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OFFICE OF THE AUDITOR GENERAL...THE REPUBLIC OF UGANDA OFFICE OF THE AUDITOR GENERAL ANNUAL REPORT...
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THE REPUBLIC OF UGANDA OFFICE OF THE AUDITOR GENERAL ANNUAL REPORT OF THE AUDITOR GENERAL FOR THE YEAR ENDED 30 TH JUNE 2015 VOLUME 4 STATUTORY CORPORATIONS
Transcript of OFFICE OF THE AUDITOR GENERAL...THE REPUBLIC OF UGANDA OFFICE OF THE AUDITOR GENERAL ANNUAL REPORT...
THE REPUBLIC OF UGANDA
OFFICE OF THE AUDITOR GENERAL
ANNUAL REPORT OF THE AUDITOR GENERAL
FOR THE YEAR ENDED 30TH JUNE 2015
VOLUME 4
STATUTORY CORPORATIONS
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TABLE OF CONTENTS
SECTION THREE ........................................................................................................... 559
STATUTORY CORPORATIONS ...................................................................................... 559
99. STATUS OF ACCOUNTS AUDITED DURING THE YEAR ........................................... 559
100. KEY AUDIT FINDINGS ........................................................................................ 562
101. SUMMARY OF GENERAL AUDIT FINDINGS ........................................................... 564
ENERGY SECTOR .......................................................................................................... 574
102. KILEMBE MINES LIMITED - YEAR ENDED 30TH JUNE, 2015 .................................... 574
103. UGANDA ELECTRICITY DISTRIBUTION COMPANY LIMITED- YEAR ENDED – 31ST
DECEMBER 2014 ................................................................................................ 575
104. UGANDA ELECTRICITY GENERATION COMPANY LIMITED - YEAR ENDED 31ST
DECEMBER, 2014 ............................................................................................... 577
105. UGANDA ELECTRICITY TRANSMISSION COMPANY LIMITED - YEAR ENDED 31ST
DECEMBER, 2014 ............................................................................................... 579
106. ERT II – RURAL ELECTRIFICATION AGENCY –YEAR ENDED 30TH JUNE, 2015 ........ 580
107. ESDP- KAWANDA- MASAKA POWER LINE – YEAR ENDED 30TH JUNE 2014 ............. 584
108. ERT II – UGANDA COMMUNICATIONS COMMISSION – YEAR ENDED 30TH JUNE ..... 584
109. INTERCONNECTION OF ELECTRICAL GRIDS OF NILE EQUATORIAL LAKES COUNTRIES
(NELSAP) UGANDA – YEAR ENDED 31ST DECEMBER 2014 ...................................... 585
110. MBARARA NKENDA & TORORO POWER TRANSMISSION LINES PROJECT – YEAR ENDED
31ST DECEMBER 2014 ......................................................................................... 587
111. UGANDA ELECTRICITY TRANSMISSION COMPANY LIMITED BUJAGALI
INTERCONNECTION PROJECT FOR THE YEAR ENDED 31ST DECEMBER 2014 .......... 588
112. RURAL ELECTRIFICATION AGENCY FOR THE YEAR ENDED 30TH JUNE, 2015 .......... 589
113. ENERGY FOR RURAL TRANSFORMATION PROJECT II (FUNDED BY THE GOVERNMENT
OF NORWAY) FOR THE YEAR ENDED 30Th JUNE, 2015 ........................................ 591
HEALTH SECTOR .......................................................................................................... 592
114. ALLIED HEALTH PROFESSIONALS COUNCIL-YEAR ENDED 30TH JUNE 2015 ............. 592
115. NATIONAL DRUG AUTHORITY - YEAR ENDED 30TH JUNE 2015 .............................. 593
116. NATIONAL MEDICAL STORES – 30TH JUNE 2015 ................................................... 594
117. THE UGANDA NURSES AND MIDWIVES COUNCIL – YEAR ENDED 30TH JUNE 2015 .. 595
118. JOINT CLINICAL RESEARCH CENTER- YEAR ENDED 30TH JUNE 2015 .................... 597
EDUCATION & SPORTS SECTOR .................................................................................. 599
119. MANDELA NATIONAL STADIUM – YEAR ENDED 31ST DECEMBER 2014.................... 599
120. NAKIVUBO WAR MEMORIAL STADIUM- YEAR ENDED 31ST DECEMBER 2014 ........... 604
121. NATIONAL COUNCIL OF SPORTS- 30TH JUNE 2015 ................................................ 611
122. NATIONAL COUNCIL FOR HIGHER EDUCATION-YEAR ENDED 30TH JUNE 2015 ........ 613
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123. MANAGEMENT TRAINING AND ADVISORY CENTRE- YEAR ENDED 31ST DECEMBER 2014
........................................................................................................................ 615
124. UGANDA NATIONAL EXAMINATIONS BOARD- YEAR ENDED 30TH JUNE 2015 .......... 615
INFORMATION AND COMMUNICATION TECHNOLOGY .............................................. 617
125. NATIONAL INFORMATION TECHNOLOGY AUTHORITY UGANDA (NITA-U) – YEAR ENDED
30TH JUNE 2015 ................................................................................................. 617
126. NEW VISION- YEAR ENDED 30TH JUNE 2014 ........................................................ 619
127. UGANDA BROADCASTING CORPORATION – 30TH JUNE 2015 ................................. 622
128. UGANDA COMMUNICATIONS COMMISSION – YEAR ENDED 30TH JUNE 2015 ........... 629
129. UGANDA PRINTING AND PUBLISHING CORPORATION – 30TH JUNE 2015 ............... 631
130. UGANDA INSTITUTE OF INFORMATION & COMMUNICATION TECHNOLOGY- YEAR
ENDED 30TH JUNE 2015 ...................................................................................... 635
131. UGANDA NATIONAL COUNCIL OF SCIENCE & TECHNOLOGY – 30TH JUNE 2015 ...... 637
132. UGANDA POST LIMITED - YEAR ENDED 30TH JUNE 2015 ....................................... 639
TOURISM AND TRADE SECTOR ................................................................................... 643
133. HOTEL AND TOURISM TRAINING INSTITUTE – YEAR ENDED – 30TH JUNE 2015 ..... 643
134. NILE HOTEL LIMITED – 31ST DECEMBER 2014 ...................................................... 643
135. UGANDA DEVELOPMENT CORPORATION – YEAR ENDED 30TH JUNE 2015 ............. 644
136. UGANDA INDUSTRIAL RESEARCH INSTITUTE FOR THE YEAR ENDED 30TH JUNE 2015647
137. UGANDA EXPORT PROMOTION BOARD – YEAR ENDED 31ST DECEMBER 2014 ........ 649
138. UGANDA PROPERTY HOLDINGS LIMITED FOR THE FINANCIAL YEAR ENDED 30TH JUNE,
2015 ................................................................................................................. 651
139. UGANDA NATIONAL BUREAU OF STANDARDS –YEAR ENDED 30TH JUNE 2015 ........ 653
140. UGANDA TOURISM BOARD – YEAR ENDED – 30TH JUNE 2015 .............................. 655
141. UGANDA WILDLIFE AUTHORITY – YEAR ENDED 30TH JUNE 2015 ........................... 657
142. UGANDA WILDLIFE TRAINING INSTITUTE – YEAR ENDED 30TH JUNE 2015 ............ 658
143. UGANDA WILDLIFE EDUCATION CENTRE – 30TH JUNE 2015 .................................. 659
LANDS AND HOUSING SECTOR ................................................................................... 662
144. NATIONAL HOUSING & CONSTRUCTION COMPANY- YEAR ENDED 31ST DECEMBER 2014
........................................................................................................................ 662
SOCIAL DEVELOPMENT SECTOR ................................................................................. 665
145. NATIONAL LIBRARY OF UGANDA – YEAR ENDED 30TH JUNE 2015 .......................... 665
146. NATIONAL SOCIAL SECURITY FUND – YEAR ENDED 30TH JUNE 2015 ..................... 666
147. UGANDA RETIREMENT BENEFITS REGULATORY AUTHORITY (URBRA) ................... 668
FOR THE YEAR ENDED 30TH JUNE, 2015 ............................................................................ 668
148. NATIONAL YOUTH COUNCIL – YEAR ENDED 30TH JUNE 2015 ............................... 670
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149. UGANDA NATIONAL CULTURAL CENTRE – YEAR ENDED 30TH JUNE 2015 ............... 671
AGRICULTURE SECTOR ................................................................................................ 672
150. COORDINATING OFFICE FOR CONTROL OF TRYPANOSOMIASIS IN UGANDA- YEAR
ENDED 30TH JUNE 2015 ...................................................................................... 672
151. DAIRY DEVELOPMENT AUTHORITY FOR THE PERIOD ENDED ............................... 672
31ST DECEMBER 2014 ...................................................................................................... 672
152. COTTON DEVELOPMENT ORGANISATION FOR THE YEAR ENDED 31ST OCTOBER, 2014
........................................................................................................................ 675
153. NATIONAL ANIMAL GENETIC CENTRE & DATA BANK- YEAR ENDED 30TH JUNE 2015 678
154. UGANDA SEEDS LIMITED – YEAR ENDED 30TH JUNE 2015 ..................................... 679
WATER AND ENVIRONMENT ....................................................................................... 682
155. NATIONAL ENVIRONMENT MANAGEMENT AUTHORITY – YEAR ENDED 30TH JUNE 2014
........................................................................................................................ 682
156. NATIONAL FORESTRY AUTHORITY – YEAR ENDED 30TH JUNE 2015 ....................... 683
157. NATIONAL WATER AND SEWERAGE CORPORATION –YEAR ENDED 30TH JUNE 2015 686
ACCOUNTABILITY SECTOR .......................................................................................... 688
158. BANK OF UGANDA – YEAR ENDED 30TH JUNE 2015 ............................................. 688
159. BANK OF UGANDA PROJECTS ............................................................................. 689
159.1 THE EUROPEAN INVESTMENT BANK/REPUBLIC OF UGANDA APEX PRIVATE ENTERPRISE
LOAN SCHEME YEAR ENDED 30th JUNE 2015 ........................................................ 689
159.2 AGRICULTURE CREDIT FACILITY – BoU YEAR ENDED JUNE 2015 .......................... 690
160. CAPITAL MARKETS AUTHORITY – YEAR ENDED 30TH JUNE 2015 ........................... 691
161. INSURANCE REGULATORY AUTHORITY – YEAR ENDED 30TH JUNE 2015 ................ 693
162. MICROFINANCE SUPPORT CENTRE LIMITED – YEAR ENDED 30TH JUNE 2015 ........ 696
163. NATIONAL PLANNING AUTHORITY – YEAR ENDED 30TH JUNE 2015 ....................... 698
164. FINANCIAL INTELLIGENCE AUTHORITY FOR THE YEAR ENDED 30TH JUNE, 2015 .... 700
165. PRIDE MICRO FINANCE LIMITED – YEAR ENDED 31ST DECEMBER 2014 ................. 701
166. PRIVATIZATION AND UTILITY SECTOR REFORM PROJECT-DIVESTITURE AND
REDUNDANCY ACCOUNT (PUSRP) – YEAR ENDED 30TH JUNE 2014 ........................ 702
167. PRIVATIZATION AND UTILITY SECTOR REPORM PROJECT- OPERATIONS ACCOUNT –
YEAR ENDED 30TH JUNE 2015 ............................................................................. 704
168. PUBLIC PROCUREMENT AND DISPOSAL OF PULIC ASSETS – YEAR ENDED 30TH JUNE
2015 ................................................................................................................. 705
169. UGANDA BUREAU OF STATISTICS- YEAR ENDED 30TH JUNE 2015 .......................... 706
170. UGANDA DEVELOPMENT BANK LIMITED (UDBL) – YEAR ENDED 31ST DECEMBER,2014
........................................................................................................................ 715
171. UGANDA INVESTMENT AUTHORITY – YEAR ENDED 30TH JUNE 2015 ...................... 716
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172. UGANDA REVENUE AUTHORITY – YEAR ENDED 30TH JUNE 2015 .......................... 719
SECURITY SECTOR ....................................................................................................... 722
173. UGANDA AIR CARGO CORPORATION – YEAR ENDED 30TH JUNE 2015 .................... 722
NEC & SUBSIDIARIES .................................................................................................. 724
174. NEC HEADQUARTERS – YEAR ENDED 30TH JUNE 2015 .......................................... 724
175. NEC CONSTRUCTION, WORKS & ENGINEERING YEAR ENDED 30TH JUNE 2015 ....... 727
176. NEC FARM KATONGA-YEAR ENDED 30TH JUNE 2015 ............................................. 728
177. NEC-LUWERO INDUSTRIES – YEAR ENDED 30TH JUNE 2015 .................................. 730
178. NEC TRACTOR HIRE – YEAR ENDED 30TH JUNE 2015 ............................................ 732
179. NEC TRACTOR PROJECT – YEAR ENDED 30TH JUNE 2015 ...................................... 735
PUBLIC WORKS AND TRANSPORT SECTOR ................................................................ 737
180. CIVIL AVIATION AUTHORITY – YEAR ENDED 30TH JUNE 2014 ............................... 737
181. UGANDA RAILWAYS CORPORATION YEAR ENDED 31ST DECEMBER 2012 ................ 739
182. UGANDA RAILWAYS CORPORATION YEAR ENDED 31ST DECEMBER 2013 ................ 742
183. UGANDA RAILWAYS CORPORATION FOR THE YEAR ENDED 31ST DECEMBER 2014. 750
JUSTICE, LAW AND ORDER SECTOR (JLOS) ............................................................... 766
184. AMNESTY COMMISSION – YEAR ENDED 30TH JUNE 2015 ...................................... 766
185. LAW DEVELOPMENT CENTRE – YEAR ENDED 30TH JUNE 2015 ............................... 767
APPENDICES ................................................................................................................ 770
APPENDIX 1: TWO-YEAR ANALYSIS OF AUDIT OPINIONS .................................................. 770
APPENDIX 2: AUDIT OPINIONS FOR BACKLOG AUDITS ...................................................... 771
APPENDIX 3: CONSOLIDATED FINANCIAL STATEMENTS OF THE GOVERNMENT OF THE REPUBLIC
OF UGANDA FOR THE YEAR ENDED 30TH JUNE 2015 ........................................................ 772
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SECTION THREE
STATUTORY CORPORATIONS
99. STATUS OF ACCOUNTS AUDITED DURING THE YEAR
A total of 100 audits were undertaken in Statutory Corporations, Boards, Councils,
Institutes and Projects during the period 1st April to 31st December 2015. Of the 100 audits,
2 were backlogs in Uganda Railways Corporation.
Accordingly, separate audit reports have been issued for each of them. Out of the 100
accounts audited, 78 accounts have unqualified opinions, 18 were qualified opinions while
4 had disclaimer opinions. The bases used to arrive at the audit opinions is described in the
separate reports issued on individual accounts. Details in appendix 1 and 2, and tables
and graphs below.
99.1 Audits in Progress
The following audits were still in progress.
S/N Entity Year of Audit
1. Civil Aviation Authority 2015
2. Amber House Limited Closure Audit-2014
99.2 Types of Opinions Issued
A total of 96 opinions and 4 disclaimers of opinion were issued as illustrated below;
S/N Type of Audit Opinion Number of Accounts
1 Unqualified 78
2 Qualified 18
3 Disclaimer 4
4 Adverse 0
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Figure 1: Proportion of audit Opinions in the period under review:
An analysis of the financial statements audited and type of opinions issued between 2012
and 2015 revealed the following;
Opinion Types Year ending 30th June
2012 2013 2014 2015
Unqualified 41 45 66 78
Qualified 25 26 39 18
Disclaimer 4 1 2 4
Adverse 0 0 0 0
Total 70 72 107 100
Figure 2: Comparison of types of opinions issued in the previous four years:
78
18 4
0
Unqualified
Qualified
Disclaimer
Adverse
0
10
20
30
40
50
60
70
80
90
2012 2013 2014 2015
Unqualified
Qualified
Disclaimer
Adverse
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99.2.1 Types of Opinions explained
(i) Unqualified Opinion
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.
(ii) Qualified Opinion
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.
(iii) Disclaimer of Opinion
The Auditor disclaims an opinion when the auditor is unable to obtain sufficient appropriate
audit evidence on which to base the opinion, and the Auditor concludes that the possible
effects on the financial statements of undetected misstatements, if any, could be both
material and pervasive. The Auditor shall disclaim an opinion when, in extremely rare
circumstances involving multiple uncertainties, the Auditor concludes that, notwithstanding
having obtained sufficient appropriate audit evidence regarding each of the individual
uncertainties, it is not possible to form an opinion on the financial statements due to the
potential interaction of the uncertainties and their possible cumulative effect on the
financial statements.
(iv) 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.
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100. KEY AUDIT FINDINGS
A summary of the key audit findings arising from audit of statutory agencies and state
enterprises is highlighted below;
100.1 COMPENSATION OF PROJECT AFFECTED PERSONS (PAPs)
The government is currently in the process of undertaking various projects which include:
Transmission Lines (UETC), Distribution lines (UEDCL, REA, ERT)Power Dams (Karuma &
Isimba) and the Refinery (Ministry of Energy), and these require compensation of land
owners. Analysis of the current compensation arrangements revealed the following
matters;
100.1.1 Delays in land acquisition
There are frequent delays in acquisition of land for the projects and this was attributed to;
Inadequate release of funds, delays between feasibility and actual compensation creating
speculation and ultimately price hikes, diversion of Compensation funds, rejection of
valuation rates approved by the Chief Government Valuer and land disputes amongst PAP
claimants. As a result colossal amounts are still outstanding. For example Rural
Electrification Agency:13.54bn, Mbarara Nkenda line 1.85bn and Karuma and Isimba
projects:1.34bn. In the circumstances the progress of the projects was behind schedule
and this impact on the timely attainment of the projects’ objectives. In addition there is a
likelihood of resource overruns.
100.2 INVESTMENT IN INTEGRATED INTELLIGENT COMPUTER SYSTEM (IICS)
PROJECT
Government through UNCST has invested a sum of UGX.4.1bn since 2010/11
towards the design and implementation of an Integrated Intelligent of Computer
System (IICS) to capture and update patients data in real time and provide a
platform for facilitation data sharing among Health Centres and Hospitals.
During inspection of Mulago National Referral Hospital, it was observed that there
has been resistance by medical administrators’ to have this project take off. The
objectives of placing, processing and management of orders for supplies internally
were not evident. Stores management of pharmaceuticals and medical supplies to
reduce over ordering and or identify expired drugs was not manifested.
Currently, government has committed to fund this project and a sum of Shs.30bn is
yet to be budgeted to rollout the system within the public sector from 2016/2017
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after training over 67 Hospital and Health Centres. If government does not
compel the Hospital administrators to use the system, the funds so far spent would
have been wasted.
100.3 LACK OF STANDARDS AND GUIDELINES ON RADIATION MANAGEMENT
The National Environment Act (1995) requires the National Environment Management
Authority to establish criteria and procedures for the measurement of ionizing and other
radiation; standards for the minimization of radiation; protective measures to be taken
against radiation; the control of the effects of the radiation and safe practices to protect
persons involved in activities prone to radiation exposure. The Authority is also required, in
consultation with the Uganda Revenue Authority, to maintain a register of all radioactive
substances imported into Uganda in such form and manner, and containing such
information as may be prescribed.
Contrary to the above, the radiation standards and guidelines have not been
developed to help in the minimization of ionizing and other radiation in the
environment. The register of all radioactive substances imported into the country is
also not being maintained.
Lack of standards and guidelines expose persons involved in radiation activities and
the Country at large to risks like cancers and other health related diseases.
I advised the Accounting Officer to expedite the consultations on establishment of
Standards and guidelines, as this will guide national responses to risk associated
with radiation.
100.4 PERFORMANCE OF RIFT VALLEY RAILWAYS UGANDA ON CONCESSION FEES
According to the performance review conducted in 2014, it was noted that the sharing ratio
of 60:40 between Kenya and Uganda as provided in the concession agreement was
irregularly altered to 80:20 respectively which disadvantaged URC and led to a significant
drop of revenue by 50%. In the year ending December 2014, Uganda should have earned
UGX 5.6bn as concession fees but only earned UGX2.8bn. This poses a grave concern.
I advised that RVR reverts to the original concession.
100.5 INADEQUTE MONITORING, FOLLOW UP AND RECOVERY OF LOANS WRITTEN
OFF
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I noted weaknesses in monitoring, follow up and recovery of delinquent loans under the
Microfinance Support Centre. The company wrote-off loan accounts to a tune of UGX.6.198
billion and UGX.8.091 billon in the years 2012/2013 and 2014/2015 respectively. This is a
loss to government. There is urgent need to revisit the procedures and processes of
lending out the government funds.
100.6 MANDATE OF THE UGANDA NATIONAL BUREAU OF STANDARDS
Uganda National Bureau of standards (UNBS) is currently not able to effectively
enforce its mandate of enforcement of National Standards due to inadequate
funding, lack of core staff and old fleet of field vehicles. As a consequence of
inadequate funding;
UNBS can only deploy limited staff in 18 out of 54 entry points in the country;
of the required 400 national standards, only 150 can be developed;
of the more than 3000 locally made products, only 500 can be certified during the year;
only 800 market outlets can be inspected out of over 5,000;
of an estimated 1,000,000 weighing scales and other measuring instruments, UNBS can
only verify 500,000.
Only 800 out of over 20,000 product samples can be tested for compliance in the UNBS
laboratories.
Only 50,000 imported consignments out of 100,000 can be inspected.
There is a risk of counterfeit and substandard products entering the market and
consumers not being able to obtain value due to them. I advised Government to
improve funding of the Bureau to enable it execute its mandate.
101. SUMMARY OF GENERAL AUDIT FINDINGS
101.1 Delayed Completion of Contracts
It was observed that government contracts/projects in UETCL, UCC and DDA with various
funding amounts and had been on going or were started during the financial year lagged
behind the implementation schedule or demonstrated signs of failure. It was noted that
these contracts had exceeded their completion dates by up to three years. The delays in
contract execution were attributed to insufficient funding and inadequate supervision of
contract implementation by the responsible entities. The delays are potential causes of
increased project costs and failure to achieve objectives of the project.
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Table 1: Examples of delayed contracts
Name of Entity
Name of project Contract Amount (UGX)
Start Date
Completion date
Extended date of completion (if any)
Status by 31/12/14 & 30/6/ 15
UCC RCDF Digital Migration
39,600,000,000
1/7/2009 31/12/2014 Not complete
DAIRY DEVELOPMENT AUTHORITY (DDA)
Fencing, Plumbing and painting and roofing works) of the Dairy Training School in Entebbe
454,707,251 30/ 5/ 2015 Not complete
UETCL
Mbarara
/Nkenda, Tororo Transmission lines (132Km)
UA 52.5m GOU 63.6m
April 2013
March 2015 Not completed
UETCL
Hoima-Fort Portal-Nkenda 273KM Transmission lines (220KM)
NOks 300M UGX.39.36
July 2008
Jan 2013
Not completed
UETCL Kawanda-Masaka Substation 220/132Km
USD.9.58m GOU. 2.74 Bn
Jan 2012
August 2014
Not completed
UETCL NELSAP- Bujagali-Tororo, Mbarara-Mirama
ADB UA.7.59M JPY 5.41M UGX.66.4Bn
July 2013
Jan. 2015
101.2 Mischarged Expenditure
Expenditures from 6 entities totaling to UGX. 4,205,808,383 were charged on item codes
which do not reflect the nature of the expenditure. Such a practice impacts on the
credibility of the financial statements, since the figures reported therein do not reflect true
amounts expended on the affected activities. I however noted an improvement over the
last three years where mischarged expenditures have been reducing .There is still need for
accounting officers to enforce proper budgeting and strict adherence to the budget
provisions regarding reallocation of funds. Details are shown in the table below.
Table 2: Mischarged Expenditure
S/N Entity Amount Mischarged
(UGX)
1. The Uganda Tourism Board 309,819,107
2. National Agriculture research Organisation 66,500,000
3. National Animal Genetic Resource Centre and Data Bank 855,096,108
4. Uganda Industrial Research Institute 2,374,824,057
5. Uganda National Bureau of Standards. 599,569,111
Total 4,205,808,383
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101.3 Unaccounted for Funds
A total of UGX.495,066,683 inform of advances to staff, payments to service providers,
cash withdrawals, imprest, remittances to Districts, borrowings for carrying out activities in
various entities, remained unaccounted for by the end of the financial year contrary to the
Public Finance Management Act 2015 and the Treasury Accounting Instructions. Table 3
below refers. Delays in accounting for funds may encourage falsification of accountability
documents.
Table 3: Unaccounted for Funds
S/N Name of Entity Category Amount
(UGX)
1. National Youth Council Un supported expenditure 66,489,000
2. National Enviroment Management
Authority.
Unaccounted Advances 264,082,000
3. Uganda Tourism Board
Incompletely Vouched
expenditure
66,348,200
4. Uganda Tourism Board Unvouched expenditure 231,647,412
5. Uganda Tourism Board Doubtful expenditure 18,117,600
6. Nakivubo War Memorium Un acconted for Advances 539,438,714
7. Nakivubo War Memorium Un supported expenditure 134,753,962
8. Uganda Industrial Research Institute Unaccounted Advances 19,441,000
9. Uganda Export Promotion Board Unaccounted Advances 4,871,600
10. Uganda National Bureau of
Standards
Un supported expenditure 167, 903,493
11. Uganda Broadcasting Corporation Unaccounted Advances 400,456,283
12. Uganda Broadcasting Corporation Incompletely Vouched 76,856,000
13. Uganda Broadcasting Corporation Doubtful expenditure 17,754,400
Total 495,066,683
101.4 Non Compliance with Income Tax Act
During the year under review, 14 entities did not comply with the Income Tax Act 1997 in
respect to taxes amounting to UGX, 21,366,805,681. The non-compliance was in respect
of non-deduction of taxes worth UGX,73,457,960 and non-remittance of tax worth
UGX22,214,880,311 as shown in table 4. Failure to deduct and remit taxes to the Tax
Authority may attract fines and penalties from URA. While the practice impacts on the
collections by URA.
Table 4: Non-deduction and Non-remittance of Taxes
S/N Entity TAXES
Non
Deduction
Non-
remittance
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1. Uganda National Cultural Centre 7,842,482 0
2. Uganda Tourism Board 29,472,595 0
3. Uganda Electricity Generation Company Limited 0 813,549,792
4. National Council of Sports 21,767,327 0
5. Mandela National Sports Limited 9,042,196 644,431,692
6. Nakivubo War Memorial Stadium 0 563,341,936
7. Uganda Export Promotion Board 0 184,476,210
8. Posta (U) Ltd 0 4,152,532,580
9. Uganda Broadcasting Corporation 0 14,750,294,491
10. Uganda Institute of Communication Technology 2,463,000 0
11. NEC Headquarters 2,870,360 0
12. NEC Tractor hire scheme 0 119,402,190
13. NEC tractor project 0 42,411,461
14. NEC Works 0 96,365,329
Total 73,457,960 21,366,805,681
101.5 Outstanding payables
It was noted that a 29 entities entered into commitments beyond the available funds. This
is contrary to the commitment control system which requires the accounting officer to
commit Government within the provided funds. As a result, the above entities have
outstanding domestic arrears to the tune of UGX. 216,289,941,996 and Euros - 83,228 as
shown in table 5 below. Accumulation of payables beyond what the available funds can
accumulate may result into unnecessary litigation and their attendant costs.
Table 5: domestic arrears for the last three years
S/N Entity
Amount
(UGX)
1 Uganda Health Practitioners Council 10,760,867,661
2 National Forest Authority 10,493,376,000
3 Hotel and Tourism Training Institute 465,855,464
4 Kilembe mines ltd 4,700,000,000
5 Uganda Electricity Generation Company Limited 33,828,000,000
6 Nakivubo war memorial stadium 242,894,129
7 Mandela National Sports Limited 192,640,777
8 Uganda Registration Service Bureau 17,526,195,243
9 Law Development Centre 353,327,000
10 Uganda Broadcasting Corporation 30,841,178,841
11 Uganda Communications Communication 30,323,585,989
12 UICT 140,580,436
13 Uganda Retirement Benefit Regulatory Authority 14,671,295
14 NEMA 192,572,000
15 UNBS 1,113,468,063
16 Uganda Export Promotion Board 75,703,033
17 National Enterprise Corporation 598,631,982
18 NEC Headquarters 44,961,595
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19 NEC Tractor hire scheme Ltd` 553,670,387
20 Uganda Railways Corporation 24,091,141,949
21 Posta 15,549,969,730
22 Uganda Revenue Authority 28,067,458,424
23 Uganda National Council for Science and Technology 78,885,000
24 Uganda Development Corporation 76,636,000
25 Capital Markets Authority 477,744,000
26 UIRI 769,038
27 Uganda National Cultural Centre 976,911,224
28 National Library of Uganda 230,886,736
29 Joint Clinical Research Centre (PAYE arrears) 2,383,190,000
30 Joint Clinical Research Centre (Trade Payables) 1,894,170,000
Total 216,289,941,996
31 Bank of Uganda Euros - 83,228
101.6 Budget performance
Budget shortfall
I noted that nine (9) entities budgeted to either receive or collect a total of
UGX.94,930,480,954, out of which UGX.53,570,228,911 was collected translating into
a 56.4% out-turn for the financial year. This left a funding gap of UGX.41,360,252,043
(43.6%). Details are in the table 6 below. Failure to realize the budgeted funds by Entities
affects implementation of planned activities limits the achievement of their mandates. And
many times, the quality of service delivery by those entities established is greatly affected.
