MoH&SW AND PMO-RALG 2004/05 AUDIT OF HEALTH BASKET FUND COVERING CENTRAL ACCOUNTS AT MoH&SW AND 113 LGA’s Presentation to Special BFC Meeting 8 November

MoH&SW AND PMO-RALG2004/05 AUDIT OF HEALTH BASKET FUND

COVERING CENTRAL ACCOUNTS AT MoH&SW AND 113 LGA’s

Presentation to Special BFC Meeting 8 November 2007

*connectedthinking

Agenda

PART I – INTRODUCTORY REMARKS

PART II – 2004/05 AUDIT OF THE CENTRAL ACCOUNTS AT MoH&SW

PART III – 2004/05 AUDIT OF 113 LOCAL GOVERNMENT AUTHORITIES (LGA’s)


1. Audit practices for public funds

2. Objective of an audit

3. Types of audit opinions – matters that do not affect the opinion

4. Matters that DO affect the auditor’s opinion

5. Types of modified audit opinions

6. Comments on 2004/05 audit process

Slide 4 PricewaterhouseCoopers

November 2007

1. AUDIT PRACTICES FOR PUBLIC FUNDS

Specific Needs

Different needs

Controller and

Auditor General

URT

Development Partner

Development Partner

Development Partner

Development Partner



November 2007

1. AUDIT PRACTICES FOR PUBLIC FUNDS (continued)


HBF (PWC)20%

A/c No 6 (NAO)


November 2007

1. AUDIT PRACTICES FOR PUBLIC FUNDS (continued)

• The Controller and Auditor General (CAG) is constitutionally mandated to perform audit of all public monies and report to Parliament. The statutory duties and responsibilities of the CAG are given in section 143 of Tanzanian Constitution and Public Finance Act No. 6 of 2001.

• URT requires CAG to ensure 100% compliance with specific constitutional obligations. However, these specificities may not fully address other stakeholders’ needs

• Other stakeholders may require audits that specifically focus on own their funding and this necessitates use of specific Terms of Reference (ToR’s), MOU’s, different priorities, formats, etc.

• Differences in scope could result in conflicting results (opinions) – materiality levels are different, ToR’s are different, etc .



November 2007

2. OBJECTIVE OF AN AUDIT

To enable the auditor to express an opinion as to whether the financial statements are prepared in all material respects, in accordance with the applicable financial reporting framework.

Specific laws and regulations e.g. IPSAS, some agreed-upon GAAP and

MOU’s

Audit conducted in accordance with ISA/INTOSAI

Types of audit opinion that can be expressed by an auditor are covered by the following ISAs:

• ISA 700 – Unqualified opinion• ISA 701 – Modifications to the Independent Auditor’s Report



November 2007

3. TYPES OF AUDIT OPINIONS – UNQUALIFIED OPINION

An unqualified opinion is expressed when the auditor concludes that the financial statements give a true and fair view or are presented fairly, in all material respects, in accordance with the applicable financial reporting framework.

Matters that do not affect the auditor’s opinion – emphasis of matter

In certain circumstances an auditor may modify his/her report by adding a paragraph to highlight a matter affecting the financial statements. The addition of such an emphasis of matter does not affect the Auditor’s opinion. Examples of such instances could be:

• A paragraph to highlight a material matter regarding a going concern problem

• A paragraph to highlight a significant uncertainty, the resolution of which is dependent upon future events and which may affect the financial tatements



November 2007

4. MATTERS THAT DO AFFECT AN AUDITOR’S OPINION

An Auditor may not be able to express an unqualified opinion when either of the following circumstances exist and, in the auditor’s judgment, the effect of the matter is or may be material to the financial statements:

• Limitation of scope on the auditors work• Disagreement with the management regarding on acceptability of

accounting policies, the method of their application or the adequacy of financial statements disclosures.

