and ensure that an NDA staff is stationed at CAPT so that drugs are timely inspected and cleared.

70.22 Iganga Station

i. Location of the Store for Impounded Goods It was noted that the stores in which impounded goods were kept pending, conclusion of cases were located in another building a distance away from the office block. This location exposed the stores to break-ins and it was explained that it had been broken into twice and all the impounded goods stolen. However, these explanations were not supported by police report confirming the thefts and what action was taken.

There is also the risk that the importers of the impounded goods may be involved in the stores break-ins to both recover the goods without paying the due taxes and relevant fines & penalties as well as get rid of the evidence on which they could be prosecuted for customs offences.

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Management explained that URA was in the process of acquiring better and larger premises for both Customs and DT in Iganga. In the meantime, goods of high value and bigger consignments were kept and handled in Jinja.

I have advised management to ensure that the stores are re-located to a more secure place to safeguard the impounded goods. ii. Status of Facilities and Operational Challenges Audit Inspection of the office facilities at Iganga Station revealed a number of operational challenges as detailed below; The office is located is a dusty environment. The dust affects the conditions in which the staff operate including damage to computers.

The office building is isolated along low business area without a lead sign post from the main road. The nature of business requires that the office premises be conspicuous to enable all clients‟ easy access.

The station had one old motor vehicle, used to carryout operations in Seven Districts. It was noted that the vehicle had become too expensive to maintain and the monthly imprest allocation was not sufficient to sustain the increasing maintenance costs. Lack of adequate transport facilitation impacts negatively on the level of revenue mobilization, collection and enforcement activities.

It was established that, the station has (6) desktop computers, of which only (3) were being used for e-Tax purposes, while the other (3) were not compatible with e- Tax software. With the introduction of e-Tax, the stations performance could be affected, especially in activities where 4 staff had to share (2) computers.

The office premises lacked piped water. The old water harvesting tank could nolonger serve the purpose because it was damaged. This could not guarantee the safety of the water used by staff.

It was also noted that the rear access door was damaged with a huge hole. This compromised the security of URA property in the premises.

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Most of the furniture was also found to be in unusable state, having grown old, worn out and torn. This state of affairs was demotivating to the staff working at the station.

The station was allocated a generator to serve as a back-up for power supply and to mitigate power outages. However, it was noted that the generator was installed in the open and left exposed to hash weather conditions that eventually could affect its performance.

Management explained that URA was in the process of acquiring better and larger premises for both Customs and DT in Iganga.

I have advised Management to ensure that the location of the office is conspicuous, undertake renovation of the office and provide adequate and new facilities.

70.23 Malaba Customs

a) Un-Validated VAT Deferments

A sample of deferred VAT transaction was selected and examined for validations. It was noted that a number of entries worth Shs.1,726,180,414 which had exceeded the statutory (30) days were still outstanding at the time of audit inspection on 12th September, 2012.

There was no evidence that the facility had been extended rendering the recoverability of the amount uncertain. The possibility of sale or change of ownership of these items without payments of deferred VAT could not be ruled out.

Management explained that they were conducting an investigation into the matter. I await the findings of the investigations.

I have also advised management to ensure that regular reconciliations are undertaken by Customs and VAT section under Domestic Taxes for all VAT deferments to enable timely discharge.

b) Outstanding C32 (Temporary Motor Vehicle Imports)

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Temporary importation of foreign registered motor vehicles is referred as C32. Under this system, the vehicles are allowed to be driven in Uganda temporally and must exit or renew their stay by payment of road user charges and license fees. A review of a sample of C32 entries from the manual register kept at Malaba Customs station revealed that a total of 19 vehicles of various makes and capacities had stayed beyond their allowed period of stay without renewal.

Details are shown in the table below;

Date M/V Chassis No. Engine No. Owner Registration 19/10/2011 KRA 692P SXM10-0067508 3s-2266189 Hassan Rahman 19/10/2011 KBH 947Q AHTFR22900715324 2KD-0042725 Peter Muno 03/8/2011 KBL 109J JB43W-200204 M13A-1510335 Ruho Wesley 03/8/2011 KAV 143S JTEBY29J300044126 IKZ-0726380 Obuku Shaban 16/10/2011 KBF 949G SALLNABE11A327986 TD4-V101909 Birolif International 20/10/2011 KAZ 551S KZN185-9037225 IKZ-0726380 Colour Vision Roses 31/12/2011 KBK 011D JAATFPS4H87R8067 804208 Diamond Trust 05/2/2012 RAB 021D AHTF22GX03001247 SL-5609812 Armor Group 05/2/2012 KAR 405U AE111-5036427 4A-L372454 Bosco Nyaboga 10/2/2012 KBD 248Y NCP51-0043393 A912132 Philip Olekat 14/2/2012 GK A 729L JTEBY 29J400042286 KZJ120R- Ministry of local Gov‟t OKMETQ 01/3/2012 KAD 128R WDB1240212B208423 10296320054680 Aloke. O. Agee 8 15/3/2012 KBJ 695H ZZV50-0042595 1ZZ-0970770 Hassan Abdu 28/3/2012 T158 BKU CA210078979 1AZ-0243100 Earnest Kabwale 04/5/2012 KAN 660G AE101-308432 4A-K579650 Lucy Muthoni 12/5/2012 T144 BHF SXE100018540 3S-9395762 Jamal Baby 15/6/2012 T123 AUX WDD2040412A4286 27195030945747 Mamdani Ann 15/6/2012 CD1EAC 20 JTEBH3FJX0-K1005516 IKD 1973773 Ayub 20/6/2012 T551 AVM SX100-0001376 Kulwa Kahabi

There is a risk that these vehicles could access forged Uganda number plates and driven on the Ugandan roads without detection. They could also be stolen vehicles from other countries that were sold in local market either as “whole” or as spare parts.

Management explained that they were conducting an investigation into the matter. I await the report of the investigations.

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70.24 Oraba Customs Border Post

a) Need for Taxpayer days

Taxpayer days are set aside by URA Management for interaction with the Taxpayers and all other stakeholders regarding taxation issues. This is done through radio talk shows, brochures or direct address when the opportunity arises. At the time of inspection, it was noted that there was need for such Tax Payer days within Oraba customs area. This was because the population appeared to be hostile to the URA staff. It was noted that in one incident on the 29th May 2012, an enforcement staff on tax surveillance nearly got killed by the community but was only rescued when he managed to call for reinforcement. The enforcement operations are highly risky in this area whereby URA staff could easily be harmed.

Management explained that Radio talk shows had taken place. I have advised management that the sensitization should target especially the youth who engage in smuggling activities and gang up to attack URA enforcement officers while on duty.

70.25 Jinja Customs Area

a) Warehousing of Prohibited Goods in Bonded Warehouse W0249

Customs Regulation (64) (a) lists acids for trade and business purposes among the goods not acceptable for warehousing, due to potential danger they may pose to the other goods in the warehouses. During inspections warehouse number W0249, it was noted that two consignment of acid with a BIF value of Shs.41,886,502 was imported by a certain company and warehoused contrary to the regulation. As detailed below:-

Warehousing of such large quantities of acid posed a risk of causing physical damage to other goods within the warehouse, besides being contrary to the regulations.

Management explained that these goods had already been exited out of the warehouse and the requirement for payment of taxes upfront would be strictly enforced. I have

389 advised management to adhere to the customs regulations and avoid warehousing of acid with other goods to which it can cause damage.

b) Un-Registered Goods under Customs Control in Bonded Warehouse W0249

Goods under customs control are stored in a licensed warehouse, customs warehouse or any other gazetted area for such purposes. Each warehouse has a register in which all stored goods are registered when received for control purposes.

An audit inspection of warehouse W0249 revealed that two items within their control had not been entered in the warehouse register. These included a motor vehicle number UAA 609N Toyota Land Cruiser which had been impounded on 12th May, 2012 and (12) coils of steel rods for manufacture of nails damped along the railway line within the yard.

The presence of un-registered goods within the premises of the warehouse could be an indicator of laxity in ware housing controls on the movement of goods in and out of the warehouse premises. Goods could easily be removed from the warehouse without payment of taxes.

In their response, Management explained that the vehicle was boarded off and was stored in the bond pending payment of taxes while the coils were impounded for falsification of clearance documents in Malaba in order to release the trucks that conveyed them. The coils were released after payment of top up taxes in Malaba. Nonetheless, both cases should have been recorded in the customs warehouse register at the station as a control measure.

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I have advised Management to ensure that goods under customs warehouse premises are properly recorded and managed using registers.

70.26 Lwakhakha Customs Boarder Station

a) Status of the Goods Verification Bay

The customs verification bay is a raised concrete and cemented platform from where goods removed from the trucks for physical verification. Goods physical examination is an essential part of the customs operations which is used to reconcile the physical goods to the documents used in the declaration forms submitted to customs. However, it was noted that the verification bay at Lwakhakha customs station was in a poor state with broken parts, leaving a very small and insufficient space for verification of goods. The station was exposed to the risks of inaccurate verification accounts which could lead to revenue loss, due to limited verification space.

Management explained that this was to be considered subject to availability of funds.

I have advised management to ensure that the verification bay is renovated to enable proper examinations of goods.

b) Lack of Verification Bay

The operations of Ntoroko are such that most goods have to be transshipped onto the local boats to enable transportation to Congo across the lake. URA therefore takes advantage of this transshipment to do verifications to confirm and reconcile the goods to the supporting documents.

The verification and transshipment require a bay to ease both activities. However, it was noted that the station lacked a bay which made verification of especially timber and cosmetics imports difficult. There is a risk of inaccurate verifications being made.

Management explained that the Construction of a verification bay has delayed due to inadequate funds.

I have advised management to source for funding and construct a verification bay at the border post. 391

70.27 Ishasha River Customs Station

a) Irregular Transshipment of Goods

According to T1 referenced D137079 of 22nd September 2012, a consignment of ordinary nails was in transit to Congo via Ishasha River border post in a container. It was established that the goods were transshipped onto truck number UAM 915S at Spedag Interfreight yard in Kampala before continuing to Ishasha river. The same truck was also loaded with an additional 3,715 cartons of biscuits under T1 number D123838 of 23rd August, 2012.

Further verifications indicated that the consignment of ordinary nails weighed 25.76 tons against the gross weight of 18,160 kg for the truck whose net weight was 8000 kg. This meant that the carrying capacity of the truck was 10,160kgs compared to the 25,760 kgs of nails declared as transshipped in addition to the biscuits. There is a possibility that the extra nails were not transshipped at Spedag yard in Kampala and could have been dumped on the local market for sale without payment of taxes.

Management explained that the case was being investigated and report would be submitted. I await the findings and action taken by URA.

b) Status of the New Office Block

A new office block was recently constructed at Ishasha River Customs Station. An audit inspection of the building revealed the following major defects that required rectification; i) Cracks had developed both inside and outside at the skirting level while the whole concrete screed on the verandah was peeling off, an indication of poor workmanship. ii) The building had never been fumigated since it was handed over and as a result, bats had settled in and damaged the ceiling. iii) There were points of water leakage in the roof, affecting the ceiling.

Management explained that the defects had been identified during the defects liability period by the Estates section and notified the contractor to correct them.

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I have advised management to ensure that the defects are rectified before further damage and provide funding for fumigation to avoid damage by bats

71.0 CAPITAL MARKETS AUTHORITY- YEAR ENDED 30TH JUNE 2012

71.1 Compliance With Gou Financial And Other Applicable Regulations

A review was carried out with regard to the Authority‟s compliance with applicable laws and financial regulations and it was observed that the Authority had complied materially in all aspects except for the matter below:-

71.2 Recoverable Withholding Tax not Followed Up

There were instances where withholding tax was withheld from payments to the Authority on incomes for which withholding tax is not a final tax. The Authority being a tax exempt organization, such tax is recoverable from URA. There was no evidence of follow up to recover the amounts withheld from URA. Instead, the amounts had been expensed.

The matter should be followed up with URA.

72.0 POST BANK – YEAR ENDED DECEMBER 2012

72.1 Interest Expense not Accrued on Fixed Deposits yet to Mature

The accruals basis of accounting requires that expenses are recognised when incurred. IAS 39 requires that financial liabilities not measured at fair value should be measured at amortised cost. The bank does not accrue interest expense on fixed deposits held but yet to mature. As at 31st December 2012, interest of Shs.336,902,297 had not been accrued. There is a risk of understatement of interest expense and the value of fixed deposits.

In their response, management explained that the system has since been reconfigured to accrue interest on fixed deposits on a daily basis. I advised Management that interest expense should be recognised on an accruals basis as is required by the accounting standards. 393

72.2 Deficiencies from the Loan Reconstruction Exercise

The fixed deposits register was not updated. The register contained fixed deposits that had matured but for which interest expense was still being computed. Under the circumstances, there was a risk of overstatement of interest expense and fixed deposits balances.

Management explained that monitoring will be intensified and staff have been instructed to monitor fixed deposit maturities on a daily basis and close those that will have matured. I advised that the fixed deposit register should only contain active deposits and deposits should be removed immediately on maturity.

72.3 Untimely uploading of Photos and Specimen Signatures in the Customer Data Bases

As per Post bank Operation policy, customers‟ passport photos and signature specimen should be uploaded into the system the day after account opening. There were cases where accounts were opened (especially for BAT farmers) and the specimen signatures and passport photos had not yet been uploaded in the system at the time of the interim audit (15/10/2012 to 26/10/12). These accounts were active and customers could withdraw cash. This increases the risk of irregularities.

Management explained that because of the massive numbers involved in field operations, uploading all photos could not be possible in a short time. I advised that all the customer signature specimen and passport photographs should be timely uploaded into the system the day after account opening and no withdrawal should be allowed, until signature specimen and passport photos are uploaded.

72.4 Untimely Closure of the Fixed Deposits Accounts

Fixed deposit accounts should be closed on maturity. However, there were several fixed deposits that matured but were left open by the bank. These

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dormant accounts can be used for irregularities which exposes the bank to reputation and litigation risks.

Management explained that a report to monitor this will be developed in Finacle system for review by the Compliance Unit. I advised Management that amounts on fixed deposit accounts should be promptly transferred to the customers‟ current or savings account on maturity.