Table 6 Budget shortfall
N
o. Entity
Revised
Budget
Actual
Releases Variance
1 National Animal Genetic Resource
Centre And Data Bank (NAGRIC) 4,049,550,000 3,608,801,076 440,748,924
2 Dairy Development Authority (DDA) 5,044,202,000 4,340,000,000 704,202,000
3 Coordinating Office For Control Of
Trypanosomiasis In Uganda
(COCTU)
1,270,000,000 1,254,901,000 15,099,000
4 Uganda Railways Corporation 36,670,948,000 4,580,568,000 32,090,380,000
5 UICT 4,999,465,250 3,803,775,979 1,195,689,271
6 URBRA 6,000,000,000 5,900,000,000 100,000,000
7 Uganda Registration Service Bureau 15,368,375,560 14,358,205,802 1,010,169,758
8 UNBS
12,500,000,000 12,053,557,979 446,442,021
9 Uganda Development Corporation 4,482,787,000 2,077,998,475 2,404,788,525
10 UWTI 4,545,153,144 1,592,420,600 2,952,732,544
TOTAL 94,930,480,954 53,570,228,911 41,360,252,043
569
101.7 Irregularities in Procurements
I noted that a number of entities conducted procurements worth UGX.15,848,456,938
and USD 252,947in violation of the provisions of the procurement law and regulations as
shown in table 7 below. The violations were mainly in form of failure to supply as per
specification in the bid documents, failure to follow the evaluation criteria, procurements
not reported to PDU, non existence procurement units at the entities, absence of
procurement plans, and reports, non-functional Procurement and Disposal Units (PDU),
Unsupported Public Private Partnership arrangements, Direct procurement, use of non
prequalified Suppliers, un supported procurements, and emergency procurements with
unjustified reasons such procurements do not realize Value for Money and are prone to
abuse. Some may lead to outright loss of government funds
Table 7.
S/N Entity Amount
1 National Women’s Council 74,100,405
2 National Forest Authority 59,790,000
3 National Council For Higher Education 33,618,160
4 Uganda Tourism Board 7,499,999
5 Nakivbo War Memorial Stadium 200,000,000
6 National Council of sports. 27,015,600
7 Uganda Industrial Research Institute 3,843,526,574
8 Uganda Investment Authority 4,579,200,000
9 Uganda Property Holdings Limited 7,000,000,000
10 Uganda Broadcasting Corporations 23,706,20
Sub Total 15,848,456,938
11 Uganda Railways Corporation USD 252,947
Sub total USD 252,947
101.8 Outstanding Receivables
I noted that receivables of UGX. 155,130,467,299 and Euros 2,967 remained uncollected
by the various Government and Agencies by 30th June 2015 as summarized in table 8
below. There is a risk that the activities for which these receivables were appropriated were
not carried. The accumulation of payables could be partly attributed to the uncollected
receivables by the various entities.
Table 8: Outstanding Receivables
S/N Entity Amount
(UGX)
1 Uganda Health Practitioners Council 251,500,000
570
2 Uganda Tourism Board 9,000,000
3 Electricity Regulation Authority 910,736,547
4 Nakivubo War Memorial Stadium 580,695,592
5 Nambole Stadium 1,648,653,367
6 Uganda Registration Service Bureau-Gou 2,998,910
7 Uganda Registration Service Bureau-liquidation 8,052,490,354
8 Law Development Centre 431,970,800
9 Uganda Property Holdings Limited 6,870,971,287
10 Uganda Railways Corporation 16,325,102,000
11 Posta Uganda 12,727,659,702
12 National Information Technology of Uganda 11,185,631,926
13 Uganda Broadcasting Council 20,961,027,331
14 Uganda Communications Commission 29,744,805,694
15 UICT 549,557,013
16 Uganda Coffee Development Authority 1,403,008,069
17 National Environment Management Authority 9,515,724,000
18 National Enterprise Corporation Headquarters 317,666,860
19 National Enterprise Corporation Tractor Project 700,469,444
20 National Enterprise Corporation Luwero Industries 563,566,368
21 National Planning Authority 3,648,966
22 Public Procurement and Disposal of Public Assets Authority 98,438,073
23 Uganda Revenue authority 16,719,701,607
24 Uganda Investment Authority 8,926,515,389
25 Uganda Development Corporation 197,379,000
26 Capital Markets Authority 270,385,000
27 Microfinance Support Centre 282,984,000
28 Joint Clinical Research Centre (Long Term) 3,031,130,000
29 Joint Clinical Research Centre (Receivables) 2,595,550,000
30 Allied Health Professionals Council 251,500,000
Sub Total 155,130,467,299
31 Bank of Uganda Euros - 2,967
101.9 Staff Shortages
A review of the approved staffing structures of various Entities revealed 1584 vacant posts
in a number of entities, as shown in table 9 below. Inadequate staffing affects service
delivery by the affected entities which adversely impacts on the entities achievement of
their strategic objectives. The Accounting Officer attributed this to inadequate funds to
cater for the related wage bills.
Table 9: Staffing Gaps
S/N Entity Approved
Positions
Filled
Positions
Vacant
Posts
%age
1 Electricity Regulation Authority 67 53 14 20.9
2 Kilembe Miles 14 3 11 78.6
571
3 National Forest Authority 556 312 244 48.2
4 Uganda National Cultural Centre 60 32 28 46.7
5 Uganda Allied and Health Practitioners Council 45 34 11 24.4
6 Uganda Revenue Authority 2,392 2,264 128 5.4
7 Financial Intelligence Authority 39 18 21 53.8
8 Uganda Industrial Research Institute 560 225 335 59.8
9 Uganda National Bureau of Standards 562 236 326 58
10 Uganda Export Promotion Board 42 20 22 52.3
11 Uganda Investment Authority 78 52 26 33.3
12 Insurance Regulatory Authority 42 25 17 16.7
13 Uganda Railways Corporation 106 104 2 92.5
14 National Information Technology Authority
Uganda 208 53 155 36
15 Uganda Communication Commission 179 151 28 8.9
16 Uganda Institute of Communication and
Technology. 109 63 46 38.5
17 Uganda Retirement Benefit Regulatory
Authority 56 23 33 58.9
18 COCTU 24 15 9 37.5
19 Uganda Revenue authority 2,392 2,264 128 5.4
Total 7,531 5,947 1584 21%
101.10 Corporate Governance
Organisations established by Acts of Parliament, the Public Enterprises Reform and
Divestiture Act (Cap 98) and The Companies Act, Cap 110 are required to have governing
bodies and other structures to enable good stewardship of public resources under their
care. Review of governance practices in a number of organisations revealed weaknesses as
summarised in the table 10 below refers;
S/N Entity Remarks
1. Management Training and Advisory Centre Non- existence of Internal Audit
2. Nakivubo war memorial stadium Lack of strategic plan
3. The Nile Hotel International Limited Un limited tenure of the Board.
Non implementation of the strategic
plan
4. Uganda Broadcasting Corporation Lack of Governing Board
Lack of Corporate plan
Non-existence of Internal Audit
Non-existence of Audit Committee
Lack of stores
Lack of Board of Survey report
Lack of a debtors policy
5. National Enterprise Corporation-HQs Term of the board expired
6. National Enterprise Corporation-Luwero
industries
Lack of governing board
7. Uganda National Council for Science and
Technology
Lack of governing board
572
8. Uganda Development Corporation
Lack of governing board
Lack of Internal Audit
101.11 Land matters
Land issues continued to affect a number of entities and a number of instances have been
noted where entities have continued to lose land through encroachment. A number of
others had not valued their land while others had not updated their Asset Registers with
the details of their land. I noted that the Uganda Land Commission which is mandated to
hold Government Land in trust does not have an updated register of all the land it holds in
trust for Government. There is a need to address land issues in Government Institutions.
Table 11 below refers;
Table 11: Land Issues
No Entity
No updated asset register/No asset Register
Assets not valued /revalued
No titles/Expired leases/land encroachment/dilapidated structures/Impairment of Assets
1 MTAC √ √
2 Kilembe mines √
3 Uganda Electricity Generation Company Limited
√
4 Mandela National Sports
Limited √
5 Law Development Centre √ √
6 Uganda Broadcasting corporation
√
7 Uganda Railways Corporation √
8 Posta √
10 Dairy Development Authority √
11 Bank of Uganda √
12 UIRI √
101.12 Expenditure on Rent
During the year, I noted that a number of entities remained with unsettled rent arrears
amounting to UGX. 1,191,356,006. This rental expenditure is a constraint on Government
resources. There is need for Government to evaluate continued payment of rent as
opposed to construction of its own premises. Table 12 refers;
No. Entity Name Arrears
1. Uganda Registration Service Bureau 462,463,875
2. Financial Intelligence authority CFIA 214,000,000
3. Uganda Retirement Benefit Regulatory Authority 447,492,131
573
4. National Library of Uganda 67,400,000
Grand Total 1,191,356,006
574
ENERGY SECTOR
102. KILEMBE MINES LIMITED - YEAR ENDED 30TH JUNE, 2015
102.1 Uncleared loan balance
Included in the Non-current liabilities, under Note 12, is a Loan from Ministry of Finance,
Planning and Economic Development (Privatisation Unit) amounting to UGX4,700,000,000
which has remained outstanding for a long time inspite of the fact that the company’s role
has changed and is now there to monitor the performance of the concession only. With no
clear income sources, it is highly unlikely that the loan will be settled.
I advised management to have the loan settled through the concession proceeds that are
paid directly to Privatization Unit.
102.2 Impairment loss
As explained in note 3, Kilembe Mines Limited (KML) impaired its investments in Kasese
Cobalt Company Limited (KCCL) by UGX.11,085,885,120. This was after KCCL posted a
negative total equity of USD.40.9 million and had ceased its business operations of cobalt
processing. The investment has never economically been viable and no dividends were
ever paid by KCCL.
As at 31st December 2014, the major shareholder (75%) had an outstanding Shareholder
loan of USD.48.96m therefore KML is likely to incur more costs in settlement of outstanding
liabilities from the venture.
102.3 Lack of an investment Plan
Section 3.2.7.2 of the concession agreement requires that the Concessionaire prior to the
procurement or acquisition of any one or group of conceded assets financed by the
concessionaire, submit to KML an investment plan consistent with the applicable feasibility
report, in a form to be agreed by KML and the Concessionaire indicating:
a) The proposed specifications of the assets to be procured or details of the investment to
be made.
b) The number of assets to be procured and amounts of other inputs required.
c) The proposed procurement methods, for information only; and
d) The estimated cost separated into the aggregated cost of items to be procured and
other costs to be incurred, for information only at this stage.
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Contrary to the above, the Concessionaire had not provided KML with an
investment plan by the time of the audit despite procuring items worth USD3,796,121.
None of the procured items were agreed upon between the concessionaire and KML. This
violates the terms and conditions of the concession agreement, and also casts doubt on
whether the procured equipment would achieve the intended purpose. Management
explained that the submission date of the feasibility report was 30th September 2015 and
that although the investment plan has not been submitted, any items so far procured by
the Concessionaire before the investment plan is availed will not be part of the Assets
accounts to be maintained by KML.
I advised management to ensure timelines are adhered to and that the concession
agreement is complied with.
103. UGANDA ELECTRICITY DISTRIBUTION COMPANY LIMITED- YEAR ENDED – 31ST
DECEMBER 2014
103.1 Non Compliance with the Lease and Assignment Agreement
According to the Lease and Assignment Agreement (LAA) the Government of Uganda was
required to open an escrow account and liquidity facility which provides a pool of funds
meant to reimburse UMEME Ltd for losses in case of the specified events occurring.
The account is managed by Citibank Uganda, the escrow agent who determines when
withdrawals can be made by UEDCL in line with the set limits. At the end of the concession,
the fund is expected to have reached USD. 20million.
In 2012, the Regulator, (ERA) suspended UMEME Escrow account funding obligation
through lease fees under the Concession agreement, citing high tariffs.
During the audit, it was noted that whereas UEDCL had made efforts to ensure that the
suspension is reviewed by ERA, the Escrow account had a negative balance of
UGX.33,000,000 as at 31st December, 2014 instead of growing it towards the expected
level of USD 20 million. This is composed of charges incurred by UEDCL to service the
account. This not only implies non-compliance with the Lease and Assignment Agreement
provisions which may negatively affect future investments in the sector but also wasteful
expenditure by UEDCL which drains their meagre resources.
Management explained that UEDCL will continue to engage all the parties until all the
provisions in the LAA are fulfilled.
576
I advised the company management to ensure that the parties to the Lease and
Assignment Agreement comply with all provisions of the LAA.
103.2 Irregular capitalization of UMEME assets using Work in Progress (WIP)
During the field visits to verify existence and status of completion of asset additions
submitted by UMEME to UEDCL for capitalization, we noted that some assets had been
forwarded for capitalization by UEDCL as of 31st December 2014 and yet work was still on-
going during the subsequent year (as at 28 February 2015). For example, Technical Loss
Reduction Kisubi Ssisa feeder had UGX.2,468,772,374 capitalized by UMEME and delivered
to UEDCL and yet works were still on going as evidenced by release of materials dated
06/01/2015 and 19/01/2015 among others.
Further review of documents at UMEME revealed that 85% of the works had been
completed as at 29th December 2014. Although the Project Manager explained that the
project was 100% completed and that 15% of the contract amount was withheld to ensure
that all materials were returned by the contractor, his explanation contradicted the
continued release of materials for works. Earlier capitalization would mean a higher return
on the capitalized assets by the end of the concession agreement. This may be deemed
incorrect reporting.
Efforts to get clarification from UMEME on the same matter were rendered futile as the
project management did not pronounce themselves on what exactly was capitalized and
how the additional materials were treated thereafter. On the other hand, it was noted that
UEDCL lacked adequate capacity to monitor/ carry out verification of assets added by
UMEME on the grid to determine the level of completion.
Inadequate capacity by UEDCL to monitor/ verify assets added by UMEME on the grid could
also lead to gaps for non-compliance to the Lease and Assignment Agreement by UMEME
and there is a possibility that assets are not fairly stated in the financial statements.
Management explained that they only inspect what has been declared completed and
capitalized by UMEME. Only assets presented on the assets addition register as required by
the LAA every 1st February of the following year are inspected for their existence,
completeness as previously approved by ERA, before being considered for ROI. The
mentioned Kisubi project had not yet been verified due to having not been approved by
ERA as an investment to be implemented in year 2014.
They further stated that materials reconciliation continues, even after project physical
completion to check how the contractor deployed materials against the approved BOQ’s.
The final reconciliation is done upon expiry of the defects liability period. Any variances are
577
then netted off / off- set from the retention due to the contractor. The final asset
value is arrived at after the field verification and a computation is done against actual
inputs and other costs involved.
104. UGANDA ELECTRICITY GENERATION COMPANY LIMITED - YEAR ENDED 31ST
DECEMBER, 2014
104.1 Impairment of Assets
In my previous reports to Parliament, I had observed that the company’s plant was
operating below 50% of the installed capacity which was an indication that the plant could
be impaired. During the year, the Company performed an impairment assessment of the
plant as required under IAS 36 which resulted into an impairment of UGX.138 billion.
However, the corresponding impairment loss (UGX.138bn) has not been accounted for in
the Company’s financial statements. In the circumstances, the reported PPE and Equity
have been overstated by UGX 138bn respectively while the Loss before tax for the year has
been understated.
In response, management explained that UEGCL Board decided not to write off the value
of the plant worth UGX.138 billion; but to pursue the restoration of full concession fees
billing to be approved by ERA in setting the electricity tariff rate- through MOFPED.
I advised management that, as they pursue the option with ERA, they should ensure
reporting standards are adhered to by recognising the impairment loss.
104.2 Debt Service and Depreciation Fee Components
In my previous report to Parliament, I noted that whereas the Concession and Assignment
Agreement between the Company and the Operator of the plant, Eskom Uganda Limited,
granted the former a right to charge debt service and depreciation components as part of
the concession fees, they were not included in the tariff methodology for the year approved
by Electricity Regulatory Authority. A review of this matter revealed that that the status had
not changed by the time of audit. Therefore, the revenue for the year is understated and
the interest and depreciation expenses are not matched with revenue.
In response, management explained that ERA has continued to deny UEGCL the right to
bill depreciation and Return on Equity to Eskom contrary to the Concession and
Assignment Agreement. Management further indicated that as regards the debt service,
Government allowed the Company to convert the debt to equity. This position would thus
necessitate an amendment of the Concession and Assignment Agreement, which was not
done.
578
I advised management to take up the matter with the Authority with a view to reviewing
the Concession and Assignment Agreement.
104.3 Conversion of Government of Uganda Loans to Equity
In my previous report to Parliament I observed that Government of Uganda loans were
converted to equity effective 31st December, 2013. However, the conversion was not
adequately supported with the necessary approvals including filing of shareholders’
resolution with the Registrar of Companies and Parliament’s approval as at the date of the
conversion.
The status has not changed during the year. In the circumstances, the conversion is
unauthorised thus the amounts reported in loans and equity are understated and
overstated respectively by UGX 105.2 bn.
In response management indicated that in addition to the AGM held on 20th June, 2014,
where it was agreed to covert Government lending to Equity as supported with the letter
the Permanent Secretary/Secretary to the Treasury, MoFPED dated 10th February 2014, the
PERD Act allows them to convert loans to equity without Parliamentary approvals.
I informed management of the requirements of the Public Finance and Management Act
(2015) that require the Minister to seek Parliamentary approvals prior to conversions of
loans.
104.4 Long Outstanding Balances due to Government
In my previous report to Parliament, I noted that the amount due to Government of
Uganda of UGX.33.828 billion included under Note 22 in the financial statements was not
adequately supported with specific documents and confirmation from Government of
Uganda. Although management had indicated that these balances related to the
depreciation charge on property, plant and equipment for the year 2001 and accumulated
accrued interest taken from Uganda Electricity Board and had scheduled to request a write-
off at the next AGM, this was not done. The supporting documents have also not been
presented.
In view of the foregoing, I could not confirm whether the reported amounts were derived
from underlying records.
I advised management to provide the necessary supporting documentation.
104.5 Contributions from Government of Uganda
As indicated in note 20, during the year, the Government of Uganda, through the Ministry
of Energy and Mineral Development disbursed UGX.5.99 billion to facilitate the supervision
579
of Karuma and Isimba Hydro Power Projects.
104.5.1 Wrong Classification of as Equity
The contributions have been accounted for under equity. The classification as equity is,
however, not supported with shareholders’ resolutions and would also require a
Parliamentary approval. Furthermore IPSAS 23 requires that such grants are treated as
either Grant Revenues (grants without conditions) or Liability (grant with conditions). In
the circumstances, the company’s equity is overstated.
Management promised to follow up the approvals in the next AGM. I advised management
that in the absence of such approvals, adjustments to the financial statements be made.
104.5.2 Double Funding Of Activities
Of the amounts received, UGX.1,999,669,600 was spent during the year. The amounts
spent during the year included UGX.1.8 billion, relating to project staff salaries for the
Karuma and Isimba projects, which had already been budgeted, approved and paid from
the concession fees. In addition to having budgeted and received approval from ERA to
finance those payments, UEGCL also went ahead and sought financing from MEMD for the
same activities. Much as the project staff were paid only one salary, there is a risk that the
company could use the extra funding for expenditure on unbudgeted activities.
Management explained that the Ministry of Energy and Mineral Development (MEMD)
transferred staff within its Hydro power unit to UEGCL in 2009 to support supervision of
new hydro power plants development (i.e Karuma, Isimba,etc); but there was no funding
from the MEMD until December, 2014. For each of those years 2009-2013 funding for HPU
was done under concession fees except 2014 when UEGCL got funding from MEMD- This
was the only practical solution in the circumstance. More so, UEGCL never gets full funding
from Eskom as per the CAA agreement. They also stated that the UGX.1.8bn which was
recovered from MEMD had been put on fixed deposit account.
I advised management to ensure proper reconciliation of activities included in the various
funding sources, so that they are not funded by more than one source.
105. UGANDA ELECTRICITY TRANSMISSION COMPANY LIMITED - YEAR ENDED 31ST
DECEMBER, 2014
105.1 Deemed energy purchases
UETCL has contracts with power producers where by it is obligated to purchase all available
580
units of electricity whether or not they are consumed. The power paid for but not
evacuated is referred to as deemed energy purchases. It was noted that the company
incurs high costs relating to deemed energy purchases, as indicated below;
Table showing annual deemed energy purchases
Power
Producer
Cost incurred in 2014
(UGX)
Cost incurred in 2013 (UGX)
Hydromax 8,610,000,000 12,499,000,000
Tronder 113,000,000 394,000,000
Eco power 793,000,000 732,000,000
Total cost 9,516,000,000 13,625,000,000
This challenge is mainly attributed to low demand and limited distribution and transmission
networks.
Payments for deemed energy purchases is nugatory and puts a constraint on funds
available for working capital requirements and operations.
Management explained that deemed energy cost in IPP capacity contracts are a standard
norm in Energy Sector contracts worldwide.
I have advised management to address the infrastructural constraints in the transmission
networks to ensure more power is evacuated.
105.2 ERT - UGANDA ENERGY CREDIT CAPITALISATION COMPANY – 30TH JUNE 2015
105.3 Mischarged expenditure
During my review, I noted that management charged a sum of USD 3,145.41 on
inappropriate budget line items which did not reflect the nature of the expenditures. This
practice not only makes tracking of budget performance per item in line with the approved
budget difficult but also results into misrepresentation of expenditure balances in the
financial statements.
I advised the Accounting officer to ensure adherence to the approved budgetary provisions
and to seek authority for reallocation from the board whenever there is a justifiable need.
106. ERT II – RURAL ELECTRIFICATION AGENCY –YEAR ENDED 30TH JUNE, 2015
106.1 Malpractices in the implementation of the solar subsidy program
The Rural Electrification Board signed contracts with various solar PV companies with an
objective of installing subsidized solar panels to various end-users (individual and
commercial). Upon verification of the installations by the auditors, REA disburses the
subsidy amounts to the companies.
581
An independent audit of the operations of the solar PV companies by the Internal Audit
department revealed a number of anomalies, some of them with intention to defraud the
Agency;
Some companies invoiced REA for systems installed using the cash supply method
contrary to the contracted credit facility method or pay-plan model. This increased the
risk that a company would sell the panel at full cost and still invoice REA for the
subsidy.
Subsidies were claimed for beneficiaries reported as being members of SACCOs where
as they were not so as to cover up the cash sales.
Some companies claimed for non-existent installations.
Some companies invoiced REA for systems at the commercial rate yet they were in fact
solar home systems.
REA was invoiced for solar panels that had been donated by third parties or fully
sponsored by NGOs.
Instances were found of the same systems billed twice with different names and phone
numbers.
Many beneficiaries continued to pay for after sales services even in the warranty period
i.e. bulbs, transport, panel cleaning etc.
Despite the above findings it was noted that the companies implicated continued to
operate under the solar subsidy program and were paid a total of UGX 732,428,850 during
the year.
Doing business with service providers who are not truthful has a high reputation risk.
The Accounting Officer explained that;
An investigative review was carried out and each of the companies with anomalies was
asked to respond accordingly. The companies that had immaterial anomalies were then
asked to rectify them before any further payments were made.
Three (3) solar companies that were suspected to have committed fraud were given
letters of intent to terminate the respective subsidy agreements and no further
payments have been made to them.
The Board terminated the services of the PVTMA Contract Management team for gross
negligence and also instructed management to determine the full extent of the
anomalies against the implicated companies as a basis of taking more measures against
them.
582
I advised the Accounting Officer to strengthen the monitoring of these operations and hold
the implicated companies accountable. All funds improperly invoiced and paid to these
companies should be recovered.
106.2 Non-compliance with contractual obligations by board and solar companies
Clause 7.12 of the contract between the Rural Electrification Board and the solar companies
requires representatives of the board and the Solar companies to meet on a quarterly basis
to evaluate the progress or implementation of the project.
It was however noted that no quarterly meetings have been held by both parties. Without
the expected meetings and regular monitoring, it is difficult to continuously assess
performance of the scheme and take any corrective measures in case of any shortcomings.
I advised Management to ensure that the quarterly meetings are convened and progress
reports prepared and reviewed for any possible intervention.
106.3 Lack of an efficient solar subsidy awareness program
Under the PVTMA Manual and in their respective contracts, the solar companies were not
obliged to create awareness of the subsidy. As a result it was noted that there were no
sensitization programs to enable end users of the solar equipment to understand and
appreciate the subsidy. It was also noted that the end-user auditors with-held information
from the system owners.
Without the awareness programs, there are risks such as the consumers not being aware
of the pricing and how much they were required to pay.
The Accounting Officer explained that this program targets a specific segment of the
population (the rural poor) residing in locations distant from the national grid who cannot
afford to meet the upfront cost of the initial installation. The most effective communication
strategy was therefore to develop and distribute materials to these specific audiences. In
addition the end-user auditors were also required to sensitize the beneficiaries usually at
the time when they went out to undertake field verifications prior to making
recommendations for subsidy disbursement.
I advised the Accounting Officer to put in place a proper sensitization program so as to
mitigate the risks and possible losses.
583
106.4 Improper management of Audits by end-user auditors
The Rural Electrification Agency Board signed contracts with various private engineering
consultants to undertake end-user auditing and verification of solar PV systems installed by
PV companies through the PVTMA program to enable REA disburse consumer subsidies.
However, details from the review of the internal audit report indicated that the private
auditors did not do what they were engaged to do. The following issues were particularly
noted;
The end-user auditors did not consistently verify the PV installations as a result, the
consultants invoiced REA and got paid for services not done in respect of systems they
did not actually inspect.
REA was furnished with insufficient and inaccurate information about beneficiaries.
Some consultants surrendered 19 of their audit system verification stickers to 2 PV
companies for purposes of affixing them to installations without carrying out physical
inspections.
A number of inspection reports had beneficiary information that had been altered by
the end user auditors or the company like phone numbers, names and locations
As a result of not having this undertaking well executed, there were a number of anomalies
as observed above in paragraph 6.4.
The Accounting Officer explained that the group of 3 (three) end-user auditors who were
the subject of the investigative audit review had been identified and had pending claims for
professional fees of UGX. 17.6 million which will not be paid to them because of their
involvement in the mismanagement of the PV Subsidy Program. He also indicated that any
payment that was made for non-existent installations will be refunded by the companies.
As a way forward, Internal Audit was undertaking field verifications before payments for
professional fees are effected.
I advised the Accounting Officer to strengthen the monitoring of these solar PV operations
and ensure proper verification of the work of the end-user auditors before they are paid.
584
107. ESDP- KAWANDA- MASAKA POWER LINE – YEAR ENDED 30TH JUNE 2014
107.1 Delays in funding of the project
I noted that the flow of funds from Ministry of Energy and Mineral Development to Uganda
Electricity Transmission Company Limited for project implementation is slow. According to
budget estimates for the Resettlement Action Plan (RAP), out of UGX.49,812,025,242
expected to have been received by December 2014, only UGX.31,052,912,826 was
received thus causing a shortfall of UGX.18,759,112,416. This shortfall adversely affected
the compensations made to PAPs which eventually will delay the handover of the
transmission corridor.
Management explained that they had engaged the stakeholders and brought the issue to
their attention. They expected that adequate releases for the project will be made in
future.
108. ERT II – UGANDA COMMUNICATIONS COMMISSION – YEAR ENDED 30TH
JUNE
108.1 Project Progress
The project registered different levels of progress at the end of June 2015 as outlined
below:
a. Computers for Health ICT facilities
During the bidding process, Farmco Ltd emerged the best evaluated bidder at USD 285,000
compared to the budgeted figure of USD 380,000. To date, Farmco Ltd has completed
deploying ICT equipment in 19 Health centres. ICT equipment for additional 11 health
centres have been procured using savings on the Education and Health ICT budget. The
deployment of this equipment has been completed by Access IT (U) Ltd.
b. Last mile broadband project
Due to the closure of the project, no activities took place during the year under review.
c. New Communication Information Centers
Due to the closure of the project, no activities were carried out during the year.
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109. INTERCONNECTION OF ELECTRICAL GRIDS OF NILE EQUATORIAL LAKES
COUNTRIES (NELSAP) UGANDA – YEAR ENDED 31ST DECEMBER 2014
109.1 Diversion of RAP funds
RAP funds were diverted to meet expenditures not related to RAP. For example, it was
observed that USD 755,656 was used to pay for customs taxes on equipment for
construction of sub stations and transmission lines. As a result, compensation of PAPs was
delayed thereby delaying vacation from the corridor.
Management explained that the GoU Budget speech for FY 2014/15 allocated funds and did
not segregate whether GoU contribution was in form of taxes or not and that government
contribution includes all expenditure that is not donor funded.
The payment of taxes using available funds was a mitigation measure to alleviate a crisis
with the in-transit cargo.
I informed management that the initial RAP budget did not include taxes and that all
government contribution should be allocated towards defined project codes or items.
Appropriate approvals should be obtained before EPC taxes are paid out of RAP funds.
109.2 NELSAP Physical implementation
I noted significant delays in implementation of the project and it is still not clear when the
completion of the projects will be attained.
A field inspection audit of the project was undertaken. Through meetings and interviews
with contractors, PAP supervising team, project supervisors and document review, a
number of weaknesses were identified as highlighted below together with their associated
risks and management response:
a) There were delays in handover of sites to the contractor as a result of delay in settling
the claims of PAPs and RAP. Details below;
Description LOT A LOT B
Total tower spots required to be cleared by UETCL
402 208
Total cleared tower spots reported by UETCL PAP
team
353 193
There where cases where revalued PAPs rejected the compensation mainly the Mbarara
- Mirama power line. Delays in handover lead to the vicious cycle of low absorption of
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funds, probable price variations of contract prices by contractors and ultimately late
project delivery.
Management explained that RAP has posed challenges like land disputes, repeated
rejections of valuations approved by the CGV. The outstanding PAPs cases have been
escalated for compulsory acquisition while re-engaging them in further negotiations.
Meanwhile a constitutional change in the land law has been suggested and a cabinet
decision is awaited.
b) There was a delay in processing of EPC payments to contractors with invoices for EPC
amounting to USD 1,821,360 during the year ended December 31, 2014. This may
result in interest payments and ultimately escalation of project costs to the
Government. This also constrains the contractor’s cash flows hindering them to perform
as per contract terms.
Management explained that the delays were routed from Invoice reviews and
reconciliations but that the process has improved.
c) Failure for contractors to mobilize resources in time. For example LOT A and B had not
procured sufficient material for tower erections and stringing. This causes further
delays.
Management explained that some of the material quantities could not be determined
earlier on due to lack of access to the tower spots because of compensation
constraints. Complete orders for materials could not be effected then. Nevertheless, for
Lots A & B, the contractor has to date placed orders for the materials.
d) The power line contractors and UETCL PAP field supervision teams do not have
adequate physical security to access locations of the hostile PAPs on the transmission
lines. There is a risk of PAPs physically attacking staff hence putting their lives in
danger. Management promised to consider provision of security for UETCL staff.
e) UETCL-NELSAP management has not implemented AfDB supervision recommendation
within the stated time frame. Such non-compliance to funder’s requirements may lead
to funding cuts.
Management stated that some of the issues are tagged on handing over the corridor to
the contractor. Engagements with the CGV, Land Ministry, and other stake holders have
been made and will continue until the compensation process is complete.
