AUDITOR GENERAL’S REPORT - OAG · 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

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

1

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

2

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

3

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

4

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

5

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-

6

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

7


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


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

8


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:-

9

TRADE & TOURISM SECTOR YEAR

END

Remarks

1 Crested Crane Hotel & Tourism

Training Institute

2012 Awaiting management responses to

management letter

2 Uganda National Cultural Centre (UNCC)

2012 Awaiting management responses to 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 &

2012

Audits still in progress

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

60%

32%

8%

0%

Types of Opinions (2012)

Unqualified Opinion

Qualified Opinion

Disclaimer of Opinion

Adverse Opinion

10

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:-

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.

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

2009 2010 2011 2012

Pe

rce

nta

ge

Types of Opinions Issued (2012)

Unqualified Opinion

Qualified Opinion


Adverse Opinion

11

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.


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.

12

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

13

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

14

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.

15

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

16

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

17

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;

18

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.

19

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



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


30 NEC consolidated & subsidiaries

31 Civil Aviation Authority

32 Law development Centre

33 National Forestry Authority


35 Allied Health Professionals Council

36 National Youth Council

37 Bank of Uganda

38 Amber House Ltd


20

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

(Us$)

Amount (shs)

1 Uganda Medical & Dental

Practioners Council

Unexplained direct

debits

62,942,362

Unaccounted for funds

33,382,750

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

21


(Us$)

Amount (shs)

Stadium expenditure

4 Mandela National Stadium

Ltd

Irregular

expenditure

114,179,825

Doubtful delivery of goods

63,837,320

Unaccounted for 60,460,752

5 Uganda National Council of

science and Technology (UNCST)

Delayed

accountability under IFS project

9,291

6 UNCST (Millenium Science

Initiative Project)

Advance payment 2,500,000

Doubtful Advances

to staff

53,000,000


7 Uganda Broadcasting Corporation


8 Uganda Post Limited

(2010)

Unbanked &

unaccounted for revenue.

325,056,831

Cash withdrawals

without supporting documentation

118,098

616,680,344

9 Uganda Post Limited

(2011)

Unvouched

expenditure

231,571,212

Doubtiful/fictitious expenditure

404,952,822

Limitation of Scope

(Grant)

61,400

Improperly Vouched Expenditure

1,074,411,526

10 Uganda Wildlife Authority Unaccounted for

imprest

20,591,260

11 Uganda Export Promotions Board

Outstanding Advances

39,699,192

12 National Women‟s Council Grants not

accounted for

66,500,000


Incompletely Vouched

131,585,070

Advance to Suppliers 30,450,000

14 Coordinating Office for

the Contorl Of Trypanosomiasis in

Uganda (COCTU)


15 Uganda Bureau of Statistics (UBOS)

Expenditure Not Accounted For

20,659,187

16 National Planning

Authority

Missing Vouchers 87,070,370

Advances not

accounted for

33,427,400

17 Privitization and Utililty Sector Reform project.

Divestiture and

Redundancy Account

Recoverable Advances

8,829,424,332.21

22


(Us$)

Amount (shs)

(PUSRP)

18 Civil Aviation Authority Debt Collection

Expenses

4,430,788,752

19 Civil Aviation Authority Staff accountable Advances

554,205,794

20 Uganda National Bureau of

Standards

Nugatory

expenditure

19,494,800

21 Allied Health Professionals Unaccounted for expenditures

46,385,740

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 („000s)

(Shs)

Proposed dividend

for the year

(„000s) (Shs)

Dividends Paid

during the Year

(„000s) (Shs)

Unpaid Dividends („000s)

(Shs)

1 National Housing and

Construction

Company

01.01.11 2,400,259 - - 31.12.11 2,400,259

2 Uganda

Property

Holdings Limited

01.07.11 500,000 - 50,000 30.06.12 450,000

3 The New

Vision Printing and

publishing

Corporation

01.07.11 441,630 2,295,000 2,029,287 30.06.12 707,343

Total

3,557,602

It was further noted that regarding the unpaid dividends from National Housing and

Construction Company Ltd, management offset dividends due to government of Uganda

23

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 D

ela

ye

d

asse

t

dis

po

sa

l

No

up

da

ted

asse

t re

gis

ter

Asse

ts n

ot

reva

lue

d

Un

in

su

red

asse

ts

No

ve

rifi

ca

tio

n

No

tit

les

No

asse

t

ma

nu

als

1. Uganda Electricity

Transmission Company Ltd

(UETCL)

2. Kilembe Mines Ltd


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

24

No Entity

De

laye

d

asse

t

dis

po

sa

l

No

up

da

ted

asse

t re

gis

ter

Asse

ts n

ot

reva

lue

d

Un

in

su

red

asse

ts

No

ve

rifi

ca

tio

n

No

tit

les

No

asse

t

ma

nu

als

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.

25

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)




14 Uganda Air Cargo Corporation

15 Civil Aviation Authority (CAA)

16 Law development Centre.

17 Uganda Wildlife Education Centre (UWEC)


19 Amber House Ltd


26

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

(shs)

Taxes

(shs)

Total (shs)


Transmission Company

Limited

UETCL(Jacobsen)

57,743,375,429 57,743,375,429



Limited UETCL(Aggreko)

35,646,757,200 35,646,757,200



Limited Uetcl(Electro-

max (U) Ltd)

12,005,369,906 12,005,369,906

4. Uganda Comunications

Commission (UCC)

29,394,038,994 29,394,038,994

5. Uganda National Council

For Sceince And

Technology (UNCST)

64,637,500 64,637,500

6. Uganda Broadcasting

Corporation ( UBC)

716,968,757 716,968,757


Corporation ( UBC)

1,514,830,672 1,514,830,672


Corporation ( UBC)

489,373,143 489,373,143


Corporation(UBC)

218,723,859 218,723,859

10. National Animal Genetic

Resource Centre And

Data Bank(NAGRIC)