72.5 Late closing of banking halls

Post bank operation manual specifies that banking halls should be closed by 5:00p.m. during working days and 12:30p.m. on Saturdays. During branch visits to Bombo and Ndeeba, it was noted that banking halls were opened beyond the stipulated hours. The Bombo branch was open up to 6:00 p.m. on week days and Ndeeba was open up to 2:10 p.m. on weekends. This leads to increased security risk. It also leads to increased risk of errors as the banking staff would not have adequate time to do end of day procedures.

I advised that Branch operational hours should be followed. Where deemed necessary, the operational hours for specific branches should be formally changed to ensure that adequate measures are in place to manage the change.

72.6 ATM fees

From the review of the ATM fees account, I noted that there were several cases of recoveries of ATM charges. This implies that the ATMs had not timely charged transaction fees. I also noted refunds of fees wrongly charged for example; fees charged when the customer performed no transaction. Such instances increase operational, reputational and business risks.

I advised that a new service provider should be sought to reinstall the ATMs or the bank should consider investing in its own ATMs as is the approach adopted by most banks.

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72.7 Nonperforming Loan Products

From review of the performance of the several loan products, I noted that the Kyapa loan and the Solar loan products are not performing to expectations as evidenced by the decrease in their balances. Management representation for the decline in Solar loans was that it lost popularity due to the inadequate work done by the engineers who installed the solar system, this is especially evidenced in Bushenyi. The poor performance of the Kyapa loans was attributed to the non- functioning of the land boards. Both reasons for the non-performance of the products increase the reputation and litigation risks of the bank.

Management explained that the department was realigned to have credit managers take charge and responsibility of business lines. With dedicated focus by the product manager, Kyapa and Solar loans are being revitalised. I advised that loan products should be tailored to meet the client expectations and regularly reviewed before they negatively affect the bank.

72.8 PAYE due on Taxable Employment Benefits

It was noted that the bank understated the PAYE due on its staff salaries as explained below:-

There are executives entitled to use of company cars. No PAYE was accounted for the resulting car benefit. A review of the executives‟ employment contracts and management accounts revealed that some are entitled to benefits in kind including entertainment, telephone bills for personal use, utilities and school fees for school going children among others. The entire cost to the company less any payments made by the executives should be subjected to PAYE. I observed that only a proportion of the benefit is being subjected to PAYE. The bank has various off the payroll cash payments made to its employees; these include lieu of leave, acting allowances, bonuses, and gratuity and long service awards. These are being subjected to PAYE at a fixed rate of 30%. Before the change in the tax rates, this treatment did

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not expose the bank to paying less taxes than it should but after the change in the tax rates, it creates cases where less tax is paid, where these allowances could push an employee‟s gross monthly income to the highest tax bracket in which case the appropriate tax rate on the allowance could be 40% and not 30%. Under the circumstances, the bank carries an exposure with respect to the taxes due and any penalties that may be levied by the tax authorities.

Management explained that they shall ensure that the bank complies with all statutory requirements at all times. They also indicated that they shall ensure that the payroll preparation process takes into account these benefits for purposes of deducting PAYE. I advised that all the benefits should be taxed. The PAYE computation should be adjusted to the new tax brackets after incorporating all the staff benefits.

72.9 NSSF due on off the Payroll Payments

The bank does not account for NSSF on acting allowances, Lieu of notice, gratuity, bonuses and long service awards. Because of the above oversight, the Bank carries an exposure since NSSF should be accounted for on gross cash emoluments given to its employees at 15% as per the requirements under the NSSF Act.

In their response, management explained that they shall ensure that the payroll preparation process takes into account these benefits for purposes of deducting NSSF contributions. I advised that NSSF should be deducted from acting allowances, lieu of notice, gratuity, bonuses and long service awards.

72.10 Monitoring Changes to IT Systems

During the audit, I noted that changes that are implemented to the Post Bank environment do not have post implementation sign off by user departments. Once changes are implemented into the production environment, no monitoring is done manually; no signoffs to show this process is actually done were

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provided. This is because reliance is placed on the user acceptance tests and the approvals done before implementation for Finacle, Gateway and Checkpoint systems. Failure to have post implementation sign off by user departments poses a risk of information inaccuracy. Management explained that they shall ensure that the user department confirm in writing that the change/request has been implemented to their satisfaction. I advised that there should always be post implementation user acceptance/confirmation.

72.11 Lack of Segregation of Duties in the IT Applications

I noted that though user creation is authorized and approved at different levels, there is no segregation of duties when creating and assigning users access to Finacle, Gateway and Checkpoint. Roles are not segregated among members since the Database administrators have the roles of:- User Creation, User Modification, User termination, Monitoring users on the applications and Password settings. All the database administrators have equal rights on the applications. There is a risk of unauthorised administrator user activities on the application.

I advised Management that segregation of duties should be enforced for all the applications in scope. No one user should have the rights to create, modify and terminate users. In the case of the administrators of each application, these roles can be separated so that no single administrator can perform all these rights.

72.12 Ineffective Data Centre Controls

I inspected the data centre and observed the following controls are lacking:- No notice at the door No smoke detector or fire alarm. No water detection 398

Some severs were found on the floor. There is a risk of unauthorized access to the data centre and destruction of the equipment in the data centre is likely. I advised that the server room should be neatly organised and well secured from any hazardous risks.

73.0 PRIVATIZATION AND UTILITY SECTOR REFORM PROJECT – DIVESTITURE AND REDUNDANCY ACCOUNTS (PUSRP) 30TH JUNE 2012

73.1 Recoverable Advances – Shs.8,829,424,332.21

The financial statements reflect recoverable advances amounting to Shs.8,829,424,332.21 which were incurred during the preparatory activities of the divestiture and have remained outstanding for a long period some stretching to over 15 years. The recoverability of these advances is doubtful and reflecting them in the financial statements may be misleading. Details in the table below:

Account Outstanding balance (Shs) Mandela Stadium 648,650,398.00 Uganda Air Cargo 8,180,773,934.21 Total 8,829,424,332.21

The Accounting Officer explained that Uganda Air Cargo (UAC) had prior to the last three years been performing poorly financially and could not afford to pay the loan but had now started to recover and was posting some profits. With regard to Mandela National Stadium Limited, the entity had structural problems which have been handled and PU expects to recover its money as the enterprise is reformed.

I urged the Accounting Officer to continue to pursue the collection of these advances.

73.2 Receivables

Section (f) of the Privatization guidelines provides that privatization sales shall generally be on a cash-only basis and extended terms of payment shall be avoided. It further provides that in exceptional cases, other forms of payment, including the issue of shares to employees on non cash or discounted terms, may be permitted.

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Contrary to this guideline, PU accepted credit sales resulting into receivables of Shs.101, 219,000,000 as at the end of the financial year under review. The Accounting Officer explained that guidance had been sought from the Solicitor General to recover the property against which the credit sales were made. The outcome is awaited.

73.3 Apparent under-pricing of Kinyara Sugar Company Shares

According to the business valuation report of Kinyara Sugar Works Limited (KSL) issued by Deloitte and Touché, the business value of KSL was estimated at Shs.134.6 billion (US $56.2 million) and the equity value was estimated at Shs.140.5 billion (US$58.7 million). The equity value per share was estimated at Shs.3,650 (US$1.5).

On the basis of the Macro economic analysis, the sugar industry analysis and sugar experts assessment of KSL as well as the financial status and projections of KSL, the value of KSL was in the range of between Shs.139.3 billion (US$58.2 million) and Shs.158.5 billion (US$66.2 million). If this was applied on the GOU 49% equity stake, it would give a range of between Shs.68.3 billion (US$28.5 million) and Shs.77.7 billion (US$32.5million).

However, only $ 9,100,000 was obtained from the sale of 7,271,512 Government shares to a private company representing 19% shares in Kinyara Sugar Works. This implies that each share was sold at $1.25 instead of $1.5 making a loss of $0.25 which translates into $1,817,878 (Shs.4,350,745,596) at an exchange rate of $1:Shs.2,393.31, the rate at the date of valuation.

Further, during a negotiation between the two parties PU accepted a lower price of $1.25 after the buyer raised a number of concerns. The concerns were that some pertinent factors in determining the price were not considered by the consultant in the share valuation for example; sugar price movements, risks of arson and foreign exchange rate. However, a review of the consultant‟s valuation report indicated that some of the factors raised were actually considered in the valuation, for example, risks of arson, sugar price movements. The basis on which a price lower than the valued amount was accepted is questionable.

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There is a risk that the shares in KSWL were sold at a price far lower than the market value.

i. Unclear status of 30% of shares intended to be sold to other Stakeholders Under the divestiture of Kinyara Sugar works, 30% of the shares were intended to be sold to employees, sugarcane out growers of KSL and Bunyoro Kitara Kingdom. However, the status of sale of these shares was not clear at the time of audit.

The Accounting Officer explained that consultations have been carried out between PU, Ministry of Finance and the Solicitor General in regard to the conclusion of the above sale. The outcome is awaited.

ii. Performance Monitoring of Commitments by RAI According to the agreement of sale, the buyer made the following commitments:- Make an initial investment of $55 million over the first three years. Increase sugar production capacity to at least 200,000 tonnes per annum. Construct a power plant to generate 35 megawatts of electricity of which 22 megawatts will be sold to the national grid. List the 19% shares in KSWL on the Uganda Securities Exchange through an initial public offer after a period of five (5) years.

S.8 of the agreement provided that the representatives of the seller and those of the buyer shall meet annually for the period of the five years following the execution of the agreement to consider and monitor the progress made by the buyer in the implementation of the business plan. It was however noted that while the first year following the agreement had elapsed, there was no evidence to show that such a meeting took place. There is a risk that the buyer may fail to fulfill its commitments without Government being informed.

I advised the Accounting Officer to ensure that annual meetings are held in accordance with the agreement to assure government that the investing company fulfils its commitments.

73.4 Disposal of Non-core Assets of Uganda Railways Corporation (URC) 401

i. Stock of Non Core Assets The Divestiture and Reform Implementation Committee (“DRIC”) authorized the divestiture of URC in April 2006 by way of a 25 year concession to the Rift Valley Railways (U) Limited. Records indicated that as part of the reform of the railways sector, some of the assets of the Corporation were identified as non-core assets which were supposed to be passed on to Privatization Unit for sale. It was however established that a complete stock of all non-core assets was not compiled and verified at the time of divestiture. Further, the Ag Chief Executive Officer Uganda Railways Corporation wrote to the Director PU on the 10th July 2009, informing PU that a number of assets were not available for immediate sale.

In absence of a clear status on the assets, some of the assets may have been misappropriated.

I advised the Accounting Officer that a status report should be compiled which should be reconciled with the assets register at the time of divestiture to avoid loss of the corporation properties.

ii. Sale of URC Land During the period under review, 57.93 acres of land located in Nsambya belonging to the former Uganda Railways Corporation were transferred to Uganda Land Commission under a directive. Each acre of land was valued at Shs.1,200,000,000 and this added up to Shs.69,524,000,000. The Privatization Unit still maintains a receivable of Shs.69,524,000,000 in its financial statements in respect to this land valuation. However, at the time of the audit, no funds had been received from the sale of this land.

I advised management to follow up the matter with the Authorities.

73.5 Divestiture of African Trade Development Fund (ATDF) Properties

These are properties in form of buildings that were constructed under a project in the names of African Trade Development Fund (ATDF). The properties were formally managed under Ministry of Trade but were later transferred to PU in the year 2003 for disposal after failing to maintain them. The following were noted on audit of the divestiture of ATDF: 402

i. Irregular Collection and Utilization of Non Tax Revenue The properties were not divested as planned. It was also noted that at the time of transfer of the properties, Ministry of Trade was collecting non-tax revenue and remitting it to the consolidated fund account. However, when PU took over the collection of revenue the realized revenues has since been used at source and no authority was sought contrary to the provisions of the law.

The Accounting Officer explained that part of the revenue was used for the payment of ground rates for the properties and the balance will be dealt with in accordance with the law.

I advised the Accounting Officer to expedite the process of divestiture of the properties.

ii. Accountability of Rent Revenue Records availed indicated that a total amount of Shs.19,880,500 was collected from ATDF properties in form of rent. However, there was no evidence of the revenue budget estimates and no ledgers were maintained to track the payments and enforce collection. It was therefore not possible to confirm the amounts reflected as revenue from this source and the amounts due.

I still await presentation of proper documentation to enable me ascertain the correctness of the figure of Shs.19,880,500 presented.

iii. Suspected Fraudulent Deposit During the year, Shs.30,000,000 was fraudulently deposited on PU Divestiture Account by one Haji Kasule allegedly being in respect of purchase of one of the ATDF properties. Whereas PU informed Police regarding the fraudulent transaction, no further action has been taken.

The Accounting Officer explained that Privatization Unit informed the Inspector General of Government (IGG) and Jinja Police Station and a report on the investigation was yet to be received. The outcome is awaited.

73.6 Divestiture of Uganda Livestock Industries Limited 403 a) Background

Uganda Livestock Industries (ULI) is one of the public enterprises listed for divestiture in the first schedule of the Public Enterprises Reform and Divestiture (PERD) Act. It is classified under class III public enterprises which the state was required to fully divest from. ULI is comprised of four ranches namely; Kiryana, Kyempisi, Marurzi and Aswa.

A review of the recent financial statements for the year ended 31/12/2011 indicated that the company‟s going concern was not certain. It was established that it had total assets of Shs.1,405,441,899 against liabilities of Shs.7,477,410,991. It was also established that the company has been posting losses with a loss of Shs.12,21,086,667 in the year 2011. The following was noted from the divestiture;

b) Halting of privatization process of Maruzi, Agago and Aswa ranches

The Authorities requested the Minister of Finance to halt the process of Maruzi, Agago and Aswa ranches on 5th September 2006 until further notice. However, it was not clear whether later the authorities provided further direction on the matter. It was also not clear whether management has been following up the matter. Government may be losing value by keeping the ranches not in use.

The Accounting Officer explained that the directive was not to stop the divestiture but the form of divestiture. I urged the Accounting Officer to ensure that the process is followed up and concluded. c) Conversion of Leasehold property to free hold

In 2010 Royal Ranchers Ltd and Ziwa Ranchers Ltd made a request to ULI to have the leasehold titles converted to freehold. As a result, the titles for the four ranches were handed over and are in the custody of Lex Uganda Advocates for the purpose of effecting the request.