Three types of modified audit opinions:

• Qualified opinion• Disclaimer of opinion• Adverse opinion



November 2007

5. TYPES OF MODIFIED AUDIT OPINION


NOT SO FUNDAMENTAL MATERIAL AND PERVASIVE

Limitation of Scope

Qualified Disclaimer

Disagreement Qualified Adverse

DefinitionsMateriality – Information is material if its omission or misstatement could influence decisions of users taken on the financial statements. Materiality depends on item or error judged in the particular circumstances of its omission or misstatement.Pervasive – Affects all areas


November 2007

5. TYPES OF MODIFIED AUDIT OPINION (continued)


• A qualified opinion is expressed when the auditor concludes that an unqualified audit opinion cannot be expressed but the effect of any disagreement with management, or limitation of scope in not so material and pervasive to require adverse or disclaimer of opinion. A qualified opinion should be expressed as being except for ‘effects of the matter to which the qualification relates’.

• A disclaimer of opinion is expressed when possible limitation of scope is so material and pervasive that the auditor has not been able to obtain sufficient appropriate audit evidence and accordingly is unable to express an opinion on the financial statements.

• An Adverse opinion is expressed when the effect of disagreement is so material and pervasive that the auditor concludes that a qualification of the report is not adequate to disclose the misleading or incomplete nature of the financial statements.


November 2007

6. COMMENTS ON 2004/05 AUDIT PROCESS


It took 7 months to finalize the 2004/05 audit of the 113 LGA’s!

• Audit fieldwork commenced on 10 July 2006 and issued Audit Inception Report (Transmittal Ref.PwC/99/NAM/PEM.ltr)

• First Draft Report issued on 3 November 2006 (Transmittal Letter Ref.

PwC/204/NAM/PEM/ltr)• Received PMO-RALG comments on 10 January 2007

• Issued second Draft Report on 16 January 2007 (Transmittal Ref. PwC/09/NAM/PEM/ltr

• Report discussed during the Audit Sub-committee meeting of 8 March 2007

• Issued third Draft Report to CAG for comments on 30 March 2007 (Transmittal Letter Ref. PwC/63/NAM/ATM/MK.ltr)

• Received CAG comments on 18 May 2007• Issued Final Report on 30 May 2007 (Transmittal Letter Ref. PwC/109/NAM/PEM/ltr)

The above demonstrates need for us all to speed-up the process tobring it more in line with the consultancy contract!


November 2007

6. COMMENTS ON 2004/05 AUDIT PROCESS (continued)


Report for Central Accounts took more than 7 months to finalize!

• Audit work commenced on 10 July 2006 and First Draft Report issued on 19 October 2006. Numerous meetings were held to discuss this draft.

• Issued second draft report issued for management comments on 15 January 2007

• Received MOH management comments on 24 January 2007

• Received revised management comments on 26 January 2007

• Report discussed during the Audit Sub-Committee meeting on 8 March 2007

• Received revised management comments on 19 March 2007

• Issued Final Draft Report to the C&AG for comments on 30 March 2007 (Transmittal letter Ref. PwC/63/NAM/ATM/ltr

• Received C&AG comments on 18 May 2007

• Issued Final Report on 25 May 2007 (Transmittal Letter Ref. PwC/108/NAM/ATM/ltr


1. Statement of receipts & payments

2. Summary of significant issues

3. Audit Opinions 2000 to 2005


November 2007

1. STATEMENT OF RECEIPTS & PAYMENTS



November 2007

1. STATEMENT OF RECEIPTS & PAYMENTS


ShsBalance brought forward 285,768,876 Exchequer issues received during the year 40,488,929,900 Retirement receipts in the Deposit Account 6,087,462 Payments from Deposit accounts 3,200,000

Total Funds Available 40,777,586,238

Payments 37,667,159,044

Balance of unspent funds 3,110,427,194


November 2007

2. SUMMARY OF SIGNIFICANT ISSUES

2. Controls over funds transferred to MSD

The ministry transferred Shs 16 billion (or 42%) of Health Basket Fund expenditure to MSD for procurement of pharmaceuticals and health equipment. However, there were no controls to confirm that the funds were used for their intended purposes.