25,339,906 25,339,906

11. Management Training

And Advisory Centre

149,864,376 149,864,376

27

No Entity NSSF

(shs)

Taxes

(shs)

Total (shs)

12. National Animal Genetic

Resource Centre And

Data Bank(NAGRIC)

83,504,873 83,504,873

13. National Planning

Authority(NPA)

10,296,500 10,296,500

14. PPDA 34,048,495 34,048,495

15. Uganda Air Cargo

Corporation

251,363,186 251,363,186

16. Uganda Air Cargo

Corporation

119,354,362 119,354,362


(LDC)

572,286,235 572,286,235


(LDC)

1,313,886,726 1,313,886,726

19. National Libraries Of

Uganda

21,261,496 21,261,496

20. Uganda Export Promotion

Board

305,789,306 305,789,306


Board

17,728,463 17,728,463

22. Amnesty Commission 8,400,557 8,400,557


Board

26,927,240 26,927,240

24. Millennium Science

Initiative (MSI) Project

13,687,003 13,687,003

25. National Youth Council 511,145,539 511,145,539

26. National Bureau Of

Standards

448,473,571 448,473,571

27. National Bureau Of

Standards

992,055,488 992,055,488

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

28

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.

Internal

audit

No.

segregation

of duties

No. Bank & or

Ledger

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.

29

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

(Kihumuro TV Station Land)

Road passing between the Dish and

Transitter House.

National Housing and

Construction Company

Land in Namungoona.

National Housing and

Construction Company

Volume 22 Folio 18

of the Freehold Register Measuring

16.57 acres.

Mbuya land occupied by Ministry of

Defence

National Housing and Construction Company

Kireka Land encumbered with very 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 Lutoboka CFR on Bugala Island in

Kalangala district

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.

Uganda Investment

Authority(UIA)

Plot 150 block 243 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.

30

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 the year

(Shs)

Accumulated Surplus/(Deficit)

(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, Authority(PPDA)

(441,278,428) 2,608,783,472

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)

31

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 the functioning of management at UPPC

It was observed that the tenure of the current Board expired in March 2012 and was indefinitely 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

32


if commission is payable for print jobs mandated to be undertaken by UPPC.

Abuse of the marketing policy of UPPC

Sales agents at UPPC were paid a marketing 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 goods/services by UPPC

A payment of shs.15,000,000 was purportedly made 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

33


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 funds

A recomputation of gratuity payments to employees 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

34


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.

35

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:-

36

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:-

37

Category Qty below

5 years

Percentage Qty above 5

years and due

for

replacement

Percentage

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.

38

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

(Shs)

3-12 months

(Shs)

Over 1 year

(Shs)

Total (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

rental

495,411,950 495,411,950 - 990,823,900

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

Engineering Services

508,486,548 424,167,747 - 932,654,295

Kilembe

Investments Ltd

186,428,765 270,390,103 - 456,818,868

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 distribution

53% 4% 43%

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

39

economic benefits. The amounts of fully depreciated assets per category are as shown

below:-

Asset Category Cost of fully

depreciated assets

(UShs)

Total cost of

assets class

% of fully

depreciated

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

assets

18,953,919,131 43,662,432,939 43%

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.

40

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

41

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

Uganda

Partially addressed

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

42

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.

43

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.

44

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

45

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.

46

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.

47

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

48

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:-

49

Particulars 2011/2012

Budget

(U.Shs.)

Actual

(U.Shs.)

Variance

(U.Shs.)

Sale of Hydro Electric

Power 2,401,889,760 1,934,087,252 467,802,508

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

(U.Shs.)

Actual

(U.Shs.)

Variance

(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

50

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

absence of On lending agreement from Governmen

Not Implemented

2 Failure to revalue Fixed

Assets.

The Company Assets were last

revalued in 1997 including the copper tailings.

Not Implemented

3. Democratic Republic of Korea Loan

Shs.4,678,087,965

There is no on-lending agreement between GOU and Kilembe Mines

Ltd, the Loan is not appropriately supported in the Company financial

Statements.

Not implemented

51

ISSUE SUMMARY STATUS

4. Encroachment on

Katadooba Land

Encroachers have erected

permanent structures on Kilembe land and KML risks incurring

compensation costs.

Management sought

legal redress in courts of law.

5 Loan From PU Loan repaid by PU without KML BOD

approval

Not resolved

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

52

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.

53

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.

54

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:-

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

Name

Date of Entries Balance at

31/12/2011 (Shs.)

Comment

GE Hydro Between 2002

and 2003

653,504,028 Balances have been outstanding

since 2002 and have not been reconciled to date

Stirling Rodio

Joint Venture

2002 114,166,619 Balances have been outstanding


Acres

International

Between 2002

and 2005

57,913,526 Balances have been outstanding


Month Payroll salary amount (Shs.)

GL salary amount

(Shs.)

Variance (Shs.)

Comment

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

55

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

status

Auditor‟s comments

1. Escrow account

The company was not in compliance with the concession agreement concerning the minimum amount

required of the escrow account.

Not resolved

The company had Us$.2.2m instead of the required Us$.2.5m dollars during the year

2. Deferment of concession fees for the last quarter

The electricity regulator requested the

Not resolved

The final communication regarding the debt waiver has not yet been obtained from the Ministry

56

No. Issue Current

status

Auditor‟s comments

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

The company does not have a simulated disaster recovery plan in place.

Not Resolved

The simulation of the Bujagali EPP which also includes the UEGCL EPP has not yet been carried out

4. Delayed banking of cash received

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.

Not Resolved

5 Fixed asset register:

As at the time of audit, the fixed assets register had not been updated with all

the assets acquired during the year

Partially Resolved

A consultant was engaged to reconcile the register with the GL. The final report has not yet been issued and the register is still not reconciled to the GL by a difference of about 74m

6 Non-reconciliation of accounts payable and receivable

As at March 2011, there were no reconciliations for payable or receivable accounts for the period ended 31

December 2010.