The transfer of assets from leasehold to freehold will amount to full disposal to the companies holding the ranches. If effected, the disposal will contravene the principal of transparency provided in the divestiture guidelines which requires publicly advertising of the assets under divestiture. 404

The Accounting Officer explained that PU has sought the guidance of Solicitor General. The outcome is awaited.

d) Encroachment on Maruzi Ranch

According to the legal status report by the Company Secretary dated 20th February 2013, part of the land at Maruzi ranch was taken over by the National Animal Genetic Resource Centre and Data Bank, a project in the Ministry of Agriculture.

The Accounting Officer explained that the Privatization Unit will investigate and follow up with the Board on the extent of encroachment and ensure that appropriate action is taken. The action is awaited.

e) Possible loss of Government Land

ULI owned land situated at plots 82-84 Lake Drive Luzira, along Lake Victoria measuring 4.86 hectares (Approximately 12 Acres). The land has a certificate of title under LRV 1166 Folio 18. ULI leased the land from KCC for an initial term of 10 years from 1/8/1978. The land was used as a holding ground for imported cattle and had some structures thereon erected by the company. It was further established that in May 2011 Lex Uganda Advocates on behalf of ULI, applied to KCCA for an extension of the lease but the Board declined to grant the extension on grounds that it was necessary to ascertain if the land was still available to ULI or had been leased to other applicants.

According to the report produced by Lex Uganda Advocates, some of the land was parcelled out into plots and leased to developers. The report further indicated that the undeveloped portion is occupied by a group describing themselves as Luzira Army Veterans Association who claim that the land was allocated to them by State House.

The Accounting Officer explained that the Board was investigating the circumstances under which the land was repossessed and PU will continue to follow up the matter until its logical conclusion. The outcome is awaited.

73.7 UAHL –Debtors-Shs.784,351,052

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A review of the audit report for June 2001 by P. K. Bahemuka & Co. Certified Accountants at Uganda Registration Services Bureau revealed that that the debtors for Uganda Airlines Limited were Shs.4,287,315,453 of which a provision of Shs.3,502,964,401 had been made for bad debts, implying that in the least, Shs.784,351,052 could be recovered. This was before going into liquidation. It was noted that the liquidator/official receiver was unable to recover any moneys from the debtors. The liquidator attributed this to lack of supporting documentary evidence to confirm existence and accuracy of the debtors. It was also noted that some debts were economically unviable for collection since the collection costs exceeded the amounts collectable. Consequently the whole amount remained unrecovered.

It was not explained why the documents pertaining to the debts were not passed over to the receiver to pursue and recover the debts.

The Accounting Officer explained that Privatization Unit will check with available records to review the information forwarded to the Liquidator, and will consult the Solicitor General, if necessary to ascertain the possibility of collecting the Shs.784 million debt. The action is awaited.

SECURITY

74.0 UGANDA AIR CARGO CORPORATION June 2012

74.1 DRC (LC Aviation) Debt - USD1,000,000

The corporation has had a debt of US$1,000,000 with the Democratic Republic of Congo (DRC) arising from the air services provided to DRC in 1995. The debt was acknowledged by DRC in 2010 after a court ruling made by the Country Court of Gombe (Ruling R.C.64.227). However since then the funds have not been recovered.

The Accounting Officer explained that they have contacted the relevant authorities in DRC who have reached a level where payment is to be executed by the Ministry of Finance in the Democratic Republic of Congo (DRC), however, in the absence of a Board he could not get the approval to engage lawyers.

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I advised management to follow up this matter with the new board and have this money collected.

74.2 Lack of a Procurement Plan

PPDA Act section 58 and Regulation 96(1-3) require that the user department (s) shall prepare an annual rolling work plan for procurement based on the approved budget. It was however observed that the Corporation did not have an approved procurement plan which renders all the procurements made during the course of the year unplanned.

Management stated that at the time of audit the corporation did not have a fully constituted Board of Directors to debate and endorse the management formulated procurement plan. I advised management to follow the PPDA guidelines and regulations to ensure orderly execution of planned procurements.

74.3 Non-remittance of PAYE (Shs251, 363,186) and NSSF

(Shs119, 354,362)

Included in the figure of creditors is Shs.251,363,186 and Shs119,354,362 being amounts deducted for Pay As You Earn (PAYE) and National Social Security Fund (NSSF) respectively for the period September 2011 to March 2012. The amounts were not remitted to the respective Authorities contrary to the laws. Non remittance can attract penalties.

I advised Management to always ensure timely remittance of statutory deductions to avoid penalties.

75.0 NEC CONSOLIDATED & SUBSIDIARIES (June 2012)

75.1 National Enterprise Corporation Headquarters

a) Key positions not filled

National Enterprises Corporation Act, 1989 provides for the appointment of the Managing Director and his/her deputy. It was noted that the positions of the Managing Director and deputy were vacant for the period under review contrary to the law. Key 407 decisions and implementation of strategic objectives may not have been appropriately undertaken.

The Accounting Officer explained that there was no Board of Directors by then to effect the appointment since the former Managing Director had resigned and the Acting Managing Director had also passed away. However, a new Board of Directors has been appointed by the Minister of Defence and has embarked on the recruitment to fill the two positions.

I await the out come of management efforts. b) Lack of Internal Audit Function

It was noted that the entity did not have an Internal Audit function contrary to the provisions in organizational structure and best practice. All the expenditures, revenues, entity operations and internal control systems were not subjected to internal audit reviews. This exposes the entity to risks of weaknesses in the internal controls going undetected, which could subsequently lead to loss of Company assets.

The Accounting Officer explained that there was no Board of Directors to effect the recruitment since the former Internal Auditor had joined politics.

I advised the Accounting Officer to institute the Internal Audit function to continually review internal control systems and enhance the corporate governance principles. c) Current Assets (Investment in Subsidiaries) – Shs 1, 259,728,082

Investment in different subsidiaries during the year amounted to Shs.1,259,728,082 in addition to Shs.33,555,322,660 invested in the prior years. There were no dividends or interest accrued to the holding company during the year. The justification for investing all these amounts in the subsidiaries could not be explained as no dividends have since been received.

The Accounting Officer explained that Subsidiaries are currently operating at low capacity. There is need to purchase additional equipment to enable the generation of more revenue and profit to enable them pay dividends.

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Management was advised to carry out due diligence of its subsidiaries before further investments are done.

d) Overdue Trade Debtors – Shs.173, 617,411

Trade debtors totaling Shs.173, 617,411 were more than one year old. There is no evidence that any effort or legal action has been undertaken to enforce recovery contrary to the requirements in the Financial Manual.

Management indicated that its legal department will implement debt recovery procedures on overdue debtors.

Management should put in place appropriate measures for follow up of overdue trade debtors.

NEC FARM KATONGA LTD

75.2 Lease of Farm Land

A Memorandum of Understanding (MOU) was signed between a partner foreign country and the Republic of Uganda on 24th/09/2003 to grant the land of the company measuring 4500 Hectares (17square miles) to the investor. Subsequently, on 06/08/2008 a firm from the partner country was granted a lease of 49 years renewable, provided, during the initial term of 5 years the investor was to perform according to the feasibility study submitted to Uganda Investment Authority and National Enterprise Corporation (NEC). Included in the items which were to be undertake in the initial 5 year lease period was to introduce modern methods of agriculture and agro processing and add value by developing the land. The company was to set up the following projects:

Oil Seed growing and processing Cereals production and processing Cattle fattening , Goat Farming, slaughter house and meat processing Fruit production and processing Other investments

The above projects were to cost approximately US $ 6,519,450. However the following were observed during the audit.

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i. Non-implementation of agreed activities The MOU came into force from the date of signing and was to be renewed for a period of one year. However, all the initial requirements were not fulfilled. Audit inspection carried out in September 2012 revealed that only bush clearing, limited maize growing and a small two roomed worker‟s house were the only activities undertaken.

ii. Expiry of initial lease period It was also established that the 5 year period which was given to set up the initial infrastructures had expired. Given the non compliance on the part of the investor it was not clear how the lease was going to be renewed.

The Accounting Officer explained that most of the agreed activities as per Memorandum of Understanding have not been achieved. The Company appears to have failed and management is considering terminating the lease agreement.

I advised Management to either prevail over the investor to implement what was agreed in the MOU or enforce in liaison with the Solicitor General the termination procedures as laid out in the MOU.

75.3 Going Concern of NEC Farm Katonga

The future operations of NEC Farm Katonga are not clear after leasing the land to the Investor and the Board has not decided on the fate of the animals (cows) in the farm. There is a risk of losing the animals on the farm as future management and sustainability is not clear to the employees. In addition, the farm has been making losses over years. The accumulated loss position at end of each year over four years is as shown below:-

Financial 2009 2010 2011 2012 Years (ended30th June) Losses 954,128,475 993,345,219 1,030,399,724 982,671,449 (Shs)

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The Accounting Officer explained that the Board of Directors have now resolved to keep the animals despite the leasing of the land to investor. The Board proposes negotiation with the investor to use part of the land to keep the cattle.

Management is advised to come up with a clear position on the future operations of NEC Farm Katonga Ltd.

LUWERO INDUSTRIES LTD

75.4 Overdue Creditors

The company has creditors that have been outstanding for a number of years. The total outstanding in trade creditors amounted to Shs.3,115,011,878. Some of the creditors have amounts denominated in foreign currencies for instance USD1,165,776.81 (Shs.2.2b) was owed to China North Industries, the main supplier of raw materials at the beginning of the financial year. This amount has now increased to approximately Shs.2.9b by the close of the year due to increase in the exchange rates; hence causing a potential loss of Shs.700m (2.9b- 2.2b) in exchange rate fluctuations to the company.

The Company may end up losing credible suppliers and incurring legal costs and further exchange losses if no action is taken to settle the obligations.

The Accounting Officer explained that this was due to cash flow constraints the company was facing. Arrangements to settle the obligations with the help of the Ministry of Defence has been initiated.

I await for the outcome of management efforts.

75.5 Lack of Fixed Assets Register

It was observed that Luwero Industries did not maintain a fixed assets register. Management did not have a list of all its assets and their locations were not stated. The system installed to maintain a fixed asset register did not take off due to lack of funds.

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Lack of a fixed asset register could lead to loss of the assets as the details of the assets have not been recorded.

The Accounting Officer explained that they have embarked on a manual fixed asset register and a process to acquire an integrated information management system has been initiated.

I await the results of the Management action.

75.6 Lack of Insurance for Company Assets

It was observed that Luwero Industries did not insure any of its properties against insurable risks, contrary to Section 6.0 of the Financial and Accounting Manual. In case of any eventuality the Company stnds to lose its properties.

The Accounting Officer explained that the assets were last valued in 2000 and they are in the process of carrying out a revaluation after which the assets will be insured.

75.7 Bulk Stock of Materials

It was established that the company had raw materials stocks worth Shs.1,420,969,325 at year end. While raw material stocks worth Shs.1,213,186,054 were available at the beginning of the year as reported in the financial statements, stocks worth Shs.277,796,407 were purchased during the year. However, only stocks amounting to Shs.70,013,136 were utilised during the year. There is a risk that some of the raw materials may expire or become obsolete.

The Accounting Officer explained that most of the bulky stock is obsolete stock from the discontinued lines of production and cannot be put to any alternative use. For the current purchased stocks there was a big order which could not be completed because of delayed receipt and other components.

I advised management to institute a system to monitor stocks to avoid excesses which eventually become obsolete. In the meantime management should arrange to dispose the obsolete stocks.

75.8 NEC Construction Works and Engineering Ltd

412

a) Allotment of Government Shares

The National Enterprises Corporation Financial Accounting Manual (2005) Chapter 1 requires that Government owns 100% shares for it to be mandated to do business on behalf of Government. The Articles of Association state that 98% of the shares were meant to be for NEC, 1% for Treasury (MoFPED), and 1% for Ministry of Defence.

It was however noted that shares in respect of Treasury and Defence were allocated to the individual names of the Secretary to Treasury and the Permanent Secretary of Ministry of Defence. It was further noted that the former Permanent Secretary Ministry of Defence is no longer in the Ministry. There is a risk that Company returns will benefit the individuals in their personal capacities.

The Accounting Officer explained that at the time of registering the company, individual names of the office bearers were to represent the Ministries. Management has noted the risk and has forwarded the matter to the Board of Directors to rectify the error.

I advised that shares should be allotted to only Government institutions not to individuals in accordance with the Memorandum and Articles of Association and the Finance and Accounting Manual.

b) Internal Audit Function

It was noted that the subsidiaries internal audit function is headed by an Audit Assistant instead of an Internal Auditor. The Audit Assistant does not qualify for the position as she does not have any accounting knowledge but a Diploma in Administration and has been in this position since 2006.

The use of an unqualified internal auditor puts the entity at a risk of having weaknesses in the internal control as she may not have the necessary skills to point them out. The Accounting officer explained that they are soon recruiting a substantial Internal Auditor.

I await management action on the matter.

75.9 NEC Tractor Hire Scheme

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In April 2009 NEC signed a Memorandum of Understanding (MOU) with Ministry of Finance, Planning and Economic Development (MoFPED) to take charge of 40 tractors valued at Shs.2,300,000,000 and ensure the recovery of the cost of the tractors with a view of providing a revolving fund for rolling out the Tractor Hire Scheme. As a result in November 2009 NEC Tractor Hire Scheme was formally formed. Review of the scheme documentation and interaction with Management revealed the following: a) Tractor Ownership and Failure to Recover Initial Costs

The 40 tractors given as a grant to NEC by MoFPED have not been paid for by the farmer groups. As a result a revolving fund could neither be established nor the Scheme expanded as envisaged. Therefore the company has not been able to collect Shs.2,300,000,000 which was injected as the initial cost.

Management explained that the MOU cannot be implemented because the farmer groups considered the tractors as a donation from government making the recovery of the initial costs by NEC difficult.

I advised management to conduct sensitization of farmers on the objectives of the tractor hire scheme and ensure that the revolving fund is operationalised. b) Failure by Farmer Groups to Sign Lease Agreements by NEC Tractor

NEC was required to sign tractor lease agreements with farmers at zero interest by MoFPED. However, by May 2012 only two farmer groups had expressed interest in signing the tractor lease agreements (East Mengo Growers Cooperative Union and Sebei Elgon Cooperative Union). No clear explanation was provided for not signing the Lease agreements with others who took the tractors.