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f) The borrow pit at the new Mbarara substation is not restored after use contrary to
the NEMA Act. Such Non-compliance with the NEMA guidelines may lead to accidents
for both contractors and the surrounding stakeholders.
Management promised to issue instructions to restore it in the event that its use will not
be required.
g) Lot A & B do not have health and safety team members at the sites contrary to HSE
provisions. Management stated that the contractor has been implored to comply with
the HSE requirements in the contract.
Arising out of the above observations and risks identified, I have recommended to
management that:
As they pursue the option of constitutional review to allow them compulsory access
and acquisition of land, currently the acquisition of right of way should be expedited to
allow the contractors access to the corridor. This will require engaging PAPs, Chief
Government Valuer (CGV) and district local governments to have the challenges
involving land disputes and compensation addressed.
In future, proper planning should be undertaken to ensure that acquisition of land is
done immediately after securing external financing but before engagement of
contractors.
They ensure prompt processing and payments of contractors’ invoices as agreed upon
in the contract.
they should consider applying liquidated damages to contractors in cases where the
delay is caused by them.
Health and safety standards are enforced.
110. MBARARA NKENDA & TORORO POWER TRANSMISSION LINES PROJECT – YEAR
ENDED 31ST DECEMBER 2014
110.1 Litigation relating to Resettlement Action Plan
UETCL is a defendant in legal cases relating to unsettled disputes with Project
Affected Persons (PAPs). The total estimated cost of settlement in case judgments
were passed against the project is UGX.1,850,000,000 (USD 688,771). This would
have an effect on project cash flows hence affecting project implementation.
Project management is in the process of negotiating with the claimants and has settled
some of the disputes out of court.
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111. UGANDA ELECTRICITY TRANSMISSION COMPANY LIMITED BUJAGALI
INTERCONNECTION PROJECT FOR THE YEAR ENDED 31ST DECEMBER
2014
111.1 Reallocation of RAP Funds to pay project taxes
According to the Financial Policies and Procedures Manual March 2014, section
4(4.1) the Company shall prepare its budgets in line with the Corporate Business
Plan, with the budget acting as the key determinant for the allocation of resources.
Contrary to this provision project management reallocated Resettlement Action Plan
(RAP) funds amounting to UGX.419,674,042 to settle import taxes.
Delayed compensation of Project Affected Persons (PAPs) hinders acquisition of the
Right of Way (ROW) thereby impairing implementation of the project activities.
In response management attributed the anomaly to change of government policy,
whereby gross tax system for clearance of custom taxes was deferred in the
2014/2015 budget speech and instead the cash payment system was introduced
thereby necessitating use of RAP funds to pay taxes.
I advised management to always adhere to the budgetary provisions to ensure
timely implementation of planned RAP activities.
111.2 Failure to recover VAT
It was further noted that whereas Section 28 (2) of VAT Act, Cap 349 states that;
“Where section 26 applies for the purposes of calculating the tax payable by a
taxable person for a tax period, a credit is allowed to the taxable person for any tax
paid in respect of taxable supplies to, or imports by the taxable person where the
supply or import is for use in the business of the taxable person.” Also section 31
(2) requires this information to be presented to the commissioner in form of
monthly returns, showing the input tax and credit refund claimed.
It was however noted that UGX.419,674,042 paid as VAT by UETCL in respect of
imported transformers was not claimed as credit refund or offset during submission
of the monthly returns to the tax authority.
Failure to offset or make necessary claims may result into loss of funds as
subsequent taxes are paid in cash.
589
In response management attributed the anomaly to delayed submission of Goods
Dispatch/Exit Notes by the company clearing Agents and indicated that the claims
shall be submitted as soon as practicable.
I advised management to follow up the claim without further delay.
112. RURAL ELECTRIFICATION AGENCY FOR THE YEAR ENDED 30TH JUNE, 2015
112.1 Outstanding Compensations for Way Leaves
According to the laws of Uganda, REA is required to compensate property owners in
respect of property acquired along the way leaves. However, it was noted that a total of
UGX.13,540,014,003 in respect of compensations for way leaves remained unpaid at the
year end. Audit further noted an annual increase of 69% from UGX.8,009,101,923 of the
previous year.
Continued failure to pay these obligations may result into costly legal challenges, interest
payments and also stalled electrification projects.
In response, management explained that the matter had been raised with the Ministry of
Finance, Planning and Economic Development to either provide adequate funds for settling
the liabilities or to amend the relevant laws to make way leaves for rural electrification
projects free as the case is in other African Countries.
I await the outcome of the consultations.
112.2 Outstanding Receivables
Included in the receivables of UGX.54,964,286,007 is a sum of UGX.44,237,351,985 due
from UETCL (UGX.41,532,351,985) and Ferdsult (UGX.2,705,000,000), some of which
dates as far back as F/Y 2010/2011. The amount owing from UETCL is in respect of the
5% transmission levy on bulk purchases of electricity from the generation companies while
that from M/s Ferdsult stems from lease rentals not paid by the company over the years.
Responses from M/s Ferdsult attributed the receivables to failure to meet their connection
targets against which the lease rentals are pegged. This has not yet been verified by the
Agency.
These receivables, which equate to almost 50% of the Agency’s budget, affect the entity’s
operating cash flows and hence delay implementation of other projects and activities.
In response, management explained that UETCL maintains that MoFPED has not refunded
them the money that was used to pay generation companies and yet the regulator refused
590
to include the 5% fee due to REA in the tariff. Besides, UETCL is unable to remit the 5%
Levy because Umeme has withheld payment due to non-payment by MDAs.
I advised management to engage the various stakeholders and ensure that outstanding
receivables are settled without further delay.
112.3 Outstanding Payables
Included in the statement of financial position is a payables balance of UGX.20,803,450,430
relating to sundry creditors, committed creditors, outstanding compensations and
withholding tax. This amount has increased by 35 % from the previous financial year.
These liabilities have accumulated over the years and may attract additional costs in form
of litigation and associated interest charges if not settled.
In response, management explained that apart from the bulk of the outstanding payables
that relate to way leaves compensations, the other creditors arose because of the
suspension of the remittance of the 5% Transmission Levy by UETCL. This has affected the
Agency’s cash flows.
I advised management to ensure that funds are mobilized to settle the outstanding
commitments before they become unmanageable.
112.4 Failure to refund donor funds
I noted that UGX.4,235,457,970 relating to tax rebates for donor funded projects were paid
out of the NORAD (donor) account irregularly. The amount has been outstanding since the
previous financial year. This is contrary to the guidelines set out for donor funded projects
and could subsequently lead to a termination of donor funding for the project thus causing
project implementation delays.
In response, management explained that during the financial year, REA did not receive
adequate funds from Government to enable a refund to be made to the NORAD account. In
addition, the 5% Levy from UETCL which could have been used as a fall-back position to
effect the refund was also not forthcoming.
I advised management to liaise with MoFPED, ERA and UETCL to find a lasting solution to
funding of the Agency to ensure such liabilities are settled to avoid depicting a bad image
of the country.
591
113. ENERGY FOR RURAL TRANSFORMATION PROJECT II (FUNDED BY THE
GOVERNMENT OF NORWAY) FOR THE YEAR ENDED 30Th JUNE, 2015
113.1 Use of donor funds to pay taxes
Article IV of the funding agreement requires that the Agency uses GOU counterpart funds
to defray any customs duties, sales taxes and other taxes, fees and levies on all
equipment, materials and supplies financed by the grant and imported into Uganda for the
benefit programme.
It was however noted that the Agency used UGX.4,235,457,988 from the donor funding to
pay for taxes contrary to the financing agreement guidelines. Included in this figure is
UGX.2,988,066,465 which has been outstanding from the previous financial year. Diversion
of donor funding delays implementation of planned activities and may result into sanctions.
Management explained that the donor had agreed to the proposal to utilize the outstanding
GOU counterpart funds on the extra construction works.
I await the outcome of Management’s commitment in this regard.
592
HEALTH SECTOR
114. ALLIED HEALTH PROFESSIONALS COUNCIL-YEAR ENDED 30TH JUNE 2015
114.1 Failure to transfer subvention funds by Ministry of Health
Council budgeted for UGX.75, 000,000, as subvention from the Ministry of Health, for
purposes of facilitating Council activities during the financial year 2014/2015. However
examination of the accounts revealed that no funds were received and thus no expenditure
was reflected to this effect.
The Accounting Officer acknowledged that they could not recognize the funds as revenue
because the Ministry of Health did not send the money to AHPC.
However, a follow up with the Ministry of Health indicated that payments were made to
individuals in the Council by the Ministry instead of transferring the money to AHPC to be
spent on their planned activities. This practice by the Ministry does not only deny the
Council management to monitor the use of their resources, but could also lead to diversion
of the funds.
I advised the Accounting Officer to follow-up with the Ministry management and ensure
that the subvention funds are transferred to AHPC bank account to enable them plan for
and use the funds for their prescribed activities.
114.2 Slow rate of recovery of Receivables
Best practice requires that an entity institutes debt recovery mechanisms that ensure debts
are recovered promptly. It was noted that the Council was not promptly collecting its
debts as only UGX.40,700,000 (13.9%) realized was collected from the outstanding
receivables of UGX.292.2m reported in 2013/14 financial year.
Long outstanding receivables represent idle assets which constrain availability of funds for
the Council’s activities.
This was attributed to poor collection methods, failure to set payment terms that favor the
operations of the Council and staffing gaps.
The Accounting Officer explained that measures to recover outstanding debts from
professionals had been put in place by giving 10% commission to Regional Supervisors on
recovery of penalties and sending SMS alerts to debtors reminding them to pay their dues.
I advised the Accounting Officer to institute a comprehensive debt management policy and
enforce it accordingly.
593
115. NATIONAL DRUG AUTHORITY - YEAR ENDED 30TH JUNE 2015
115.1 Litigation Cases at the Legal Department
During audit, it was noted that NDA was involved in a number of litigation cases which
were at diverse stages. Although these cases are of interest to stakeholders, the outcomes
and/or the amounts of the obligations cannot be measured with sufficient reliability. Due to
this limitation, their impact on the financial statements could not be determined. The
outstanding cases include the following.
No. Case Summary Amount Involved
1 Mavid Pharmaceuticals Ld vs. NDA and 2 others, Civil
suit No. 383 of 2010
3,082,895,000
2 NDA vs. Samuel Kasozi and 2 others High Court Civil
Suit No. 148 of 2009
398,130,876
4 Dr. Livingstone Kityo Semakula and others vs. NDA and
Jeffery Kamya Semakula
118,000,000
5 Signa- Chemie Enterprises (U) Ltd & 519 others vs.
NDA
110,000,000,000
Management in its response acknowledged the cases in court and stated that as a body
corporate and a regulator, it was prone to litigation.
I advised management to ensure due diligence is always undertaken in carrying out its
work in order to have higher chances of obtaining favourable court outcomes.
115.2 Understaffing at head office and regional centres
In my review of the authority structure both at head office and regional offices, I noted
significant vacancies leading to gross understaffing. Notable of these cases were: a
substantive executive director, Head of Finance, Internal Auditors. There was only one staff
for quality management and seven drug registration departments and only one regional
Inspector of Drugs in south western regional centre covering over eighteen districts.
Management indicated that the Recruitment process to fill the vacant position of the
Executive Director and heads of departments is on-going and near completion. The officers
are expected to be on board by February 2016.
I advised management to liaise with the Public service commission to have the vacant
positions filled expeditiously.
594
115.3 Unconsolidated regional work plans
I noted during review that work plans for all regional centers were not aligned to the
Centre budgets. I explained to management that failure to align work plans to the budgets
deprive management of the necessary guidance required during the decision making
process.
Management explained that regional offices make work plans during the planning phase
which are aggregated to make the department work plan. The department work plan is
then used to make the department budget which takes care of all regional activities.
I advised management to ensure that work plans are aligned to the budgeted amounts and
copies of approved work plans with their budgets should be given to every Regional
Inspector of Drugs to track performance against set targets.
115.4 Potential Conflict of interest at Board Level
During Audit, I noted that the NDA Board Structure as provided for in the NDPA Act is
composed of some Members who are practicing pharmacists. The scenario breeds potential
conflicts of interest where a board member is or was a Local Trade Representative, or
operates Retail or Wholesale Pharmacy, or any facility regulated by NDA. I explained to
management the risk that decisions taken by such members may not be in interest of the
Authority.
Management explained that the composition of the board was under review with the
proposed amendment of the NDPA law.
I advised management to liaise with the appointing authority to ensure that adequate
measures to address the areas of potential conflict of interest by board members are put in
place.
116. NATIONAL MEDICAL STORES – 30TH JUNE 2015
116.1 Failure to Hedge Against Foreign Exchange Loss
Section 45(2) of the Public Finance Management Act 2015 requires an Accounting Officer to
put in place effective systems of risk management, internal control and internal audit.
However, audit noted that although NMS procures medicines and other health equipment
largely using foreign currency, it did not put in place mitigation measures against currency
fluctuation risks (hedging). Consequently, UGX.6,631,542,000 was disclosed in Note 26 as
a net foreign exchange loss.
The lost funds would have been spent on service delivery if the risk of loss was mitigated.
595
In response, the Accounting Officer explained that by government policy, all vote
funds were managed and controlled by the Accountant General and therefore NMS did not
have access to the funds for hedging.
I advised the Accounting Officer to liaise with the Ministry of Finance, Planning and
Economic Development and explore possibilities of undertaking hedging against foreign
currency fluctuation risks in order to minimize loss of funds.
116.2 Fixed Budget Allocation for Essential Medicines and Health Supplies
The budget allocation of UGX 219bn as government contribution to essential medicines and
health supplies for various health centres and hospitals has been fixed since financial year
2011/2012. This is against the increased number of patients and the depreciated local
currency over the years. For instance, patients registered at Mulago National Referral
Hospital increased from 1,356,870 to 1,641,390 (21%) while China Uganda Naguru
Hospital registered an increase of 704,947(29%) during the above period. The budget is
not backed by statistics from the health facilities, the ultimate beneficiaries of the
medicines.
A fixed budget allocation for essential medicines and health supplies against an increasing
population of patients and depreciating shilling leads to declining quality of the health care
by increasing the stock outs of medicines in the health facilities.
The Accounting Officer explained that NMS had on previous occasions requested for
additional funds through the ministerial policy statement and the requests put under
unfunded priorities. He further indicated that under the Laboratory budget line, NMS
requested for UGX 50bn but no funds were availed and the Corporation had to reallocate
UGX5bn from the availed resources.
I advised the Accounting Officer to liaise with the respective stakeholders like Ministry of
Finance and Ministry of Health, among others, so that the budget allocation for essential
medicines and health supplies is increased to meet the increased demand.
117. THE UGANDA NURSES AND MIDWIVES COUNCIL – YEAR ENDED 30TH JUNE 2015
117.1 Revenue Shortfall
Best practice requires entities to prepare balanced budgets for revenue and expenditure
after setting achievable priorities for the financial year. It was however noted that the
Council approved a budget of UGX.2,139,300,000 but only UGX.1,481,067,103 was
collected resulting into a revenue shortfall of UGX.658,232,897 (31%). Significant budget
596
shortfalls indicate either unrealistic revenue budgeting or weaknesses in revenue
collection which hampers implementation.
I response, the Accounting Officer explained that Council had not received anticipated
funding from Ministry of Health, and grants from UNFPA (a major funder). The decline in
collections of professional fees arose from late release of results of Nurses and Midwives by
Uganda Nurses and Midwives Examination Board (UNMEB), which was beyond the Council’s
mandate.
I advised the Accounting officer to make realistic budget projections to avoid setting
priorities that are not likely to be funded.
117.2 Lack of Internal Audit Function and risk management policy
Paragraph 13.2.1 of The Uganda Nurses and Midwives Council Financial and Accounting
Policies and Procedures Manual August, 2012 requires the council to have a separate
internal audit function to assist management in assessing the strength of internal controls,
risk management and good governance practices. Despite this importance, it was noted
that the Council did not have an Internal Audit function. This may result into weaknesses in
the internal control structure remaining undetected. Lack of internal audit was attributed to
lack of funds to recruit an internal auditor.
The Accounting Officer explained that the Council had planned and budgeted to recruit an
Internal Auditor before the end of the financial year 2015-16.
I await Council’s action in this regard.
117.3 Failure to Gazzette names of Nurses and Midwives, Nursing and Midwifery
private health facilities and Health Training institutions
Section 33 of the Nurses and Midwives Act, 1996 requires the Council to cause the
gazzetting of health centres and maternity homes being run by nurses, indicating the
name, address, qualifications and the date of registration of the Health practitioner to be
included in the Gazzette.
Although the Council planned and prioritised this activity to be undertaken during the
financial year, there was no evidence that the gazzetting was done.
This exposes the public to the risk of using non-practitioners and the related
consequencies. The Accounting Officer explained that the Council had made a budget
provision in the current financial year to enable the gazzetting of training institutions and
the registered/enrolled nurses and midwives. He also indicated that an updated list of the
597
enrolled/registered nurses and midwives had been deployed awaiting publication in the
Gazzette.
I await the outcomes of the Accounting Officer’s undertakings and actions.
118. JOINT CLINICAL RESEARCH CENTER- YEAR ENDED 30TH JUNE 2015
118.1 Outstanding Long Term Debtors
Various Government departments owed JCRC UGX.3,031,130,000 as at 30th June, 2015
having increased from the previous year’s UGX.2,759,610,000. These include: MoH,
Ministry of Defence (MOD), Vice President’s Office and Ministry of Finance, Planning and
Economic Development (MoFPED). It was noted that the debts represent idle assets and
constrain the cash position of the Centre.
In response, management stated that measures such as monthly billing, debtor account
reconciliations and preparing quarterly reports to Management had been put in place to
track debtors so as to collect revenue earned.
I advised the Accounting officer to consistently implement the agreed measures so as to
improve on the cash position of the Centre.
118.2 PAYE Arrears
A review of Note 24 in the financial statements revealed outstanding PAYE liabilities of UGX
2,383,190,000 which have been outstanding since the financial year 2011/2012. Tax
liabilities may attract penalties in accordance with the Income Tax Act, 1997 (as amended),
and/or lead to seizure of the JCRC bank accounts.
In response, the Accounting Officer stated that the Ministry of Health (MOH) had
committed to settling the tax liabilities on behalf of JCRC.
I advised the Accounting Officer to follow up the matter with MOH to ensure settlement of
the tax liabilities promptly, since there is a risk of imposition of penalties by the Tax
Authority.
118.3 Failure to collect Receivables
Paragraph 8.10.1 of the JCRC Financial and Accounting Policies Manual, 2014 stipulates the
procedures to be undertaken in case debts are unpaid for 30, 60, 90 and 120 days. The
procedures included telephone contact, reminder letter, warning letters, and suspension of
service and litigation.
598
It was however noted that management failed to collect UGX 2,595,550,000 representing
10.6% of total budget of the entity at the end of the financial year. Uncollected receivables
affect implementation of planned activities. In response, the Accounting Officer stated that
UGX1,831,000,000 (71%) of the outstanding receivables had been collected subsequently,
leaving a balance of UGX 764,550,000.
I advised the accounting officer to ensure that debtors settle the receivables in accordance
with the Centre’s policy manual.
118.4 Trade Payables
Included in the Trade Payables was a figure UGX1, 894,170,000 in favour of a private firm
that arose from provision of medical sundries. The amount increased from UGX.
1,505,840,000, reported in the previous financial year, implying an increment of UGX
388,330,000, which was attributable to foreign exchange differences. Besides, the debt has
been outstanding since 2012.
Failure to settle obligations in a timely manner may result into additional costs such as
interest charges and litigation fees.
I advised the Accounting Officer to ensure that the Centre’s liabilities are settled in a timely
manner.
118.5 Ineffective service contracts for maintenance of CD4 machine
The CD4 equipment preventative maintenance service contract Section 2 stipulates that
visits to carry out preventive maintenance would be made subject to visa and
transportation availability. The customer would provide the necessary sponsor letter to
arrange visas for the visits. Additionally, the contract provided for two (2) scheduled
maintenance visits per annum and two (2) emergency visits per annum. Contrary to the
provisions of the regulations, audit noted that the CD4 machine had not been serviced for
the last two years having been serviced as far back as 27th November, 2013.
I explained to management that delays in maintenance of the machine may result into
premature damage and malfunctioning. In response, the accounting Officer explained that
USAID, the sole provider of the machine had approved the servicing and that in future
service contracts of this nature will be paid for, in advance to avoid lapses in servicing.
I advised management to ensure that servicing is undertaken as prescribed in the contract.
599
EDUCATION & SPORTS SECTOR
119. MANDELA NATIONAL STADIUM – YEAR ENDED 31ST DECEMBER 2014
119.1 Treatment and disclosure of Chinese grant
In my prior audit report to Parliament, I reported that Management asserted in the
Accounting Policies under 1(a) that the Financial Statements were prepared in accordance
with international Financial Reporting Standards (IFRs). However, review of the current
financial statements with regard to the treatment of the Chinese grant revealed that
management has continually not complied with standards in respect of treatment of the
grant as illustrated below;
a) IAS 20(24), Accounting for government grants and disclosure of Government
assistance requires that a grant relating to assets may be presented in one of two
ways: Either as deferred income or by deducting the grant from the asset’s carrying
amount. However, Management did not state which of the two ways had been
adopted with regard to the Chinese grant through GoU for the construction of the
stadium.
b) The standard requires that the grant should be recognized as income over the periods
necessary to match them with related costs, for which they are intended to
compensate, on a systematic basis. However it was noted that no portion of the grant
was recognized through the statement thus misrepresenting the grant in the income
statement.
c) The standard further requires that such grants should not be credited directly to
shareholders’ interests. The current treatment of the grant in the balance sheet under
“capital and reserves” implies that the treatment appears to be contrary to the
requirements of the standard and misleading.
d) A balance of UGX.26,379,809,188 was reported in the statement of financial position
as a Chinese grant under capital & Reserves after deducting the accumulated deficit of
UGX.4,082,009,812. The reduction was not explained and appears to be a
misrepresentation.
600
Management indicated that in their opinion, the provisions of IAS 20 do not apply
but rather the Memorandum and Articles of Association may need to be amended to take
care of all Government equity in the Stadium that existed before incorporation.
In the circumstances, the reported balance may not be fairly stated and management’s
assertion that the financial statements were prepared in accordance with IFRSs may not be
correct.
I advised management to comply with the requirements of IAS 20 which prescribes
treatment of grants and Government Assistance or expedite the process of converting the
grant into capital.
119.2 Unremitted PAYE Deductions
Section 123(1) of the Income Tax Act cap 340 requires a Withholding agent to pay to
Uganda Revenue Authority (URA) any tax that has been withheld or that should have been
withheld within fifteen days of the next month. However, PAYE deductions amounting to
UGX. 63,865,019 were not remitted to the tax body.
I explained to management that failure to remit taxes may attract fines and penalties from
Uganda Revenue Authority (URA), leading to loss of funds by the Stadium.
In response, management explained that statutory obligations have accrued over the years
due to the Stadium’s historical leadership challenges such as; Frequent unplanned change
of Stadium Boards of Directors, Leadership and Management teams, vandalizing and
misuse of the Stadium assets and facilities and Lack of Government funding to the
Stadium. The challenges have continued to hinder management to discharge the recurrent
expenses as they arise.
I advised management to ensure that statutory deductions are remitted timely in
compliance with the Income Tax Act.
119.3 Unconfirmed debtors
IAS 37 Provisions, Contingent Liabilities and Contingent Assets requires that appropriate
recognition criteria and measurement bases are applied to provisions, contingent liabilities
and contingent assets and that sufficient information is disclosed in the notes to enable
users to understand their nature, timing and amount.
601
Under Paragraph 7.2 of the financial statements , management observed that due to
the complexity and un collectability of the debts from the government for accommodating
the Chinese technical team (UGX.815,000,000) and UMEME Ltd for the Kireka Sub-station
hosted on the land of MNSL (UGX.384,000,000), the said debtors have not been included in
the year’s accounts. However, management did not provide any documentation or analysis
such as contract references and period covered by the items attached to support the
existence or occurrence of the respective amounts. There was also no evidence that efforts
had been made to recover the said debts and failed.
In absence of supporting evidence I was not able to ascertain that the debts did exist and
that the write-offs were properly made and in the circumstances the presentation is
misleading.
I advised management to always make provisions in accordance with the financial
reporting framework in presentation of financial information to avoid giving insufficient
information to the users of accounts.
119.4 Long outstanding debtors
A review of the Debtors balances revealed an increase from UGX.1,001,519,619 to
UGX.1,007,903,134 indicating an increase of UGX.6,383,515. Included in the debtors were
FUFA (UGX.194, 863,217), National Resistance Movement (UGX.128,000,000), GTV
(UGX.47,932,556), Equity Debtors-MOESTS and MoFPED (UGX.99,980,000), and Pioneer
Easy Bus Limited (UGX.221,673,367). It was also noted that the Stadium does not have a
debt management policy and this affected enforcement of recovery measures.
Management indicated that reminders to debtors to settle their obligations had been made.
I advised management to institute debt management policy and efficient collection of
debts.
119.5 Failure to make provisions for bad and doubtful debts
Note 1 (c) of the Notes to the Financial statements provides that specific provision shall be
made for all known bad debts. However, there were no such provisions made by
management.
This implies that debts which appear to be irrecoverable due to failure to trace the debtors
continue to be reported in the financial statements at full amounts.
Management stated that the recommendation will be presented to the Board for approval.
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I advised management to make provisions for bad debts in conformity with
International Financial Reporting standards.
119.6 Accumulation of Payables
Review of the financial statements noted that the stadium has high creditors’ obligations
amounting to UGX.2, 839,694,548. The major creditors include URA for tax arrears of
UGX.580, 566,673, NSSF, for arrears and penalties worth UGX.1, 752,846,860; staff
Terminal benefits worth UGX.97, 544,711; Trans cargo Freighters Ltd worth
UGX.103,947,985 and Meridian Sales services Limited worth UGX.88,692,792.
In response, management explained that the obligations have accrued over the years due
to the Stadium’s historical leadership challenges but the Board and management were
exploring possible ways such as engaging the shareholders for financial support to address
the problem.
I explained to management that domestic arrears may attract litigation from long
outstanding creditors. The NSSF and URA obligations could attract further fines and
penalties.
I advised the Accounting Officer to ensure that the outstanding obligations are settled
without further delay.
119.7 Going concern status of the Stadium
Sub section 25 of IAS 1 (presentation of financial statements) requires management to
make an assessment of an entity's ability to continue as a going concern. If management
has significant concerns about the entity's ability to continue as a going concern, the uncer-
tainties must be disclosed. If management concludes that the entity is not a going concern,
the financial statements should not be prepared on a going concern basis, in which case
IAS 1 requires a series of disclosures.
I noted that there are conditions affecting the going concern status of the Stadium, for
example;
Current ratio stood at 0.38:1 while the acid test ration stood at 0.03:1 in 2014.
The stadium reported losses of UGX.336,825,521 for 2014. This trend continues to wipe
away the capital base of the Stadium.
The long outstanding creditors is an indication of the Stadium’s inability to settle its
obligations from its own sources of funds.
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The deteriorating state of the Stadium’s assets without provisions in the
budget to finance their maintenance is an indicator that the assets may not be able to
generate the required income to finance planned activities and pay service providers.
The above factors are an indication of the Stadiums inability to sustain itself in the
foreseeable future.
Management attributed the state of affairs to frequent management and board changes. It
was further stated that stability of staff and board had now been addressed and that
management is working on strategies that can boost revenue generation to match the
investment in the facility.
I advised management and the board to put in place proper governance structures to
ensure stability in stadium liquidity.
119.8 Absence of a fire detection and fighting system/Equipment
Inspection of the stadium facilities revealed that the fire fighting equipment is obsolete and
the stadium does not have any fire extinguishers in place while the water hydrants at the
Stadium are all not functional. I also noted that the Stadium does not have CCTV cameras.
This implies that the Stadium does not have any capacity to fight fire outbreaks in case of
any fire incidents. The current situation also puts the users of the Stadium at a greater risk
of loss of lives and loss of property.
Management explained that the current fire detection system broke down but had secured
a replacement donated by the Chinese government. However, the donated cargo has
stalled in the bond for over two years due to lack of funds to clear the taxes and requests
to the Ministry for financial assistance have not been fruitful and storage charges continue
to accumulate.
I advised management to ensure that modern fire fighting systems are installed in the
Stadium. Measures should also be put in place to solicit for funding to clear the fire
fighting equipment lying idle in the bond.
119.9 Land management
The Stadium land is comprised of block 234 (1.660 hectares) and block 234 (48.54
hectares). However, the following facts were noted in relation to this land;
1. A review of the land status file indicated that the Stadium got a stamp duty waiver
of UGX.1.6 billion for the transfer of this land from Uganda land commission into
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the Stadium’s names. By the time of audit, the land titles for the two pieces were
not available for verification.
2. Through the review of the security reports from the Stadium security officer and
inspection of the land boundaries, it was observed that the number of land
encroachers have increased and if not stopped could claim most of the stadium land
thus curtailing its future expansion and development programs.
The increase in land encroachment could also result into huge compensations in
future. No action had been taken by management to remove these squatters from
the Stadium land.
Management explained that they engaged surveyors who have opened the land boundaries
and the next step is to plant permanent mark stones and devise means of evicting the
encroachers.
I advised management to ensure that Stadium’s land is secured by removing all the
squatters and fencing off the unutilised land.
120. NAKIVUBO WAR MEMORIAL STADIUM- YEAR ENDED 31ST DECEMBER 2014
120.1 Non-valuation and Disclosure of land leased out under PPP Arrangement
Review of the Stadium’s financial statements revealed that stadium land was disclosed at
UGX.31,500,000,000. However, I noted that the Board of Trustees entered into a Public
Private Partnership with a private developer to erect, construct, renovate, refurbish the
perimeter wall of the Stadium and construct lock-up shops around it but the land under the
PPP arrangement had not valued and therefore not adequately disclosed in the financial
statements.
In my previous year’s report to parliament, I indicated that the project development
processes leading to the PPP award, and the actual contract implementation process were
not adequately supported with the necessary documents and records. These have still not
been provided management.
In response management explained that construction works were still on-going and that
upon receipt of certificate of completion from M/S Ham Enterprises, the valuation of land
and building will be done and accordingly classified in the financial statements.
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I advised management to ensure the stadium land is revalued and the Financial
Statements adjusted to reflect the proper value and classification of the stadium land.