Not Resolved

There were no reconciliations at the time of the audit.

7 Existence and ownership of Land and Building

Land and buildings amounting to a net book value of Shs.438.6 million for

which ownership documentation was not availed.

Partially Resolved

The final report from the consultant engaged to reconcile the fixed assets has not yet been issued

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.

57

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

58

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.

59

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 Outstanding

(Shs.)

Period Outstanding

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:-

60

Asset Name Cost

(Shs.) Rate

Depreciation

as recorded

by SUN

(Shs.)

Actual

Depreciation

Charge

(Shs.)

Variance

(Shs.)

01S00

06

Mbale-

LV line 860,604,402 9% 105,424,039

77,454,396 27,969,642

01S00

38

Masaka

West

Substati

on To-

LV line

587,906,331 4%

21,197,748 23,516,253 (2,318,505)

03N00

01

Opening

Service

Connect

ion

13,971,695,

501 5% 602,700,589 698,584,775

(95,884,186

)

03N00

03

Service

2002

Connect

ions

3,788,083,2

29 4% 146,925,927 151,523,329 (4,597,402)

Lack of review of the fixed assets register could result in errors in the register going un-

noticed 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:-

61

Asset Category

Approved rate

Asset Code

Asset Name Rate 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.

62

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

start date

Lease

period

Lease

expiry

Cost

(Shs.)

Amortizati

on rate

Expired Leases

Plot 12 Kalagala Road – B

1-Jan-02 9.50 30-Jun-11 3,100,846 10.53%

Plot 1A-1B Bazaar

Street

1-Dec-55 49.00 18-Nov-04 3,806,588 2.04%

Plot 1 Maruzi Road – Lira

1-Jan-00 8.30 17-Apr-08 2,654,088 12.05%

Plot 28 Lia Street –

Moro

1-Jan-00 12.00 29-Dec-11 1,002,103 8.33%

Due for Renewal within one Year

Plot 127 Kabale Road

– Ka

1-Jun-63 49.00 19-May-12 7,105,818 2.04%

Bombo-Kawanda-Kawanda

1-Jul-63 49.00 18-Jun-12 2,000,000 2.04%

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

63

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.

64

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 Quantity per

valuation

Quantity per

Physical count

Variance Value of variance (Shs)

Tx 50Kva 33Kv/Lv 3Ph 37 35 2 14,046,946

Tx 25Kva 33Kv/Lv

1Phase

12 11 1 5,842,911

Tx 50Kva 11Kv. Three Phase

1 0 1 9,072,076

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.

65

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

consumed in kwh

Total Energy

sales in the billing

system (VAT

Incl)

Total Energy

sales in the Billing

system (VAT

Excl) (A)

Total Energy

sales in SUN system (VAT

Excl)

(B)

Variance

(A-B)

January 2011

Moroto 23,998 11,955,938 10,132,151 15,842,304 -5,710,153

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 -8,158,718

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

66

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.


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

Manual

Repeated

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 (Shs)

Actual (Shs)

Variance (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

67

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 re-

structuring that culminated into a revised organization structure, verification revealed

that the new organizational structure was not yet approved and functional during the

68

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.

69

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.

70

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

71

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

72

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.

73

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.

74


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.

75

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.


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.

76

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.

77

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.

78

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

79

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

80

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.

81

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

82

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

83

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.

84

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.

85

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.

86

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.

87

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

88

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

89

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

90

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

91

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

debtors

The biggest debtor is the MoH. However, the ministry sent an

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

dormant accounts-

The Interim Board requested for an independent report on the

all NDA accounts for review.

• Rental payment and

filing of returns with URA

NDA made payment for all rental tax arrears and is now tax

compliant.

• Leasehold investment property at Nkrumah

NDA budgeted for the maintenance of this property before 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

Lumumba Avenue, Buganda Road and

Nkrumah

The property was revalued and it was in existence.

• Un identified deposit on NDA Bank Account

Un-identified deposits were attributed to drug shops that

deposited money on account and never came for receipts and 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 committee

The Authority has not been fully constituted.

• Un credited

Us$.15,900.70 on the Stanbic Dollar Account.

This transaction was cancelled and a fresh payment instruction

issued by the client.

92

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


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

93

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

94

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

95

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:-

96

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

97

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.

98

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.


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:-

99

Output description Planned output Actual

Output

Variance

No of districts sensitized 80 32 (48)

Annual practicing licenses renewed(APL)

12000 1797 (10,203)

Professional misconduct

investigated

20 1 (19)

Sensitization through mass media

8 adverts in news papers

4 adverts placed in papers.

(4)

Council meetings 5 3 (2)

Committee meetings 20 15 (5)

International conferences

attended

7 2 (5)

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

100

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

101

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

102

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.


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

103

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.

104


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

information

Partially addressed

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.

105

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 Position (Ugx)

Statement of Changes in Equity (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.

106

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

beginning of the period

292,614,075

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;

107

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.

108

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 (Shs)

Total (Shs) Payee

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

109

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.

110

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

111

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.

112

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:-

113

Planned

activity

Cost (Shs) Deadline Management

Response

Comment

Renovation of

office block

200,000,000 End of

FY2011/12

Architectual drawing

secured, Bill of Quantities is in place

and the structural

integrity report done.

Not

implemented.

Acquisition of land title.

200,000,000 End of FY2011/12

Given lease by Kampala District Land Board and

matter before the Court of law.

Not Implemented.

Carry out needs

assessment and train staff (3).

30,000,000 September 2011 Bids for human resource

consultancy service being evaluated.

Meanwhile the human

resource manual is being developed.

Not

implemented.

Establish a

sporting marketing

department and recruit sports

director.

12,000,000 November 2011

Not

Implemented.

Review and streamline sports

in Uganda-carry

out a study.

25,000,000 August 2012 Two study tours conducted in south

Africa and Peoples

Republic of China by council members.