Management was advised to follow-up signing of lease agreement with the farmer groups in accordance with the MoU terms. c) Lease agreement between NEC Tractor and East Mengo Growers Cooperative Union

It was noted that the Projected payment schedule appended on the lease agreement with East Mengo Growers Union indicated that Shs.58 million was meant to 414

have been paid by 30th June 2012 , however these funds had not been received by that date. It was also not clear why payments were to start in June 2012 despite the fact that the agreements were signed on 16th September 2011.

Management explained that they have written to East Mengo Growers Cooperative Union to honor the installment payment as indicated in the payment schedule but no response has been received.

I advised management to follow-up the payments with the Union.

d) Lease Agreement between NEC Tractor Hire Service Scheme & Sebei Elgon Group Union

Three tractors were leased to Sebei Elgon Group Union for a period of 60 months at an agreed amount of Shs.174,000,000. The Lease was to commence on 25th October 2011 and end on 30th September 2016. According to the repayment schedule attached to the agreement, two installments amounting to Shs.34,000,000 should have been paid by 30th June 2012. However, by the time of audit no money had been paid to NEC.

It was also noted that the person meant to sign on behalf of Sebei Elgon Group Union (Lessee) did not sign including the lessor only the witness signed.

Management explained that the tractor lease agreements have been presented to the Union Chairman for signing and were waiting for his response. Management was advised to abide with the funding terms in the MoU signed with the Ministry of Finance.

PUBLIC WORKS AND TRANSPORT SECTOR

76.0 UGANDA RAILWAYS CORPORATION FOR THE YEAR ENDED 31ST DECEMBER 2011

The audit of Uganda Railways Corporation had been completed but the financial statements are still subject to approval by the Board. The following matters were observed during the audit and brought to management‟s attention:-

76.1 Lack of Organisation/Management Structure Following the Concession Agreement

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During the audit, it was noted that Uganda Railways Corporation lacked an organizational/Management structure that establishes clear lines of authority and responsibility for monitoring adherence to prescribed policies and elimination of unilateral decisions. Under the circumstances, there is a risk of unguided corporations operations which may end up into corporate failure in the long run.

I advised that the corporation should streamline the organizational structure to match the corporation‟s new mandate under the concession arrangement. Management should also develop and implement an appropriate balance between risk and control required to ensure that the corporation‟s business objectives are met.

76.2 Lack of a full constituted Board of Directors

The Corporation has had an Interim Board of Directors (BoD) for over three years. The role the BoD plays in guiding and overseeing the operations of corporation is a critical one. The acting tenure of the Board has in a way stifled corporation decision making and therefore affects the performance of the Corporation at the strategic level. The Board met only twice in 2011 due to lack of quorum among other issues. Also noted was that the committees are not fully constituted including the audit committee. A Board which is in an acting position for a long time may be hesitant to take key decisions/pass resolutions on pertinent issues of the corporation.

Management was advised to contact the responsible authority to have a fully constituted BoD appointed as soon as possible to avert the slowdown or breakdown in decision making and help guide in checking the decisions of the Management.

76.3 Non-compliance with the Revaluation Model Under IAS 16 Property, Plant and Equipment

The corporation‟s assets were last revalued in 1988. The revaluation model under IAS 16 Property, Plant and Equipment requires that, items of property, plant and Equipment which are carried at the revalued amounts, be revalued with sufficient regularity to ensure that the carrying amounts do not differ materially from that which would be determined using fair value at the statement of financial position date. Although a revaluation of some assets was carried out for the purposes of concession in April 2005, the results of the same cannot be relied upon for accounting purposes because of the

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valuation method adopted. Lack of revaluation constitutes non-compliance with the revaluation requirements of IAS 16.

I recommended that all items of property, plant and equipment under the same asset category should be revalued to ascertain the fair value at which they should be reflected in the financial statements.

76.4 No provision made in the Accounts in relation to Litigation claims against the Corporation

During review of contingent liabilities, I noted that there are ongoing and threatened litigation claims against Uganda Railways Corporation. However, the Corporation did not recognize any provision in the financial statements in relation to the cases which is contrary to International Accounting Standard 37 - Provisions, contingent liabilities and Contingent Assets. Under the circumstances, the Corporation is likely to be required to pay significant amounts of funds when there are no preparations made to do so. I advised that Management should ensure adherence with the standards and provide for the liabilities it is likely to incur.

76.5 Inadequate System for Tracking Concessions Income

During review, I noted that the corporation relies entirely on the computations by the concessionaire (Rift Valley Railways) and eventual deposits on the corporation‟s bank account as a basis to raise an invoice for the quarter. Invoices are raised post remittance by RVR. I also observed that no independent/external audit has ever been conducted by URC to ascertain the accuracy of concessions income from the Concessionaire (RVR). There is a high risk of understatement of concession income.

Management should ensure that URC officials liaise with RVR Management to provide timely reports of income statistics for reconciliation with reports from the concessionaires by the Concession Department before billing. Management should also engage an external independent auditor to assess the accuracy of the income submitted by RVR to URC as provided in Section K (1– 2) of the concessions agreement between GoU and RVR.

76.6 Inadequate skills to use sun systems by the accounting staff at the corporation

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I observed that the Corporation uses Sun System that is server based. The utilization of this system is linked to ledgers and the trial balance. However, the accounts personnel still face challenges in generating complete financial reports such as the statement of financial position, income and expenditure statements from the system. While there is a server specifically for Sun System, there is no System Administrator to control, manage and monitor the server for accounting work. There is a risk of hacking into the system, and also generating inaccurate and inconsistent financial reports.

The Corporation should provide refresher training to the staff using Sun System to ensure generation of quality reports and also hire a Systems Administrator to control, manage and monitor usage of the system.

76.7 Un-streamlined Corporation‟s position on recovery of VAT and penalties paid to URA and subsequent VAT payments

I noted that the corporation was not remitting VAT to URA and as a result had to pay accumulated VAT. To date however, the Corporation has neither recovered the VAT amounts from RVR nor has it instituted any formal documentation for subsequent VAT invoicing to RVR to collect and remit the VAT. Thus, the VAT status of the Corporation is not clear. There are risks of strained cash flows of the corporation and subsequent penalties from URA.

I advised Management to streamline the Corporation‟s VAT status through their lawyers.

76.8 Impairment of Investment in Subsidiary

The Corporation holds the controlling (98%) stake in Nalukolongo Railway Workshop Limited (NRWL). The Corporation is still accounting for this investment in its books at cost i.e. shs.1.7 billion. Pursuant to the concession agreement, NRWL‟s assets were revalued and taken over by the concessionaire and as such the corporation has no right to cash flows in form of dividends from NRWL. There is a risk of misstatement of the non-current assets under the circumstances.

The investment in subsidiary should be written off in its entirety in accordance with IAS 39 - Recognition and measurement of financial instruments. This is because URC in essence transferred its contractual rights to receive cash flows from NRWL to a third party - the concessionaire (RVR).

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76.9 Long term Loans – no Repayment and no Review of the Payment terms for the Loans

The Corporation recorded several long term loans in its books. However, these loans are none moving from year to year, yet there is no documentation for rescheduling the terms of payment. This compromises funds borrowed or mobilized by the Government of Uganda from various multilateral and bilateral funding agencies for onward lending to the Corporation. There is a risk of misstatement of the non–current borrowings.

Management should follow up on the terms of these loans and make the necessary adjustments in the financial statements

76.10 Accounting for Government Grants

The Corporation Management did not properly account for Government grants in the accounts. As at 31st December 2011, the Government of Uganda„s contribution to the corporation amounted to Shs.39.9 billion. These contributions comprise both of non- monetary/capitalization grants and revenue grants which were used for asset acquisition.

This Government grant share has been accounted for in accordance with the requirement of IAS 20: Government grants, which states that Government grants which relate to assets including non-monetary grants at fair value, shall be presented in the statement of financial position either as deferred income or by deducting the grant in arriving at the carrying amount of the asset of which the deferred grant income should be amortized over the useful life of the assets. There is a risk of misstatement of the deferred income and statement of financial position. I advised that Management should comply with relevant accounting standards in preparation of financial statements.

77.0 CIVIL AVIATION AUTHORITY- YEAR ENDED 30TH JUNE 2011

77.1 Debt Collection Expenses

During the year-ended 30th June 2011, CAA spent Shs.4,430,788,752 as debt collection fees. Over 95% of this amount was spent on collecting Government debt. Before Government commits to paying its debts, the debts must first be verified to determine 419

the debt owed by Government.

In 2009/2010, a verification exercise established that the debt owed by Government to CAA as of 2006 was Shs.54 billion. The Treasury committed itself to paying this debt. Ideally, once Government commits itself to pay a Government agency whose line Minister is a member of Cabinet; there should be no need to appoint a debt collector to collect such a debt. However, it was observed that, Kampala Associated Advocates were appointed to collect debts and one of the debts they were assigned to collect was the Shs.54 billion that Government had committed itself to pay. Government paid the Shs.54 billion; Shs.10 billion in the financial year 2009/2010; and the balance of Shs.44 billion was paid during the year ending 30th June 2011.

Kampala Associated Advocates were paid Shs.5.4 billion as debt collection fees representing 10% of the total amount Government committed to pay. A review of the success rate in collecting other debts that had been passed over to the same firm showed a modest collection. This further proves that collecting from Government was very easy and could have been ably handled by CAA management. There was no evidence that the Solicitor General had approved the variation in the contract between CAA and Kampala Associated Advocates. This expenditure was unnecessary and could have been avoided and as a consequence CAA lost funds amounting to Shs.5.4 billion. The transaction was not also undertaken in accordance with the PPDA regulations.

Management should explore ways and means of collecting Government debt without paying hefty commissions to private debt collectors. Once Government has committed itself to pay, CAA top management with support of the line minister should be able to collect the debt. I have also advised management to ensure compliance with the requirements of the PPDA regulations in all contractual obligations.

77.2 Road Toll and Parking Fees

When a receipt is issued, the client takes the original; the duplicate is used to capture the transaction in the books of account and is filed while the triplicate remains in the receipt book. All receipts are serially numbered. During the financial year 2010/2011, CAA collected a total of Shs 1.7 billion from car parks. On review of the manual receipts that were issued during the FY 2010/2011, several receipts were missing on file. These

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receipts were not recorded in the books of account and there was no evidence to suggest that they had been cancelled. The daily sales print outs from the cash collection machines were not available to enable us verify the accuracy of the income generated from this activity. Instances of poor recording and under-declaration of revenue collected were also observed.

There is a risk of loss of revenue under the circumstances.

All used receipts should be filed appropriately and retrieved when required for review.

77.3 Inventory Valuation

CAA‟s inventories are reflected in the balance sheet at Shs.1,886,447,603. However, the amount is not as per the physical inventory count as at 30th June 2011 but instead it was derived from the Accounting Software(SUN system), which constitutes a departure from International Financial Reporting Standards. The stock count records indicate that had management stated the inventories to reflect the physical count, an amount of Shs.499,039,116 would have been required to write the inventories down to their net realizable value. Accordingly, a stock write off of Shs.499,039,116 would be required.

Valuation of inventory in the balance sheet results in an overstated operating profit and increased taxation to the organization. Since no issues were made during the stock count, such a variance could be the result of stock pilferage or poor stock management. Management should investigate the cause of this variation and take appropriate action to ensure that adequate controls are put in place to safe guard stores/inventories. Additionally, corrections should also be immediately made in the books of account recognizing inventory at the lower of cost and net realizable value in accordance with IAS 2.

77.4 Non-enforcement of Accountability Policies and Procedures for Advance Payments

Section 4.14.1.1 of the Finance Policies & Procedures Manual requires all advances to be accounted for afterwards, by the production of receipts/certificates for sums paid, and the retirement of any balances. Advances are short term and should be accounted for promptly. 421

A review of the staff advances schedule revealed that 195 staff had outstanding advances unaccounted for amounting to Shs.554,205,794 as at 30th June 2011. Of this amount, Shs.421,217,329 was due from 20 employees representing 76% of the total unaccounted for advance balance. Moreover, additional advances were given to staff that had not yet accounted for their previous advances.

All accountable advances must be immediately retired and management should vigorously implement the requirements of the finance manual, which partly require that any staff with overdue advance should not access any more funds until the overdue advance amount is settled.

77.5 Inadequate Independence of Internal Audit Department

Section 2.1.8 Audit Inspection of the Finance Policies and Procedures Manual requires the Manager Internal Audit and Risk Management to carry out regular checks and/or test checks of the financial operations of the Authority. “Internal auditors shall not be involved in management functions like payment reviews and recommendations of suppliers. This is to protect their independence and to be able to report on the management process and procedures to board Audit committee objectively in line with modern internal auditing.”

From a discussion with the acting Manager Internal Audit and Risk Management, the audit function did not have an audit charter. Standard 1000 – Purpose, Authority, and Responsibility issued by the IIA states that “The purpose, authority, and responsibility of the internal audit activity must be formally defined in an internal audit charter, consistent with the Definition of Internal Auditing, the Code of Ethics, and the Standards. The chief audit executive must periodically review the internal audit charter and present it to senior management and the board for approval”. The acting manager further indicated that the department carried out some reviews during the year but there was no evidence to confirm this. Review of expenditures confirmed that the department pre-audits payments. By doing so, the unit is involved in day-to-day operational activities of the organization contrary to IPPF and the CAA Finance and Procedures manual.

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There is a risk that CAA may not achieve value for money from internal audit activities carried out by the department as the objectivity and independence of the audit function may be enormously compromised. CAA Internal audit function should comply with Section 2.1.8 Audit Inspection of the Finance Policies and Procedures Manual as well as IAS as laid down by the IIA, and in line with best international practice, standard 1000 of the IAS issued by the IIA.