120.2 Unsupported Expenditure on Professional fees
Review of the stadium financial records revealed that UGX.134,753,962 was paid out as
professional fees (Legal, Security and Accounting Charges) to various firms lacked the
necessary supporting documents. I was therefore not able to ascertain the correctness of
the expenditure on profession fees. I noted that this was due to internal control
weaknesses in respect of processing payments.
Although management stated that funds were paid to settle the court costs through their
advocates the supporting documents were availed for examination.
I advised Management to ensure that internal controls are strengthened that ensure all
payments are always supported with adequate documentation.
120.3 Unauthorized Excess Expenditure
Sec 4.3 of the Financial and Accounting Instructions requires an application for sanction of
excess expenditure to be made by management committee for the board to ratify the
expenditure provided that such expenditure is within the expenditure limits established by
the board. I however noted that the Trust incurred excess expenditure of UGX.122,953,962
in respect of professional fees over and above the budgeted amount of UGX.25,000,000 as
a result without fulfilling the requirement.
In the circumstances, the intention of the appropriating authority was undermined.
Management explained that, the amount in excess of the budgeted was paid to settle court
cases which emerged in the course of the period, yet it was necessary to adhere to the
court’s decision. Management promised to seek Board approval in the subsequent meeting.
I advised management to always seek the necessary approvals prior to spending any
money that are above.
120.4 Debtors and Creditors Management
The trust’s management shall be required to maintain the level agreed by the board for
that year’s budget. No expenditure may be carried over from one year’s approval to
another.
I noted that sundry debtors increased by UGX.259,502,259 from UGX.321,193,333 to UGX.
580,695,592. But there was no plan of collecting the debts.
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I also noted that sundry creditors increased by UGX.108,450,539 from
UGX.134,443,590 to UGX.242,894,129 but there was no clear plan for settling the
creditors.
Accumulation of debtors and creditors without debt/credit management procedures affects
the working capital of the stadium.
In response, management explained that the debtors figure increased in the year 2014,
because of the adjustment of 30% rental rebate of UGX.270m for Owino park yard and
vendors being hesitant to pay for fear of the proposed redevelopment of the Stadium.
I advised management to put in place proper debt and credit management mechanism.
120.5 Outstanding Tax obligations
120.5.1 Outstanding VAT Arrears
During my review of the financial statements I noted that the stadium has had an
outstanding VAT obligation which keeps increasing due to interest and unpaid additions. At
the beginning of the year under review, the obligation stood at UGX.455,239,018 but by
year end it had increased to UGX.544,593,165 due to interest of 121,475,820 and
additional year VAT amount of UGX.18,639,072. I further noted that only UGX.50,760,745
was paid to URA during the year despite the Stadium having signed an agreement with
URA to settle this obligation in 24 instalments which run up to May 2015 with a provision
for receivership in case of default.
There is a risk that the stadiums assets may eventually be attached by URA to recover the
taxes.
In my prior audit report I had advised management to obtain a waiver from URA or
restate the obligation in the subsequent year but in response management indicated that
attempts to obtain a waiver from URA was never granted.
120.5.2 Long outstanding Corporation tax obligation
Section 94 (1) of the Income Tax Act 1997 requires every taxpayer to furnish a return of
income for each year of income of the taxpayer not later than six months after the end of
that year. It was noted that the Stadium has had a long outstanding corporation tax
obligation of UGX.12,650,926. I also noted that management did not apply to the
Commissioner for extension of time to furnish the returns as required under the Act. In the
circumstances, management is exposed to a risk of fines and penalties.
607
Management explained that the non- settlement of the obligation arose from URA’s
tax audit prior to acceptance of payment and indicated they were in contact with URA
officials to ensure that all matters that relate to stadium’s tax obligations are settled.
I advised the stadium Management to ensure that the long outstanding tax obligations are
settlement as they continue to consult with URA on the tax matters.
120.5.3 Unremitted PAYE
The Income Tax Act requires a withholding agent to pay to the Commissioner any tax that
has been withheld or that should have been withheld with in fifteen days after the end of
the month in which the payment subject to WHT was made by the agent. I noted however
that deductions in respect of PAYE amounting UGX.6,097,845 withheld from staff salaries
had not been remitted to the tax body by the time of my audit.
Non-remittance of taxes attracts penalties and interest from the Tax authority.
Management explained that there was a delay to remit the statutory deductions because of
cash flow problems faced by the Stadium as a result of the proposed redevelopment
program.
I advised management to always ensure timely remittance of the deductions in accordance
with the Income Tax provisions.
120.6 Lack of a Strategic Plan
In my previous year report to parliament, I indicated that the Trust did not have a strategic
plan, on which its achievements can be benchmarked and work plans and budgets derived.
Although management had indicated that they were going to develop one during the
financial year under review, I still noted that they did not act on the matter
Management explained that they had since embarked on efforts to institute a strategic plan
that will be gradually be implemented in the subsequent periods.
I advised Management to expedite process to come up with the strategic plan that should
direct the Stadium to activities and operations.
120.7 Role of Board Members
Principles of good corporate governance require separation of board and management
responsibilities. I however noted that the Board Chairperson and other two members of
(Chairperson Management committee and chairperson Finance committee) continued to be
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signatories to the stadium bank accounts and were involved in the day to day running of
the stadium’s operations, such as approval of payments.
This has resulted into the fusion of management and oversight responsibilities leaving the
stadium without clear sense of direction.
Management attributed the state of affairs to the Act which empowers some of the board
of trustee members to manage the trust and indicated that the issue had been raised on
several occasions and communicated to the Board of Trustees and to the Minister in charge
of sports and management was awaiting response.
I advised the board and management to take up the matter with the Ministry and ensure
that the board’s oversight’s roles are separated from the routine operations of the stadium
and provide their rightful strategic direction.
120.8 Revenue Management
120.8.1 Undisclosed Revenue Collection
The Finance and Accounting manual of the Trust requires that all revenue to which the
Trust is entitled is received ,recorded accurately and promptly in the books of accounts are
a reliable basis for the preparation of true and fair financial statements.
I noted that during the year under review, payments of UGX.15,892,000 were made to
agents to bring business to the stadium. However, it was noted that one of the
commission of UGX.2,000,000 did not have basis. I further noted that the collected
revenue for which the commission was paid was not recorded in the stadium books.
There is a high risk that the commission payments may be used to effect fraudulent claim.
Commission payments reported in the financial statements.
There is also a risk that collections from stadium hire of UGX.44,400,000 against a budget
of UGX.120,000,000 could be understated.
I advised management to ensure that all funds collected should be recorded and banked
intact in the collection account. Furthermore, all the undisclosed revenue should be
accounted for.
120.8.2 Failure to collect revenue from park yard market
As reported in my prior year audit report, the stadium failed to collect revenue from the
market vendors from park yard market, leading to operational challenges for the Trust.
609
Management at the time attributed the failure to the fire that gutted the market in
December 2013 and the political interference in the matter. Management stated that it had
no control over the market.
I noted that during the year under review, the statusquo did not change.
I advised management to explore all possible means of recovering the revenue from the
operators of the market.
120.8.3 Anomalies in Rent of Parking space
I observed that the Stadium land has two parking spaces; one outside the stadium along
Namirembe road, measuring 2,600 square meters and the other inside the stadium,
measuring 800 square Meters. I however noted that;
The packing space along Namirembe road, was allocated to a local firm at
UGX.1,700,000 per month for day and night parking, while the inside space was
allocated to a different firm at UGX.2,400,000 per month for only day parking. The
allocation was made on the same day 1st September, 2010 and was to run until
31st August, 2015. There was no clear basis allocating and charging an area covering
2,600 square meters parking day & night UGX.1,700,000 and area of 800 square
meters at UGX.2,400,000 for only day parking.
I also noted that the firm which was allocated space along Namirembe Road agreed to
sell its interest in the parking space effective 30th September, 2015 to Ham Enterprises
(U) Limited at UGX.154 Million without authority from the stadium management and
the Board of Trustees. There is a possibility of fraudulent dealing could lead to the loss
of the stadium’s land.
The above state of affairs could be denying the stadium the right amount revenue from its
assets.
Management explained that all the contracts of the parking space expired and the parking
spaces were a responsibility of the developers. No explanation was given in respect of the
discrepancy in charges.
I advised management and the board of trustees to ensure utilisation of the stadium’s
resources in accordance with principles of probity and propriety and to provide an
explanation for this state of affairs.
610
120.9 Procurement Irregularities
120.9.1 Non-Functional Procurement and Disposal Unit (PDU)
Review of the Stadium’s PDU revealed a number of weaknesses which included among
others; lack of a substantive procurement officer, lack of records on individual procurement
files such as issue, receipt and opening of bid documents and evaluation committee
minutes and failure to submit monthly procurement reports to PPDA.
I was not provided with any correspondence communicating the composition and
qualification of the Stadium’s contracts committee members.
The above anomalies are an indication that the stadium cannot handle procurements in an
appropriate manner.
In response management stated that the observations would be presented to the board of
Trustee for appropriate action.
I await the outcomes of the board’s deliberations on the matter.
120.9.2 Unsupported Public Private Partnership arrangement
During course of audit for the year under review I noted that the stadium management
entered into Public Private Partnerships (PPPs) with two firms namely; M/s Nterenfune and
M/s Feature land for redevelopment of the stadium. However,
I was not availed with any documents regarding the contracts between the stadium and
the private developers to enable ascertain that the terms and conditions of the PPPs
arrangement were fair to the stadium and were drawn in the best interest of the same.
The stadium received UGX.200,000,000 as commitment fee from M/s Feature land
however; I was not availed with the expenditure and accountability thereof.
The contractors have not commenced the redevelopment of the stadium because of
pending investigations.
In absence of the procurement files and accountability records, I could not confirm whether
the procurement of the PPPs was done in accordance with Public Private Procurement
guidelines and procedures and whether the proceeds were properly utilised.
I advised management to ensure that the PPP arrangement with the two firms is done in a
more transparent manner to avoid loss of the stadium’s assets (Land) in the process.
611
121. NATIONAL COUNCIL OF SPORTS- 30TH JUNE 2015
121.1 Funds Not Accounted For
The Treasury Accounting Instructions, paragraph 181 requires all vouchers to be
accompanied by supporting documents as may be required so as to enable them to be
checked without reference to any other documents. It was however noted that
UGX.539,438,714 advanced to Uganda Basketball Federation and National University Sports
Federation of Uganda remained unaccounted for at the time of writing this report.
In the absence of supporting documents I could not confirm whether the funds were put to
the intended use.
The Accounting Officer explained that the concerned bodies had been directed to account
for the funds.
I advised the Accounting Officer to obtain the accountabilities or recover the funds from
the recipients.
121.2 Non-Deduction of 6% WHT
Section 119 of the Income Tax Act, 1997, requires a withholding agent to deduct
withholding tax from payments to suppliers for goods and services in excess of
UGX.1,000,000. However, it was noted that payments were made to different service
providers without deducting withholding tax of 6% (UGX.21,767,327).
Failure to deduct and remit taxes may attract fines and penalties from URA.
Management explained that the outstanding withholding tax would be recovered from the
suppliers in the subsequent payments for remittance to the tax body.
I advised management to ensure strict adherence to the provisions in the Income tax Act
and deduct the 6%WHT from eligible payments to service providers. Meanwhile, I await
the outcome of management commitment to recovering the above amounts from the
suppliers.
121.3 Untitled Land
Management reported in the executive summary that they had finalized acquiring a land
title for the Lugogo Sports Complex on Plot 2-10 coronation Avenue. However review of the
valuation report revealed that the upper plots 10, 12, 14, 66 and 68 measuring 9,163
square metres and valued at UGX.2,593,545,000 with the developments thereon lie
outside the boundaries of the title acquired by NCS. Failure by Council to acquire land for
the entire land exposes the land to the risk of being grabbed.
612
Management explained that they had a challenge of inadequate funding but plans were
underway to secure the titles for the upper plots.
I advised Accounting Officer to ensure that all Council plots of land are transferred into the
names of the council and properly safe guarded from being grabbed.
121.4 High Loan financing costs
The Council was financing two mortgage loan facilities amounting to UGX.762,500,000;
comprising of Demand loan 1 of UGX.312,500,000 and Demand Loan 2 of
UGX.450,000,000. One sanctioned for part repairing of the Office building and the other
for preparation of Common Wealth games respectively.
During the year under review, interest expenses of UGX.127,761,916 were incurred on the
two loans and this has the effect of escalating operational costs of the Council.
Management indicated that they opted for the loans due to delays in release of funds by
the Ministry yet the activities were expected to proceed on schedule.
I explained to Accounting Officer that the Council could have opted for short term
borrowing as they awaited the releases and pay off the loans after the funds were released
to reduce on the interest expenses.
I advised the Accounting Officer to continuously engage MoFPED and MoESTS to ensure
that adequate funds are provided to implement council activities.
121.5 Non -Implementation of Planned Activities
Examination of the Council’s accounting records revealed that the Council did not
implement the following planned activities worth UGX.143,000,000 during the year under
review.
No. Activity Amount
1 District tours 20,000,000
2 District Sports workshop 11,000,000
3 National Associations, supervision of associations 15,000,000
4 Purchase of furniture and equipment 45,000,000
5 Purchase of computers and office equipment 12,000,000
6 Construction of toilets in the Cricket Oval 40,000,000
Total 143,000,000
Failure by the Council to implement its planned activities hinders the achievement of its
overall objective of sports development in the country.
613
Management explained that the challenge was inadequate funding to enable
management implement some of the planned activities.
I advised management to always make realistic plans and prioritize activities that support
the core mandate of the Council. In addition I advised them to liaise with MoESTS, MoFPED
to ensure adequate funding for the development of sports in the country.
122. NATIONAL COUNCIL FOR HIGHER EDUCATION-YEAR ENDED 30TH JUNE
2015
122.1 Domestic Arrears Paid
The Council paid UGX.50,171,500 to settle domestic arrears that had been incurred during
the previous year but had not been disclosed as payables in the financial statements
contrary to Para 435 of TAI part II 2003 which requires properly incurred payables during a
financial year to be accrued by the Accounting Officer as Domestic Arrears at the year end.
It was noted that the payments were charged as expenditure in the current year’s financial
statements. This implies that the Council’s performance for the previous financial year was
understated while that of the current year is overstated.
Management explained that the particular payments were brought to their attention well
after the period in which they were incurred, they could not therefore be disclosed as
arrears in the previous financial statements yet it was inevitable that the payment had to
be settled.
I advised the Accounting Officer to ensure proper treatment of payments for domestic
arrears. In the current scenario the expenditure for the domestic arrears should have been
adjusted through the statement of changes in equity.
122.2 Failure to implement planned activities
I reviewed the budget performance of NCHE and noted that the Council did not implement
key planned activities such as, gazetting of the statutory and legal development of
framework with indicators of ODIs, update and validation of OTI directory, apprenticeship
among others. Failure to implement planned activities affects the achievements of council’s
objectives and impacts negatively on service delivery.
Management attributed failure to undertake these actions to inadequate funding from
Government and shortfall in internally generated revenue, which amounted to
UGX.912,106,188.
614
I explained to management that failure to implement planned activities implies that the
Council did not achieve all its intended objectives and could impact negatively on the
service delivery.
I advised Management to strengthen its internally generated revenue collection strategies
and also liaise with the relevant stakeholders to fill the funding gap.
122.3 Irregular award of contracts
Regulation 37(a) of PPDA Regulations 2014(Rules and methods for procurement of
supplies, works and non-consultancy services) requires the evaluation criteria to be used
during the evaluation stage to be stated in the solicitation document and the evaluation to
be conducted in accordance with the set criteria without any amendments. I noted that
contracts worth UGX 10,988,160 for the purchase of computers and printers were awarded
to a local firm who had failed the preliminary stage due to lack of evidence of bid validity
and delivery period.
Management explained that the Evaluation Committee agreed in principle to differ from the
criteria in order to work within the available budget for the computers and printers.
In another instance, a contract to undertake a needs assessment on Other Tertiary
Institutions (OTI) worth UGX.22,630,000 was awarded to individual consultant who had
scored 60% against the set criteria of 70% pass mark.
In this case management explained that the Evaluation Committee did not review the
solicitation document and was not guided by the procurement officer on procedural issues
to avoid deviations from criteria.
I explained to management that the contracts were awarded irregularly due to non-
adherence to the evaluation criteria which could lead to the selection of providers who do
not have the capacity to undertake the assignments.
I advised the Accounting Officer to play his overall responsibility in the execution of the
procurement, and ensure that the procurement unit effectively plays its role and avoid
unnecessary errors in the procurement processes.
615
123. MANAGEMENT TRAINING AND ADVISORY CENTRE- YEAR ENDED 31ST
DECEMBER 2014
123.1 Non valuation of land
A review of the Centre's assets register revealed that it owns three plots of Land located at
plot 7 Bugolobi, 49B Gloucester Avenue and M175 Jinja Road Nakawa. However,
management in Note 7 of the financial statements reported Land at nil value as at 31st
December 2014, contrary to the requirements of IPSAS. As a result the non-current assets
figure in the financial statements is misstated.
In response, management indicated that a process of valuation of land in liaison with the
Chief Government Valuer had commenced.
I advised management to expedite the process of establishing the current values of its land
and ensure complete disclosure of information to the users of accounts.
123.2 Under collection of revenue
Out of the budgeted revenue of UGX.4,327,704,000 the Center realized only
UGX.2,907,320,475 resulting into a shortfall of UGX.1,420,383,525 representing 33%
underperformance. I explained to management that failure to collect budgeted revenue
undermines the implementation of planned activities.
In response, management explained that several strategies were being put in place to
improve on the Centre’s revenue performance.
I advised management to prepare more realistic budgets and devise a comprehensive
system for revenue collection and management to enable full implementation of the
planned activities.
124. UGANDA NATIONAL EXAMINATIONS BOARD- YEAR ENDED 30TH JUNE 2015
124.1 Increased borrowing of Funds to administer and manage national examinations
In my previous audit report to Parliament, I indicated that the Board borrowed upto
UGX.11.068 billion to conduct national examinations. The liability increased to UGX.13.942
billion in the current year and the interest expenses amounted to UGX.317,605,208. I also
indicated that borrowing to fund national examinations has got reputational risks and the
Board is exposed to risks of litigation in the event of defaulting.
The increased borrowing worsens the situation and the Board may not be in position to
repay the loan. There is a likelihood that the examination fees paid by students may
subsequently increase to cover the repayments.
616
Management explained that the board had continuously engaged Ministry of Education
and MoFPED for the timely release and front loading of examination administration funds
without much success. The Board was also hopeful that the situation would improve with
the increase of the unit cost of running examinations and granting a vote status to the
board with effect from financial year 2015/16.
I advised the Board management to continuously engage MoESTS and MoFPED to ensure
adequate and timely funding for conducting National Examinations.
617
INFORMATION AND COMMUNICATION TECHNOLOGY
125. NATIONAL INFORMATION TECHNOLOGY AUTHORITY UGANDA (NITA-U) – YEAR
ENDED 30TH JUNE 2015
125.1 Increasing Outstanding receivables
The trade and other receivables increased from UGX.1,300,075,290 to UGX.11,185,631,926
(representing 754 % rise from the previous year’s balance).
Out of the receivables amount, it was noted that MDAs, an international company and UCC
had outstanding balances of UGX.1,315,114,627, UGX.2,788,147,614 and
UGX.3,800,000,000 respectively implying low revenue recovery measures for both arrears
and current charges. Failure by management to recover outstanding receivables ties up
funds that would be utilized for service delivery.
Management explained that it has undertaken several collection measures such as
instituting an aggressive debt collection team with each member having an allocation of
debtors to follow up on and make timely collections, sending out regular reminders to the
debtors with outstanding debt to settle their due debts. Management has also engaged
MoFPED to consolidate and transfer to the NITA-U Vote the budget for Internet Bandwidth
of all MDAs that are connected to the NBI.
I advised the Accounting Officer to streamline its debt management policy and institute a
revenue collection enhancement plan with a view of recovering all outstanding balances.
125.2 Under collection of Appropriations-in-aid
The authority budgeted for appropriations-in aid of UGX.17,118,000,000 in the financial
year 2014/15 from the commercialization of NBI/EGI, sale of internet bandwidth to MDAs
and private firms, sale of bid documents and revenue from co-location. However, only
UGX.11,456,182,277 representing 67% of the total budgeted revenue for the year was
collected and UGX.5,636,909,916 was collected representing 33% of the appropriation
budgeted. Failure to collect the budgeted revenue hinders implementation of budgeted
activities.
Management explained that this was due to delays in last mile connectivity to the targeted
number of 125 MDAs because of delays in the implementation of Phase III and other
technical challenges which explains the low number (50 MDA’s) connected by the end of
the FY. Further, management explained that they had not realized all projected revenue
from UCC and this had an effect on the budgeted AIA.
618
I advised the Accounting Officer to review its budgeting processes and ensure
realistic estimates are provided for. Further, they should put in place a revenue
enhancement plan to address their collection shortcomings.
125.3 Delay in reviewing the contract between NITA (U) and an International Firm
NITA-U entered into an agreement with an international firm for the commercialization of
National data Transmission Backbone Infrastructure (NBI) and the E-Government
Infrastructure (EGI). The provider under section 3.2 of the contract agreed to generate
minimum revenue which was to be shared on a 50% basis with the client as per details in
table below;
Period Year 1 Years 2 Year 3 Year 4 Years 5
Total annual revenue
(USD)
8,184,603 27,282,011 40,923,016 49,107,619 54,564,021
Percentage share for NITA 50% 50% 50% 50% 50%
NITA Revenue (USD) 4,092,302 13,641,005 20,461,508 24,553,810 27,282,011
Further, Section 3.9 of the contract requires the client to notify the provider of its failure to
meet the minimum revenue collection, discuss the providers report on failure and institute
measures to improve the provider’s performance. The client (NITA-U) should then give the
provider 12 months to improve on agreed measures and later terminate the contract at no
cost upon failure to achieve the agreed measures.
The Authority received only UGX.450,978,948 approximately USD173,453.44 in the year
2013/2014 representing only 1% of the revenue expected to be generated. Further, in the
current year (third year of the contract) under review the authority received only
5,151,134,951 (approximately US$.1,717,045 at 1 US$-3,000=) representing 8% of the
expected/projected revenue. Delayed review of the contract results into poor budgeting as
management lacks a realistic basis for cash flow forecasts. This hinders the Authority’s
ability to implement planned activities including the achievement of the entity’s objectives.
Management explained that revenue projections were not met because NITA-U did not
have an adequate budget to fulfill some of the conditions which were the basis for the
revenue projections, that is; completion of Phase III, low installed capacity of network, lack
of subscription to the network by Government agencies and others. Management further
explained that NITA-U contract management team held a meeting with the provider with
the aim of reviewing the terms of the contract and consequently a contract renegotiation
was to be held in due course.
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I advised the Accounting Officer to engage appropriate Government agencies to resolve
some of the bottlenecks encountered like extension of the backborne and MDA
connectivity.
125.4 Staffing gaps
A review of the Authority’s staff establishment structure revealed that there are 155 posts
which are not yet filled out of 208 in the established organization structure. Understaffing
affects service delivery.
Management explained that they are engaging MoPS and MoFPED to lift the MTEF ceiling
of the wage bill for NITA-U to enable the Authority execute her mandate and that
discussions had yielded a modest increase in the wage MTEF for NITA-U of UGX.500 million
only out of UGX.1.97 Billion originally requested to recruit additional twenty three (23) key
positions for financial year 2015-16. Management further explained that the funds had
been used to recruit the Computer Forensics and Incident Manager, Standards Officer,
Application Architect/Developer and Marketing Officer.
I advised the Accounting Officer to continue engaging Ministry of Public Service and
Ministry of Finance, Planning and Economic Development, with a view of lifting the wage
ceiling for some more key staff.
126. NEW VISION- YEAR ENDED 30TH JUNE 2014
126.1 Absence of broadcasting licenses for radio and TV stations
Section 26 (1) of the UCC Act, 2013 states that “A person shall not install or operate a
television station, radio station or any related broadcasting apparatus without a license
issued by the Commission”.
I noted that the company did not have a valid broadcasting license for the year under
review for its radio and Television channels despite making the annual payments for
licenses. This has been noted to be an industry wide issue with the recent change from
analogue to digital.
Management explained that it had applied and made payment to UCC for the licenses but
UCC has not issued the licenses despite several reminders.
I advised management to follow up with the regulator and obtain valid operating licenses
for the TV and radio segments.
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126.2 Filling of VAT returns
Section 92, subsection 2 of VAT Act provides that a return shall be filled in a form
prescribed by the commissioner.
I however noted that whilst filing VAT returns, all sales were classified as standard-rated,
even though some had been classified as export and zero-rated. For example during the
year 2014/15, the company had UGX.828 million in Zero Rated sales. Non- compliance with
VAT Act may expose the company to fines and penalties from URA.
Management explained that disclosures will be made on subsequent returns as advised.
I advised management to always ensure that sales are correctly classified into zero-rated,
exempt, standard-rated when filling VAT returns.
126.3 Lapses in preparation, approval and documentation over Journal entries
From my review of journal entries passed during the year, I noted lapses in the process of
preparation, approval and documentation over journals. These included:
- A case in which two journal entries for obsolete stock provision were raised by same
person, approved and passed twice in the system.
- Inadequate segregation of duties.
- Preparer’s names, department and initials were often missing
- Journal entry forms not filled completely with adequate narrations or supporting.
I explained to management that there is a risk that lapses in controls over preparation,
review and approval of journal entries may weaken the financial reporting control
environment.
Management explained that they have since improved by putting in place internal checks
including segregation of duties. Moving forward, full narrations and related documents will
be included in the file copy.
I advised management to always ensure that all journal entries are independently reviewed
before being posted to the general ledger and the journals should adequately be
supported with documentation (in form of proper narrations or third party supporting).
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126.4 Lapses in insurance cover of cash in hand at premises (i.e in safes or with
cashiers)
I reviewed cash held at the office premises against the insurance limit and I noted lapses in
days where cash held exceeded the insurance limits. My discussion with management
indicated that the insurance limits are set annually and have been revised for the
subsequent year (2015/16). There is a risk of financial loss in case of burglary.
Management explained that the growth in business volumes over the year overtook the
insurance cash covers. The Insurance cover is now being reviewed and the figures will be
adjusted in the subsequent renewals to capture the growth.
I advised management to always ensure that insurance limits are regularly reviewed and
addendums carried out where need arises.
126.5 Lapses in insurance in credit monitoring: exceeding of credit limits
I reviewed customers credit terms and noted that some customers exceeded their given
credit limits. Credit limits which have been agreed and set were exceeded without evidence
of documented approval. There is a risk that lapses in controls could weaken the overall
control environment and expose the company to loopholes over credit monitoring and
management.
Management explained that credit limits reviews are done once a year to adjust for
increased business and rates. When volume grows more than the limit before the review
date, the control is to ensure that approval is sought for the amount in excess of the limit.
I advised that credit limits are regularly monitored and any changes to the set limits should
be approved by the delegated senior officer, documented and filed appropriately.
126.6 Lapses in control over credit sales
A review of controls over credit sales revealed lapses in controls whereby sales orders on
credit were processed and invoiced without evidence of approval from the credit
department. There is a risk that lapses in controls could weaken the overall control
environment and expose the company to loopholes over credit monitoring and
management.
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Management explained they will ensure that some exceptional urgent cases booked on
weekends or public holidays and run without credit approval get retrospective approval
afterwards as long as there is client commitment to the booking.
Management was advised to ensure that controls over credit sales are adhered to as per
company policy prior to processing and billing.
126.7 Absence of a formally documented and approved Business Continuity Plan
(BCP)/Disaster Recovery Plan (DRP)
I noted that there was no evidence of a formally documented and approved BCP/DRP
covering the entire business and its operations. From my discussions with IT and HR, I
noted that the BCP was still being developed. An IT business impact analysis had been
carried out as well as succession planning for a few key departments. I explained to
management that absence of a formal BCP could expose the company to losses in case of
unforeseen events and thus becoming increasingly critical to the operation of the business.
Management explained that the Business Continuity Management plan implementation is
on-going. So far the processes have been reviewed and also identified critical areas where
initial focus will be emphasised. The selected areas include Succession Planning, IT Disaster
Recovery and Business Resumption. There is also a deliberate effort to study and
recommend cloud computing as an alternative to the high cost of setting up a physical data
centre. This has been proposed as a strategy option over the next 2-3 years and should be
concluded and presented to management for discussion in time for approval and eventual
commencement of implementation over the next financial year (2016/17).
I advised management to ensure that a formal business continuity plan is put in place for
approved by the board before implementation. The BCP should not only consider the
business process and technical aspects, but also recognize and addresses the human
element. During the implementation process, management should ensure that the BCP is
regularly reviewed and tested to ensure that it addresses the changing needs of the
business in line with the primary economic environment.
127. UGANDA BROADCASTING CORPORATION – 30TH JUNE 2015
127.1 Valuation of Property, Plant and Equipment
The Corporation’s fixed assets (property, Plant and equipment) are reflected as
UGX.41,387,636,950 in the statement of financial position. A review of the supporting
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schedules in accordance with International Accounting Standards (IAS)
revealed the following:
No revaluation of Property and Equipment was undertaken contrary to IAS 16 which
requires regular revaluation of assets. Failure to revalue the assets contravened the
applicable Accounting Standards. Furthermore, it was also noted that impairment
reviews were not undertaken by management on the assets during the year contrary to
IAS 36 which requires that assets should not be carried at more than their recoverable
amount. I was therefore unable to confirm whether the property and equipment
disclosed in the financial statements are stated at fair value.
The Corporation did not maintain a fixed assets register during the year contrary to
chapter 16.3 and 16.5 of UBC Finance and Accounting Manual to enable me track the
Corporation’s assets. What was in place was a listing of assets without date of
acquisition, values/costs attached and as such I could not ascertain with certainty the
value of property, plant and equipment.
The Corporation had no proof of ownership of some non-current assets like title deeds
to enable verification and confirmation of ownership contrary to Paragraph 16.14 (1) of
the Corporation’s Finance and Accounting Regulations manual that requires the entity to
have proof of ownership.
I was therefore unable 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 non-compliance to IAS 16 and IAS 39 on regular revaluations
and detailed impairment reviews was a challenge due to the limited resources at their
disposal to engage the technical experts that can guide Management on methodologies
prescribed by the standards, which they anticipate to address in the future. Management
further explained that a detailed listing of all fixed asset additions and disposals in
FY2014/15, 2013/14 and 2012/13 had been compiled as part of UBC’s effort to create a
Fixed Asset Register.