Partly Implemented.

Equip NCS with

video van and camera.

50,000,000 July 2012 Not done due to lack of

funds.

Not

Implemented.

Train coaches at

district level (210).

157,000,000 End of 2011 Not done due to

financial constraints.

Not

Implemented.

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:-

114

Audit Issue and Recommendation Current

Status

1. Non-availability of Bank statements

It was noted 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 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.

Not addressed.

2. Un-accounted for Funds

During the year under review, management indicated in the Financial statements that Shs.18,517,450 was disbursed to Athletics

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.

Not

addressed.

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.

115

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

Resource Department

Temperature cannot be adjusted; it was fixed at 25o;

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

Department

Noisy;

Office fans serve better.

Research and Data

Department

Noisy.

Need immediate replacement.

Business and Technical

Dept

Acs not yet installed.

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.

116

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

117

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

118

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.

119

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.

120


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 Expenditure (Shs)

Actual Expenditure(Shs)

Under expenditure (Shs)

Management explanation for the variance

Development of P.4 text books in 7 local languages i.e. Lebthur, Lubwisi, Lululi, Aringa, Kupsabiny, Lugungu and Pokot

1,290,346,900 324,973,000 965,373,900 Usual procedure of panel identification could not be used.

Orientation of P.5 teachers on P.5 curriculum countrywide

1,213,000,000 963,778,400 249,221,600 None

Drafting Local Language Readers

350,920,200

272,680,000

78,240,200

The books are the first of their kind, not easy, so they took a long time than expected.

Editing local language readers.

178,487,250

149,490,000

28,997,250

The books are the first of their kind, not easy, so they took a long time than expected.

Reviewing Local Language textbooks and harmonizing illustrations to the content of the Readers

65,327,400

45,270,000

20,057,400

Long time of development.

Training of Master Trainers for P.7 curriculum

150,000,000

117,304,000

32,696,000

Unnecessary demands by the District Officials

121





Consultations with stakeholders (Southern region) on integrating Technology in the teaching of Mathematics and Science

150,000,000

123,800,500

26,199,500

None

Stakeholders workshop on integrating Technology in the teaching of Mathematics and Science (Northern Region)

150,000,000

124,900,000

25,100,000

None

Stakeholders workshop on integrating Technology in the

150,000,000

124,900,000

25,100,000

None

Stakeholders workshop on integrating Technology in the teaching of Mathematics and Science (Central Region)

150,000,000

128,220,000

21,780,000

None

Stakeholders workshop on integrating Technology in the teaching of Mathematics and Science (Western Region)

150,000,000

126,950,700

23,049,300

None

Stakeholders workshop on Integrated Science with Technology

150,000,000

124,900,000

25,100,000

None

Editing A‟ level Syllabi

194,677,500

176,640,000

18,037,500

None

Finalizing A‟ level Syllabi and Teachers Guide

200,140,000

184,410,000

15,730,000

None

122





Writing Orientation Manual for A‟ level Entrepreneurship

12,710,400

5,220,000

7,490,400

None

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.


The status of the matters pointed out in my previous audit report is summarized in the

table below:-

S/N Issue raised Status

1 Omission of Land and Buildings Addressed

2 Un-recovered Debtors

Not addressed

3 Long Outstanding Royalties Not addressed

4 Lack of Periodic review of the Strategic Plan Not addressed

5 Governance of the Centre

Not addressed

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

123

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

124

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

period of more than 11/2 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.

125

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.

126

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.

127

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

128

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

129

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.


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.

130

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

Intervention

Estimated

Cost of investment

needed

Implementation

Period

Remarks

1 Furnishing of two new dressing rooms.

15,000,000 April 2011

Not done

2

New Public Address System

6,000,000

June 2011

Not

procured

3

Purchase of new Motor vehicles

18,000,000

July 2011 Not procured

4 Purchase of printer, CPU &

Monitor

1,000,000

July 2011

Not

procured

5 Repair of stadium (Labour and materials)

3,000,000

August 2011

Not done

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.

131

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 Staff

Observation and Recommendation

1 Stores Personnel

It was best practice to have an officer to manage stores in an entity. 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

Manager

An estates manager in an entity was meant to be responsible for

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 Officer

The stadium did not have a Procurement officer to manage all its 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:-

132

Policy Purpose

1 Policies on fixed assets

To guide in the management of the fixed assets of the stadium

2 Human resource

policies

To guide in the management of the human resources

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-Shs.276,404,082

Addressed

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 trustees who are also the only signatories to all

bank accounts. Surprisingly, some of them are civil servants in public entities where duty requires

then to be available full time with no time left to manage the stadium

Management promised to present the matter to the Board for

appropriate action although mandate to implement the stadium activities is

derived from the Trust Act. Not addressed

6 Non maintenance of registers

Not addressed

7 Debtors

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

Not addressed

8 Non-remittance of Contributionsto the Sports

Development Fund

Not addressed

133

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.

134

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.

135

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

136

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

137

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.

138

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

139

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,

none of the vacancies were advertised contrary to sec 3.2 of the HR manual. It was noted this could lead to recruitment of

incompetent and unqualified staff.

It was recommended that all posts be advertised in a manner consistent with the HR manual.

No steps have been

taken to regularize recruitment.

b Lack of staff evaluation and appraisal

None of the staff of the stadium had been appraised and evaluated, a requirement before confirmation as per the Human

Resource manual. It was recommended that Regular appraisals and evaluation

should be done in line with HR manual.

No effort has been taken on both

evaluation and appraisal.

c Lack of and expired appointments: A number of staff were serving with no valid appointment letters

yet others had their contracts which had long expired but were still in service

It was recommended that every staff be properly appointed.

The appointments have not been

regularized.

e Redundant staff One member of staff was redundant for long yet she still earned

her salary. Management was required to explain why she was not retired.