77.6 Rental Income

CAA derives income from renting out space at the airport that it does not occupy. Rental income reported in the FY2010/2011 was Shs.5.99 billion accounting for 6% of the total revenue reported. During review of the rental collection process, the list of all tenants and the space they occupy was obtained. The tenancy agreements filed by the Corporation Secretary were also obtained and reviewed. Findings are summarized below:- Tenants are occupying over 1,800 square meters without any form of rental agreements being executed. Almost all the tenancy agreements expired as far back as June 2009 while others expired on 30th June 2011 but as at 7th October 2011, there was no evidence that the process to renew these tenancy agreements was in place. There were instances where tenants were invoiced less than what was agreed on in the tenancy agreement. As at 13th October 2011, some tenants had not yet been invoiced for the period April to June 2011.

CAA is exposed to a high risk of loss of rental revenue resulting from fraudulent activities. My conservative estimate is that rental revenue of at least USD 400,000 is exposed to the risk of fraud.

Management should conduct an investigation into the rental collection process. The investigation should seek to establish inter alia, why over 1800 square meters of space are being occupied by tenants without any form of agreement, why some tenants are invoiced less than what is agreed in the tenancy agreements. Additionally, management should develop a clear system of managing rental agreements so as to avoid losses arising from delayed invoicing and expired tenancy agreements.

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77.7 Staff Debtors

Staff debtors comprise of accountable advances, personal advances, medical advances and motor vehicle loans. As at 30.06.2011, total staff debtors stood at 1.17bn (including accountable advances of Shs.554,205,794 in 7.4) compared to 0.934bn as at 30.06.2010. This is an increase of 25% over the previous year. This is a material amount in form of receivables from staff. The staff debtors list as at 30 June, contained employees with Credit (CR) balances totaling to Shs.30,547,191.

Lending out money to staff exposes CAA to an opportunity cost of lost income from other investments for example; fixed deposits. Netting off debtors with credit balances from the total Debtors balance understates both Debtors and Creditors.

I advised that advances should be retired, or recovered. Management should also ensure that all assets and liabilities are properly classified and correctly valued.

77.8 Bad debt Write-Offs

In my audit findings of the financial year ended 30th June 2010, I recommended that management should devise means of collecting advances made to non-staff members amounting to 18 million shillings and it was recommended that management submits the listed names to the company debt collectors. In their response, management stated that names on this list were for former Board members. The Money was extended to them to facilitate their participation in CAA related activities. In this financial year 2010/2011, Management requested the Board and it approved to write off these debts without any deliberate act on the part of management to try and recover these monies from the former Board Members.

There is lack of commitment on part of management to enforce internal controls. Management should enforce internal controls as established. Management should avoid situations of overriding controls that could cause financial loss to the company.

77.9 Provision for Bad and Doubtful Debts

Section 4.17.1.1 of the Finance Policies and Procedures manual requires outstanding debtors to be reviewed at least monthly and aged analysis of debtors should be done to identify long outstanding balances. Reminder statements should be sent monthly to 424

defaulting customers and appropriate action should be taken to recover the debts. The same policy requires specific provisions to be made for all known bad debts. Bad debts should be written off when all reasonable steps to recover them have been taken without success. Guidance is given on how provisioning should be done.

There was no evidence that a monthly aged analysis of debtors was done to identify long outstanding balances; neither were reminder statements sent to defaulting customers as required by Section 4.17.1.1 of the Finance Policies and Procedures manual. Failure to review outstanding debtors and making provisions for bad and doubtful debts on a monthly basis as required by the Finance manual undermines debt collection efforts.

Outstanding debtors should be reviewed at least monthly as required by the Finance manual and where necessary provisions for bad and doubtful debts should be made to ensure debtors are correctly stated in the financial statements

77.10 Credit Control Policies and Procedures

CAA‟s credit control policies and procedures are not documented. Policies and procedures relating to new accounts requirements, credit limits, security accepted by the company, collection routine, interest on overdue accounts and legal proceedings are not in place. The entire process of credit management is not formalised. Credit is managed on a case by case basis by senior management. Best practice requires that credit management is based on robust, well documented policies and procedures that are distributed to all staff who are involved in credit management. Effects of poor credit management can be manifested in high levels of debt and delayed collections from customers. As at 30th June 2011, CAA‟s aged debtors were as follows: Total 0-30 days 31-60 days 61-90 balance days 66,204 17,808 2,027 1,801

With 66% of total debtors over 90 days, CAA is exposed to unnecessarily high investment in trade receivables, delayed collections from customers, Additional time and resources to collect debt and, high bad debt losses.

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Management should ensure that credit control policies and procedures are documented, approved and circulated to staff.

77.11 Inventory Storage and Slow Moving Items

I observed the stock/inventory count conducted at the end of the FY 2010/2011. The stores were clean and all items were well stacked. However, not all items were properly/clearly coded for example, in the central store, furniture polish, speakers, reams, steel overalls and envelopes did not have codes. In the electrical store, primary connector kits and lower tangible bodies also lacked codes.

I also noted that during the annual stock taking exercise, a number of slow moving stock items were identified. Some of these items, such as 161304014 Raychem Epkj 17A, have spent over four years in the store. These have now become obsolete due to the fast technological advances. It is a requirement under IAS 2 that stock is valued at the lower of cost and net realizable value in accordance with the FIFO method. However, no provision has been made in the accounts for these items. When stock items are not properly coded, they cannot be easily identified. Obsolete items occupy storage space that would be allocated for other use.

Staff should endeavor to adhere to materials handling and storage as prescribed in the Finance Policies and Procedures Manual. Management should also ensure compliance with IAS2 and make provisions for obsolete items in the accounts.

77.12 Concession Fees

CAA levies a concession fee of 3% on the gross turnover made by the various concessionaires, which include restaurants, Duty free shops, ENHAS, DAS and others. From audit review, it was noted that the 3% is based on the returns submitted by the concessionaires to the billing department in CAA. CAA does not verify the correctness of these returns

There is a risk that concessionaires under declare their gross revenues. This would result in loss of income for the organization.

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Management should put in place adequate processes and controls to provide reasonable assurance that CAA is not exposed to risk of loss of income resulting from under declarations made by the concessionaires. These would include but not limited to independent verifications of the submitted returns.

77.13 Tax Compliance

As part of the payroll audit, I reviewed CAA‟s compliance with the Income Tax Act. I noted the following non-compliance issues: i. Forty-one employees occupy CAA houses and pay rent to the employer. The rent paid is nominal and is far below the going market rentals. No taxable benefits are computed and added to the taxable income of the respective employees in accordance to section 19 (3) of the Income Tax Act. ii. A number of employees are provided with company vehicles and interest free loans. This is a taxable benefit under the Income Tax Act. However, during the year under review no taxable benefit was computed for the affected employees.

Non-compliance with the Income Tax Act results in risks of fines and penalties from the Uganda Revenue Authority.

Management should ensure compliance with the Income Tax Act. PAYE should be deducted on all payments / benefits in kind subject to tax and remitted to Uganda Revenue Authority (URA) within the time limits set by URA.

77.14 Fixed Assets Register

In my 2009/2010 audit findings, I noted that CAA had not carried out verification of fixed assets for several years. However, at the time of the audit, there was a fixed assets verification plan. Prepared in 2007/2008, the plan had been executed to approximately 80%. We recommended that the verification exercise be expedited and that on completion the fixed assets register should be updated. The fixed assets verification exercise has since stalled. There has been no progress since our previous audit. Physical verification of assets is the responsibility of the management and they need to ensure that it is carried out at appropriate intervals in order to ensure assets are in existence.

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As part of the audit process, the following upcountry stations were visited to conduct a physical verification of fixed assets: Arua, Gulu, Soroti and Kidepo. Below are the key observations: a) Several assets included in the Fixed Assets Register but physically do not exist b) A number of assets do physically exist but are not included in the Fixed Assets Register c) Several assets were not engraved d) We also noted a number of safety issues for example: there were no lightning conductors installed at buildings and control towers, non-functioning electric fences, absence of fire lines around the perimeter fences. As it has taken too long to complete the asset verification exercise, the 80% work that had been done will have to be repeated. On the basis of the results from the fixed asset verification exercise at the four aerodromes visited, there is a high risk that CAA‟s fixed assets register does not represent the physical assets. Safety issues pose high risks to the operations of the aerodromes. Animals or unauthorized people can access the airfield posing a risk to airplanes during landing and takeoff.

Management should develop a new plan for verification of fixed assets. Once developed, the verification exercise should be conducted promptly and on completion the fixed assets register should be updated. Cases of fixed assets included in the fixed assets register but physically do not exist should be investigated. Management should also address the safety issues as a matter of urgency. Lightning arresters should be installed, the electric fence should be repaired and fire lines should be put in place.

77.15 Depreciation Expense

It was noted that whilst Net Book Value of fixed assets had reduced by Shs. 12 billion, depreciation expense had increased by Shs.2 billion, suggesting an anomaly in depreciation computation especially in the following classes of assets: 88-240 electrical equipment and 88-615 other equipment. Further investigations carried out revealed that there was a malfunction with the SUN system.

There is a risk that depreciation expense is misstated in the financial statements. Management should carry out thorough investigations of the SUN system with respect to depreciation computation and make appropriate adjustments.

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77.16 Prepayments

Prepayments or prepaid expenses are expenses paid in advance. They are economic resources, which are the current assets of a business that are expected to be used up or consumed during the accounting period of the business. The portion that is used up during the accounting period is treated as an expense in the Income Statement whilst the portion not consumed is treated as a current asset. During the audit, I observed that included in the financial statements were prepayments amounting to Shs.3,280,618,000 and some were made as far back as November 2008. This may lead to an overstatement of income as expenses are understated. It may also result in a loss to the organization as the goods and or services could not have been delivered.

Management must investigate these long outstanding prepayments and take appropriate action to retire them. In case goods and or services were not delivered, management must take all necessary steps to recover amounts paid.

77.17 Stanbic Bank Loan and Interest Charge

During the year CAA made loan repayments amounting to Shs.58 billion against the Stanbic loan. The loan, which originally stood at Shs.71 billion, was fully settled during the year. However, there was no confirmation from the bank to the effect that the loan had been fully retired. Additionally, CAA paid interest expense amounting to Shs.2.9 billion in respect of the Stanbic loan. This amount was based on the figures advised by the bank. In our previous audit, we had recommended that CAA perform their own computation to verify the interest figures from the bank. There was no evidence that the recommendation had been implemented.

There is a risk that further charges/obligations in respect of the loan may arise in future. The bank may overcharge CAA if the interest expense advised by the bank is not subjected to a thorough review.

Management should obtain formal confirmation from the bank to the effect that the loan is fully settled and that there are no further charges/obligations that may arise. As part of this process, management should review the interest expense charged and resolve any differences with the bank.

77.18 Procurement Anomalies 429

Review of the procurement process revealed delays in procurement as showed below: Procurement Subject of Contract Provider Remarks Reference Procurement Amount Number CAA/SUPLS/10- Supply and 27,085,286 Appliance Delays in procurement 11/00325 Installation of World Ltd- process. The need is Air 2011 confirmed on Conditioners 19/10/2010 but at Soroti & Contract was signed Kigungu and issued on NAVAIDS 27/07/2011

CAA/SUPLS/10- Supply of 27,708,918.9 Prime Take Delays in procurement 11/00234 Pyrotechnics Ltd process. The process Ammunition started on 26/11/2010 for birds scare and letter of award was signed on 5/7/2011 yet direct procurement was used CAA/SRVCS/10- Maintenance 25,936,400/Per Booth fire Procurement delay. 11/00048 support annum for 2 services Required date was contract for years Ltd 16/12/2010 and Automatic fire Contract was signed on detection 17/08/2011 /fighting system

This shows that the Authority does not adhere to its procurement plan, as activities are not implemented according to plan. The delays lead to accumulation of un-utilized funds at the end of the financial year, and could lead to reduction of subsequent year releases due to failure to utilize funds for the planned activities. Inefficient procurement process leads to poor service delivery and also affects value for money. Activities planned for in a financial year should be implemented according to plan.

77.19 Status of Previous Year Audit Recommendations

A review of the issues raised in my previous year audit report revealed that a number of issues were implemented or being implemented except for the following: - Rental debtors: Management was unable to follow up rental debtors. Overdue rental debtors figure is still high. When debtors‟ premises were visited, none of the offices were padlocked as per management assertion yet many of the tenants had long overdue rental payments. - Payables: There were no movements in two accounts of payables; unclaimed wages (Shs.7.7m) and dividends on staff shares in ENHAS (Shs.251m). The balances on the accounts remained as reported the previous year. 430

- Cash in transit: Cash in transit of Shs. 2.1m was reported as being in transit at the last balance sheet date. It was still in transit at the balance sheet date of the year under review. - Internal Audit plan: There was no comprehensive audit plan in the previous year. The status has remained and the reports have also not been discussed. - Updating of the HR Manual: The manual was not updated.

78.0 CIVIL AVIATION AUTHORITY- YEAR ENDED 30TH JUNE 2012

78.1 Receivables

a) Government owed Receivables and Provision for Bad debts

It was noted that among recievables, is a debt of Shs.32 billion owed by Government to the CAA. There is no documentation to confirm that Government is committed to paying Shs.32 billion debt owed to CAA since 2007. There is no agreement/memorandum of understanding signed between CAA and Government of Uganda concerning the debt receivable from Government. This debt results from mainly rental arrears of different Government departments/entities (from different Ministries) housed in CAA properties. Bringing different ministries on a round table for negotiations for possible solutions has not been achieved.

Since debtors form a substantial part of the Current Assets in the Statement of Financial Position/Balance Sheet (Shs.41.2 Billion – net of bad debt provisions), I was not able to ascertain whether financial statements show a true and fair view of the state of affairs as at financial year ended 30 June 2012.

According to the debtors aging list that was provided, I also noted that the provision for bad debts was not done in accordance to the format provided for the CAA‟s finance policies and procedures manual; debtors‟ categorization, provisioning percentage and aging was different from what is stated in the manual. The provision for bad debts according to the schedule provided amounted to Shs.4,046,163,667 yet trade receivables in the financial statements are Shs.74,310,192,000 before netting off bad debt provisions and Shs.40,000,575,000 after netting off the bad debts, giving a difference of Shs.34,309,617,000 as total provision 431

for bad debts. No schedule was provided showing how this provision for bad debts of Shs.34,309,617,000 was arrived at.