I advised the Accounting Officer to expedite the revaluation process and have an adequate
asset register in place.
127.2 Trade and other payables
It was observed that the Corporation has outstanding obligations of UGX.30,841,178,841
comprising of trade creditors (UGX.12,010,778,774) and other creditors
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(UGX.18,830,400,067). However, all the trade creditors (UGX.12,010,778,774) were not
adequately supported with source documents like invoices, contracts completion certificates
and agreements. It was further noted that the payables have been increasing for the last
consecutive years. There is a risk of inclusion of non-existent creditors who may be
irregularly paid leading to loss of funds by the Corporation.
Management explained that the supplier related creditors are being renewed to weed out
unsupported balances.
I advised the Accounting Officer to ensure that all documents relating to payables are
properly kept, filed and corroborative evidence should be obtained prior to payments to
creditors is undertaken. Furthermore, an invoice register should also be put in place.
127.3 Cash at bank
It was observed that UGX.4,358,415,377 was disclosed as cash at bank by the corporation.
However a review of the balances revealed that no bank reconciliation statements were
prepared for the whole year and thus there was no basis to confirm independently that
cash at bank for the nine (9) bank accounts held was fairly stated in the statement of
financial position and statement of cash flow contrary to Paragraph 8.22(iii) of UBC
Financial and Accounting Regulations manual 2006 that requires cash reconciliations to be
carried out daily. Without bank reconciliation statements, I could not confirm the accuracy
of the cash and cash equivalent presented in the statement of financial position.
Management explained that Board of surveys will be implemented to include cash at end of
reporting period as had been done for the inventory count.
I advised the Accounting Officer to ensure that regular bank reconciliations are undertaken
to support the board of survey constituted at every end of the financial year for
confirmation of the balances at hand/bank.
127.4 Trade and other Receivables
A review of the receivables for the year of UGX.20,961,027,331 revealed that there were
inadequate revenue collection measures as evidenced by the gross trade and other
receivables low reduction of 0.1% from last year’s balance.
Failure by management to recover outstanding receivables leads to accumulation of
receivables which may reach unmanageable levels and would require writing off thus
causing financial loss to the Corporation.
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Management explained that they had instituted and are implementing revenue recovery
measures as evidenced by demand letters. Discussions are ongoing with the Clerk to
Parliament as part of the recovery effort for the UGX.10.4billion. Finance and Marketing
functions constituted teams to follow up clients with debtors. Appointment of two debt
collection firms have been done whose efforts will soon be evident.
I await the results of the Accounting Officer’s efforts in this regard.
127.5 Provision for bad and doubtful debts
The Corporation’s provisions for the year revealed that Management provided
UGX.287,124,862 for bad and doubtful debts based on a 5% judgment on some debtors.
IAS 37 requires the estimate of provisions to be determined by judgment of the entity’s
management supplemented by the experience of similar transactions. Section 8.17 of the
UBC Finance and Accounting Regulations Manual also requires any due debt to be
subjected to debt recovery procedures as stipulated in the bad debt management manual.
The following were however observed;
This provision should ideally have been well documented in the debt management
manual specifying rates for the various categories of debtors, however it was noted
that while last year a blanket provision was made on all receivables, the current years
provision was only on some debtors. Further, as noted in the last years audit the same
rate was also provided on certain debtors like cash and salary advances which are
within managements full control.
The provision rate of 5% set by management was not backed with experience of similar
transactions as required by IAS 37 given that some transactions have minimal chances
of recovery and specific provisions would have been applied, that is; Parliamentary
commission (UGX.10 billion- without a contract), M and B (UGX.0.4 billion- whose land
UBC has reclaimed), and others.
Bad debts should be written off when all reasonable steps to recover them have been
taken without success.
The blanket provision is inadequate without a proper review and analysis of the
Corporation debtors and as a result the provision may be misleading to the users of the
financial statements.
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Management explained that provisions based on Management’s judgment and
experience on similar transactions will be implemented in subsequent reporting periods
given that Finance and Marketing functions are working towards the same goals in this
area.
I advised the Accounting Officer to expeditiously review and submit for approval to the
Board the debt management manual with comprehensive provisions for the different
classes of receivables.
127.6 Governance and strategic issues
127.6.1 Lack of Corporate Strategic Plan
A strategic plan provides an organization with purpose and direction and it is a key
requirement for organization survival, however I observed that the Corporation does not
have a Corporate Strategy with the old one (2008-2013) having expired in 2013. Though
the Corporation has a Mission to educate, inform, guide and entertain the public through
maintaining a sustainable national coverage, its doubtable if it can be achieved without
long term plans. Implementing projects without a strategic plan may lead to uncoordinated
implementation of activities as the budget/work plans and the vital work done are not
linked to developments.
Management explained that UBC had engaged the services of a consulting firm that has
been working to put in place an owned and workable Strategic Business Plan and this has
been scheduled for discussion with the Board before end of December 2015.
I await the results of the Accounting Officer’s effort in that regard.
127.6.2 Lack of Credit and Debt Management Policies
Its best practice in corporate entities that debt and credit management policies are
formulated and documented to help the organizations manage and control debt and its
credit. During audit, it was noted that the corporation had not formulated both the credit
and debt management policies despite my previous years recommendations. This has
resulted into major weaknesses as noted below;
(i) Debtors
The corporation presented a receivables balance of UGX.20,486,267,489. Further analysis
of this balance revealed that there was no approved credit period for debtors and
consequently many debts were never collected. I did not obtain evidence that management
put in the required effort to collect the debts.
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(ii) Creditors
It was observed that the Corporation owes UGX.30,841,178,841 which is a substantial
increase from the previous financial years position. Further, it was noted that the payables
have been increasing for the last consecutive years and this could be attributed to lack of a
credit management policy in place.
Management explained that UBC was now running like other businesses and where best
practice has been lacking they had started implementing the same which would be
followed with documentation of the practices, update of manuals and policies to ensure
consistency and objectivity.
I await the results of the Accounting Officer’s efforts in this regard.
127.6.3 Staff without valid contracts and un-updated salary structure
It was observed that 247 members of staff were working at the Corporation without valid
contracts, some having expired as far back as 2009 contrary to Paragraph 2.9.4 of Uganda
Broadcasting Corporation Human Resource regulations-2006 that requires contract
employment to be renewable subject to good health and satisfactory performance. Further,
a review of the UBC staff and the salary structure revealed that the salaries, terms and
condition of service of the Corporation were last set in 2005 at the inception of UBC and
have become out dated and inadequate contrary to the UBC act section 8 (d) that
mandates the Board of Directors to determine from time to time the structure staff levels
and terms and condition of service of staff. The salary ranges from UGX.150,000 to
UGX.6,500,000 for the lowest paid to the highest paid officer
Failure to renew employment contracts violates the rights of employees which may attract
litigation expenses. Further, maintaining a strong salary structure is imperative for any
Corporation. If the salary structure gets out of sync with the overall labor market, UBC may
find difficulty in attracting and retaining the desired staff.
Management explained that UBC was going to address the issues after drawing up the
strategic plan.
I advised the Accounting Officer to ensure that the process is expeditiously handled. In the
meantime, I await the results of management efforts.
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127.6.4 Unapproved draft policies
The Corporation has several draft policies developed for the efficient functioning of the
Corporation business however, it was noted that many of them are in draft form and
cannot be put to application without board approval. Specifically the critical ones are the IT
/Security policy and the risk and fraud control policies. Others are Internal Audit Manual,
UBC Board Audit Committee Charter, Internal Audit Charter and Staff structure.
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. Further, 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.
Management explained that all policies were drawn to the attention of the Board for their
review and comments as well as their subsequent approvals.
I await the outcome of the Accounting Officer’s efforts.
127.7 Diversion of Special Release
During the year under review, Government transferred funds to Office of the Prime Minister
as a supplementary release to UBC for onward remittance to UMEME for outstanding
electricity arrears to the tune of UGX.4 billion.
UGX.5,000,556,117 as at 30th June 2015 was outstanding accumulated electricity bills for
the past periods, however a review of payments to UMEME revealed that only
UGX.3,599,543,717 was remitted to UMEME leaving a balance of UGX.400,456,283 that
was diverted to cater for staff salaries and other operational costs contrary to the
supplementary warrant as approved by Parliament. This action may lead to disconnection
of electricity by Umeme which would adversely affect service delivery.
Management explained that when new managers came in June 2015, UBC had stalled
planned activities in all functions due to lack of funds to implement themAs such
management decided to utilize some funds to bring the UBC brand to visibility through a
stable and clear signal, new studio graphics, improved quality sound on the radio brands so
that internal revenues could be generated through new business and thus improved cash
flows. Management further explained that they agreed to clear the arrears when the entity
cash flows improve.
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I advised the Accounting Officer to ensure remittance of the balance to Umeme and abide
by Government warranting conditionality for appropriated funds.
128. UGANDA COMMUNICATIONS COMMISSION – YEAR ENDED 30TH JUNE 2015
128.1 Outstanding Receivables
It was observed that trade and other receivables increased from UGX.25,204,001,631 in
the previous year to UGX.26,857,892,827 during the year under review representing 0.7%
increment. Further, scrutiny of the outstanding amount revealed that eight firms had not
paid over 70% of the total receivables and the balances are beyond the allowable 60 days
provided in the financial manual. Key among the eight is a local firm that owes the
Commission UGX.13,119,246,405 which is 49% of the outstanding receivables. Failure on
the part of management to recover outstanding receivables beyond the recoverable levels
may necessitate writing off hence creating a financial loss to the Commission.
Management explained that they had intensified debt collection efforts by taking legal
action against the major debtor through their external lawyers after exhausting internal
collection measures, however management efforts were curtailed when government
communicated a Cabinet Decision to transform the entire debt into Uganda Government
shares in the firm. Management further explained that for the other debtors, efforts have
yielded some results from five of the firms and legal processes are still ongoing for the
other two firms.
I advised the Accounting Officer to ensure that all receivables are collected within a
stipulated credit period.
128.2 Revenue Shortfall
During the year, the Commission budgeted to collect revenue worth UGX. 104,698,319,136.
However, actual revenue collected amounted to only UGX 84,357,297,401 creating a
shortfall of UGX 20,341,021,735 which is a 19% deficit. Details are as below;
Final Budget Budget Out turn Variance
Revenue
Spectrum fees 41,017,381,563 30,766,249,514 (10,251,132,049)
Broadcasting
services
1,551,451,153 1,492,303,404 (59,147,749)
Satellite services 419,380,000 263,737,000 (155,643,000)
Licence fees 2,930,538,000 2,443,957,754 (486,580,246)
Levy on GAR 31,844,502,852 44,792,508,734 12,948,005,882
International traffic 14,040,000,000 0 (14,040,000,000)
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Other revenue 7,695,065,568 4,598,540,995 (3,096,524,573)
Grants 5,200,000,000 0 (5,200,000,000)
Total Revenue 104,698,319,136 84,357,297,401
Significant variations in revenue collections may imply unrealistic budgeting and /or
inadequate implementation of collection strategies. As such management is constrained in
the implementation of planned activities.
Management explained that the revenue shortfall was mainly due to unforeseen changes
that occurred after budgeting like the reduction in use of microwave spectrum due to some
operators adopting new technologies (fiber cables as an alternative to microwave
spectrum), non-billing of UTL during the financial year for the spectrum held as processes
for license revocation had already been initiated, introduction of an excise tax by the
Income Tax amendment of 2013 on incoming international traffic which is being collected
by Uganda Revenue Authority, set up of the one area network for northern corridor and
lack of interest earnings from anticipated fixed deposits on idle funds.
I advised the Accounting Officer to ensure that the entity budget forecasts are revised in
line with the prevailing circumstances. Further, management should expedite the
procurement under the IDA grant and consider adopting new technologies in order to
favorably compete in the market.
128.3 Absence of the Communications Tribunal
Section 60 of the UCC Act, 2013, mandates the setting of the tribunal known as the
Uganda Communication Tribunal. The tribunal shall have jurisdiction to hear and determine
all matters relating to communications services arising from decisions made by the
Commission or the Minister under this Act.
However it was noted that there was no Tribunal in place to resolve disputes among
operators. Absence of a tribunal to boost amicable resolution of disputes among operators
and the Commission stifles the communication sector’s operational environment in Uganda
and affects the Commission’s ability to promote competition, including the protection of
operators from acts and practices of other operators. It may also result into increased legal
costs to the Commission in case of litigation.
Management explained that under Section 60 (2) of the Uganda Communications Act,
2013, the Uganda Communication Tribunal composed of a Judge and two other persons, is
supposed to be appointed by the President on the recommendation of the Judicial Service
Commission. This issue was brought to the attention of the relevant offices for action.
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I advised the Accounting Officer to follow up my recommendation as this issue has been
outstanding for the last two years. Management should liaise further with the relevant
authorities with a view of having the Communications Tribunal instituted.
128.4 Lack of established internal mechanism to verify the operators GAR
UCC collects an annual levy on gross annual revenue (GAR) of telecom operators at a rate
of 2%. It was noted that this levy constituted 27% of the commissions projected revenues
in the financial year 2014/2015. UCC is now required to remit 1% of the operators’ GAR to
the consolidated fund and it relies on the operators audited financial statements to raise
invoices of the 2% levy on GAR.
A review of the revenue collection system revealed that the Commission has not yet built
capacity to independently verify the revenue figures reflected in the operators audited
financial statements to counter the likelihood of audit risk/ or collusion. As such, there is a
risk of under collecting revenue for the Commission in the circumstance.
Management explained that Procurement of a traffic monitoring system is on-going which
will enable monitoring of telecom traffic and verification of revenues submitted by
operators.
I advised the Accounting Officer to consider developing internal capacity to carry out a risk
based verification of operator’s GAR as they undertake procurement of the monitoring
system.
129. UGANDA PRINTING AND PUBLISHING CORPORATION – 30TH JUNE 2015
129.1 Un-reconciled staff salaries
As per GAAP, Management is responsible for the preparation of financial statements and
also put internal controls in place to enable the preparation of the financial statements that
are free from material misstatements, whether due to fraud or error.
I was however unable to verify the accuracy and completeness of salaries amounting to
UGX.874,141,662 in absence of reconciliation between amount as per supporting
documents (Payrolls, ledgers, and cashbook) and as per financial records of the
corporation. There were no alternative audit procedures that I could adopt to confirm that
salaries are fairly stated. Such weaknesses may signify inadequate internal controls, errors,
and omissions. This renders financial statements unreliable thus affecting decision making.
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Management explained that the errors were caused by the shift from the old system to
the new accounting package and promised to correct the discrepancy in the year
2015/2016.
I advised the Accounting Officer to revisit the new system and should there be need for
training, then this should be implemented. In the meantime, a reconciliation should be
done to ensure accuracy and completeness of salary balances.
129.2 Un-reconciled Gratuity
I was unable to verify the accuracy and completeness of Gratuity amounting to
UGX.395,618,959 in absence of reconciliation between amount as per supporting
documents (Payrolls, ledgers and cashbook) and as per financial records of the corporation.
There were no alternative audit procedures that I could adopt to confirm that Gratuity is
fairly stated.
Such misstatements may signify weak internal controls, errors, and omissions. This renders
financial statements unreliable and hence affecting decision making.
Management explained that the errors were caused by the shift from the old system to the
new accounting package. This gratuity could not be ascertained on a monthly basis as the
employees concerned were on permanent basis hence their gratuity/ terminal benefits
could only be calculated at the point of exit. Management promised to correct the
discrepancy in the year 2015/2016.
I advised the Accounting Officer to ensure accuracy and completeness of the accounting
records maintained for reliable information that can enable management make rational
decisions.
129.3 Unsettled tax and social contribution obligation
The Income tax Act Cap 340 section 116 (1, 2 & 3) requires an employer to withhold tax
while paying employees and remit it within 15 days of the following month. As noted in the
prior year, the Corporation persistently failed to settle tax and social contribution obligation
relating to PAYE, NSSF, WHT, VAT, and LST to relevant authorities.
During the year under review, the Corporation had unsettled tax obligations to the Uganda
Revenue Authority (URA) amounting to UGX.3,318,924,958 and unpaid NSSF contributions
of UGX.414,704,993. Non-compliance with the statutory deductions may result into
unnecessary fines, penalties and interests charged for late remittance of statutory
deductions.
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Management explained that current dues are being paid promptly and that they have since
entered into an arrangement to pay arrears relating to financial year 2013/2014 with URA
and NSSF. An MOU has been signed between URA and the Corporation on LST. Effective
September management has implemented a new payroll system where LST is being
deducted and remitted to the relevant Authority.
I advised the Accounting Officer to ensure fulfillment of the MoUs to avoid unnecessary
penalties and fines.
129.4 Uncertainty in recoverability of Trade Debtors
It was observed that the receivables had accumulated to UGX.2,832,892,578as at 30th June
2015 a majority of which is owed by the Government of Uganda institutions. The biggest
chunk of these debts have been outstanding for over 5 years and their recoverability
appear uncertain. I further noted that no provision for bad debts was made to that effect.
Non provision of debts overstates the receivables position of the Corporation.
Management responded that they are in the process of compiling a list of those debts that
have been outstanding for a long time. Steps in form of meetings and several
correspondences etc. are being taken to recover those debts where the Corporation has
had assurances of recovery.
I advised the Accounting Officer to ensure adequate follow up of these debts before a
decision to write off is arrived at. Management should also provide for bad debts regularly
as recommended by IFRS.
129.5 Tax Recoverable
As noted in my previous years report, the Corporation has a tax recoverable totaling UGX.
414,692,376 in its financial statements that has been outstanding since 2010. However no
documentation was availed in form of withholding tax (WHT) certificates for further follow-
up to enable the Corporation reduce on its tax liability with URA. Without supporting
documents, misstatement of the Corporation’s asset balance cannot be ruled out.
Management explained that they are following up this issue in line with the debt collection
policy of the Corporation.
I advised the Accounting Officer to follow up on WHT certificates from its clients to have
this matter settled. This will help the Corporation to reduce on its tax liability with URA.
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129.6 Financial analysis of the Corporation
Basing on the ratios computed, I noted a significant decline in performance as evidenced
by a comparison made in the performance of financial year 2014 and 2015. I observed that
profitability and liquidity ratios have deteriorated significantly hence the current assets may
not finance current liabilities and continue in operation. Refer to the table below:
Ratios 2015 2014
A Liquidity Ratios
1 Current Ratio
Current Asset 3,934,088,866 4,351,116,124
Current Liabilities’ 5,571,379,217 3,686,909,768
C/R 0.71 1.18
2 Acid Test Ratio
Current Asset 3,934,088,866 4,351,116,124
Current Liabilities 5,571,379,217 3,686,909,768
Inventory 535,970,839 928,941,624
ACR 0.61
0.93
Both liquidity ratios analysis highlights a reduction in the entity's liquidity from the
previous financial year. And thus the entity could not pay off all its current liabilities due for payment using its current assets.
B Profitability Ratios
1 Gross profit : Revenue
Gross profit (912,808,215) 677,224,215
Revenue 3,388,974,015 2,823,667,152
G/R -27%
24%
2 Return on Capital Employed
PBIT (1,451,629,396) 234,160,804
Total Assets 10,345,773,233 10,794,262,427
Current Liabilities’ 5,571,379,217 3,686,909,768
ROCE -30%
3%
The going concern of the corporation is at stake if no corrective measures are taken
immediately to improve on the profitability levels.
Management explained that the deteriorating performance was affected by payments of
terminal benefits of former employees which accrued from 1999 during transition from
government printer to a Corporation. There is however a positive trend of improvement as
shown by the trend in revenues and profitability as follows: in 2015 UPPC had a total
growth of (22.92%) 3,734,977 compared to a deficit of (10.45%) (355,441) in 2014 and
(7.30%)(263,545.52) in 2012. It was further stated that a new strategic plan is to be
implemented to reorient the organisation.
I await implementation of the new strategy.
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129.7 Impairment of Corporation assets
Impairment is usually associated with a long-lived asset that has a market which has
decreased significantly due to especially changes in technology. I noted that the core
activity of the corporation is printing and publishing which changes with changes in
technology. As noted in the previous audit, 70% of machinery in the production
department is out-dated and non-functional and this has resulted into approximately 40%
of jobs being outsourced. Some vehicles in the asset register are non-functional and
beyond repair and were recorded in the books at NIL value.
Inappropriate machinery coupled with increased outsourcing activities may result into loss
of customers that come with poor quality output and late deliveries.
Management agreed with the observation and explained that it had attempted to address
the issue by appointing an expert and independent Engineer from New Vision who
conducted an audit on the Machinery working condition and capacity. Management is yet
to establish the recoverable amount which will guide in obtaining an impairment loss.
I recommended for disposal of old machines and purchase of new ones so as to match with
the modern technology on the market. Minimizing on outsourcing to cope up with
competition in the market should also be considered once replacement of old machines has
been done.
130. UGANDA INSTITUTE OF INFORMATION & COMMUNICATION TECHNOLOGY-
YEAR ENDED 30TH JUNE 2015
130.1 Review of legal status
In the previous year’s audit report to Parliament, I noted the legal transitions the Institute
had been subjected to, i.e from UCC to Ministry of Education, Ministry of Information and
Communication Technology and finally back to UCC. I noted ambiguity in the interpretation
of several provisions which directly affects service delivery and recommended for clarity in
the legal framework in some areas. Management indicated that a statutory instrument had
been drafted by UCC and was in the process of approval to harmonize operations; however
to-date, no harmonization has been done. The areas of concern are as below:-
(i) Mandate of the Ministry of Education (MOES) and Ministry of Information
and Communications technology (MICT)
Although UICT was transferred to the Ministry of Information and Communication
Technology (MICT), the Ministry plays no role as regards to recruitment of technical staff
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as evidenced by the recent recruitment of the Principal which was undertaken by the
Education Service Commission. Similarly, the responsibility for appointment of the
governing council members could not be ascertained.
(ii) The Uganda Communications Commission
It was noted that under Sec (w) UCC Act 2013, the Commission is mandated to “operate
and manage” UICT. This provision is unclear as it does not clarify the responsibilities of the
Ministry and UCC with regard to the following;
Human resource: UICT employees are neither under the mandate of UCC, MICT nor
Ministry of Public Service and no approved Human Resource manual is in place.
Funding: Although the Institute is funded by UCC, there is no confirmed legal
obligation on either the Commission or Ministry as regards to funding of the Institute
and it was noted that the institute funding from UCC was cut by half in the year from
680 million last year to 340 million without any explanation and consideration of the
Institute’s commitments.
Management explained that the issue was brought to the attention of the Ministry of ICT
and UCC and in response the Ministry of ICT formed a taskforce to harmonize the legal
framework. UCC instituted a legal team to interpret the terms “Managing and Operating
UICT”.
I advised the Accounting Officer to raise the issue to the attention of the responsible
stakeholders for an enabling law that ensures effective service delivery by having the
parent ministry control all operations of the Institute in order to avoid multiple reporting
centers and clarification of legal provisions to clearly define roles and responsibilities.
130.2 Absence of Approved strategic plan
It was noted that the Institute does not have an approved strategic plan and yet the
budgeting process of UICT should be based on the integrated link of the strategic plan and
annual work plans to ensure effective service delivery. In absence of a strategic plan there
is lack of strategic guidance in achieving the Institute’s objectives as the budget process is
not linked with the strategic plan. There is also a risk that the strategic objectives of the
entity will not be fulfilled in the long run.
Management indicated that the delay in the development of the strategic plan was due to
the transition process from MOES to MICT and eventually to UCC. Management further
stated that UCC has to develop a master plan in which UICT will be incorporated and
thereafter UICT will develop a strategic plan. Management also reported that UCC hired a
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consultant to develop the Institute Master Plan which will include a Strategic Plan
and the Master Plan has been completed by the Consultant and is being reviewed by UCC
before it is finally implemented.
I await the results of the Accounting Officer’s effort in this regard.
130.3 Trade receivables -Lack of a debtor’s policy
Included in the receivables of UGX.544,990,638 is a sum of (UGX.296,398,482) attributed
to school fees defaulters. The amount has increased by 50% from previous year’s position.
It was noted that UICT lacked a debtor’s policy to provide guidance on the management of
debtors. Furthermore, it was observed that the school fees debtors have continued to
accumulate over time and continue to be reflected in the accounts which may be unrealistic
especially in the event that a person ceases to be a student for various reasons. I could not
establish which of these receivables are irrecoverable and probably should be written off.
There was also no ageing analysis for the receivables and no evidence that efforts have
been made to recover them.
Management explained that the Governing Council at its 24th meeting approved the
Finance Committee recommendation to develop a bad debtors policy and they have started
on the preliminary work to develop a debtor’s policy.
I await the results of the Accounting Officer’s efforts in this regard.
131. UGANDA NATIONAL COUNCIL OF SCIENCE & TECHNOLOGY – 30TH JUNE 2015
131.1 Investment in Integrated Intelligent Computer System (IICS) Project
The Council entered into an agreement with a Consultant to design and implement an easy
to use computerized system across the country that has the capacity to perform accurate
diagnosis of diseases, recommend appropriate treatment, capture and update patient data
in real time and provide platform for facilitating data sharing among National Health
Establishment and also generate relevant patient and drug management reports. The
project agreement was signed in January 2010 for a renewal of three years ending in
December 2012. A sum of UGX.4,090,000,000 was budgeted for the project
implementation across the country and was subsequently paid. However, I could not
establish how many of the planned National Health Centers had implemented the
programme. During an inspection of Mulago National Referral Hospital, it was observed
that there has been resistance by medical personnel to have this project take off. The
objectives of placing, processing and management of orders for supplies internally were
638
not evident. Stores management of pharmaceuticals and medical supplies to reduce
over ordering and or identify drugs that had expired was not manifested.
Management explained that the system generated a lot of interest within Government.
Currently, government has asked the project to submit a budget of close to 30bn for the
rollout of the system within the public sector from 2016/2017.
I indicated to management that this project would be considered nugatory expenditure if
the end product is not used by the targeted community (Health Centers’) and advised
management to train the beneficiaries in the use and application of the system for its
adoption and minimize waste.
131.2 Management of Projects by Principal Investigators (PIs)
(i) Cash payments
UNCST has several projects it funds and the Council is responsible for the management of
the funds it disburses. I noted that these projects use the funds given to them at their own
discretion. Funds were deposited in individual personal accounts without the authority of
the Board and as a result, a number of payments for motor vehicle repair and servicing
were made in cash instead of paying the garages. Payments were also made in cash to
undertake a number of procurements instead of paying the suppliers.
I found this action contrary to the UNCST finance manual which requires cash to be made
in cases were payments do not exceed UGX.100,000.
Management explained that stringent conditions have now been instituted to ensure that
the project managers adhere to existing cash management policy.
I urged the Accounting Officer to enforce the policy for better management of resources.
(ii) Management of Council Projects
UNCST developed policies to manage projects under its supervision. It was however
observed that in some projects, the MoU were designed in such a way that the Principal
Investigator (PIs) manages the projects as an individual. I noted that these projects are
not managed in accordance with government policies and guidelines. For example, the PI
recruits staff, determines salary and dismisses staff. This was a case in Aquaponics Farming
and Research Project where the Principal Investigators set his own conditions of service
without guidance from management of the Council and the Board. It appears this practice
also cuts across all projects.
639
Management explained that initially PIs were left to recruit special staff they needed but
going forward, management will review the project staff terms of employment and carry
out any future recruitments with the guidance of the Board.
I advised the Accounting Officer to review the Human Resource Manual in order to institute
controls so that there is transparent recruitment of project staff.
(iii) Failure to hand-over project assets
I noted that some projects under Support to Scientists (STS) which closed were required to
submit project closure reports and return the project assets such as vehicles and office
equipment by December, 2014. However some projects managers wrote back asking for
more time and others give reasons why they would not return the assets. This is against
the handover procedures.
Management explained that the new Board has been notified of this matter and are
planning to verify all project assets and ensure that the scientists hand-over the
government assets to Council.
I await the outcome of management action.
132. UGANDA POST LIMITED - YEAR ENDED 30TH JUNE 2015
132.1 Sustainability of services –Liquidity analysis
I carried out ratio analysis of financial information and the following were observed for the
attention of management for improvement purposes and ensure sustainability of services:
YEAR 2015 2014 2013 2012 IMPLICATIONS AND REMARKS
Current
Ratio
1.08
times
1.04
times
1.01
times
0.90
times
Measures company’s ability to meet
short term liabilities when they fall due. Current assets were not adequate to
cover current liabilities in all the years.
The higher the ratio the better and ideal is 2:1 This is not healthy for
POSTA.
Quick Ratio
0.7 0.6 0.5 0.6 Measures ability of current assets minus stock/ Inventory to meet short
term obligations when they fall due.
Current assets were insufficient to cover current liabilities for the four
years reported. The higher the ratio the better. This again is not healthy for
POSTA. The ideal is 1:1
Average
collection
0.9 0.23 0.19 0.19 This Ratio measures average number
of days required to convert receivables into cash. It can be noted that it takes
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Period 328 days (0.9 x 365) to collect cash from debtors and this is below the
Posta 60 days debt recovery period policy.
Times
Interest
Earned
1.12
times
1.56
times
2.3
times
3.1 times In order for the company to benefit
from debt financing, the fixed interest
payments that accrue to debt must be able to be satisfied from operating
profits and have some excess profits. The higher the ratio the better. This
was not healthy for the company as
out of the UGX. 824,793,680 operating profit earned, UGX. 464,602,090 (more
than half of profit) was incurred on interest expenditure.
Management explained that Uganda Post Limited (UPL) has a strong country-wide asset
base ensuring its continued ability to provide services. Management is strengthening its
credit management, management accounting as well as treasury management.
I advised the Accounting Officer to ensure that the debts are collected timely and also
ensure that there are adequate controls over the debt portfolio and credit policies if they
are to sustain service delivery.
132.2 Long overdue Trade and other Receivables
The trade and other receivables increased from UGX.8,677,115,840 to UGX.12,727,659,700
(representing 47% increase from the previous year’s balance) contrary to Paragraph 8.4.4
of the Posta Uganda financial manual that requires all invoices to be collected within sixty
(60) days from date of invoicing. Further, there was no ageing analysis schedule to allow
me review the extent of recoverability of the debts and major debtors responsiveness. Non-
enforcement of debt recovery measures hampers service delivery and affects the
Company’s debt servicing which may attract interest on late payments.