Not retired and still

earns her salary.

f Differing salary rates and increment

Officers at the same level earn different salaries. A Hotel

No applicable salary

140

Audit Observation/Recommendation Current Status

manager at level 3 is paid shs 4,394,737 while another at the

same level is earning shs. 1,387,218. There was no policy in place regarding salary increments.

There should be a standard rate of payments for all levels

scale standards in

place.

g Vacant Positions The HR Manual provides for the position of the Finance Manager

but has been occupied by the Accountant for two years in acting position. It also provides for the Internal Auditor which position

has been vacant

All positions should be filled.

These key Positions

have not been filled.

h Expired Acting capacities

Some staff were serving in acting capacities for more than three

months yet the HR Manual provides for only three. It was advised that all positions should be filled as soon as they

fall vacant.

Not implemented.

i Unmatched qualifications with the job requirements: A number of staff were serving in positions they were not

qualified for. A case in point is a procurement officer who was re-designated as a cashier yet he had no requisite qualifications.

It was recommended that schemes of service to guide recruitment and placement of staff be put in place.

No scheme in place

yet regarding staff placements.

j. Inappropriate Budgeting & budgetary control measures

Lack of approved budgets as a tool for planning & control .The 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.

Not implemented.

k. Unremitted Revenues by FUFA Failure by FUFA to remit the agreed percentage of revenue to

MNSL. All matches handled by FUFA did not generate the

expected returns. A total of Shs.220,000,000 has not been remitted and revenues from the pitch board advertising & score

board was never declared. The stadium lacked records regarding attendance of the stated games.

It was advised that the stated amount be recovered and all

necessary records availed for audit verification.

No transparent

system and policy in

place, not even agreements between

FUFA and MNSL. Shs.220m not yet

remitted by FUFA.

l. Inconsistent rates charged for the use of the stadium.

Lack of standard charges .The stadium did not have a procurement policy of its facilities. Different clients were charged

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.

No policy or system in place yet.

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.

141

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

Recommendation

Current Status

1. Outstanding tax

obligations Shs.41,978,526

It was recommended that tax

obligations are settled promptly to avoid unnecessary penalties.

Whereas management in

their response indicated that Shs.40m had been

remitted, there was no documentary proof to this

effect..

2. Non-payment of

NSSF contribution shs.638,830, 396

It was recommended that

prompt clearance of the outstanding amounts to NSSF

should be made to avoid unnecessary expenses in terms

of interest and penalties.

Management reported that

only Shs.6.7m has been paid due to cash flow

constraints.

3. Non remittance of 10% contribution

to the Ministry of

EducationSports Development Fund

The stadium management should make plans to have the

arrears cleared and ensure it is

up to date with its remittances.

Outstanding

4. Uncollected

receivables shs.1,141,015,601

Management should make an

effort to have these 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.

Not implemented yet.

5. Outstanding payables

shs.892,365,987

An effort should be made by management to clear the

outstanding payables to avoid litigation. Management should

only enter into contracts it is

sure of fulfilling.

Not fully cleared.

6. Unaccounted for Goods cleared at

Shs.86,347,812

Management should liaise with the ministry of education to

obtain all the relevant documentation relating to the

above goods from the Chinese government.

Outstanding

I have advised management to implement the recommendations for improved service

delivery.

142

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.

143

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 No./ Payment Voucher No.

Amount Details Reason

20/06/2012 007769 7,928,533

Payment for separate vouchers

Not verified by the Internal auditor

30/02/2012 007743

6,742,000

Payment for vouchers attached


22/01/2012 007443

3,600,000

Payment of printing materials


21/12/2011

007462

1,600,000

Hardware repair and Maintenance


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.

144

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;

Date Cheque No. Details

Amount Unaccounted

for Reason

13/06/2012 007765 Legal fees 2,252,000 Not Stamped paid

13/06/2012 007750 Fuel and 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.

145

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 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.

Not implemented

Accounting software The corporation should endeavour to programme the information

accounting system to avoid misleading information and time

consumption.

Implemented

Obsolete stock Management should consider removing the obsolete stock from the

stores to avoid congestion and mix up in stores.

Being

implemented

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.

146

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


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.

147

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

Fixed Assets

Addressed

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

activity

Not addressed

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.

148

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

149

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.

150

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.

151

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.

152

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.

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 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.

153

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.

154

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.

155

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.


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 Source

Approved Budget

Actual receipts

Shortfall %age

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.

156

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 -

Cereal PJT

92,400,072 5,544,004

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

157

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

Makerere University College

Shs.214,755,398

China Nanjing International Limited Renovation of Pathology laboratory and animal house at

Makerere University Faculty of

Veterinary Medicine

Shs.48,156,944

Labomedifam Supplies and Technical

Services

Supply of Cryostat Euro 21,726

Jos Hansen &Soehne GmbH Supply and Installation of laboratory equipment-molecular

Biology

Euro 82,679.30

Performance Furnishings Limited Supply and installation of office furniture

US$161,278.19

Smart International Services Limited. Supply & installation of 100 KVA

diesel Generator

US$36,500

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.

158

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

159

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.

160

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.

161

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.

162

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.

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 research 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

163

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.

164

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.

165

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.

166

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

167

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.

168


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.

169

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.

170

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

171

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.

172

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.

173

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,

174

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

175

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.

176

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.

177

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.

178

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;

No

Title Of Account

Balance per Cashbook (Shs)

Balance per Financial Statements (Shs)

Variance (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-Dollar

406,248,411 107,937,000 298,311,411

5. STANBIC Account-

MEGA Fm

41,963,000 (41,963,000)

179

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

180

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.

181

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

182

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.

183

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.

184

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

185

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

186

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.

187

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

188

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.

189

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:-

190

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

191

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

192

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.

193

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.

194

(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:

195

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

196

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

197

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

198

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

199

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.


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.

200

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.


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.

201

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


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.

202

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.

203

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.


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.

204

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 no.