Management explained that the Accounts manual is under revision and will be harmonized with the applied aging rates. They further explained that the debt owed by Government and Government agencies is being handled by Top management and Ministry of works.

I advised Management to use bad debts provision rates provided for under the Accounting Manual, with debtors categorization and aging as indicated. In case the ageing policy is no longer relevant, the Accounting Manual should be updated to incorporate the updated/agreed upon policy.

With regard to recoverability of debtors, more efforts should be undertaken to formalize (through documentation signed by both parties) the financial obligations between Government of Uganda and CAA if the Government debt is to be firmly followed up for settlement.

b) Imposing penalties on Debtors

During the financial year under review, I noted that CAA did not impose penalties and interest charges on the outstanding invoices of debtors in accordance with the credit management policy. From my review, it was noted that some debtors were taking as long as 240 days and above without settling their bills. However, there was no documented evidence to show that penalty was imposed and interest charged on these debtors for their delayed payments. Invoices raised during the year under audit did not indicate these penalties relating to payment default.

Management explained that they issued notices to its debtors to the effect that with effect from 1st October 2012 penalties and interest is charged on delayed payments. Subsequently delayed payments are charged with interest.

I advised Management to ensure that the policies on credit management are applied to avoid further loss of revenue and to conform to organizational policies and guidelines.

78.2 Property, Plant and Equipment (Fixed Assets)

432 a) Updating of the Fixed Asset Register

CAA maintains a fixed asset register that is not regularly updated. From my review, I noted that some existing assets especially motor vehicles acquired prior and during the year were not on the fixed assets register. I also noted that some motor vehicle registration number plate details were not captured in the asset register, making it difficult to trace.

This was mostly attributed to management entering assets without indicating their Registration Numbers as per their respective number plates. Some would actually be entered with similar data making it difficult to differentiate them. Some would only be traced using “Amount” data field which is sometimes not reliable.

Management responded that the asset register will be adjusted in financial year 2012/13 to include motor vehicle registration numbers.

I advised Management to ensure that the fixed asset register is updated on a timely basis to give a true and fair position of CAA fixed assets. b) Fixed assets capitalization policy

According to Sec 7.1.5.2 of the CAA finance policies and procedures manual, assets whose cost exceeds Shs.1,000,000 and whose expected life exceeds one year shall be capitalized. On the contrary, I noted that some assets with a cost less than Shs.1,000,000 were being capitalized and included in the fixed assets register. The practice congests the Assets Register which in turn makes it difficult to fully update and reconcile.

Management explained that assets whose values are distinctly less than Shs. 1,000,000 will be expensed in accordance with the Finance accounting policies and procedures manual in 2012/13.

I advised CAA management to ensure that its policies and procedures as stated in the finance manual are consistently adhered to. c) Fixed assets Depreciation charge

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I noted that during the year under review, CAA used incorrect depreciation charges on some of the assets. This was most evidenced for assets acquired during the year 2011/12. From the sample of assets taken, depreciation charge for the year was under stated by a sum of Shs.389,412,979. Net profit/loss for the year was therefore overstated by the same amount. I also noted that some assets acquired in the financial year 2012 and 2011 were not charged depreciation.

Management explained that the under provisions were caused by a malfunction of SUN system depreciation expense computation. The depreciation percentages were affected hence the resultant depreciation expense. They further explained that the service provider worked on the system set ups.

I advised that CAA management to re-compute depreciation charge especially on the assets acquired during the year using the correct rates as stated in the organization‟s accounting policies. I also advised that management should ensure that depreciation is charged on all depreciating items starting from the year the assets are acquired until they are fully depreciated as per CAA‟s accounting policies. d) Engraving of fixed Assets

Whereas most of CAA‟s assets are engraved, I noted that some assets especially those acquired during the year under review were not engraved. This contravenes Section 7.1.7 of CAA finance policies and procedures manual. There is a risk of assets getting lost or misplaced without clear trail.

Management responded that purchase of an engraving machine was provided for in this financial year‟s budget 2012/2013, in anticipation that the Organization would carry out its engraving exercise in-house. They further indicated that an inventory of all assets which are not engraved was carried out for purposes of being able to make proper specifications for the engraving machine, as soon as the machine is bought, all assets will be engraved.

I advised that Management should ensure that all the assets are engraved with correct tags on a timely basis. e) Vehicles with no Registration Number Plates

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From my physical verification of Motor vehicles, I identified some vehicles with no registration number plates. These were mainly fire trucks, for example, T2, T11, T4, Bravo one, T9, T8, Red two. I was told that the registration number plates were removed for reasons I was not informed. There is no clear identification for the mentioned vehicles. There is a risk that some of these vehicles can be exchanged without trail. A registration number plate has embedded controls. It can be traced to Registration of Vehicles and no number plate can be repeated. Nick names alone can be changed from time to time at will.

Management explained that Number plates were removed to restrict their movements beyond the Airside and to avoid misuse by the drivers and for security reasons. Operationally, vehicles and other airside equipment that operate extensively at the airside are not identified by their registration numbers but by special codes following Airside Safety Committee (ASC) nomenclature and signage standards for easy visibility and identification. They further explained that Registration numbers are used whenever a vehicle is permitted to leave the Airside for maintenance work or other officially known purpose. However, to further improve the identification of the vehicles, Management agreed that the vehicle registration numbers will also be marked on the body of the vehicle. I await the results of the Management corrective action. f) Vehicle authorization and log forms

During my audit, I requested for vehicle authorization and log forms where information like; mileage, details of journey, distance covered and fuel consumption is recorded. These were however not provided. I could not ascertain whether the vehicle movements were in accordance with CAA‟s approved activities. Even where some records were availed, they did not specify the places the vehicles had travelled to.

Management explained that they noted the improvements needed for proper administration of logging system and they shall henceforth be enforced.

I advised Management to put in place proper log sheets that indicate every journey travelled by all CAA vehicles. Clear/specific journey destinations should be indicated in these log sheets. These log sheets should be regularly reviewed by internal audit and

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each journey should be associated with official activity/task verifiable by either reports or other available official documentation.

g) Missing grounded Motorcycles

During the audit, I requested for a list of all CAA motor vehicles and cycles and other automobiles as at 30th June 2012 and their status, which was provided by the Ag Principal Transport and Mechanical Officer (PTMO). As part of my audit procedures, I verified the existence of some of the assets as indicated on the list. From my findings, I noted that two motorcycles; UAC 302U Jianshe and UAC 229U Jianshe which were reported to be grounded, could not be traced in the stores where the rest of the grounded motor cycles were.

I advised CAA management to investigate the where abouts of the motorcycles. In case they were disposed off, they should provide appropriate documentation and eliminate them from the books of account.

78.3 Inventory

a) Slow moving and Obsolete Inventory

I noted that there are some slow moving and obsolete inventory items especially in the Fire and Electrical stores, which are and have been in stores for over 8 years now. For example, Bracket Axe Brade, Sub-Kit, Rubber Brush, Rubber Strap, Fitting Mercury, Transformer T A250 1000/5A, Electronic Timer. Some of these items have since become obsolete while others are worn out. However, no provision for obsolescence has been made by CAA Management for these items, neither have they been disposed off.

CAA has continued to incur maintenance and storage costs for inventory items that do not seem to be of any value to the Authority at the moment. Lack of provision for slow moving items misstates inventory values.

Management explained that more obsolete items were identified during the December 2012 bi-annual stock count exercise with the technical help of end users. They further explained that a list was forwarded to PDU for the valuation/disposal exercise to begin, and that a provision will be made in 2012/13 financial year.

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CAA should consider disposing off obsolete items and write down slow moving to recoverable values in the financial statements in accordance with IAS 2. b) Inventory Valuation

CAA Management has continued to disclose inventory value at the end of the period according to the SUN system balance rather than the physical inventory count balance, which do not agree. Accordingly, a higher value of Shs.2,139,356,566 as per SUN system was reported rather than Shs.2,120,569,842 as per physical inventory count leading to a variance of Shs.18,786,724. I was told that the variances are as a result of; a) Price variations between FIFO, which is used by the SUN system, and latest costing that is used by physical inventory. b) Difference between physical inventory count balances and the inventory balances per SUN system. Although an inventory reconciliation statement for inventory variances as at 30th June 2012 was prepared, SUN system was not updated to capture the balances as per reconciliation. By the time of audit, the variances between the SUN system and the physical inventory count were not yet reconciled.

Over valuing of inventory and more so basing on the system balances and not the physical balances is contrary to accounting principles and CAA accounting manual.

Management explained that the variations are as a result of valuing stock by use of SUN system - FIFO method and valuation of Physical stock by using LATEST PRICES hence causing price variations. They further explained that they are currently trying to explore the idea of using weighted average and review of the inventory valuation policy.

I recommended that Management should take immediate corrective measures by updating the SUN system balances. c) Updating of inventory cards

From the annual inventory taking report, I noted variances between inventory balances per inventory cards and physical inventory count balances. These were mainly as a result of mis-postings, un-posted deliveries and un-updated postings. These variances though identified, by the time of audit, 90% of them had not been reconciled and the

437 inventory cards had not been updated. From my sample of physical inventory counts, more variances were noted in addition to those already existing.

Such variances are misleading to various users of the reports.

Management explained that the variance on the Fluorescent tubes card was due to unupdated postings at the time the spot check audit was done. They further explained that reconciliation exercise was also affected by lack of adequate staff: Stores controller, Stores officer and Stores assistant. During the period under audit, all those positions were vacant. I advised management to investigate and undertake reconciliation on variances noted. d) Inventory shelves not tagged with inventory codes

For easy identification, CAA normally tags store shelves where inventory is kept with inventory codes. However, this was not the practice especially in the electrical store on some shelves. For example, the shelves for Capacitors, Auxiliary contractor, Porcelain, Inner Prismatic Lenz, Draw wires, Transformers, Air filter element, Cables 1.5 mm x 4, key board for the main system and Time delay block were not tagged with their respective inventory codes.

This makes traceability and identification difficult and time consuming leading to laxity in periodic inventory management routines.

Management explained that this is a continuous activity where items stacked are always labeled. Even when a location is changed, they always ensure that labels are moved or replaced. At the time of the audit, some items especially at the Electrical Centre had just been transferred to the Satellite Store and had not yet been stacked in their particular locations.

I advised that CAA stores Management should tag all the store shelves with their respective inventory codes in a timely manner. e) Coding of inventory cards and cards filing

I noted that for some inventory items, codes per physical inventory cards were different from the system codes, for example; fitting fluorescents and lamps. In addition, some

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inventory cards had no inventory item codes at all by the time of audit. These included; sodium vapour lamps 70W, ballast 70W, metalic tubular lamp poles, front clear glass.

In addition, inventory cards mainly for electrical stores were not filed in a chronological order. Cards were all mixed up and not flowing in sequence.

Difference in inventory item codes in both physical cards and the system is misleading. Not coding physical cards with inventory item codes and improper card filing makes traceability difficult and time consuming, making inventory management a difficult task than otherwise would have been.

Management explained that it is not a common scenario where items are posted on different system codes from manual card codes. However, when this happens and is identified, the card postings will be amended to the right inventory codes to match the system entries. To improve on this documentation, the Inventory controller will be availing stock code lists for Store keepers to ascertain correct codes at the time of entry, before posting onto cards and system.

CAA stores management should make sure that the inventory item codes per the system are the same codes on their physical cards. All cards should be duly coded with inventory items codes. Cards filing should be done in a chronological order for ease of retrieval.

78.4 Revenue

a) Late invoicing

I noted delays in invoicing of rental debtors. According to CAA policies, rental invoicing is done quarterly in advance (an invoice is sent to the tenant at the beginning of the first month of the quarter). However this was not always the case. For example rental invoice for ENHAS demanding fees for the first quarter of the 2011/12 financial year of USD 134,849.22 was sent on 30th September 2011, that is at the end of the quarter. The one for third quarter for the same amount of fees was sent on 19th April 2012. This is still towards the end of the third quarter.

Delayed billing partly leads to delayed payments. This has a negative impact on timely flow of revenue. It also contravenes established CAA billing policy. 439

Management explained that the billing office obtains billing data on tenants, space area and rates from Marketing and Commercial Department. The billing office did not receive this information with the rest of the rent schedules and as such the officer was not in position to bill rent with the rest of the rentals. They further indicated that to avoid delays in the future it was agreed that as long as agreements are in place, billing for the rent shall go on basing on existing agreements as opposed to waiting for information from other departments.

I advised that CAA management should ensure that timely billing is done in accordance with the contractual agreements between CAA and her tenants. b) Filing of invoices

By the time of audit, some revenue invoices especially for the first and second quarter were not on file yet entries on client statements were posted to prove that invoices were issued. Poor filing defeats the spirit of the accounting policies and guidelines. Not filing can result in accounting errors taking long before they are corrected.

Management explained that the invoices in question had been misfiled. Management further explained that they will ensure that all necessary documentations are on respective files all the time.

Management should ensure that all necessary documentations are on respective files for different stakeholders to refer to. c) Updating tenancy agreements

Some tenancy agreements are not updated to include additional space given to tenants or other terms that may have been entered into with tenants. There is a risk that some rental space may not be invoiced if the staff involved is not extra vigilant. In case it happens, CAA will have no basis of demanding rental fees from such clients since there is no documented contract between the two parties.

Management explained that there is sometimes delay in amending the agreement/contracts.

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In case of any additional space to the existing tenants, CAA management should always update/ amend the original contracts to include such added space or any other terms.

78.5 Human Resources (HR)

a) HR Manuals

I noted that CAA is still using the manuals (Human Resource Manual and Collective Bargaining Agreement/ Terms and Conditions of Services) that were established as far back as 1992 and 1998 respectively. Some of the guidelines indicated in these manuals have since been changed through Board meetings but the manuals have not been updated to indicate these changes. Some of the benefits being given to staff are not anywhere in these manuals. The salary structures, millage, transport and safari day allowance rates have since been adjusted.

The manuals are not serving the purpose they were intended. Transactions contravening established guidelines can go undetected for a long time. A manual is a kind of one-stop reference for various stakeholders that may not have the knowledge and time to refer to meeting minutes for changes/updates.

Management explained that the consultancy to update the manuals is almost complete. They also explained that General Terms and Conditions of Service has now been approved by the Board Human resource committee and awaiting full Board approval.