Management explained that a debtor Management policy was formulated and approved by
the Board Committee of Finance and this will be effective beginning of 2016. Reconciliation
of receivables was ongoing with a view of writing off long overdue accounts. Management
further explained that they had engaged a debt collection firm to collect overdue accounts.
Management has also set up an in-house debt collection unit to collect recurring debts.
I advised the Accounting Officer to formulate a comprehensive debt policy that gives
adequate guidance on debt management. I also advised that all receivables should be
reconciled with a view of writing off long overdue accounts that are considered
irrecoverable after undertaking some recovery options
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132.3 Trade and Other Payables
The trade and other payables increased by 29% from UGX.12,052,739,660 in 2014 to
UGX.15,549,969,730 in the current year which is quiet significant and it was noted that
71% of the Payables (UGX.8,235,411,925) were well beyond 180 days contrary to the
financial regulations that require that creditors to be settled promptly. Further, contrary to
paragraph 2.5.4 (iii) of the financial manual that requires suppliers accounts to be
reconciled monthly, the company was not compliant and this has created a numbr of
adjustments relating to prior-year periods thus casting doubt as to the accuracy and
completeness of the current year creditors balances. Without monthly reconciliations, I was
not able to confirm that the company’s trade payables were complete, accurate and
properly measured which could be misleading to the users. Further, the company is at risk
of litigation for delays to settle their accounts.
Management explained that a draft Credit Management Policy was to be presented to the
Board Committee of Finance for approval. Further, management explained that remedial
action had been taken to correct book keeping errors and ledger adjustments were made
to match payments to accruals.
I advised the Accounting Officer to settle obligations as they fall due and ensure that
regular reconciliations of payables accounts are undertaken to eliminate the misstated and
misleading balances. I await the results of management’s efforts in regard to approval of a
credit policy.
132.4 Prior year adjustments
Prior year adjustments of UGX.906,151,210 were made to the retained earnings brought
forward from 2013/14 financial year with authorization of Head of Finance and approval by
the Managing Director. At the time of writing this report, reconciliations were still on-going.
A review of the journal vouchers relating to the adjustments revealed the following;
Recognition of Electricity expenses for Prior Years
UGX.710,185,429 was recognition of Electricity expenses for Prior Years. This was due to
the fact that Posta did not have a separate meter and was deposing cash with UTL and not
recognizing it as an expense in prior years but as a prepayment. This has an effect on
profits reported in prior years as they were overstated thus misleading the users.
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Misstatement of prior year receivables and payables
It was noted that a number of other adjustments apart from the one above were a result
of non-recognition of revenue earned and expenses incurred in prior years with some
dating back to the period 2008. Others were due to over invoicing of clients, invoicing non-
existent clients, non-reconciliation of clients’ accounts on settlement of invoices, and as a
result several debtors and creditors on the company’s books in the previous years could
have been misstated.
I noted that such cases may continue to surface in subsequent years especially with long
overdue receivables and payables. The errors impact on current years balances as
comparatives for the prior years are misstated.
Management explained that the errors were a result of past capacity gaps in accounts
section and the need to recognize revenue banked to UPL accounts by clients which had
earlier not been captured in UPL books.
I advised the Accounting Officer to undertake a final review of the receivables and payable
balances so as to present a true position probably through circularizing with a view of
writing off the long overdue unsupported receivables and payables
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TOURISM AND TRADE SECTOR
133. HOTEL AND TOURISM TRAINING INSTITUTE – YEAR ENDED – 30TH JUNE 2015
133.1 Outstanding Payables and lack of Credit Management Policy
The institute reported in the statement of financial position outstanding creditors of
UGX.899,239,093 including statutory deductions of UGX.138,803,024 that attract fines and
penalties. The schedule below refers;
Item Amount (UGX)
National Social Security Fund 125,298,476
Value Added Tax 13,504,548
Total 138,803,024
It was also noted that the Institute lacks a credit management policy to guide management
in the settlement of creditors.
Management explained that they had made efforts to reduce credit levels to manageable
levels by paying current obligations and signing MOUs with some of the creditors. At the
time of writing this report the payables had been reduced from UGX.899,239,093 to
UGX.465,855,464.
I advised management to settle the outstanding creditors and put in place a credit
management policy that would guide settlement of creditors.
134. NILE HOTEL LIMITED – 31ST DECEMBER 2014
134.1 Improperly stated value of buildings
The value of Buildings was reported at UGX.45,820,185,480 in the financial statements
without subjecting them to depreciation contrary to IAS 16 which requires buildings to be
depreciated. Under the circumstances, I was unable to confirm the accuracy of the
reported balances in respect of buildings in the financial statements.
Management explained that a consultancy firm was contracted to review the valuation of
the concession assets and a report was still being awaited.
I await the outcome of management undertaking in this regard.
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134.2 Unlimited Tenure of the Board of Directors
Section 3.8 of the NHIL Board manual, 2013 requires regular rotation of directors to ensure
continuity and introduction of new thinking in the Board. This is amplified by section 3.9
which requires the term of office of directors to be 3 (three) years, renewable once.
It was however noted that NHIL directors had not been changed for over 20 years since
the inception of the company in 1994. The Ministry of Finance (PERD) in its letter (Ref: PES
0900 dated 18/08/1997) instead extended the Board’s tenure.
Management explained that this matter was discussed at the AGM held in May 2014 where
the tenure of the Board was extended by one year (or to the next AGM).
I advised the Appointing authority (shareholders) to appoint a new Board of Directors for
NHIL as soon as it is practically possible in accordance with Board manual and ensure that
their terms of reference are clearly defined.
135. UGANDA DEVELOPMENT CORPORATION – YEAR ENDED 30TH JUNE 2015
135.1 Lack of a law operationalizing UDC
After the enactment of the Public Enterprise Reform and Divestiture Act in 1993, UDC was
classified as a Class III enterprise in which GOU was to completely divest itself.
Accordingly, all subsidiaries and affiliates of UDC were sold off as separate entities to
different private sector actors, leaving UDC as a shell company. UDC was incorporated into
Uganda Development Company Limited (UDCL), under the Company Act Cap 110, in 2003.
In January 2008, Cabinet resolved to revive UDC as the “development arm of Government”.
This was followed by the appointment of a Chief Executive Officer in February 2009, and
the establishment of an operational office with start-up staff in June 2010. However, it was
noted that the law to operationalize the Corporation has not been enacted by Parliament
and this has delayed the constitution of the Board and recruitment of key staff as indicated
in the paragraph (8.1.1 – 8.1.4) below.
Management explained that the matter is before the Sectoral Committee of Parliament on
Tourism, Trade and Industry for discussion. Once this is finalised, the bill will be passed
into law.
I urged the Accounting Officer to follow up the matter with the authorities to allow
operationalization of the Corporation.
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135.2 Lack of a Board of Directors (BoD)
Best practice requires that Uganda Development Corporation should have a Board of
Directors in place to perform functions such as approving the policy guidelines, approve
organisational structure, recruitment of staff, approval of the annual workplans and
budgets and establishing rules and procedures to guide day to day operations. However, as
explained in my previous report to Parliament, there is still no Board of Directors
constituted and instead there is an acting Executive Director (ED) who reports directly to
the Minister. This implies that the Corporation is not being guided properly with regard to
strategic decisions.
Management explained that it is awaiting the enactment of UDC Bill into law before the
Board can be constituted.
I advised the Accounting Officer to continue liaising with the responsible Minister to ensure
that the law is enacted and the Board appointed.
135.3 Lack of a substantive Director of Finance and Administration
The Finance Policy and Procedures Manual was developed with the understanding that
there will be a Director Finance and Administration, however, this has not been the case.
Because of this gap, some payments were approved by Head, Human Resource (HR). The
payroll was prepared by the Accountant and approved by Head HR yet this is a
responsibility of Director Finance and Administration.
Management attributed this to lack of an approved structure and funds to recruit the
officer.
I advised the Accounting Officer to liaise with the line Minister to ensure that a Director
Finance and Administration is appointed so as to improve on the performance of the entity.
135.4 Lack of Internal Audit department
UDC does not have an operational Internal Audit department but depends on the
responsible Ministry Internal Auditors. Internal control errors may go undetected. For
example, the Internal Auditor verified and reported on only one quarter of the year and the
other two quarters were not reviewed.
Management attributed this to lack of an approved structure and enough budget to recruit
its own Internal Auditor.
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Management was however encouraged to hire an internal Auditor who will help improve
the internal controls of UDC.
135.5 Budget Performances
During the period under review the entity budgeted for UGX.4,482,787,000 but only
UGX.2,077,998,475 was spent, representing 46% budget performance. As a result some
activities were partially undertaken while others were not undertaken at all as indicated in
the table below.
Planned Annual
Activities
Total Budget
Amount UGX
Status Audit
Observations
Undertake an EIA for
the project disposal
site
40,000,000 By close of FY,
procurement process
was ongoing
Not done
Secure an EIA
certificate from NEMA
for the waste disposal
site
12,000,000 Dependent on
completion of EIA
Not done
Fence the solid waste
disposal site
200,000,000 Procurement process
ongoing
Not done
procure engineering
equipment’s
58,000,000 Not done. Prices kept
increasing
Not done
landscaping, leveling
& construction of the
other facilities on the
disposal site
110,000,000 Dependent on
completion of EIA
Not done
Recruit plant personnel 10,000,000 Was delayed due to
delay in commencement
of factory construction
by KOICA
Not done
Procure a contractor to
install the ICT
infrastructure
10,000,000 Was delayed due to
delay in commencement
of factory construction
by KOICA
Not done
Operating capital for
the fruit factory
1,399,727,000 Dependent on
completion of factory
construction
Not done
Prepare a business
plan for Soroti Fruits
Ltd
182,000,000 By close of FY,
procurement was on
going
Not done
Market the fruit
products in fruit
processing factories&
outlets EAC, and
outlets.
48,000,000 Bench marking study
done in Kenya
Not done
Total 2,069,727,000
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136. UGANDA INDUSTRIAL RESEARCH INSTITUTE FOR THE YEAR ENDED 30TH
JUNE 2015
136.1 Mischarge of Expenditure
The Parliament of Uganda appropriates funds in accordance with the needs of the
country and this appropriation is implemented through the budget in which funds
are tagged to particular activities and outputs using account codes and MTEF
codes. The intention is to facilitate better classification of financial transactions and
also track budget performance per item. However, UIRI charged wrong expenditure
codes to a tune of UGX.633,529,182. This resulted into misreporting of figures in
the financial statements.
I advised the Accounting Officer to ensure that budget lines are allocated sufficient
amounts of funds to undertake planned activities. Should a reallocation be needed,
management should always seek for authority in line with the law.
136.2 Undisclosed and un-revalued land
UIRI owns land on plots 42A and 42B on Mukabya Road (Nakawa Industrial area)
where the offices are suited. However, the land was not disclosed in the statement
of financial position under non-current assets. UIRI has not revalued it’s land but
still reports this asset at acquisition cost of UGX.2,668,000 in the Board of Survey
report. Failure to disclose land implies the financial statements balances were
misstated.
Management explained that they are in the process of engaging a valuer to determine the
value of the land to be included in the financial statements for the financial year
2016/17.
I await the Accounting Officer’s action on the mater.
136.3 Lack of a strategic plan
A strategic plan is an important tool in steering any organization towards achieving its
vision, mission and its overall mandate. The strategic plan is supposed to guide the
budgeting process by creating integrated link with the annual work plans which feed into
the budget to ensure effective service delivery and achievement of set organization
objectives. It was noted that the Institute has been operating without an approved
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strategic plan, since 2012 when the last one expired. In the absence of a strategic plan,
the Institute’s desire to achieve its objectives may greatly be impaired.
Management explained that the new board is in place and the process is underway to write
a new strategic plan
I advised the Accounting Officer to expedite the process and ensure that it is approved by
the Board.
136.4 Understaffing
A review of the entity’s organizational structure revealed that out of the approved 560
posts, only 225 posts were filled leaving 335 vacant. For instance, Directors of Product
Development, Product Systems and Finance and Administration departments, as well as
some regional project coordinators, scientists and engineers were not filled. There is a risk
that service delivery may be hampered by delays. Staff fatigue and heavy workload may
not be ruled out.
Management explained that for the last 2 financial years, UIRI has constantly requested
additional funding of 1.2bn from Ministry of Finance Planning and Economic Development
specifically for Staff recruitment and retention, especially of high caliber scientists and
engineers and is still awaiting response.
I advised THE Accounting Officer to continue following up the matter with MoPFED and
have the critical positions filled.
136.5 Lack of an Approved Internal Audit Charter
Best practice requires Internal Audit to have an approved charter to guide its functions and
operations. The internal audit charter provides for an independent and objective assurance
function aimed at improving and adding value to the authority. The charter also outlines
the responsibility for risk management which involves identifying key areas and ensuring
that the process for risk that the activities undertaken may not be priority to the
organisation.
The internal audit function has therefore been operating without a guiding document. Lack
of internal audit charter poses the risk on the functionality of Internal Audit Department.
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Management explained that the delay to approve the draft Internal Audit Charter was
because of lack of a Board. Management promised to fast track the renewal and approval
process of the charter.
I advised the Accounting Officer to follow up the matter with the Board and have the
charter in place.
136.6 Unimplemented Procurements
It was noted that UIRI had budgeted to receive a sum of UGX.14,946,552,724 from
treasury and a sum of UGX.15,949,383,660 was received. Procurements worth
UGX.3,843,526,574 were however not implemented during the year. Despite full financing,
core procurements related to construction of juice processing facility for Itojo fruit growers
(UGx.718,225,307), construction of fruit wine processing plant at Maziba
(UGX.621,219,806) and supply of extractors and associated accessories for juice project
(UGX.447,731,200) were not procured as had been planned. Failure to implement
procurements as planned implies that the entity may not have achieved its objectives.
Management explained that the procurement process was initiated to the point of contract
placements and implementation deferred to 2015-16 financial year.
The Accounting Officer’s implementation of the matter is awaited.
137. UGANDA EXPORT PROMOTION BOARD – YEAR ENDED 31ST DECEMBER 2014
137.1 Non remittance of statutory deductions
Included in the statement of financial position are payables amounting to
UGX.526,541,945. Details of which are indicated in the table below. It was observed that
the PAYE and NSSF arrears have been outstanding since 2013 financial year. The delay in
settlement of the URA dues attracted interest penalty of UGX.118,840,995.
Particulars December 2014
(UGX)
December 2013
(UGX)
PAYE Arrears 184,476,210 184,476,210
NSSF Outstanding 342,065,735 342,065,735
Interest on Penalties by URA 118,840,995
Total 526,541,945 645,382,940
Management explained that it is following up the matter with the responsible Ministry in
order to obtain funds to settle the statutory obligations and outstanding interest.
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I await the Accounting Officer’s action on the matter.
137.2 Un-Supported Payables
Included in the outstanding payables of UGX.471,822,575 is UGX.75,703,033 that lacked
supporting schedules and invoices. I was unable to confirm the nature of the creditors and
how they arose. The recorded balance may be inaccurate.
I advised the Accounting Officer to ensure that the accounts are supported by the relevant
schedules for future use.
137.3 Fleet of Motor Vehicles
The entity has a fleet of five (5) vehicles. Physical inspection revealed that some of the
vehicles have moved a considerable distance above 250,000 Km mileage and are due for
replacement. The financial statements indeed put these vehicles at a zero book value
implying they have exceeded their useful life. Because of the age of these vehicles,
maintenance costs increased by 91.76% from UGX.66,859,330 in the previous year to
UGX.128,212,318 in the year of audit.
This table shows mileage for each of the vehicles as at 08/07/2015;
MAKE NUMBER PLATE MILLEAGE (KM)
Toyota Land Cruiser UG 0035 T 463,072
Toyota Hilux UAA 555 E 366,796
Toyota Land Cruiser UAA 286 F 289,019
Toyota Hilux UAJ 406 X 198,743
Toyota Premio UAA 262 F 193,545
Management explained that Ministry of Finance, Planning and Economic Development has
promised to increase budget allocations to cater for brand new vehicles. Once the vehicles
are procured, UEPB will initiate the process of boarding off of old vehicles.
I await the Accounting Officer’s action on the matter.
137.4 Dormant Bank Accounts
Two commercial bank accounts had nil balances for the past two years and these accounts
have been dormant since 2012. It was observed that these accounts have never been
closed as the certificates of closure were not provided for audit verification. Details are
indicated below;
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Account Bank Name Audit Remarks
0140007167301 Stanbic –Bank Uganda Limited City
Branch
This Account has been dormant
since 2012.
0341185300 Barclays Bank Uganda Limited
Kampala Road Branch
This Account has been dormant
since 2012.
In the absence of certificates of bank account closure, I was unable to confirm the status of
the two bank accounts. There is a risk that the accounts are still open and may be used to
make fraudulent transactions.
I advised the Accounting Officer to follow up the matter to its logical conclusion.
138. UGANDA PROPERTY HOLDINGS LIMITED FOR THE FINANCIAL YEAR ENDED 30TH
JUNE, 2015
138.1 Long outstanding receivables
It was observed that long outstanding receivables increased from UGX.6,295,994,435 to
UGX.6,870,971,287 during the year under review. Included in the total outstanding balance
is a sum of UGX.5,001,688,119 brought forward from the previous year prominent of which
is UGX.4,741,740,000 owed by Government of Uganda arising from UPHL undertaking
renovation of Bugolobi Tri Star factory on behalf of Government, UGX.230,000,000 owed
by J.Z holdings and UGX.204,000,000 owed by Dr. Mashate arising out of a court award all
of which have never been recovered. There is a risk that these receivables may become
bad debts resulting into a loss of revenue to Government.
Management explained that efforts have been undertaken to ensure that the receivables
are collected as per the debtors’ management policy but with some challenges such as
going to court to have the money recovered. As for the Government debt, efforts have
been made to recover the money from Ministry of Finance, Planning and Economic
Development without success. UPHL will continue demanding the money from Government.
I advised management to continue demanding the funds and have the debts realized in line
with the debt management policy.
138.2 Un-Realized Procurement Plan
A review of the procurement plan revealed that the entity planned to procure goods and
services totaling UGX. 8,675,500,000. However, out of the planned activities, only activities
worth UGX.1,085,800,000 were undertaken representing only 13% performance. The bulk
of the funds were meant for construction of an office block at Bugolobi worth
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UGX.7,000,000,000. Failure to undertake planned activities implies that the entity
objectives were not be achieved. The table below refers;
Subject of
procurement
Estimated cost
(UGX)
Contract
signing date
Targeted date
Office Generator 15,000,000 1//10/2014 22/10/2014
Repairs of Sewerage, Gate & Compound at
plot 1776 Nyali
6,200,000 N/A Works to be completed Within the month of November 2014
Repairs of electric meters & Sewerage
System at plot 9695/12 Changamwe
10,500,000 28/11/2014 18/12/2014
General repairs at plot
1/505 Nyali
6,000,000 N/A Works to be completed Within
the month of December 2014
General repairs at plot X
349 Tudor
6,000,000 N/A Works to be completed Within
the month of December 2014
Construction of Wall
fence at Nalukolongo
WFP Warehouses
30,000,000 28/11/2014 18/12/2014
Repairs of roof and
toilet at plot 1/240 Shimanzi
9,000,000 N/A Works to be completed Within
the month of January 2015
Construction of
Perimeter Wall fence at Tororo Warehouse
(WFP)
70,000,000 05/06/2015 29/06/2015
Repairs of leakages and water system at plot
1/560 Nyali
15,000,000 05/06/2015 29/06/2015
Washing of external wall at Farmers House, Plot
6/8 Parliament avenue
30,000,000 05/06/2015 29/06/2015
Drilling of Borehole & Toilets at plot
9695/14/6M Changamwe
12,000,000 05/06/2015 29/06/2015
Property valuation in
both Kampala & Mombasa
50,000,000 05/06/2015 29/06/2015
Construction of an office
block at Bugolobi
7,000,000,000 23/03/2015 To be completed in two years
Reroofing of warehouse
at plot 1/293 Shimanzi
200,000,000 17/10/2014 17/11/2014
Training 30,000,000
Workshops 20,000,000
Recruitments 10,000,000
Compound maintenance 25,000,000 09/02/2014 29/9/2014
Renovation of
warehouse at plot 1/357
Shimanzi
45,000,000 28/12/2014 30/01/2015
Total 7,589,700,000
Management explained that the procurement was for building the office block at Bugolobi,
could not been undertaken due to delay in approval of plans by KCCA.
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I advised the Accounting Officer to always set plans that are realistic and achievable during
the year.
139. UGANDA NATIONAL BUREAU OF STANDARDS –YEAR ENDED 30TH JUNE 2015
139.1 Mischarge of expenditure
During the year, the entity charged UGX.599,569,111 to inappropriate expenditure codes
on budget lines to fund activities that were not planned resulting into a mischarge. I
explained to management that mischarge of expenditure undermines the budgeting
process and the intentions of the appropriating authority as funds are not fully utilised for
the intended purposes. Further, this could lead to financial misreporting.
Management explained that the entity had domestic arrears brought forward from previous
years and the Ministry of Finance, Planning and Economic Development advised
management to prioritize within available resources resulting into mischarges.
I advised the Accounting Officer to streamline the budget process to ensure that sufficient
funds are allocated to each account. Authority should always be sought before any
reallocations are made.
139.2 Accounts payable
The Bureau had total payables of UGX.1,113,468,063 at the yearend (statement of financial
position page -2 and Note -10 refers) which includes statutory obligations for URA tax
arrears of (UGX.272,795,306) and NSSF outstanding dues of (UGX.66,774,578). The
statutory obligations have been outstanding for over three years. The entity risks litigation
by the statutory authorities and are likely to attract additional fines and penalties.
Management explained that these amounts involved were accumulated penalties and
interests due to noncompliance with tax laws and NSSF Act in the period 2009 -2010 when
UNBS was still a subvention and receiving only net salaries but will be budgeted and settled
in 2015/16.
I advised the Accounting Officer to comply with statutory laws and regulations by settling
the obligations to avoid unnecessary penalties.
139.3 Non-Disclosure of Contingent Liability
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Section 2.5.18(ix) of the Financial Reporting Guide, 2008 requires MDAs to provide
in a memorandum statement a list of all pending courts in a statement of contingent
quantifiable liabilities which are likely to result in obligations of government.
A review of an arbitration agreement between a Vehicle Inspection Company and Uganda
National Bureau of Standards (UNBS) revealed that the two parties went for arbitration on
a matter in dispute and UNBS lost the arbitration and the following awards made;
Special damages for loss of income in the sum of $574,197.79 or Y53,951,625
General damages in the sum of $30,000.
Re-imbursement of UGX.79,084,012 being the respondents share of the costs of
arbitration
Half of the claimant’s costs of the arbitration to be agreed between the parties within
30 days from the date hereof failing which to be taxed by the Tribunal as an additional
award within a further 15 days therefrom.
However, it was observed that there was no provision made for contingent liabilities in the
financial statements contrary to provisions of IAS 37 despite the fact that the liability was
likely to crystalize.
Management explained that negotiations were still ongoing between the two parties to
revisit the amount awarded so that appropriate provisions would be made in the financial
statements.
I await the appropriate disclosures of the contingent liability by management.
139.4 Implementation of UNBS mandate
UNBS is mandated to advance standards and allied quality and safety aspects to all sectors
of the economy through formulation, promotion and enforcement of national standards to
enhance competitiveness of products, promote fair trade and protect consumers.
Accordingly, a National Standards and Quality Policy (NSQP) was developed in order to
address its mandate. Despite SMEs comprising over 80% of the industry, the Bureau is not
able to provide adequate support towards certification of their products to enable them
export to international markets and earn foreign exchange for the country. The Bureau is
currently not able to effectively enforce its mandate of standards development, promotion
and enforcement due to the following;
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139.5 Lack of core staff
The Bureau also lacks core staff to man all the gazetted entry points in the country,
besides undertaking regular inspections of all local factory outlets and products on the
market to enforce compliance to standards. Although the current establishment provides
for 480 staff, only 240 can be supported by the budget.
For example, Uganda Revenue Authority which works closely with UNBS is able to deploy
its staff in all the 54 entry points in the Country, yet the Bureau can only deploy limited
staff in 18 of them. This leaves the rest of the entry points where UNBS is absent exposed
to trafficking of substandard products into the country.
140. UGANDA TOURISM BOARD – YEAR ENDED – 30TH JUNE 2015
140.1 Un-supported expenditure
It was noted that management expended UGX 231,647,412 on purchase of various goods
and services without relevant supporting documents contrary to Section 181 of the
Treasury Accounting Instructions, 2003 which requires all vouchers to contain full
particulars of each service or goods and be accompanied by such supporting documents as
may be required so as to enable them to be checked without reference to any other
documents. It was further noted that UGX.18,117,600 purportedly incurred on procurement
of vehicles lacked necessary supporting documents.
Unsupported expenditure is prone to misappropriation or abuse.
Though management indicated that the supporting documentation was available, it was not
presented for audit verification.
I advised management to ensure that all its expenditure is supported by relevant
documents as required by the Treasury Accounting Instructions.
140.2 Mischarge of expenditure
Paragraph 400 (a) of the Treasury Accounting Instructions, 2003 states that “all
government transactions shall be recorded in the books of account applying the
Government of Uganda chart of Accounts as prescribed by the Accountant General.
Accounting officers shall ensure that all financial instructions are properly coded.”
Contrary to the above requirement, a sum of UGX 309,819,107 was charged on codes
other than those for which funds were appropriated leading to mischarge of expenditure.
The practice undermines the intentions of the appropriating authority.
Management explained that the Board in some instances had to and utilize budget lines
with balances to cover critical payments of items whose budget lines were fully expended.
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I advised management to always liaise with Ministry of Finance, Planning and Economic
Development to ensure that adequate funds are allocated to the budget items.
140.3 Failure to collect Non Tax Revenue
According to the Ministry of Tourism Ministerial Policy Statement for the year 2014/15, the
Board budgeted to collect UGX 1,158,000,000 as Non Tax Revenue (NTR).
However, a review of the statement of financial performance revealed that the Board did
not collect any Non-Tax Revenue in the year under review. This has the effect of stifling
the implementation of planned activities.
Management attributed the short coming to the delay in opening the collection account and
the need to resolve the issue of types and collection points for licensing fees regarding
Hotels and Tour Companies among others with MOFPED.
I advised management to liase with the relevant stakeholders and put in place adequate
arrangements for collection of not Tax Revenue in a timely manner.
140.4 Diversion of funds from the wages and salaries item
Included in the employee costs in the statement of financial performance are wages and
salaries amounting to UGX.1,067,292,872.
However, a review of the Board’s pay roll revealed that total salary payments during the
year amounted to only UGX.910,712,637 creating variance of UGX.156,580,235.
Management explained that the difference of the released funds under the salary budget
was used to pay NSSF arrears and gratuity for the current year.
Under the circumstances wages and salaries as well as general employee costs reflected in
the financial statements were misstated. Besides, the re-allocation of salary funds without
proper authority was irregular.
I advised management to always budget for the wages and salaries appropriately and
whenever there is need for re-allocation, necessary approval should be sought from the
Secretary to the Treasury before release of funds.
140.5 Understated Social contributions
Included in the financial statements are social contributions amounting to
UGX.116,425,200.
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However, a review of the NSSF payments for the year revealed total remittances
amounting to UGX.157,241,389. This implies that social contributions were understated by
UGX.40,816,189 in the financial statements. Besides, there were no supporting schedules
to confirm the accuracy of the social contributions reflected in the financial statements.
Management explained that there was a shortfall in the NSSF budgeted figures which were
paid using the balance on the salaries account.
I advised management to always budget for social contributions appropriately and
whenever there is need for virement necessary approval should be sought from the
Secretary to Treasury before release of the funds.
141. UGANDA WILDLIFE AUTHORITY – YEAR ENDED 30TH JUNE 2015
141.1 Reduction in authority’s revenue performance
Management reported total revenue of UGX.42,655,364,000 in the statement of
comprehensive income for 2014/15 compared to UGX.56,008,111,000 realized in 2013/14,
leading to a decline worth UGX.13,352,747,000; (24%). This ultimately led to the authority
posting a deficit of UGX.12.6 billion) as opposed to a surplus of UGX.3.72 billion for
2013/2014. I explained to management that such a decline in revenues affects the entity’s
ability to remain self-sustaining and meet its budgetary, current and outstanding
obligations when they are due.
Management explained that in the financial year 2014-2015 there was a drop in the
number of tourists visiting the Protected Areas from approximately 220,005 to 196,768
visitors (11% decrease) especially due to factors beyond management’s control and
negative publicity.
I advised management to work hand in hand with the government to ensure that the effect
of negative publicity both on local and international media is addressed to ensure stability
in revenue inflows from tourists.
141.2 Accumulation of Revenue share funds
Section 69(4) of the Wildlife Act Cap 200 requires the Authority to pay 20% of the park
entry fees to the local government of the area surrounding the wildlife protected area from
which the fees were collected.
Contrary to the above requirement, management reported accumulated community
revenue share funds worth UGX.8,487,405,000 under Note 10.2 to the financial statements
658
as trade and other payables. I explained to management that the objectives of revenue
sharing as stipulated in the policy document may not be achieved if the funds are not
promptly distributed to the beneficiary communities.
Management explained that the Accumulation of revenue share funds in the past had been
due to delayed accountability of the funds earlier disbursed and approval of projects to be
funded, as stipulated in the revenue share guidelines.
I advised management to put in place interventions, including providing technical support
to the communities to ensure their share of revenue is promptly disbursed to them.
141.3 Lack of a Board of Trustees
Management reported under corporate information in the financial statements the fact that
the tenure for all trustees ended on 27th March 2015. This implies that the authority
operated without the board of Trustees up to the closure of the audit year under review. I
explained to management that this poses governance challenges, and affects the
performance of the entity.
Management explained that the mandate to appoint the board lies with the line Ministry.
I advised management to engage the line Minister, who is the appointing Authority
mandated by the UWA Act, to expedite the appointment of the Board.
142. UGANDA WILDLIFE TRAINING INSTITUTE – YEAR ENDED 30TH JUNE 2015
142.1 Budget performance
A review of revenue collection records and bank statements revealed that UWTI collected
only UGX.1,592,420,600 (35%) out of its approved budget of
UGX 4,545,153,144 thus creating a shortfall of UGX.2,952,732,544. This was attributed to
the failure by the Mother Ministry of Tourism, Wildlife and Antiquities to incorporate the
entire Institute’s budget into the main Ministry’s budget for funding.