Amount (Shs.)

MTAC/SUPLS/11/00

038

M/s

Computer

Exp. Ltd

Computer

Supplies

0038 0f 27/9/11 12,600,000

MTAC/SUPLS/11/00046

Mmudor Ent. Ltd

Printing MTAC Calendars

046 of 7/11/11 11,800,000

MTAC/SUPLS/11/00

053

Sight &

Sound Comp

Supply

Photocopy Machine

053 of 22/12/11 8,332,156

MTAC/SUPLS/11/00

008

Computer

Exp. Ltd

Supply of

Computer Consumables

013 of 8/4/11 5,880,000

MTAC/WKS/10-

11/00003

Eureka

Const ltd

Installation Of

Razor

015 of 4/5/11 5,292,300

205

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

Plant and Equipment

Not addressed

2 Non Separation of Land and

Building

Not addressed

3 Maintenance of fully

depreciated assets

Not addressed; a revaluation is to be undertaken by

a private valuer.

4 Under-collection of Revenue

Performance that continued to decline

Repeated

5 Poor debtors management Not addressed

6 Lack of a Governing Council Addressed

7 Lack of an internal audit

department

Not addressed; the Centre is undergoing

restructuring process and the Internal audit Unit was provided for on the proposed structure

8 Anomalies in management of

the Center Properties

Not addressed.

9 The Centre still 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

Not addressed.

206

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.

207

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

Advance

Voucher

no.

Description of Payment Amount (Shs)

4/04/2012

OLC 945 Legal department -facilitation to Mt. Elgon CA for Court Cases

1,508,000

3/1/2012

OLC818 Facilitation for Launch of HIV&AIDS

policy

1,000,000

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

Murchison Falls CA

2,871,000

20/12/2011

OLC 488 For tourism activities at Igonga cultural centre

1,031,000

29/3/2011

OFC 103 Day Safari Allowance &Air ticket for

travel

8,572,760

14/10/2011

OLC 203 Visas and Uniform to UK for World Travel Market.

3,191,000

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.

208

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.

209

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.

39.8 Inventory Management

210

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.

211

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.


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

concession income - franchise fees

Repeated

3 Lack of a Board of Trustees Addressed

4 Anomalies in the appointment of the acting Executive

Director

Addressed following

appointment of a

substantive ED

5 Lack of an accounting officer Addressed

6 Running of the authority without substantive heads of

departments

Addressed

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

PAMSU Project

Outstanding

212

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.


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.


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

213

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.

214

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.

215

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.

216

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

217

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.

218

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

(Shs)

Actual

(Shs)

Unfunded

(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 Assessors

200,000,000 0 200,000,000

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

Relations

1,200,000,000 0 1,200,000,000

Rent, Utilities, office operations, welfare,

inland travel, vehicle running

670,000,000 670,000,000 0

Office furniture and

Computer Equipment

50,000,000 50,000,000 0

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

219

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.

220

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

221

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.

222

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

223

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

(CHOGM)

89,194,000 412,092,702 (322,898,702)

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

224

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.

225

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.


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.

226

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


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,

227

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

228

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.

229

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.


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.”

230

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.


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.

231

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.

232

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.

233

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.


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 & Admin

Finance 1

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

234

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

235

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.


The status of the issues pointed out in my previous audit report is indicated below:-

236

Issues raised Remarks

1 Outstanding Loan from EIB amounting to

Euros.477,693.61

Issue not yet resolved

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..


237

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.

238

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

239

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

240

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


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


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

241

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


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.

242

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.


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 (Shs.)

Actual (Shs.)

Shortfall (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

243

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

244

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


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

245

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

246

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

Cost - Shs

(2010)

Current

Cost - Shs

(2011)

Additional

Cost - Shs

Selling –

Shs

(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

Phase 1

60,221,598 71,804,744 11,583,146 78,329,531

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

247

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

248

been implemented in the operational environment. The backup policy should also be

updated in relation to the DRP and signed off by management.


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 Internal Valuer

Partially addressed

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.

249

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.

250

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.

251

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.

252

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 provisions for bad and doubtful debts.

Partially implemented

253

4 Lack of a manual or other documented internal investment acquisitions and disposal guidelines

Addressed

5 Some branches had high imprest limits which do not compare with the benefits claimed and paid out

Addressed

6 Outstanding employee schedules for contributions paid Not addressed

7 Lack of a comprehensive asset register and periodic physical verification of assets

Addressed

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 license payments

Addressed

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.


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.

254

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.

255

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.


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

256

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.


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

257

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


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.

258

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.


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.

259

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.

260

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:-

261

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


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.

262

I advised management to ensure that the financial reporting framework of the Council is

strictly adhered to.


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.


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.

263

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


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.

264

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.

265

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.


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

266

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.

267


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.

268

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.

269

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

270

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.

271

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

272

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

273

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.

UDK-660J-Lira

UDK-608L-Masindi

UDK-662J-Kachumbala

UDK-656J-Busitema

UDK-672J-Kitgum

All in poor condition.

274

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 on-

going 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.

275

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

276

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

277

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

278

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

279

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.

280

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.

281

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:-

282

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.

283

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.

284

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

285

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

286

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.

287

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

288

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.

289

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 which VAT of Shs.998,316 charged

Superb Engineering works Ltd

Extra works for rehabilitation of bull at NAGRIC and Data bank at NAGRIC EBB)

066 9,900,170 Certificate is attached the amount was VAT inclusive of Shs.1,191,197 charged

Empire contractors Ltd

Repair of access road to NAGRIC

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

290

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.

291

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 miles

80 acres of the land has been taken over due to unclear demarcation of the boundaries.

2 Nshaara 27 sq miles

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.

3 Nsanga 2.5 square miles

One square mile has been grabbed by a Senior Army Officer. 20 acres were given away to the 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.

292

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 No

Amount paid Name of supplier Nature of supplies

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

293

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.

294

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.