I advised that for the manuals to serve their purpose, CAA management should regularly update them, say every 3 years.

b) Updating of staff files

CAA Management did not update staff files on a timely basis for some important changes especially in salary variations. From a review of payrolls, I noted that for a sample of staff, their salary per the payroll did not tally with their salary documentation on file. In all the cases, more salary was paid than what is documented in their respective personal files. From documentation on respective files, I could not ascertain whether the increments were done in accordance with CAA human resource guidelines and accordingly approved.

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Management explained that when the salary was increased, a memo was written to the Director Finance with an attachment showing the new salaries for staff, in order to effect the increment on the payroll. They further explained that letters to individuals were written but it is probable that they were misplaced during the various human resource consultancy work.

I recommended that CAA Management should ensure that all necessary information pertaining to CAA staff including changes in staff remuneration and other key staff data is properly documented and filed in the respective staff files. c) Staff appraisals

According to Collective Bargaining Agreement (CBA) 1998 Article 9 (b), each head of department in collaboration with the relevant immediate supervisor shall review the performance of staff under him/her at least once a year. However, from the staff files I reviewed, this has not been the practice. I further noted that some staff were being promoted without documented performance evaluation conducted on them.

Lack of staff appraisals contravenes article 9 (b) of the 1998 CBA. Promoting staff without evaluating their performance contravenes Sec 13 (5) of the 1992 CAA Human Resource manual.

Management explained that the exercise of staff appraisal which had been suspended for a long time has been reactivated. They also explained that there was sensitization for the whole organization, and the staff appraisal exercise for 2012 had started and would be completed by June 2013.

I advised CAA Management to adhere to the guidelines and regulation as stated in the organization‟s manuals. d) Staff Probation

According to Article 5 of the 1998 CBA, the newly recruited employee is required to serve probation of not more than six months. This is also in accordance with the Employment Act 2006. The CBA goes ahead to clarify that if the Authority finds it necessary to extend the probation period of the employee, it should not exceed three months. I have noted however that some category of employees in the department of 442

Air traffic management who were appointed on 7th July 2010 were subjected to a probation of 2 years. According to their contracts, they were to serve 2 years on training after which they would be confirmed.

By the time of audit, 2 years‟ probation had elapsed but there was nothing on file to confirm that they were confirmed or not. No evaluation reports on their performance were on file. This contravenes article 5 of the 1998 CBA as well as the Employment Act 2006.

Management responded that Air Traffic Management, Aeronautical Officers and Technical Officers are all recruited fresh from university as trainees. Normally the training takes 2 years and during that time they have no job descriptions as they are not supposed to do any work but train after which they are rated. Management further indicated that the rating exercise was conducted in June 2012 and the report was received in September 2012 and their appointment as Air Traffic Management Officers, Aeronautical Information Officers and Technical Officers were made. The new CBA and GT&CS was amended to include this process in the section about Trainees for further clarity.

I advised that CAA Management should adhere to the guidelines and regulation as stated in the organization‟s manuals, other Laws of Uganda and contractual agreements signed between CAA and staff. e) Staff benefits

I noted that some staff members were enjoying benefits, which were stated neither in the human resource manual nor in their individual staff employment contracts. From my sample, I noted that some staff were being paid fees for membership subscription to health clubs which is not indicated anywhere among the benefits they are entitled to in their contracts or even in the Human Resource Manual. Other benefits like motivation allowance were being paid to staff but not stated anywhere in the manual.

There is no documentation supporting the payment of the mentioned benefits. Staff are being given benefits they are not entitled to, or subsequently approved staff benefits are not documented and appropriately filed for reference during implementation.

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Management explained that the HR manuals will be revised to include the allowances.

I advised that CAA Management should adhere to the guidelines and regulations as stated in the organization‟s manuals. Any exceptions should be clearly documented on how it has been arrived at and approved, and filed in respective personal files.

78.6 Expenditure

a) Delays in payments to suppliers

I noted excessively delayed payments of CAA suppliers. According to most of the contracts signed between CAA and various suppliers, it is indicated that final payments will be made in a period of one month after delivery and receipt of the supplier fee note/ invoice. However from the sample taken from the invoice registers, I noted a long time lag between the suppliers invoice dates and the dates when the invoices were received in accounts for payment authorization.

Whereas it is appreciated that some invoices need attachments, no kind of attachments would ordinarily take more than 2 weeks, unless the supply was effected without following procurement guidelines and for that matter trying to create retrospective documentation. These delays are risky as they may attract litigation. Suppliers also overcharge CAA whenever they know that their invoices are most likely to take many months before they are paid.

Management responded that they realize the existence of this problem and have taken measures to curb and reduce on delays.

I advised that Management should meet its obligations as they fall due and as agreed upon, in the suppliers contracts to avoid many negative consequences of delayed payments.

b) Prepayments

During audit, I noted some prior year‟s un-reconciled balances in the prepayments schedules amounting to Shs.481,078,269. There was no documentation showing how these came about. Prepayments are expenses paid in advance during the year and treated as current assets in the year they are incurred pending delivery of

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goods/services. They are expensed in the subsequent year after delivery of goods/services. The un-reconciled balances as reported are misleading as they are disclosed as assets, yet not supported. Current assets are overstated.

Management explained that the services and goods as prepaid were delivered but the prepayments were not retired, they will be retired in 2013, but did not disclose the nature of the prepayments.

Management should investigate the origin, cause and nature of these un-reconciled balances.

c) Meals to AVPOL Personnel

CAA provides meal (lunch, super, & drinks) to Aviation Police personnel on a daily basis. The payment to the supplier is based on the number of people who have eaten during the day. Accordingly, a registration sheet, which indicates name of personnel, date, place of location and signature among others, was put in place. I noted however that in some cases, one individual would register and sign for over 50 people. This was for example seen on the attachments for voucher Nos ORT 2121533 and ORT 2121535. The intended internal control was violated and is subject to abuse. There is a risk of paying for what was not consumed.

Management explained that the issue of one individual signing for many is because staff are not able to leave their stations to go and have meals, and they also explained that there is a driver that receives and distributes the meals to the various locations.

Management should ensure that whoever eats, registers and signs against his/her name in person as intended.

78.7 Tax compliance

a) PAYE Returns

In accordance with the Income Tax Act, CAA should file monthly PAYE returns to URA. According to the Income Tax Act, a return should be filed within fifteen days after the end of the month the return relates. However, I noted that in some cases, these returns

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were not filed on or before their due dates. CAA risks incurring costs of penalties imposed by URA as a result of late filing.

Management explained that sometimes there are system failures from the URA portal and an extension for late filing of normally one day is allowed. They explained that they will endeavor to eliminate all delays in future.

I advised Management to ensure that all returns are filed in time before their due dates in accordance with the Income Tax Act.

b) Withholding Tax

According to Sec 123 (1) of the Income Tax Act, any tax that has been withheld shall be paid to the commissioner within fifteen days after the end of the month in which the payment subject to withholding tax was made. However during audit, I observed that withholding tax was being paid even 3 months from the date when it was withheld. For example voucher No.ORT 2120190 amounting to Shs.77,443,698 paid to URA on 12th July 2011 was paying for April and May 2011 withholding tax. CAA risks incurring costs of accumulated interest imposed by URA as a result of late payment.

Management explained that the delay was caused by reconciliation processes. They indicated that they will endeavor to eliminate all delays in future.

I advised that Management should ensure that withholding tax is paid within the prescribed period in accordance with the Income Tax Act.

78.8 Bank Reconciliation Statements

a) Unknown Debit Entry

From the review of bank reconciliation statements, I noted a long outstanding reconciling item amounting to Shs.104,510,362 on Stanbic Kampala Shilling Account (A/c No. 0140053406401) reported as an unknown debit that started in September 2011 throughout the end of the financial year. A period of 10 months is a long time for a transaction not to have been reconciled.

Management explained that these were payments which were supposed to be effected from their Stanbic upcountry account but the bank erroneously debited our CAA stanbic 446

shillings account and has failed to rectify the anomaly because currently the upcountry account has insufficient funds. They also explained that the bank was subsequently notified to acknowledge the error as a basis to cause adjustments in the CAA records.

I await the results of the Management action.

b) Journal Vouchers

As a way of correcting mistakes in cashbook posting and recognizing other entries, adjusting entries were passed as reversals in the cashbook. However, by the time of audit most of the adjusting journal vouchers relating to bank reconciliation reversals were not on file. These included; ADJ 1212/67, ADJ 1208/30, ADJ 1208/28, ADJ/1208/33, ADJ 1209/25A, ADJ 1203/19. I could not determine whether the entries were well supported and appropriately posted in respective ledgers.

Management explained that the vouchers had been misfiled.

I advised Management to ensure that all documentations relating to the financial year under audit, including journal vouchers, are on file for reference by various stakeholders.

78.9 Up country Airfields

As part of my audit, I visited sample upcountry airfields of Mbarara and Kasese. I noted that these airfields were not fenced. According to caretakers at these airfields, domestic and wild animals access these airfields even up to the runways. These animals can cause harm to staff and clients at the airfield. They can also cause accidents to the aircrafts that use the airfields. The land is exposed to intruders (cattle grazing and other trespassers) as well.

Management explained that all aerodromes are supposed to be fenced in accordance to ICAO Annex 17 and 14. In 2002 barbed wire and treated posts fence was constructed. Ideally, this type of fence is a temporary measure which has served us for 10 years and it‟s currently giving way. There are plans to replace this fence with concrete posts with barbed wires.

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I advised that as part of safety management, all airfields should be fenced using fences that are not easily penetrated by animals. The fences should be regularly rehabilitated.

78.10 Contracts Register

According to Sec 5.1.8.1 of CAA‟s finance policies and procedures manual and PPDA Regulations 2003, the procurement and disposal unit shall keep a contract register. This is part of the documentations required for making purchases. However, during audit, the contracts register was not provided for review despite the fact that it was requested for. I was unable to verify all the financial details of all major contracts entered into by CAA during the year 2011/12.

Management pledged that the PDU and Legal Department will set up a register starting financial year 2012/13. I await the establishment of the contracts register by Management.

78.11 Status Of Previous Year Audit Recommendations

A review of the issues raised in my previous year audit report revealed that a number of issues were implemented or being implemented except for the following: - Provision for slow moving items: Management was unable to make provisions for slow moving stocks. The risk of holding obsolete stocks is still high. - Tax compliance: The problem of non-compliance with the tax law in respect of non-remittance of taxes and detailed filing of returns was still evident. - Supporting documentation on payments: I still noted a number of payment vouchers that lacked appropriate supporting documentation. - Verification of fixed assets: Management has not yet developed a plan for verification of its fixed assets. - Prepayments: A number of prepayments were not reconciled by the end of the financial year. - Updating of the HR Manual: The manual was not updated. - Delayed payments to contractors: This problem still persisted even in the current year.

JUSTICE, LAW AND ORDER SECTOR

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79.0 LAW DEVELOPMENT CENTRE

79.1 Valuation of Land and Buildings

The Centre uses the revaluation model when measuring the value of land as provided under IAS 16. The revaluation model requires assets to be revalued with sufficient regularity. It was however noted that the assets were revalued five years ago against the requirements of the standards of at least every three years.

Whereas the value of the buildings has been adjusted every year through depreciation, the value of land stated at Shs.19,300,000,000 may not be reliable given changes in market prices and the lack of regular revaluation. As a consequence I am unable to confirm that the amounts reflected in the financial statements are fairly stated.

I advised management to undertake the revaluation in accordance with IAS 16.

79.2 Un-titled Plots

Plots 34,508,509,510,613,614,615, Block 9 Makerere, Kampala were acquired by LDC under the land acquisition instrument S.1 No 74 of 1987-Kibuga block. It was noted that the plots do not have titles of ownership. In addition, the plots allocated asset codes 167945, 157710, 933(2), 74, 933, 334593 (1) in the register also lacked titles of ownership.

There appears to be laxity on the part of management to safeguard the Centre‟s land. I advise management to undertake valuation of the plots and ensure land titles are obtained.

79.3 Encroached on Land

Plots 245,221,464 – Shs.300,000,000 The Centre is the registered proprietor of Plot 221 block 9 Makerere as per instrument of Registration No.334591 of June 2003. Plots 245 and 464 were also acquired under statutory instrument No 74 of 1987. The three plots are valued at Shs.300,000,000 as per valuer‟s report of 2008. The plots are occupied by squatters who have put up permanent structures.

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The Centre is the registered proprietor of plot 1 Bukoto Estate (Private Mailo under Register Volume No 1693 Folio 22) as per Instrument of registration No. KLA 167945 of 17th August 1994 and plot 69 Bukoto Estate (Private Mailo under register volume 1537 Folio 25) as per Instrument of registration No. KLA 157710 of 12th March 1993. The two plots were valued at Shs.600,000,000 by the valuer.

Part of this land is occupied by people who claim to have bought the land from the caretaker and about 0.60 acres has been used by the Northern by pass. The plots have been recorded in the asset register but their value has not been added to the value of the Centre‟s land. I could also not ascertain whether the Centre was compensated by the Uganda National Roads Authority at the time the Northern by pass was being constructed.

Plots 481 and 482 The Centre is also the proprietor of Plots 481 and 482 block 9 Makerere, Kampala as per instruments of registration 334593 of 30th June 2003 and 334603 of 30th June 2003 respectively. The two plots are also being claimed by a Mailo land owner by the names of Mary Nambozo Musisi Sebadda. The plots have not been valued and are not included in the asset register for the Centre.

There appears to be laxity on the part of management to safeguard the Centres land as this issue has been going on for a long time and no action taken.

Management explained that the chief government valuer has now been engaged in all cases and the report is awaited.

I await the outcome of management efforts

79.4 LDC Joint Venture with Law Africa

The Centre entered into a joint venture (JV) with Law Africa Publishing Limited for Uganda Law Reports. In the agreement, Law Africa was to provide general management and administration, publication and marketing of reports. LDC on the other hand was responsible for securing judgments and provision of certain editorial functions. It was noted that the joint venture has not brought any returns to LDC although it was signed more than two years ago. A review of the agreement revealed the following:

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Clause 13.1.1 required the joint venture partners to meet once every quarter or whenever so required by either JV partner. I noted that no meetings have taken place. Clause 10.1.3 provides that LDC‟s authorized auditors shall be accorded the opportunity to access all books and records of the account. The clause has not been complied with by LDC. There was no evidence to show that this agreement was approved by the Solicitor General.