Due to the above underfunding, the following planned activities were not implemented thus
affecting the achievement of the institute’s objectives:
In-service Training of Tour Guides, Vermin Control Officers and Tourism Police;
Procurement of Camping Gear
Curricula review
Construction of Girls Dormitory and Staff Quarters;
Procurement of three Vehicles
659
Management explained that the underfunding was caused by the approval of a lower
budget ceiling as subvention and inability of the institute to realise the anticipated funding
from other sources.
I advised management to liaise with MoTWA and MoFPED to ensure that the Institute’s
budget is adequately funded. I also advised management to improve on its internal
revenue generation efforts in order to narrow the funding gap.
142.2 Implementation of UWTI’s Strategic Plan.
It was noted that UWTI registered minimal progress towards the achievement of the
Institute’s strategic objectives. Core among these objectives was the development of
modern training and research infrastructure which was found to be grossly lacking. This
was caused by Management’s inability to implement the Institute’s Strategic plan for the
period 2011-2015.
Management explained that the implementation of the Institute’s strategic plan was
hampered by underfunding of the Institute and an adequate legal framework to govern the
institute’s operations.
The failure to develop modern training and research infrastructure as well as attain other
strategic objectives limited the institute’s progress towards the realization of its core
mandate of providing research, training and consultancy services for the wildlife sector.
I advised the Accounting Officer to liaise with the relevant stake holders and expedite the
enactment into law of the Institute’s Bill. I also advised him to step up the internal revenue
generation efforts as well as liaise with MoFPED to ensure adequate funding of the
Institute’s activities.
143. UGANDA WILDLIFE EDUCATION CENTRE – 30TH JUNE 2015
143.1 Staff Savings Scheme
At its 74th meeting on 10th May, 2007 (under resolution 4), the UWEC Board of Trustees
resolved to put in place a staff Savings Scheme for all UWEC employees on new contracts.
However, citing illegalities in the manner in which the scheme was created and being
managed, in 2013 the Board resolved to suspend the scheme pending its formal
registration and formulation of guidelines for its proper management.
660
It was noted that at the time of audit (August 2015), the scheme was operational
without the requisite guidelines and registration. As at
30th June, 2015 staff savings with the scheme amounted to UGX.129,282,728.
Management explained that the Board authorized the resumption of the scheme and that
the Staff Savings Association is in the process of procuring a fund manager to manage the
scheme in line with the new retirement benefits law. The funds are now under custody on
a fixed deposit account.
Without registration and clear laid down guidelines for management of the scheme, there is
a risk that the scheme’s funds may be misused or lost.
Management is advised to expedite the process for registration of the scheme and
formulate clear guidelines for the management of the scheme.
143.2 Lack of a strategic plan
It was noted that UWEC did not have a strategic plan to guide its activities. The previous
strategic plan expired in 2013. Lack of a strategic plan implies that the Centre activities are
run without proper guidance.
Management explained funding constraints delayed the process of formulating a new
Strategic plan through a stakeholder consultative process. However, with support from
United Nations Development Program (UNDP), the new UWEC strategic plan covering the
period 2015-2020 has been formulated and was under print.
I advised management to expeditiously conclude the printing of the strategic plan and to
institute a mechanism of periodically monitoring progress in order to facilitate timely
remedial action.
143.3 Staffing gaps and use of expired organogram
A review of the organization structure revealed that out of an establishment of 67 staff,
only 44 positions were filled leaving 23 positions (34%) vacant. It was further noted that
management was still using the old organogram to guide its manpower planning and
recruitment instead of the revised and approved organogram.
The absence or limitation of members at the various levels of the organization affects
decision making and stifles the Centre’s operations.
Management explained that the Institute was unable to fill the vacant positions due to lack
of funds and an enabling law providing for extra mandates that required extra staff.
661
However, with the enactment of UWEC bill, more funding is expected from the
government to operationalize the organogram.
I advised management to liaise with the responsible authorities to ensure that vacant posts
are filled.
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LANDS AND HOUSING SECTOR
144. NATIONAL HOUSING & CONSTRUCTION COMPANY- YEAR ENDED 31ST
DECEMBER 2014
144.1 Mbuya Land Ownership
Whereas the company has legal ownership of land in Mbuya, comprised in Freehold
Register Volume 66, Folio 12 measuring 16.67 acres, the company does not recognize the
land as an asset in its asset register. This implies that the value of the company assets is
understated in this regard.
144.2 Kireka Land
Included in the reported investments property in the Statement of Financial position is
Kireka Land in Freehold register Volume 31 Folio 8, measuring 250 acres and carried at a
value of UGX.68.75Bn determined on the basis that NHCCL holds a freehold interest in this
land. However, I was not provided with evidence of ownership of freehold interest in this
land; instead the company has a title deed stipulating ownership of lease hold interests. In
that regard, the basis for the carrying value is not adequately supported
144.3 Unsupported Receivables - UGX.2,111,545,000
As a result of the accounting reversal of an earlier debt-dividend swap, the company now
recognizes a debt of UGX.2,111,545,000 due from the Ministry of Defense
(UGX.1,921,944,685) and State House (UGX.189,600,000) arising out of accumulated
rental arrears. Audit however notes that the existence and value of this debt cannot be
verified due to the following:-
NHCCL does not have rent agreements or contracts with either the Ministry of
Defense or Statehouse. In the absence of such agreements, I am unable to
authenticate the value of the debt due from both government entities.
Both the Ministry of Defense and State house do not recognize the liability due to
NHCCL of similar amounts in their financial records.
Although NHCCL’s management has taken action to resolve this issue by offering to sell the
occupied properties to the respective Ministries, negotiations for the sale are only
considering the sale price of the property but not the outstanding rental arrears. I further
noted that although the Company has engaged the services of a private lawyer to recover
the amounts from Government, by the time of conclusion of this audit, the amount had not
been recovered. I have advised management to expedite the negotiations in question and
ensure that the issue of unpaid rental dues are also included in the said negotiations.
663
144.4 Decrease in Fair Value of Crested Towers Building
During the reporting period ended 31st December, 2014, the company carried out repairs
on Crested Towers Building worth UGX.597,850,311. However, the subsequent internal
revaluation by the Company of the same property resulted in a decrease in its fair value,
from UGX.74.0 billion in the previous year to UGX.70 billion with the resultant decrease in
value amounting to UGX.4 billion, this despite the enhancements undertaken by the
Company. Under the circumstances, there is a risk that the company may not be
undertaking adequate maintenance and repairs on the said property, to enable
preservation and/or enhancement of its value.
I have accordingly advised management to ensure that appropriate measures are
undertaken to avoid further loss in value of the property in question.
144.5 Held for Sale Assets – UGX.3,212,974,000
It is a requirement under IFRS 5 – Non Current Assets held for sale, that for an asset to be
classified as held for sale, it must: be available for immediate sale; be actively marketed at
its current fair value; and that the sale should be completed within one year.
It was however noted that, held for sale assets of UGX.3,212,974,000 include the Buganda
road properties which do not satisfy the requirements under IFRS 5, since they are not
available for immediate sale (i.e. within 12 months). This is because they have been
classified as held for sale for a continuous period of 5 years without being sold and there is
an ongoing court case making them unlikely to be sold within 12 months.
I have advised management to consider reclassifying the said properties in accordance with
the requirements of the applicable accounting standard.
144.6 Bank Overdraft with Tropical Bank Limited
Included in the Bank Overdraft of UGX.3,765,935,000 in the Financial Statements, is an
overdraft from Tropical Bank of UGX.2,537,691,000. I noted that this amount was not
properly supported with proper documentation, such as a formal agreement with the bank.
I also noted that the same amount used to be a long-term loan, but this has now been
renegotiated into an overdraft without proper authorization by the Board and any
documentation to support the transaction.
I have advised management to ensure that this matter is presented to the board for
regularization and that they obtain documentation from the bank to confirm the new terms
of the overdraft.
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144.7 Inadequate Disclosure of Contingent Liabilities
As disclosed in the Financial Statements under note 30, the Company is faced with a
number of court cases in which claimants have brought various suits against it. The
company is actively defending itself against these court cases and believes that it has a
chance of winning them. The company is also in court as a claimant. The outcome of some
court cases cannot be determined at present with certainty.
Although management has made disclosure of the matter in the Financial Statements, the
disclosure has not covered a number of other cases such as the ones indicated below;
No. Details
1 Buganda road sitting tenants’ court case
2 Advance payment guarantee against UAP insurance company limited
3 NHCCL versus MKP Builders SDN BHD Limited
4 Kiwana Sitting Tenants against NHCCL
5 Namungoona court cases – NHCCL indicates that most of the court files for the cases
have gone missing
6 Proposed out of court settlements
7 Dr. Banga Hope Alice 4 others vs NHCC – matter still pending
8 NHCC vs Daniel Ssebugwawo – relating to a plot of land in Nalyako Kyadondo; Matter still
ongoing
9 Hosea Muyiira Kiwanuka and Another Vs. Aliganyira Ahmed and 17 others, NHCC and Abu
Ayun Kasule – relating to ownership of block 221 plot 931 – case still ongoing
10 NHCC vs Sesam Energetics Ltd and 4 others – trespass at Lubya Lugala – Namungoona
(150 acres)
Where there is reasonable certainty, such as in the case of out of court settlements, NHCCL
has not made provisions in the financial statements in accordance with IAS 37 – Provisions,
Contingent Liabilities and Contingent assets. In addition, the company has not taken out
any insurance against court costs (legal expenses insurance) despite budgeting for this in
the year 2014.
I have advised management to always exhaustively disclose pending court cases and also
consider securing insurance cover against such costs, as specified in its budget.
665
SOCIAL DEVELOPMENT SECTOR
145. NATIONAL LIBRARY OF UGANDA – YEAR ENDED 30TH JUNE 2015
145.1 Book Discard Provision
In my previous report to Parliament, I reported on the accumulated fund balance of
UGX.7,447,529,795 reported in the Financial Statements under the Statement of Changes
in Equity, that was arrived at after taking into account a provision for book discards
amounting to UGX.1,316,753,292. This year, another book discard provision of
UGX.2,446,370,829 was made, resulting into an accumulated book discard provision of
UGX.3,763,124,121.
I could not establish the reasonableness of this provision because the policy regarding book
discard was not stated in the accounting policies of the Library.
Management stated that a policy on book discard would be placed before the Board that
has now been constituted to enable consistency.
I await the outcome of management’s action.
145.2 Payables
Note 6 at page 15 shows that the Library is indebted to the tune of UGX.230,886,736 due
to the failure to settle contributions to the National Social Security Fund UGX.100,985,880,
office rent UGX.67,400,000, gratuity UGX.49,025,013, There is a risk of litigations by the
creditors and possible fines and penalties by the tax authority.
I advised the Accounting Officer to plan for settlement of these payables to avoid possible
litigations, fines, and penalties.
145.3 Slow incorporation of ICT in the Library operations
Section 4(r, s & t) of the National Library Act, 2003 requires the Library to act as the
agency for national and international lending and exchange of library materials; a national
agency for national, regional and international information system and creating electronic
databases in areas of national interest.
The Library planned to execute the above functions by having a Principal Librarian for
Technical Services and an IT specialist in its organization structure. However, audit noted
that;
The position of IT Specialist had not been filled.
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IT is only used for cataloging books, international Bar coding and limited digitalization
of books.
No ICT strategic plan had been developed to guide the operations and ICT investments.
The absence of a person responsible for articulation of ICT issues at a strategic level is a
direct cause of the above.
Management explained that it lacked funds to fill the position of the IT specialist.
I advised management to consider recruiting a multi-skilled Librarian to replace the one
who resigned so that the available funds can cater for a person who can perform the duties
of ICT Officer and Librarian.
146. NATIONAL SOCIAL SECURITY FUND – YEAR ENDED 30TH JUNE 2015
146.1 Board Appointments
Section 3 of the NSSF Act (Cap 222) states that the Minister shall appoint a Board of
Directors for a period of three years. During the audit, I noted that the term for all board
members expired on 1st June 2015 and no board had been appointed until early September
2015.
Concurrent expiry of board terms creates a vacuum that renders the Fund management
unable to undertake any activities that require board approval during that period.
Management’s explained that they had informed the Minister of the expiry of the Board
three months in advance.
Although I advised the staggering of terms for board members to avoid the expiry at same
time, management expressed concern on the practicability since one constituency may feel
aggrieved by serving a shorter term than the other.
To reduce the time-lag during transition from one board to another, Management is
advised to constantly engage the Minister to ensure timely appointments.
146.2 Loss of opportunities due to Delayed approval of investments
Although the Investments Procedures Manual and Policy require all non-fixed income
investments to be approved by the Management Investment Committee (MIC), the
Investment and Projects Management Committee (IPMC), the Board of Directors (BOD),
the Attorney General and the Minister of Finance, I noted instances where delays occur in
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the approval process hence impacting on the performance of the Fund and loss of
opportunities. Instances of significant delays are noted below;
a) In July 2013, the Fund attempted to purchase 3 million shares in Tanzania Breweries
Limited (TBL) at a maximum share price of TZS 4,500 during a period when the
company’s financial performance was better than its peers. Although all approvals of
the MIC, IPMC and BOD were obtained and a letter sent out to the Minister of Finance,
Planning and economic development (MoFPED) on 3rd October 2013 to approve the
purchase, there was no response received until 4 May 2015 (over 11/2 years later).
Following the approval, the Fund initiated the purchase of 3.5 million shares in TBL at a
maximum price of TZS 15,200. These were subsequently purchased in May 2015 at the
trading price of TZS 14,500 per share. As a result of delayed approval and clearance
the Fund missed out on capital gains of up to TZS 10,000 per share which translated to
UGX.54.9 billion.
b) On 5th May 2011, the Board consulted the office of the Ministry of Finance, Planning
and Economic Development (MoFPED) to obtain approval for swap of the Fund’s shares
in TPS (U) for shares in TPS Eastern Africa Ltd. The Minister required the Fund to
conduct a commercial and legal due diligence upon which the results were to be
submitted to the Minister.
Subsequent to obtaining legal advice from the Solicitor General to proceed with the
share swap on 24th September, 2013, the Fund sought approval from the Minister on
4th October, 2013.
Following the initial request, the board again requested the Minister to make a
pronouncement on the matter on 15th September 2014, as no responses had been
received earlier. At the time of reporting no response had been received by the Fund.
The fund could lose potential investment opportunities due to delayed approvals
Besides, with the impending liberalisation of the pension sector, such delays in approval
of investments would not ensure the Funds’ competitiveness.
Although management stated that this was out of its control I advised them to seek
legal advise as to what constitutes consultation and on the basis of such advise identify
practical ways of consulting the minister without causing delays.
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147. UGANDA RETIREMENT BENEFITS REGULATORY AUTHORITY (URBRA)
FOR THE YEAR ENDED 30TH JUNE, 2015
147.1 Over Expenditure
Treasury Accounting Instructions (TAIs), 2003 Chapter 152 states that expenditure
not provided for in the approved estimate of the current financial year may not be
incurred without authority of supplementary estimates warrant, reallocation, a
virements or contingencies fund advance warrant. A review of the expenditure
ledgers together with the approved budget for the year under review revealed that
there was over expenditure on five (5) expenditure items totaling
UGX.639,456,848. This constituted 11.2% of total expenditure of the Authority. In
absence of the authority to reallocate, this expenditure is irregular. This practice
also undermines the importance of the budgeting process and leads to
misreporting.
Management explained that critical activities that were denominated in US dollars
went up due to the change in the exchange rate. The change in exchange rate
caused a deficit which necessitated virement.
I advised the Accounting Officer to always seek authority before spending above
the approved budget.
147.2 Delays in the passing of Retirement Benefits Sector Liberalization (RBSL)
bill
The Retirement Benefits Sector Liberalization bill 2011 is aimed at liberalizing the
retirement benefits sector by providing for fair competition for mandatory
contributions among licensed retirement benefits schemes in both the informal and
formal sector, ensuring portability and transfer of retirement savings to a licensed
retirement benefit scheme of the employee’s choice and ensuring that all retirement
benefits schemes are fiscally sustainable.
It was however noted that the retirement benefits sector Liberalization bill had not
been passed since 2011 despite efforts by management to sensitize and dialogue
with all stakeholders including Members of Parliament (MPs) on the clauses within
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the Bill. Due to delays in the passing of the retirement sector liberalization bill,
the Authority may not achieve its intended objectives aimed at promoting long term
capital development.
Management explained that the Bill has not yet been passed by Parliament. So far,
management has and will continue to liaise with the Ministry of Ministry of Finance,
Planning and Economic Development who is spearheading the process.
I advised the Accounting Officer to continue liaising with the relevant stakeholders
with the view of having the retirement benefits sector liberalization bill passed.
147.3 Staffing Gaps
A review of URBRA’s organization structure revealed that out of the approved
56 posts, only 23 are filled leaving 33 posts vacant representing 59% staffing gap.
Of concern were the critical positions of Director Legal Services/Company Scretary,
Director Research and Sector Development, Director Supervision and Compliance
and Director Communication and Public Affairs that have remained vacant. It was
also observed that some staff were in acting positions and these include the
Managers of Human Resources and Admiistration, Legal Services and Senior
Accountant. Lack of adequate staff coupled with the workload on the existing few
staff may negatively impact on service delivery and achievement of the targeted
outputs.
Management explained that the Authority embarked on a process of recruiting staff
in January 2014. Advertisements were run both in the print media and on the
Authority but the authority was unable to go ahead to recruit because the approved
budget could not afford the anticipated recruitments. In view of the budget
deficit, the Board prudently resolved to recruit a phased approach. Following the
Board resolution, Management expects to fill the positions of Director Legal
Services, Director Supervision and Compliance, Manager ICT and Senior Internal
Auditor.
I advised the Accounting Officer to expedite the recruitment process to enable
proper implementation of its mandate.
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148. NATIONAL YOUTH COUNCIL – YEAR ENDED 30TH JUNE 2015
148.1 Cash Payments
Guideline 14.3 of the National youth Council Financial Guidelines 2002 requires all
payments as far as possible to be made by crossed cheque. However, examination of
payment records revealed that UGX.700,802,650 out of the total expenditure of
UGX.986,159,027 was expended using cash payments. Though the funds were accounted
for, I explained to management that since cash payments are prone to abuse and there is
only one staff in the Accounts department there is a risk of misappropriation of Council
funds.
Management explained that the cash payments were due to the nature of the Council
activities of inviting participants in meetings, workshops, trainings, monitoring and
evaluation that require refund of perdiems, transport and allowances. Most of the key
stakeholders and those who attend these meetings do not have bank accounts.
I advised Management to sensitize all Council stakeholders about the Council requirements
to effect payments using cheques and request them to open bank accounts.
148.2 Expenditure not properly supported
Review of the Expenditure records indicated that a total of UGX.66,489,000 paid to the
National Executive Committee members during the year under review for purposes of
monitoring and evaluation activities was not accompanied by supporting documents. In
absence of the supporting documentation, I could not confirm that the funds were spent
on Council activities.
Management explained that payment was in respect of monthly monitoring and evaluation
allowances approved by the Council, but accountability reports were not availed by the
beneficiaries before their term of office expired.
I informed management that payment of monthly monitoring allowance was irregular and
that they should follow up the beneficiaries to account for the funds.
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149. UGANDA NATIONAL CULTURAL CENTRE – YEAR ENDED 30TH JUNE 2015
149.1 Accumulation of Payables
The Statement of Financial Position shows that that payables increased from
UGX.488,992,774 to UGX.976,911,224. Included in the payables were statutory deductions
such as; (VAT (UGX.200,789,713), PAYE (UGX.147,861,102), Staff Gratuity
(UGX.323,768,253) and KCCA-Property Rates (UGX.37,372,834) which may attract
penalties and fines.
Management stated that most of the payables relate to previous years and agreements had
been signed with URA, NSSF and KCCA to settle the liabilities due to them in instalments.
I advised management to prioritise settlement of liabilities to save the Centre from
suffering late payment penalties and fines.
149.2 Accumulation of Rent from Nomo Gallery
The centre continues to accumulate un collected rent arrears from creations Ltd with
respect to land and properties described as Nomo Gallery Located on plot 4 Victoria Avenue
Nakasero. It was noted that the private firm occupies an area of 162.01 square meters
valued at a rate of 50,000 per square meter which translates into UGX.8,100,500 per
month in accordance with the chief government valuer’s estimate. The rent arrears date as
far back as January 1997 and had accumulated to UGX.1,620,100,000 by October 2013,
according to UNCC management.
Efforts to collect the rent arrears have been unsuccessful. The Accounting Officer stated
that demand notes issued to the tenant have been fruitless so far.
I advised management to involve all the relevant stakeholders such as the Ministry of
Gender, Labour and Social Development together with the Ministry responsible for Finance
and ensure regularization of the rental payments and the tenancy.
149.3 Under-collection of revenue
Out of the budgeted NTR of UGX.2,180,828,000, the Centre collected only
UGX.1,762,527,427 resulting into a shortfall of UGX.418,300,573. Under-collection of
revenue constrains implementation of planned activities.
Management attributed the under-collection of revenue to failure to receive the anticipated
donor funding.
I advised management to always ensure realistic budgeting.
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AGRICULTURE SECTOR 150. COORDINATING OFFICE FOR CONTROL OF TRYPANOSOMIASIS IN UGANDA-
YEAR ENDED 30TH JUNE 2015
150.1 Staffing Gaps
A review of the human resource establishment revealed that the structure provides for 24
staff. However, the current staffing level stands at 15 staff which reflects a staffing gap of
nine (9). The key vacant positions included that of Programme Officer Finance and
Administration, Data Manager, Economist, Field Assistants and Field Attendants. Vacant
posts could lead to performance gaps and inadequate service delivery. There is a risk that
the current staff numbers may not achieve the desired output targets.
In response, the Accounting Officer explained that it could not recruit more staff due to
limited funding appropriated and released to COCTU from Treasury.
I advised the Accounting Officer to take up the issue with the Council and the responsible
Ministry with a view to recruiting key staff to enhance performance.
151. DAIRY DEVELOPMENT AUTHORITY FOR THE PERIOD ENDED
31ST DECEMBER 2014
151.1 Mischarge of expenditure-UGX.37,456,864
Parliament appropriates funds through the budget to fund particular activities and outputs
using account and MTEF codes. However, I noted that expenditure totalling to
UGX.37,456,864 was charged on wrong budget lines without authority for the virement.
Mischarge of expenditure undermines the importance of budgeting and leads to financial
misreporting.
In response, management explained that funds are allocated to priority areas at the
planning time. However, some budget cuts by the Ministry of Finance, Planning and
Economic Development (MoFPED) directly affect activities that must always be undertaken.
I advised management to allocate sufficient funds to each budgeted line according to
priorities, and seek authority prior to undertaking any reallocations.
151.2 Lack of land titles
During the audit, I noted that DDA owns 42 Milk Collection Centers (MCCs)
throughout the country but all the properties do not have land titles. I explained to
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management that lack of land titles exposes entity land to risk of ownership
wrangles and possible encroachment.
Management explained that applications for renewal of titles to various
district/municipal authorities have been made though most of the local authorities
do not have constituted District Land Boards (DLB) which have affected progress.
I advised management to follow up the matter closely so as to secure the land titles for all
the properties.
151.3 Outstanding Receivables
It was noted that the position of outstanding receivables of UGX.111,086,000 has not
improved since the previous year’s audit. Such funds locked up in debtors cannot be used
to implement the Authority’s activities.
In response, management attributed this to an outstanding amount of UGX.93,600,000 to
a company that has remained unsettled. However, the case was before the Courts of Law.
I advised management to follow up the court case and have the outstanding debt resolved.
151.4 Delayed Completion of Works
Three local construction companies were contracted to carry out renovation works (fencing,
Plumbing and painting and roofing works) of the Dairy Training School in Entebbe at a cost
of UGX.739,411,100. As at the time of reporting, the firms had been paid UGX.454,707,251
representing 62% of the contract amount. The expected completion date was 30th May
2015 which had expired. I noted that the contractors were behind schedule and this could
lead to extra administrative costs on the contract.
In response, the Accounting Officer attributed the delay to absence of the Board of
Directors and delayed resolving of a new signatory to the bank account. This subsequently
delayed the payment of approved certificates.
I advised the Accounting Officer to follow up with the construction to ensure that the
project is completed expeditiously.
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151.5 Lack of Board of Directors
Section 6 of the Diary Industry Act, 2000 provides for the composition of the Board of
Directors to provide strategic direction of the Authority. However, the Authority operated
without the Board after the expiry of the previous Board in October 2013. This implied that
functions of the board as stipulated in Section 8 were not carried out during the year. I
explained to management that operating without the Board affects the strategic decisions
of the Authority.
In response, the Accounting Officer explained that a Cabinet memo was originated in April
2014 in respect of the appointment of the Board of Directors to the appointing authority
and is waiting for the response.
I await the action of the appointing authority.
151.6 Under Collection of budgeted Revenue
During the audit, I noted that the Authority budgeted to collect UGX.510,000,000 from
various revenue sources but only UGX.310,454,356 was collected leaving UGX.199,545,644
(representing 39%). I explained to management that failure to collect budgeted funds may
lead to failure to implement activities.
In response, management explained that the Authority faced challenges in the collection of
levy accelerated by the raw milk traders that have protested selective application of the law
given that CESS was abolished for processors. Management further indicated that there has
been a policy shift prohibiting vending of loose milk in the city and municipalities which will
further reduce the NTR collected.
I advised management to explore ways of improving on the revenue collection so as to
facilitate execution of the Authority’s planned activities.
151.7 Non Accreditation of DDA Dairy Laboratory
The Dairy Analytical Laboratory plays a great role of Quality Assurance and Regulation
within the Dairy Sector which is the major role of DDA. It ensures quality for milk and milk
products by carrying out laboratory testing and analysis during market surveillance and
monitoring. I noted that the laboratory is not yet accredited and hence, Ugandan dairy
products may not compete favourably on the International market.
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In response, management explained that accreditation is a process and that DDA had
already completed some of the phases. Further, management explained that Ugandan
products are always accompanied by the certificate of analysis issued and signed by
qualified Laboratory Technicians.
I advised management to expedite the accreditation process of having the facility
accredited.
152. COTTON DEVELOPMENT ORGANISATION FOR THE YEAR ENDED 31ST OCTOBER,
2014
152.1 Delayed Contract - construction of Pader Seed dressing plant
Construction of the cotton seed processing plant at Pader was awarded to the 1st evaluated
bidder at a contract sum of Shs.12,441,831,000 which was reduced in to
Shs.8,835,206,880 as a result of scope reduction. However, I noted that the contractor
failed to secure a performance security (10%) and an advance payment bond (20%) within
the stipulated 28 days from the award date prompting the contracts committee to
cancel the award letter on the 28th April, 2014.
The 2nd best evaluated bidder was then awarded the contract on the 6th May 2014 at a
contract sum of Shs.13,179,422,997 but the contractor agreed to a reduction in scope of
works to fit in the available budget of Shs.11,130,218,624. The contractor possessed the
site on the 7th July 2014 for a contract period of 12 months, and the completion date was
set for 7th July 2015. However, by the end of December 2014, the contractor had failed to
come up with a qualified engineer as a contract manager resulting in breach of
contract. On the 8th January 2015, the contract was terminated and the employer (CDO)
immediately repossessed the site which was at the foundation level as reflected in the
picture below;
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From the review of the contract performance, the following issues arise;
The contractor was given an advance payment of Shs.2,226,043,725 as per the receipt
dated 18th June 2014. I noted that there was no valuation of works carried out to
quantify the works so far done in lieu of the advance already paid to establish if there
was need for a refund.
I noted that management did not carry out due diligence on the contractor to establish
the level of competence and experience.
I noted that there will be increased costs for security of the site and the machinery,
equipment and materials because of the delays;
In view of the above, there is a risk that the budgeted funds for the project will not cover
the remaining works. Besides, the failed contracts have resulted into the entity losing out
on the services of the dressing station and could accelerate more challenges in getting a
new contractor.
The Accounting Officer explained that the valuation of works was on-going and that the
entity had written to PPDA for suspension of the contractor and the organisation was in the
process of securing services of another contractor. Furthermore, management indicated
that the performance bond of Shs.1,113,021,862 was retained by CDO while the advance
payment was covered by an advance payment guarantee issued by Standard Chartered
Bank.
I advised the Accounting Officer to expedite the necessary actions in consultation with the
Solicitor General to avoid loss and also ensure that the project is completed.
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152.2 Key vacant positions in Procurement and Internal Audit
During the review, I noted that some key positions of the Assistant procurement officer and
an Audit Assistant in the Procurement and Internal audit Units respectively remained
vacant during the year. I explained to management that lack of such essential staff may
negatively impact on the Organisation’s performance and service delivery.
Management explained that due to the fall in cotton production that affected its Non Tax
Revenue (NTR); CDO has been operating under deficits for three (3) consecutive years
thus it was not possible to recruit new staff since sustainability of their salaries would be
uncertain. It was however indicated that recruitment would be done as soon as the
financial position of the organisation improves.
I advised management to liaise with the stakeholders and ensure that the vacant positions
are filled.
152.3 Uncompleted activities
During the review of budget performance, I noted that some planned activities were not
undertaken during the year as indicated in the table below:
Output Approved
budget & planned output
Actual performance
Performance Gap.
Management Response
015201 Cotton Development
Provision of cotton planting seeds; budgeted 0.300bns, no of districts 53 4,300 mt cotton in areas of the east.
In 52 districts 2,106mt of fuzzy cotton seed were produced out of 4,300 Mt and shs0.238bn was released Indicating 79.4%
I district not covered. 2,194 mt not produced.
Seed is supplied basing on demand. One district was not served seed because farmers did not register for cotton production. The demand for planting seed and seed distribution were affected by drought in July and early August 2013 which prevented farmers from planting.
Activities were mainly funded by ginners.
015202 Seed Multiplication
Organised seed growers to establish about 13,000 acres of seed crops in 5 seed multiplication areas and expected to produce 4,400 Mt of certified seed shs0.941bn
9,000 out of the planned 13,000 acres were planted by seed growers and 2,000 Mt out of the planned 4,400 Mt of certified seed produced. So far shs0.837bn was spent representing 88.9%
4,000 acres not planted by seed growers.
Drought during July and early August 2013 prevented seed growers from planting. Competition for land and labour with food crops also contributed to less acreage being planted to cotton.
I explained to management that failure to undertake planned activities implies that the
objectives of the organisation both in the short term and long run may not be achieved and
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I advised management to strengthen monitoring and supervision for improved cotton
production.