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)

295

(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

296

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)

297

(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.

298

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.

299

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

300

NFA Vs. World

Evangelical Ministry.

Civil suit no.5/2011

Debt stands at USD.41,404 including interest. NFA licensed

the defendant‟s mast in Oruhar Central Forest Reserved in

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

Ltd.

Civil suit no. 17/2010

Illegally erecting a telecommunication mast in Ogera CFR.

NFA Vs. MTN (U) Ltd.

Civil suit no. 18/2010

Illegally constructing a mast in Alerek CFR in Abim district.

NFA Vs. Uganda

Telecom Ltd.

Debt outstanding USD.354,000. A notice of intention to sue

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.

301

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

302

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

Price (Shs)

Start

Date

Expected

End Date

Actual End

Date

Boundary opening

and remarking of

N/Rwenzori range

Realtec 52,720,000 June

2010

Sept 2010 July 2011

Boundary opening

and remarking of

Kasagala range

Realtec 106,310,000 June

2010

Sept 2010 July 2011

Establishment of a

Nursery site &

development of a

water supply system

for N/Rwenzori

range.

Mani

Engineering

Services Ltd

99,155,311 Aug

2010

Nov 2010 May 2011

Establishment of a

Nursery site &

development of a

water supply system

for Kasagala range

Mani

Engineering

Services Ltd

103,398,335 Aug

2010

Nov 2010 July 2011

Construction and

Installation of

permanent boundary

markers at

N/Rwenzori range

Triangle

Engineering &

Construction

Co Ltd

104,887,548 June

2010

Dec 2010 July 2011

Construction of

Charcoal Kilns ,

records house and

store at Kasasgala

CFRs

Triangle

Engineering &

Construction

Co Ltd

122,773,600 10/02/12 15/03/2012 Not yet

handed over

EIA for Musisi and

Kasagala ranges

Urban

Research and

Training

Consultancy

46,604,000 3/05/11 24/05/2011 29/08/2011

303

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.

304

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.

305

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

statements

Addressed

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

306

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

307

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

308

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

309

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:

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.

Not implemented.

02 Internal audit department: The internal audit department should be independent of

Not implemented.

310


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

bargaining agreement (Terminal Benefits):

Management should ensure compliance with the terms of the collective bargaining agreement with regard to terminal

benefits.

Implemented

04 Timely update of Grants and Work in progress: Management should ensure that transactions are booked

during the period in which they occur.

Not implemented.

05 Duplicate entries in the terminal benefits schedule: 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.

Implemented

06 Verification of fixed assets:

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.

Not implemented.

07 National Social Security Fund remittances on gratuity

and bonus: Statutory deductions should be remitted to the relevant third

parties by the due dates.

Not implemented.

08 Bank reconciliations process: Identified reconciling items should be followed up and

resolved.

Implemented.

09 Timeliness of review of updates to the 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.

Implemented

10 Reconciliation of cash collections through e-payment:

Management should ensure that a process is put in place to perform spot-checks on the reconciliations of cash collections

to the billing system.

Implemented

11 Reconciliation of new connections as per Engineering 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.

Implemented

12 Segregation of duties:

The corporation should ensure that there is adequate segregation of duties both manually and in the system.

Implemented

13 Review of daily cash collection reconciliation:

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.

Implemented

14 Double payment of service gratuity: Implemented

311


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

15

Late remittance of Withholding tax:

Withholding tax deductions should be remitted to Uganda Revenue Authority by the 15th of the month following the

month of deduction.

Implemented

16 Posting of transactions to the wrong GL Codes: Management should perform more robust reviews of the

postings made by junior staff to minimize posting errors and ensure reliability of financial information.

Implemented

17 No policy on aging and write off of other receivables:

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.

Not implemented:

18 Reconciliation of payroll costs to the general ledger: 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.

Implemented

19 Statutory deductions:

Management should ensure that deductions are remitted in a timely manner.

Not implemented.

20 Record of intangible asset values:

Management should ensure that the record of asset values is made inclusive of withholding tax.

Implemented.

21 Prepaid operating lease rentals:

The Corporation should obtain titles for all property under

operating leases.

Implemented.

22 Computation of Leave transport accrual:

Better coordination between finance and the human resources

department ensure sufficient information is availed for proper computation of the leave transport accrual.

Implemented

23 Change management procedure not followed:

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.

Implemented

24 Account for staff who left not disabled:

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.

Not implemented.

25 Global password setting: The setting for passwords to meet complexity requirements

needs to enabled to strengthen the password controls of the domain.

Not implemented.

26 No review of audit trail reports:

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.

Implemented

312

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.

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.

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

313

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.

314

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.

315

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

316

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

317

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

318

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

319

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

320

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

321

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;

322

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,

323

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.

324

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

325

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.

326

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;

327

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 Loan (UShs.)

Type of Facility Loan approval 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

328

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.

329

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

330

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.

331

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 No

Supplier Name Amount PR Contract signed

Approved LPO Seen (Yes/No)

1 6485 Monitor Publications

Limited

3,500,000 No No No

2 6502 Victoria Engineering

limited

6,379,764 Yes No No

3 6505 Katera and Kagumire

Advocates

8,673,000 No Yes No

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.

332

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 Shs

Comment

Rift Valley Railways vs. UDBL and Karlson‟sAgrovet 233,270,500

UDBL agreed to pay the sum sued for. A provision has subsequently been made.

Christopher Baleke Senogavs UDBL Not disclosed

Plaintiff has high chances of 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.

333

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.

334

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.

335

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

336

• 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.

337

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.

338

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 pro-

actively 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

339

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.


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.

340

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

341

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

342

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.

343

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

344

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.

345

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.

346

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.


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

347

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.


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

348

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.

349

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

expected

(Shs)

Effective

date of lease

Outstanding

balance (Shs)

Bweyogerere hospital

LTD

354,960,000 4/08/2008 144,960,000

Tarpo industries U Ltd 158, 640,000 21/05/2009

Arnold Brooklyn and Co 176, 400,000 10/12/2012 72,514,237

350

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.