1. Accounting for commitments

An amount of Shs 3.3 billion unspent the year end was expensed as commitment which is against Public Finance Act of 2001. At the end of the audit Shs 298 million remained unspent. This should have been refunded to the US$ Holding Account.


November 2007

2. SUMMARY OF SIGNIFICANT ISSUES (cont.)

3. Transfer of funds to various institutions under MOH were not accounted for:

Shs 2.1 billion transferred to institutions was not accounted as per the requirement of the Health sector CBF Procedures and Accounting Manual.

4. Unaccounted imprests and imprests retirement not supported:

Imprests amounting to Shs 267 million remained unaccounted.

We were not provided with supporting documents for imprests amounting to Shs 196 million.



November 2007


5. Inadequately supported expenditure

Various payments amounting to Shs 440 million were not adequately supported.



November 2007



6. Payment of Valued Added Tax (VAT) from Health Basket funds

The Ministry has been paying VAT from Health Basket funds contrary to section D (f) of Memorandum of Understanding between the Government and the Development Partners.


November 2007



7. Construction of a Paediatric Ward at Muhimbili National Hospital

The construction has taken too long and at the time of the audit the Ministry had already paid Shs 4.6 billion out of a contract some of Shs 5.7 billion. Since the second, third and fourth floors were less than 40% complete we considered the balance of Shs 1.1 billion to be inadequate for the completion of the building.

Comments on the Paediatric Ward

No additional payment was made out of the Health Basket fund during the financial year 2005/2006. The Ministry has prepared an estimate of cost to complete the building and expect to spend Shs 2.6 billion in addition to the contract sum.


November 2007

3. AUDIT OPINIONS ISSUED BETWEEN 2000 & 2005


Qualified2005

Qualified2004

Qualified2003

Qualified2002

Qualified2001

Qualified2000

Type of Audit OpinionFinancial year

PART III – 2004/05 AUDIT OF THE 113 LOCAL GOVERNMENT AUTHORITIES

1. Statement of receipts & payments and significant audit findings

2. Improvements noted compared to prior audit

3. Audit reports issued & trend analysis

4. Summary of audit findings

5. Comments of use of EPICOR


November 2007

1. STATEMENT OF RECEIPTS & PAYMENTS FOR 113 LGA’s



November 2007

1. STATEMENT OF RECEIPTS & PAYMENTS FOR 113 LGA’s


Shs 2,393,974,582 unexplained shortfall in opening balance; Payments amounting to Shs 846,978,577 not accounted for by medical facilities; Payments amounting to Shs 1,001,703,208 used on procurements not allowed by Guidelines on

use of Health Basket Funds; Payments amounting to 1,588,821,609 lacked adequate support; Shs 2,905,830,910 unexplained shortfall in closing cash balance; Payments amounting to Shs 290,694,985 were considered to be unreasonable mainly because

costs were higher than prevailing commercial prices. In other cases, the payee was not prima facie a supplier of the paid for; and

Ineffective utilization of available resources by councils where EPICOR has been introduced and staff have received requisite training.

SUMMARY RESULTS

5,872,813,302Balance of unused funds as of 30 June 2005

21,423,489,124Costs claimed

27,296,302,426Funds available for use during the period

18,919,707,447Receipts during the 12 months period ended 30 June 2005

8,376,594,979Balance brought forward on 1 July 2004

ShsReceipts


November 2007

2. IMPROVEMENTS NOTED COMPARED TO PRIOR AUDIT• Disclaimers of opinion during the year ended 30 June 2005 are 33 (or 29% of 113

Councils audited). This compares favourably with 18-months period ended 30 June 2004 when the percentage of disclaimers was 54%.