The proceeds from the joint venture should be reported in the financial statements of the Centre. Management is also advised to involve the Solicitor General in respect of such agreements.

79.5 Non Remittance of Statutory Deductions - Shs 1,886,172,961

The Centre‟s obligation to the National Social Security Fund for its employees and the Pay As You Earn (PAYE) deductions by the end of the financial year under review amounted to Shs.1,313,886,726 and Shs.572,286,235 respectively. This level of indebtedness is likely to cause penalties to be imposed on the Centre or freezing of bank accounts which could lead to disruptions in the operations of the Centre.

Management explained that they have approached the Ministry of Finance, Planning and Economic Development for funding and are awaiting response.

I informed management that funds deducted in respect of these statutory deductions should always be remitted immediately. In the meantime the outcome of management efforts is awaited.

79.6 Diversion of Construction Project Funds

It was noted that Shs.365, 834,000 released to the Centre under the development budget for the construction of the Auditorium by Treasury in 2011/12 was diverted by Management to pay bonuses (Ex gratia). The construction project funds were diverted to cater for recurrent costs. This is in contravention of the PFAA Act 2003 and the regulations since it tantamounts to change of policy on expenditure.

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Management regretted the anomaly but stated that it was done after receiving a verbal promise by the Ministry of Finance, Planning & Economic Development.

I advised management to ensure that implementation of activities should be in accordance with the budget. Authority should be sought for any reallocations.

79.7 Construction of the Auditorium

The Auditorium is being constructed at a site where two strong buildings - the LDC bookshop and the Legal Aid Project were situated. The two blocks were valued at Shs.164,000,000 in 2008. The demolition of the two blocks was considered wasteful given that the centre has about 70% of its land unutilized. Particularly, plots 245, 221 and 464 situated west of the main campus which measure approximately one acre should have been considered.

Management explained that the Centre‟s architects identified the area as the best location for the auditorium.

I informed management that various options should have been considered before deciding on the current place which appears costly.

79.8 Delays in Implementation of the Restructuring

The Centre undertook a restructuring exercise which involved two phases. Phase one took place on 1st December 2011 and involved termination of about 53% of the support staff and the change of terms of service of professional staff. Phase two was to be implemented after the proposed organizational structure, the proposed staffing and the proposed salary structure had been approved by the Management Committee. The approvals were planned to be done by March 2012.

However, it was noted that approvals and the implementation of phase two of the restructuring were not forthcoming and this has greatly affected service delivery at the Centre.

Management explained that the Attorney General and the Minister of Finance, Planning and Economic Development are yet to approve the proposed changes.

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Management was advised to follow-up the matter with the authorities to enable implementation of Phase two of the restructuring.

79.9 Retirement Benefits paid to Staff

Review of the retirement benefits paid to staff revealed the following: (i) The staffs terminated were paid a 3-months gross salary package each and Ex- gratia of 3% for each month worked. A total of Shs.295, 788,600 was paid as 3- months‟ salary to staff and Shs.536, 943,806 as exgratia. I noted that the retirement benefits paid were not only excessive given the fact that the Centre operated a pension scheme with the National Insurance Corporation (NIC) and also subscribed to the National Social Security Fund (NSSF), but also put further strain to the Centre‟s meager financial resources.

(ii) Some staff were terminated due to non-performance as per the restructuring report. Such employees would not be entitled to exgratia.

Management in their response promised to do a better job next time they restructure.

79.10 Retirement of the Deputy Director

At the time of restructuring, the Acting Deputy Director‟s substantive appointment was Principal Lecturer with a gross salary of Shs.2,525,000. It was noted that instead of Management paying her an acting allowance, the acting deputy was paid the full benefit of a deputy director. It was also noted that the deputy director was paid her retirement benefits on the basis of a substantive deputy director (Shs.4,999,000) causing an over payment as indicated below:

SALARY (Shs) 3-MONTHS EX-GRATIA TOTAL (Shs) (Shs) (Shs)

PAID 4,999,000 14,997,000 35,992,800 50,989,800

PAYABLE 2,525,000 7,575,000 18,180,000 25,755,000

OVERPAYMENT 7,422,000 17,812,800 25,234,800

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The Ag Deputy Director was therefore paid Shs.25,234,800 in excess of her would be due benefits. This amount should be recovered from the officer.

79.11 Appointment of a Substantive Deputy Director

Before the restructuring of the Centre, the Acting Deputy Director LDC had applied for the post of Director LDC. Interviews for two applicants for the post were held on the 19th January 2012 and the Acting deputy was unsuccessful. The appointing authority then decided that the unsuccessful candidate be appointed deputy director.

This was not only irregular but was also unfair for other people who would have vied for the post. The post of the deputy director should have also been advertised like the post of Director to identify a competent individual in a transparent manner.

Management in their responses indicated that the decision was taken by the management committee which is the appointing authority.

I advised management that recruitments should be conducted in a fair and transparent manner. The position of deputy director should be re-advertised.

79.12 Governance

a) Composition of the Management Committee

Apart from a representative from the Ministry of Education, the Management Committee is composed of only members from the legal profession. This limits ideas that would come from other professional disciplines. In addition, the Law Council approved other universities to offer degree courses in law, but only Makerere University has a representation on the Management Committee of the LDC.

In their response LDC says it intends to amend the LDC Act to include all other stake holders to be part of management.

There is need to include other stake holders like a representative of employees and students on the Board. There is also need to include representations from Private Universities.

b) Audit Committee

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I noted the absence of an Audit Committee at the Centre. Having an Audit Committee is best practice that is also emphasized by section 8(6) of the Public Finance and Accountability Act 2003. This committee would review and advise on the risk management processes at the centre.

The Management Committee should constitute an audit committee to improve on accountability of the Centre‟s resources. c) Internal Audit

The Centre has a weak Internal Audit department with two staff. I noted that although the Law Development Centre standing orders provide for five posts in the department including; the Chief Internal Auditor, Principal Internal Auditor, Senior Internal auditor, Auditor and Audit Assistant, none of the posts have been filled. The two staff in the department are instead designated as Assistant Accountants and are not competent to carry out their duties. The department was found to be lacking an Internal Audit manual, Annual Work Plans, and internal Audit Reports.

The understaffing of the Internal Audit Department inhibits review and improvement of the controls at the Centre.

Management in its response explained that this recruitment would be undertaken in phase two of the restructuring. I await management action on the matter. d) Late Submission of Financial Statements

Section 2.55 of the Public Finance and Accountability Act (PFAA) 2003 and the related regulations require that financial statements are submitted for audit by 30th September following the end of the financial year (30th June). It was however noted that this statutory deadline was not complied with by the Centre Management. Management did not comply with the statutory deadline; by the time of audit in November 2012 the accounts had not been prepared and were only availed in December 2012.

Late submission of financial statements contravenes financial regulations and affects timely execution of audits.

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Management attributed the delay to inadequate staffing in the Finance department. However, he promised to avail the accounts on time in future.

I advised Management to comply with the statutory provisions on preparation of the financial statements.

79.13 Procurement

a) Procurement of Technical Assistance and IT Audit

The Centre procured consultancy services for the provision of Technical Assistance and IT Audit on the usage of the newly acquired server storage equipment. A contract was awarded to a company at a sum of Shs.6,724,000. There was no evidence on the procurement file to show that all the firms approved by the Contracts Committee to bid were invited.

The practice of single sourcing is not only against the procurement law but also limits competition hence loss of value for money.

The Procurement and Disposal Unit should conduct their procurements in a manner that promotes transparency and competition so as to achieve value for money.

79.14 Survey and Valuation of LDC Land – Conflict of Interest

Shs.9,960,000 was paid to a law firm for valuing and opening up of land belonging to LDC comprised in Kibuga block 9 plot 222 Makerere.

In the last audit, LDC Management attention was drawn to the conflict of interest that arises when a senior principal lecturer in the department of law at the Centre through this law firm conducts business with his employer. The officer‟s law firm continued to provide legal services to his employer in the year under review.

Management was advised to avoid seeking legal services from the lecturer‟s law firm.

80.0 AMNESTY COMMISSION

80.1 Recruitment of Volunteer Staff

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The Commission has recruited 36 volunteer staff over the years to bridge the gaps in the approved structure of 40 staff. There is no record of how the staff were recruited including the skills they possess. According to management these volunteers were not to be paid salaries but facilitation allowances as and when they were on official duty. However, a review of the current year‟s expenditure revealed that they were paid fixed monthly emoluments and were advanced with Commission funds as if they were established staff. There was no provision for such allowances in the 2011/12 budget, implying diversion of funds from planned activities which would greatly impair the Commission‟s activities.

Management in response stated that over the years, the Commission‟s work had expanded and required competences which originally were not approved for the Commission. Management also indicated that communication had been made to the Ministry of Internal Affairs about this gap to have the Ministry of Public Service approve the required competences and a response is being awaited.

I advised management to follow up approval of the required competences with the line Ministry. Guidelines on recruitment of volunteers should be strictly adhered to.

80.2 Unfilled Positions

According to the Amnesty Act, the Commission should have six commissioners chaired by a Judge in the running of its business. Although the Commission is soon winding up, the extension of its mandate by a year would require having a full structure in order to accomplish its mandate. It was noted that two commissioners who had left the commission had not been replaced.

Management in response stated that a communication to the line Ministry about the gap was made and the responsible Minister had made proposal to the appointing authority to have the commissioners appointed and that a response was being awaited.

80.3 Funds Not Accounted For – Shs.15,121,000

However, it was noted that Shs.15,121,000 advanced to various officers to undertake field activities remained unaccounted for; there were no activity reports and other relevant documents to account for the advances. Accordingly, I was unable to provide assurance that the funds were applied for the purposes intended. 457

I advised management to ensure that there is timely accountability of advances as required by the Treasury Accounting Instructions. The advanced funds should be accounted for or recovered from the concerned officers.

80.4 Unremitted Withholding Tax – Shs.8,400,557

Review of the Commission‟s records revealed that withholding tax amounting to Shs.8,440,557 was withheld from various suppliers. However, no document was availed to confirm that the funds were subsequently remitted to the tax authority. Delays of remittance or non-remittance of taxes is in contravention of the Income Tax Act; and may attract penalties to the Commission.

Management in response stated that the withheld amount was remitted to URA and that at the time of the audit the receipts had not been collected.

I advised management to ensure that there is timely remittance of withheld funds to URA and acknowledgement receipts obtained and filed for future reference.

Appendix 1

Summary of financial performance of Public organizations audited during the period 1st April 2012 to 30th June 2013

No Statutory Authority/State Enterprise Surplus/(Deficit) Accumulated for the year Surplus/(Deficit) (Shs) (Shs)

A Public organizations audited for financial years ended 30th June 2011

1. Bank of Uganda (BOU) (600,426,000,000) 1,168,661,000,000 2. Capital Markets Authority (CMA) 601,406,000 1,691,888,000 3. National Library of Uganda (3,132,559,876) (6,397,853,714) 4. Insurance Regulatory Authority 1,132,679,573 10,618,728,893 5. National Medical Stores (NMS) 7,741,095,000 14,521,321,000 6. Electricity Regulatory Authority (ERA) 613,703,455 687,538,018 7. Uganda National Bureau of Standards (UNBS) 458,207,913 3,744,140,934 8. Allied Health Professionals 124,421,761 235,426,209 9. National Water and Sewerage Corporation 11,459,786,000 79,769,192,000 (NWSC) 10. Public Procurement and Disposal of Assets, (441,278,428) 2,608,783,472 Authority(PPDA) 11. New Vision Printing and Publishing Corporation 4,000,741,000 22,597,783,000 458

12. Uganda Communications Commission (UCC) 16,703,366,026 68,748,282,767 13. Uganda Air Cargo Corporation (UACC) 6,665,805,150 (5,494,805,528) 14. Uganda Property Holdings Ltd (UPHL) (120,043,398) 381,425,450 15. Uganda Nurses & Midwives Council 259,662,066 1,552,806,889 16. Uganda Wildlife Education Centre (288,711,450) 6,713,188,512 17. National Forestry Authority (NFA) 7,344,777,000 6,844,127,000 18. Uganda National Examinations Board (UNEB) 1,603,269,870 441,491,461 19. National Council for Higher Education (NCHE) 696,943,963 4,066,478,446 20. Broadcasting Council (41,572,867) 309,708,860 21. National Youth Council (106,864,534) ( 447,328,281) 22. National Social Security Fund 238,837,373,000 27,566,881,000 23. Kilembe Mines Ltd (KML) 418,680,729 (28,974,148,553) 24. Uganda Medical & Dental Practitioners‟ Council. 54,478,918 159,353,925 25. National Council for Disability (11,668,139) 36,607,101 26. National Council for Children (28,718,429) 26,161,369 27. National Information Technology Authority- 1,776,804,979 1,776,804,979 Uganda (NITA-U) 28 NEC Tractor Hire Scheme Limited (863,468,200) (2,112,378,032) 29 NEC Farm Katonga Limited 47,728,275 (982,671,449) 30 Amnesty Commission (55,776,950) 69,300,843 B Pubic Organisations audited for financial year ended 31st October 2011 31 Cotton Development Organization (CDO) 3,083,325,481 5,961,686,918

C Public organizations audited for financial years ended 31st December 2011 32 Amber House Limited 417,729,037 11,523,088,330 33 Management Training & Advisor Centre (MTAC) (139,318,376) (332,627,666) 34 National Housing & Construction Corporation. (73,679,000) 73,726,832,000 35 Nile Hotel International Ltd (NHIL) 332,681,719 591,418,092 36 Uganda Development Bank Ltd (UDB) 3,674,187,000 30,067,057,000 37 Uganda Electricity Generation Co Ltd (UEGCL) (19,926,115,000) (131,244,280,000) 38 Uganda Electricity Transmission Co Ltd (34,173,687,000) (66,548,474,000) (UETCL) 39 Nakivubo Stadium (59,363,219) 35,480,131,408 40 National Curriculum Development Centre. 5,984,952,225 9,693,734,058 41 PostBank Uganda Limited 1,609,223,124 5,448,052,610

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