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

351

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


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.

352

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.

353

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

354

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 implementation of the APRM POA

30,000,000

Consultancy to prepare and produce a financial analysis of the public funding of the APRM POA for the 2nd and 3rd year of implementation.

18,750,000

Consultancy for assessment of the progress of implementation of the thematic area of economic governance and management of APRM POA.

15,000,000

Consultancy for assessment of the progress of implementation of the thematic area of economic

15,000,000

355

governance and management of APRM POA for.

Consultancy for assessment of the extent of integration of APRM PoA to the NDP 2010/11-2014/15 and MTEF 2010/11/2012/13.

15,000,000

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 implementation matrix and interface budget framework paper

15,000,000


15,000,000


15,000,000


15,000,000


15,000,000


15,000,000

90,000,000

However, the procurement was made without due regard to the procurement law as per

the observations noted below without justification.

356

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 Automobile Workshop Ltd

1,751,000 Servicing & repairs of M/V

Firm was not prequalified & no WHT was deducted

SB38/JUN/12 Ms Bukoto Motor spares

8,545,500 M/V repairs

Firm was not prequalified & no WHT was deducted

Total 10,296,500

This may result into penalties imposed by the URA.

357

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.


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 un-

remitted WHT deductions from eligible payments to suppliers. It was noted that these

deductions were effected during the previous financial year 2010/2011.

358

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;

359

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.

360

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.

361

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,

362

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

363

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

364

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

365

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 –

CUE

20,346,168 20,346,168

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

366

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

Reference Name

Outstanding

Amount

Since

2003 Since 2002

Since

1991

1 113U01

United Nations

Development Programme 75,229,209 75,229,209

2 113UG01

Uganda Grain

Traders Limited (GOU) 1,611,469,104 1,611,469,104

3 01579

Kitoogo

Fredrick 6,417,291 6,417,291

4 01918

Byamukama

James K. 36,495,638 36,495,638

367

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

368

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

369

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 code

Asset type

Description Location BOOK VALUE

Condition/ status

Remarks

1010033 BUILDING Goli Border Post

Goli 134,732,764 Lease expired

lease certificate expired 31st July 2001

1020008 BUILDING 7 Jinja Block

Jinja Block Jinja 514,579,931 Title not availed

1020009 BUILDING 8 Oraba Office Block

Oraba Office Block

Oraba 150,250,880 Expired title lease

Lease certificate expired on 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

370

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.

371

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

372

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.

373

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

374

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.

375

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.

376

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

377

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.

378

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.

379

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.

380

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 re-

allocated 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 un-

usable 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

381

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.

382

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.

383

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 &

R23125

18 & 14/7/11

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.

384

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

385

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.

386

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.

387

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)

388

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

Registration

Chassis No. Engine No. Owner

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-

OKMETQ

Ministry of local Gov‟t

01/3/2012 KAD 128R WDB1240212B208423 10296320054680

8

Aloke. O. Agee

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.

389

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

390

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.

391

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.

392

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.

393

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.

394

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

395

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.

396

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

397

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

398

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

399

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.

400

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.


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.

401

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.


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)

402

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:

403

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.


73.6 Divestiture of Uganda Livestock Industries Limited

404

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.

405

The Accounting Officer explained that PU has sought the guidance of Solicitor General.


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

406

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.


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.

407

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

408

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.

409

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.

410

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 Years (ended30th June)

2009 2010 2011 2012

Losses (Shs)

954,128,475 993,345,219 1,030,399,724 982,671,449

411

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.


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.

412

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

413

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

414

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

415

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

416

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

417

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

418

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).

419

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

420

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

421

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.

422

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.

423

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.

424

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

425

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

balance

0-30 days 31-60 days 61-90

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.

426

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.

427

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.

428

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.

429

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

430

Review of the procurement process revealed delays in procurement as showed below:

Procurement

Reference Number

Subject of

Procurement

Contract

Amount

Provider Remarks

CAA/SUPLS/10-

11/00325

Supply and

Installation of Air

Conditioners at Soroti &

Kigungu

NAVAIDS

27,085,286 Appliance

World Ltd-2011

Delays in procurement

process. The need is confirmed on

19/10/2010 but Contract was signed

and issued on

27/07/2011

CAA/SUPLS/10-11/00234

Supply of Pyrotechnics

Ammunition

for birds scare

27,708,918.9 Prime Take Ltd

Delays in procurement process. The process

started on 26/11/2010

and letter of award was signed on 5/7/2011 yet

direct procurement was used

CAA/SRVCS/10-

11/00048

Maintenance

support contract for

Automatic fire

detection /fighting

system

25,936,400/Per

annum for 2 years

Booth fire

services Ltd

Procurement delay.

Required date was 16/12/2010 and

Contract was signed on

17/08/2011

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


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.

431

- 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

432

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)

433

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

434

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

435

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

436

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.

437

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

438

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 un-

updated 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

439

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.

440

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.

441

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.

442

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

443

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.

444

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

445

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

446

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

447

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.

448

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


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

449

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.

Plots 1 and 69 Bukoto Estate, Kampala - value Shs.600,000,000

450

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:

451

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.

452

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.

453

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

(Shs)

EX-GRATIA

(Shs)

TOTAL (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

454

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

455

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.

456

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


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

457

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.

458

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) for the year

(Shs)

Accumulated Surplus/(Deficit)

(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 (NWSC)

11,459,786,000 79,769,192,000

10. Public Procurement and Disposal of Assets, Authority(PPDA)

(441,278,428) 2,608,783,472

11. New Vision Printing and Publishing Corporation 4,000,741,000 22,597,783,000

459

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-Uganda (NITA-U)

1,776,804,979 1,776,804,979

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 (UETCL)

(34,173,687,000) (66,548,474,000)

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