• There has been a marked improvement in understanding the requirements of the Guidelines on the utilization of Health Basket Funds. For example, funds used on disallowed procurements during the year ended 30 June 2005 represent 4.7% of costs claimed, which compares favourably with 8.7% for the 18 months period ended 30 June 2004.

• There has been some improvements in record-keeping. For example, unsupported costs during the year ended 30 June 2005 represent 7.4% of costs claimed, which compares favourably with 10.9% during the 18 months period ended 30 June 2004.

• Unreasonable payments during the year ended 30 June 2005 was 1.4% of total costs which compares favourably with the period ended 30 June 2004 when the rate was 3.8% of costs claimed.



November 2007

3. AUDIT REPORTS ISSUED & TREND ANALYSIS

22878283631 December 2000 (12 months)

312569578231 December 2001 (12 months)

635237308231 December 2002 (12 months)

5461465211330 June 2004 (18 months)

2933718011330 June 2005 (12 months)

%age disclaime

r

No. Disclaimer

%age Qualified

No. Qualifie

d

No. of LGA's

Period ended

The above would indicate some degree of improvement in overall terms in the financial accountability of Health Basket Funds by the councils. However, a lot more improvements are needed to move to the direction of clean opinion. These are in the areas of expenditure coding, competence in financial management, financial discipline, preparation of quarterly reports and effective implementation of EPICOR.



November 2007

4. SUMMARY OF AUDIT FINDINGS

1) 100 councils (or 88%) had deficiencies in expenditure codification such that we could not confirm completeness and accuracy of the reported expenditure.

2) 92 councils (or 81%) did not provide adequate supporting third party documentation for some of the payments made.

3) For 80 councils (or 71%) there were inconsistencies between quarterly financial reports submitted to PMO-RALG & MoH and the Councils accounting records.

4) 78 councils (or 70%) used Council Health Basket Funds on ineligible procurements contrary to the requirements of the Guidelines on the utilization of Council Health Basket Funds.

5) 70 councils (or 62%) had weaknesses in recording and monitoring of imprest funds including use of incorrect rates of allowances, unreasonable delays by councils staff is accounting for Imprest fund, and giving new imprest before accounting for earlier ones.



November 2007

4. SUMMARY OF AUDIT FINDINGS

5) 68 councils (or 60%) did not comply with competitive bidding procedures.

6) For 66 councils (or 58%) where the actual bank balance in Account No. 6 was less than the expected health basket funds balance at 30 June 2005, it is possible that Councils used Health Basket Fund for other activities.

8) For 60 councils (or 53%) there was a general Lack of Value of Money on expenditure made.

9) 67 councils (or 60%) did not comply with competitive bidding procedures.

10) 58 councils (or 51%) had weaknesses in cash and banking controls including lack of regular bank reconciliation, review and approval by appropriate officials.



November 2007

5. COMMENTS ON USE OF EPICOR – GENERAL OBSERVATIONS

• Most of the councils were unable to produce a complete and accurate statement of receipts and payments for Health Basket Funds using EPICOR and it was evident that there had not been enough practice on using EPICOR at the Council level after the formal training.

• Most of the council continued to produce the statement of receipts and payments for CHBF manually, which is not efficient given the resources invested in EPICOR in terms of equipment, software and training over the years

Commitment Control System has not been implemented at the council level

EPICOR has the capability to closely monitor expenditure against budgets during theordering and payment processes to ensure that users to charge an expense in accountswhere the budgets have been exceeded.

This feature has been implemented and is used across all ministries but not at thecouncils, which increases the risk budget overruns.



November 2007

Q&A

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Conclusions

Documents

MoH&SW AND PMO-RALG 2004/05 AUDIT OF HEALTH BASKET FUND COVERING CENTRAL ACCOUNTS AT MoH&SW AND 113 LGA’s Presentation to Special BFC Meeting 8 November