153. NATIONAL ANIMAL GENETIC CENTRE & DATA BANK- YEAR ENDED 30TH JUNE
2015
153.1 Mischarge of Expenditure
Parliament of appropriates funds in accordance with the needs of the country and this
appropriation is implemented through the budget in which funds are tagged to particular
activities and outputs using account codes. Contrary to the above, expenditure totalling to
UGX.57,390,000 was inappropriately charged on budget lines to fund activities that were
not planned for without authority. I explained to management that mischarge of
expenditure translates into misrepresentation of expenditure balances in the financial
statements.
Management explained that a finance committee has been established to review the matter
and curb mischarging.
I advised the Accounting Officer to ensure that sufficient funds are allocated to significant
account areas and should there be need for reallocation, authority for the virement should
be sought prior to making any reallocations are made.
153.2 Out-standing Staff Gratuity
I noted that UGX.924,492,484 remained outstanding in staff gratuity at the end of the
financial year. The figure increased by 8% from UGX.854,492,484 of the previous financial
year. I explained to management that accumulation of staff gratuity demoralises staff and
may lead to low organisational performance.
In response, the Accounting Officer explained that the matter was forwarded to Ministry of
Finance, Planning and Economic Development (MoFPED) for funding.
I await the outcome of the Accounting Officer’s action.
153.3 Decline in Government Releases
I noted that releases from government amounted to UGX.3,608,801,076 reflecting a
decline of UGX.1,769,889,024 (33%) compared with the previous year’s release of
UGX.5,369,690,100. Further, the review showed that the actual expenditure for the
previous year was UGX.5,990,499,159 compared to the budgeted expenditure for the
current year under review of UGX.4,352,200,451. This reflected a performance decline of
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UGX.1,638,298,708 (27%). I noted that the centre is underfunded and this could
stagnate the development of the Institution.
In response, the Accounting Officer explained that the Centre experienced a decline in
releases despite their efforts to explain to MOFPED for an increase in capital development.
I advised the Accounting Officer to continue following up the matter with MOFPED for
adequate funding for effective implementation of the centre’s mandate.
154. UGANDA SEEDS LIMITED – YEAR ENDED 30TH JUNE 2015
154.1 Non - Revaluation of Property, Plant and Equipment
It was noted that the revaluation of company’s assets was last undertaken in the year 2005
and yet some of the assets are no longer in use and hence impaired. This is in non-
compliance with IAS 16 which requires that items of Property, Plant and Equipment have to
be revalued with sufficient regularity within a period of 3-5 years in order to ensure that
the carrying amount does not differ materially from that which would be determined using
the fair value at the Balance Sheet date.
As a consequence, I was unable to confirm the accuracy of the Property, Plant and
Equipment disclosed in the financial statements of UGX.3,068,787,177.
Management noted the shortcoming and explained that plans are underway to engage a
valuer to undertake the exercise.
I await the Accounting Officer’s effort in this regard.
154.2 Inadequate record keeping by the Lessees
a) Nyakatonzi Growers Cooperative Union Ltd
I noted that Nyakatonzi Growers Co-operative Union Ltd failed to maintain proper books of
account regarding the transactions conducted during the year contrary to
Section 8.6 of the lease agreement that requires the lessees to maintain proper books of
account relating to their transactions and such record of transactions be kept in accordance
with the best accounting practice and standards. I was only provided with the income and
expenditure statement for the year ended 30/6/2015 indicating concession fees of
UGX.490,000 which I could not rely on without vital records such as seed deliveries to the
union, seed sales invoices, concession computation records and tenants registers.
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b) Farm Inputs Care Centre Limited (FICA)
On the other hand FICA failed to make regular & reliable financial statements in
accordance with the best accounting standards contrary to section 8.9 of the agreement. It
was noted that information or records generated provided inconsistent reports. Several
reports were not availed for audit i.e. monthly sales reports, sales ledger and general
ledger. I relied on the processed seed report generated by the manager at Masindi and the
sales invoices which i examined and computed the total Generated sales of
UGX.3,108,711,500. This implies a corresponding 2.5% concession fee of UGX.77,717,788.
As a result of the above i found it difficult to reconcile with the sales summary report
generated at Kawempe Head Office which comprised of block sales of only UGX
1,585,719,126 inclusive of the rental income of UGX.61,769,400 and a corresponding
concession fee of UGX.39,642,978.
I advised management to ensure lessees comply to proper maintenance of books of
account as required in the lease & concession agreement for accurate and reliable financial
statements.
154.3 Non-Compliance with Agreed Terms and Conditions as per the Lease and
Concession Agreements Between the Lessor and the Lessees
The lease and concession agreements between Uganda Seed Limited (USL) and Nyakatonzi
Cooperative Union and Farm Inputs Care Limited provided that the leasee shall be
responsible for all bills accruing related to the leasee assets. Further it was anticipated that
concession fees from Nyakatonzi Cooperative Union Limited (NCUL) was expected to be at
least Shs.7,000,000 for the year under review according to the projection production plan.
However, the following were noted;
(i) Nyakatonzi Growers Cooperative Union.
The Ground rent for the leased land at Plot 15 Block 100 in Kasese to Nyakatonzi Co-
operative Union Ltd. has not been paid since the assets were leased in year 2005. This
contravenes clause 8.1 of the lease agreement. It was not possible to establish what
was due at the time of audit as no demand notes were provided for verification.
For the year under review only UGX.680,000 concession fees were received against an
anticipated UGX.7,000,000 as per the projection production plan.
The Company has never delivered to its expectations of seed production and has paid
minimal concession fees to the lessor. Further, it has demonstrated incapacity to
generate and supply enough seeds to the famers. This is contrary to the principle
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warrant contained in clause 7.3 and 7.7 that required the Lessee to have requisite
power, authority and sufficient funds to execute and deliver the agreement and
perform its obligations therein.
(ii) Farm Inputs Care Centre Limited (FICA)
FICA LTD has also failed to comply with clause 3.4 which stipulates that upon the execution
of the agreement and for the entire term of the agreement the Lessee shall pay an annual
fee amounting to 2.5% of the company’s annual gross sales of the Masindi/Kisindi stations.
The cumulative unpaid concession fees as at 30th June, 2015 amounted to
UGX.357,199,625. Although the company paid UGX.93,717,426 during the year under
review, the outstanding amount is still high and has a significant impact on the operations
of USL. Further, FICA ltd has also failed to maintain the leased infrastructure at Kisindi and
Masindi stations.
Management explained that it has written a number of letters/memos to the Lessees
regarding the above issues particularly to effect payments of ground rent and rates plus
concession fees but no positive response has been received. Failure to comply may force
management to apply section 14.1 of the lease agreement.
I advised the Accounting Officer to enter a negotiation arrangement with the lessees and
have the matters resolved amicably.
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WATER AND ENVIRONMENT
155. NATIONAL ENVIRONMENT MANAGEMENT AUTHORITY – YEAR ENDED 30TH JUNE
2014
155.1 Outstanding Environmental Fees Debtors
Para.5.5.9 of the Financial and Accounting Regulations Manual for NEMA requires
receivables outstanding for more than 30 days to be subjected to debt recovery
procedures.
However, review of note 2 of the Financial Statements revealed that an amount totaling to
UGX.9,247,177,581 remained un-collected from the Authority debtors of which
UGX.3,404,703,830 relates to previous years and there was no evidence that recovery
procedures had been initiated.
Notable among the major debtors are Government entities namely; Ministry of Works and
Transport; UGX.1,291,722,860, Uganda National Roads Authority; UGX.902,851,680,
Ministry of Energy and Mineral Development; UGX.3,322,317,764, National Social Security
Fund UGX.531,000,000, Civil Aviation Authority; UGX.521,194,000 and Kampala Capital City
Authority; UGX.73,006,650.
Failure to collect debts constrains the liquidity of the Authority and affects implementation
of planned activities.
Management stated that the Authority had recruited an officer with a specific assignment
to follow up debts. Management further explained that a Memorandum of Understanding
(MOU) had been signed with the respective Government entities to settle the debts.
I await results of management action in this regard.
155.2 Budget Preparation, Monitoring and Budget Commitments
a) Un Authorized utilization of NTR
Out of an amount of UGX.10,426,868,145 collected as Non Tax Revenue (NTR) from the
National Environmental Fund (NEF), the Authority spent UGX.5,432,403,421 without
approval from the Ministry of Finance Planning and Economic Development (MoFPED)
contrary to the Public Finance Management Act, 2015 (PFMA).
b) Unbudgeted donor funds
Audit noted that a total amount of UGX.3,385,815,000 received from donor funding was
not appropriated by the Board contrary to Para.13.2 (i) of The Financial and Accounting
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Regulations Manual for NEMA, (FARM) 2003, which requires NEMA to prepare a
consolidated budget for Board approval.
c) Budget Performance
It was noted that although the Authority had an appropriation of UGX. 9,247,888,000
(GOU) for the year under review, a total of UGX.8,111,428,200 was received resulting into
a shortfall of UGX.1,136,459,800, representing about 12.3% of the budget.
I explained to management that failure to obtain appropriation Authority from MoFPED and
approval of donor funds from the board undermines budgetary controls.
In addition, revenue shortfalls hinder implementation of planned activities.
Management pledged to put in place mechanisms to always include development partners’
funds within the consolidated budget effective from the FY 2015/16, and further explained
that the shortfall in Central Government grants was due to inadequate 4th Quarter cash
limits issued by the MoFPED.
I advised the Accounting Officer to:
always obtain approval from MoFPED before NTR funds are utilized.
Ensure all revenues are disclosed and subsequently approved by the board.
liaise with MoFPED to ensure that budgeted funds are released to the Authority to
enable full implementation of planned activities.
156. NATIONAL FORESTRY AUTHORITY – YEAR ENDED 30TH JUNE 2015
156.1 Non Valuation of the Authority Land
(i) Paragraph 7 of the International Accounting Standards (IAS )16 requires an asset to
be recognized if it is probable that the future economic benefits associated with the
item will flow to the entity and the cost of the item can be measured reliably.
Review of the Statement of Financial Position revealed that UGX.6,002,748,000 was
disclosed as the value of Property, Plant and Equipment; of which
UGX.1,949,846,313 relates to the value of buildings owned by the Authority in
various locations. However, audit noted that contrary to the requirements of IAS 16
the land on which these buildings were erected was not valued and disclosed
separately.
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(ii) IAS 41 requires that biological assets (other than bearer plants) that are
physically attached to land be measured as biological assets separate from the land.
However, audit noted that the Authority did not disclose the value of the land for
the plantation stock valued at UGX.104,303,594,000 in the statement of financial
position. Furthermore, it was observed that the Authority did not maintain a
detailed register showing the plantation land owned by the authority.
Failure to disclose land occupied by Authority’s buildings and plantations implies that
the value of Property, Plant and Equipment disclosed in the financial statements was
understated.
Management indicated that it is liaising with the different land controlling
Authorities and has initiated land acquisition process for the purposes of obtaining
certificate of ownership. Management further stated that the Government Valuer
shall be engaged in the process.
I advised the Accounting Officer to liaise with Uganda Land Commission on the valuation of
the land being occupied by the Authority and make appropriate disclosures in the financial
statements.
156.2 Accumulation of Payables
Audit noted that payables increased from UGX.7,968,114,000 of the previous year to
UGX.10,493,376,000 in the current year. The outstanding payables are equivalent to 81%
of the internally generated revenue collections for the year (UGX.12,936,665,000) casting
doubt on the Authority’s potential to settle these liabilities.
Included in the outstanding payables are statutory deductions such as PAYE
(UGX.547,929,828), WHT (UGX.848,456,499), Gratuity (UGX.1,932,213,819) and NSSF
(UGX.11,579,865) which attract penalties. Management attributed the accumulation of
payables to inadequate funding.
I advised management to seek the support of the Ministry of Finance, Planning and
Economic Development (MoFPED) in settling the long outstanding payables to avoid
penalties.
156.3 Outstanding Receivables
Out of the receivables amounting to UGX.7,621,138,000 for the previous year, only
UGX.407,531,934 (5%) was collected. Audit also noted that receivables increased by
UGX.2,882,016,934 resulting into an outstanding sum of UGX.10,095,623,000.
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Included in the receivables are; debtors such as Nile Plywoods Ltd (UGX.1,892,456,000),
Uganda Telecom Ltd (UGX.2,202,929,280), Uganda Electricity Distribution Company
(UGX.1,566,097,585), VIRCO Holdings Ltd (UGX.156,000,000), Farm Income Project
(UGX.963,085,000), and Withholding tax credits (UGX.94,714,000).
Long outstanding debts represent idle assets and may become bad debts, to the detriment
of the Authority.
Although management indicated in the previous year that it had contracted debt collectors
to enforce recovery of outstanding debts, no tangible results were observed.
I advised management to come out with a debtors’ management policy and enforce it
without delay.
156.4 Weaknesses in budgeting and budgetary controls
Section 5.1 of National Forestry Authority Financial Management Procedures Manual
requires management to develop realistic financial plans to facilitate allocation of resources
according to the NFA’s priorities. It further requires management to reflect revenue
estimates in its annual budgets that are actually likely to be collected rather than the
amounts that could be realized. However, a review of the revenue performance revealed
that:
(i) UGX.2,083,472,381 was collected from established revenue sources which had not
been budgeted for. This implies that the revenue forecasting is not adequate.
(ii) Only UGX.3,616,057,757 out of UGX.10,794,249,343 was realized from some of the
budgeted line items for Range, Plantations and Government Grants resulting into a
shortfall of UGX.6,707,877,486. Audit however noted that no corrective action was
undertaken by management to enhance revenue collections for these budget items.
(iii) Audit further noted that UGX.11,345,541,331 was collected by ranges and
plantations from revenue items initially budgeted at UGX.7,847,114,850 without
preparing a supplementary budget. This is also an indicator that the Authority’s
revenue potential is not adequately evaluated during the budget formulation
process.
The discrepancies are partly attributed to the unrealistic budgeting for these revenue
sources and laxity of management to monitor and evaluate budget performance.
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Failure to adequately provide for realistic revenue estimates does not only limit NFA from
achieving the planned targets, but also renders the resources used during the entire
budgeting process wasteful.
Management indicated that it will carry out a proper evaluation of the budgeting process to
ensure that the Authority’s revenue potential is adequately identified during the budget
formulation process.
I advised the accounting Officer to institute a realistic and comprehensive budget
formulation process.
157. NATIONAL WATER AND SEWERAGE CORPORATION –YEAR ENDED 30TH JUNE
2015
157.1 Failure to Carry out Revaluation of Property, Plant and Equipment
In my prior year audit report, I reported that management of NWSC failed to carry out
revaluation of the Corporation’s property, plant and equipment as required by the
corporation’s Accounting Policy. The policy provides for a revaluation to be carried out
every three years but the last revaluation exercise was done in January 2008.
However, this position had not changed as at the time of reporting. I explained to
management that in the absence of this information, the Assets figure in the financial
statement could be misstated.
Management explained that the Corporation intends to utilize some of the funds under
Kampala Lake Victoria Watsan project to carry out a comprehensive asset revaluation
exercise. However management is also of the view that since the bulk of their assets are
specialised and do not have a ready available market value, the revaluation impact may not
be significant. Management will thus review the policy subsequently.
I advised management, meanwhile, to undertake the revaluation exercise expeditiously and
in case of any changes in policy, these should be explained and justified in line with the
IFRS’.
157.2 Land Ownership
Included in the financial statements is UGX.276,674,000 disclosed as value of land
acquired/taken over by the Corporation during the year under review. At the time of audit,
all the land acquired/ taken over during the financial year did not have certificates of title in
the names of the Corporation. I explained to management that the Corporation runs the
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risk of losing the property in the event that encroachments and disputes arise over the
land.
In response, management stated that since most of the gazetted 44 towns taken over were
mainly from government institutions, there is no risk of loss. The Corporation had,
however, initiated the process of acquiring land titles at various designated land authorities
and had obtained 25 land titles and 27 lease offers.
I reminded management of the inherent risks associated with government land and
advised the accounting officer to ensure that titles are acquired for all property
acquired/taken over in order to safeguard the Corporation’s interest and investments on
the land.
157.3 Failure to integrate the e-billing system to Iscala accounting system
The Corporation uses an electronic system (e-billing system) to produce customer bills.
However, in assessing the accuracy, reliability and completeness of amounts in the Iscala
accounting system used by the corporation, I noted that the two systems are not
integrated and that data is migrated manually to the accounting system.
I explained to management that despite the fact that these figures are verified by both the
commercial and accounts staff before updating the Iscala accounting system, manual
transactions are inherently prone to errors.
In response, management explained that they are developing the final module in the e-
billing system that will interface directly with the Iscala accounting software.
I urged management to expedite this process in order to eliminate the manual
interventions in the data transfer.
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ACCOUNTABILITY SECTOR
158. BANK OF UGANDA – YEAR ENDED 30TH JUNE 2015
158.1 Delays in conversion of leasehold land into freehold land
In the financial year 2008/2009, the bank ceased the amortisation of leasehold land as it
had commenced the conversion of the leasehold land into freehold land. However, I noted
that as of 30 June 2015, the conversion of the land to freehold had not been completed as
indicated in the table below:
Leasehold Valuation (UGX) Status
Old Building - 37/43 Kampala Rd, Kampala 19,960,000,000 Not Completed
Mbarara Res - 25/27 Abdalla Lubwama Rd,
Masaka
40,000,000 Not Completed
Kampala - 12 Kawalya Kaggwa, Kampala 2,980,000,000 Not Completed
Jinja Res. - 4 Kiira Rd, Jinja 357,000,000 Not Completed
41 Kampala Road, Masaka Municipality 153,000,000 Not Completed
Mbarara Cc - 2 High Street, Mbarara 2,162,000,000 Not Completed
76 & 78 William Street, Kampala Clinic Building 6,149,999,999 Not Completed
Masaka Res. - 26/28 Speke Road, Masaka 185,000,000 Not Completed
Fortportal Res. - 12 Njara Rd, Fort Portal 592,000,000 Not Completed
Plot 15 & Plot 17 Masaka Cc Laston Hotels Ltd-
Bill 8b227 600,000,000 Not Completed
New-Plot 13, Johnstone Drive, Mbarara
Municipality
34,042,553 Not Completed
Plot No.24, Kitgum Road, Gulu Municipality 53,000,000 Not Completed
Kololo - 8 Summit View 3,465,000,000 Not Completed
Mbale Res. - 2 Jackson Road, Mbale 15,000,000 Not Completed
PLOT 2 BUSOGA AVENUE JINJA 2,500,000,000 Not Completed
5A JACKSON ROAD, KABALE, KABALE
RESIDENCE-, KABALE
68,000,000 Not Completed
NEW BUILDING - 1 SHIMONI ROAD, KAMPALA 7,599,999,999 Not Completed
Management explained that conversion of properties under Kampala District Land Board
was affected by the protracted dispute between Kampala Capital City Authority and
Kampala District Land Board regarding which entity had the mandate over land and
property located within Kampala District. Conversion of the other properties of the Bank
including the newly acquired ones is being done in a phased manner.
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I advised the Bank to expedite the conversion process and make a follow up with
authorities to ensure that the process is finalised.
159. BANK OF UGANDA PROJECTS
159.1 THE EUROPEAN INVESTMENT BANK/REPUBLIC OF UGANDA APEX PRIVATE
ENTERPRISE LOAN SCHEME YEAR ENDED 30th JUNE 2015
Outstanding loan to EIB- Euros 11,097,000
The financing agreements between Government of Uganda and European Investment Bank
(EIB) provided for funding equivalent to UGX.218,695,621,571 in Euros, which was duly
received through financing various schemes under Apex I, II, III, & IV. The funds were to
be repaid by way of interest and principal payments made annually and completed in 2019.
Subsequently BoU disbursed funds to the beneficiaries through Approved Financial
Institutions and the funds have since then been fully recovered from these institutions.
As at 30th June 2015 the outstanding payments to EIB amounted to €.11,097,000.
However, it was noted that due to adverse shift in the exchange rates since inception of
the scheme, and the erosion of the Special Fund that was set up to cater for increase in
exchange rate, the Government had an accumulated loss position of €.14,712,480
approximately UGX.54 billion. A further loss of UGX.13.7 billion is expected to arise
between now and 2019. The table below refers;
Computation of the projected exchange loss on the Apex Loan
Description APEX I APEX II APEX III APEX IV Total
UGX UGX UGX UGX UGX
Total amount
disbursed by EIB
19,638,255,391 38,536,040,000 91,801,525,000 68,719,801,180 218,695,621,571
Total amount paid
by GoU
32,959,705,969 61,533,087,255 127,716,363,981 110,942,302,659 333,151,459,864
Exchange loss (13,321,450,578) (22,997,047,255) (35,914,838,981) (42,222,501,479) (114,455,838,293)
FEEF balance
converted
46,775,974,806
Net foreign
exchange
projected loss
(67,679,863,487)
Whereas the scheme has had a positive impact on the beneficiary sectors, it has left an
enormous burden to the GoU as a result of adverse fluctuations in exchange rates over the
years.
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Management explained that the concerns regarding the accumulated loss have continually
been communicated to the MoFPED for purposes of consideration.
I advised management to continue pursuing the matter with MoFPED with a view of clearing
the outstanding amounts immediately or seek a waiver to avoid further losses.
159.2 AGRICULTURE CREDIT FACILITY – BoU YEAR ENDED JUNE 2015
(iv) Absence of Guidance in the MoU on early recoveries of loans
I observed that there was no guidance provided in the MoU regarding early loan recoveries
from final borrowers by PFIs. However BoU provided some guidance in the participating
agreement with PFIs as follows:
Article III Sec 3.4 states that, ‘In the event of early repayments by the eligible borrower
,the PFI’s will refund the 50% Government to BOU immediately or pay penalty of 15%
interest on the 50% Government contribution’
I noted that some borrowers settled their loans earlier than scheduled and as such a sum
of UGX.179,705,699 from eight (8) projects alone was not remitted to Bank of Uganda due
to this gap. This may in the long run cause constraint to the availability of funds for
refinancing.
Management explained that PFIs are always reminded of their obligations whenever there
are delays. Following reminders, Stanbic Bank paid off the amounts due to BOU arising
from the early retirement of the loans. There has however been a challenge in BOU
imposing penalties as provided for in the Participation Agreement signed between BOU and
the Participating Financial Institutions because this issue was never provided for in the MoU
between GOU and the Participating Financial Institutions. It was therefore difficult to
enforce it. The MoU has since been reviewed and management has included a clause on
early retirement of loans in the addendum to the MoU.
Management efforts and implementation is awaited.
(v) Handling of Non-Performing Loans
Loan amounts totalling UGX.2,221,070,465 were classified as delinquent from nine (9)
projects during the year. The following were observed;
Two sections of the MoU provide for the writing off of non-performing loans:
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Section 2.3 (ii) (a) of the MoU states that, “Under the IFRS, the GoU Escrow will
provide 1st class security which will limit the profit and loss charge to a maximum of 50% of
the outstanding loan amount”.
Section 2.3 (v) of the MoU states that “BoU shall within thirty (30) working days of receipt
of the PFIs delinquency report acknowledge the claim and confirm in writing the amount of
the GoU Escrow to be charged”.
However, it was noted that Bank of Uganda did not apply the above sections of the MoU to
charge GoU escrow as advised by the MoU. I explained to management that charging
delinquent loans to Escrow account within 30 days as proposed by the MoU may encourage
further delinquencies.
Management explained that following the Solicitor General’s guidance that public funds are
governed by the Public Finance Management Act 2015 Sections 34 (1) and Sections 34 (6),
where public funds cannot be waived by way of MoU and therefore parliamentary approval
to charge Escrow should be sought first, the MoUs are in a process of being reviewed to
include the guidelines for write off of delinquent loans. The respective PFIs will continue to
recover the funds in default although these are being frustrated by court injunctions
imposed on them by the borrowers.
I await management implementation of the MoU review process.
160. CAPITAL MARKETS AUTHORITY – YEAR ENDED 30TH JUNE 2015
160.1 Support for broker dealer deposits
It was noted that during the year under review the Authority had no listing to support the
broker dealer deposits of UGX.125 million contrary to Capital Markets Regulations 10-12.
There is a risk that in the circumstances where the dealers require a refund or where the
authority is obliged to make a refund it would be difficult for the Authority to make a
refund or recognize the amounts as income.
Management explained that they have been implementing the regulations except in cases
where brokers who paid the dealer deposits long time ago could not be traced. Otherwise
they promised to trace the shareholders or authorized representatives of these companies
and verify that they are the persons that were previously licensed by the CMA.
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I advised management to ensure that a listing for all broker deposits are maintained as
stipulated in the regulations. Management should also make an analysis as to whether the
broker/dealer deposits should be refunded to the respective brokers or be recognized as
income.
160.2 Investment Strategy for Excess Funds on Account
The Authority’s average monthly expenditure as per the 30th June 2015 audited financial
statements is equal to or less than UGX.300,000,000 as detailed in the table below.
Average monthly expenses as per audited financial statements
Staff costs 197,000,000
Administrative costs 53,000,000
Other operating expenses 50,000,000
Total average monthly costs 300,000,000
However, during the period under review, the combined funds on the Bank of Uganda and
Stanbic Bank accounts exceeded the monthly amounts as illustrated in the table below.
Month Month end balances per bank Funds that could
have been invested
Stanbic Bank Bank of Uganda
Total Excess over 300 million
Jul-14 1,049,063,665 609,521,136 1,658,584,801 1,358,584,801
Aug-14 453,005,238 111,194 453,116,432 153,116,432
Sep-14 245,217,955 111,194 245,329,149 -
Oct-14 481,653,354 609,611,194 1,091,264,548 791,264,548
Nov-14 245,571,360 609,611,194 855,182,554 555,182,554
Dec-14 185,155,381 609,611,194 794,766,575 494,766,575
Jan-15 839,227,860 504,455,625 1,343,683,485 1,043,683,485
Feb-15 592,638,902 4,455,628 597,094,530 297,094,530
Mar-15 510,509,692 4,455,628 514,965,320 214,965,320
Apr-15 249,372,381 619,159,907 868,532,288 568,532,288
May-15 780,041,077 50,387 780,091,464 480,091,464
Jun-15 22,111,003 50,387 22,161,390 -
The excess funds not invested cost the Authority interest on any investments that could
have been made.
Management explained that there was uncertainty in timing the receipt of funds which
made it difficult to adequately plan the monthly liquidity needs. As a measure to maximize
the Authority’s potential, an investment policy was put in place in June 2015 to guide the
investment strategy and activities of CMA.
I advised management to maintain optimal funds on the bank account to cater for monthly
operational costs and any excess funds should be invested to maximize any investment
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potential. Specific investment authorization limits and oversight should be
included in the investment policy which should have Board approval.
161. INSURANCE REGULATORY AUTHORITY – YEAR ENDED 30TH JUNE 2015
161.1 Non enforcement of Workers Compensation Act
Section 15 of the Insurance Act 2011 empowers the Authority to ensure effective
administration, supervision, regulation and control of the business of insurance in Uganda.
Section 18 (4) of the Workers Compensation Act CAP225 states that an employer shall
provide information regarding insurance effected to meet the requirements of this section
when reasonably requested by the Labour Commissioner or any person acting on his or her
behalf.
Accordingly, I requested for a list of employers to establish whether there was compliance
with the above Insurance Act provisions on accident and Life Insurance and this was not
provided. This rendered the insurance provision un-enforced thus limiting the realisation of
the mandate of the authority.
Management explained that several meetings have been held with Ministry of Gender,
Labour and Social Development to explore mechanism for effective enforcements of the
Act.
I await the Accounting Officer’s action.
161.2 Delayed de-registration of Un Licensed Insurance Firms
Section 3.3 of the Insurance Act 2011 provides for suspension and revocation of a license
in case the specified conditions in the Act are not met. The business is consequently
deregistered from the list of insurance players by the registrar of companies after it has
been Gazetted.
A review of the Audit Committee minutes revealed that there was a delay in the de-
registration of five (5) insurance companies as there was no evidence to show that these
firms were published in the gazette before they were deregistered from the insurance
business.
Management explained that at the listed companies do not have licences and cannot legally
transact insurance business because the authority publishes a list of authorised players at
the beginning.
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I urged the Accounting Officer to de- register the companies in accordance with the
established law.
161.3 Performance of IRA
The Insurance Regulatory Authority (IRA) has developed the operational plan (2014 –
2015) to guide implementation of activities planned over the next twelve months. The key
components of the operational plan were derived from the Strategic plan 2012/13 –
2016/17. A review of the status of implementation revealed that some of the planned
activities in years 2012/13 & 2013/14 were not achieved as per the table shown below
despite the entity collecting revenue in excess of the planned. According to the Authority’s
approved budget of the financial year 2014/15, the authority budgeted to collect revenue
totalling UGX.7,980,907,845. However, it was noted that by the end of June 2015, a total
of UGX.8,892,959,503 had been collected reflecting an over collection of UGX.912,051,658.
Non-attainment of planned activities impacts negatively on realization of the strategic
objectives. It also affects the authority annual performance.
The Accounting Officer was advised to execute the entity activities in line with the
operational plan.
Strategic goal Activities Response
1. Integration of policy
framework for the insurance industry.
-Develop a proposed
integrated policy framework for the insurance industry.
The process of developing
an insurance policy for Uganda and a model East
African insurance region policy is on-going. Two
meetings have been held by
various stakeholders.
2. Develop and implement
policies to enhance
insurance depth.
Hold stakeholder
consultations to agree on
the insurance enhancement policy proposal
Hold action meetings with policy leadership.
The process of developing
an insurance policy for
Uganda and a model East African insurance region
policy is on-going. Two meetings have been held by
various stakeholders. IRA has written to Government
to take up the insurance
policy.
3. Operationalize the
Insurance appeals
tribunal
Initiate the appointment of
members and inauguration
of the Tribunal
At its 210th meeting held on
the 24th June 2015, the
Board approved the insurance Tribunal
regulations. They will be forwarded to the 1st
Parliamentary Council.
4. Develop and implement a strategy to partner
with other government agencies to mainstream
Develop action proposals for mainstreaming insurance in
relevant government and civil society service delivery
IRA has been in communication with Ministry
of labour, gender and social development, Ministry of
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insurance in their activities
activities and promote a culture of insurance in
society.
Hold stakeholder seminars to
engage stakeholders on the action proposals and agree
on forward action plan.
Establish MOUs with key stakeholder clusters to
implement the
mainstreaming action proposals.
Trade, Ministry of Energy, Uganda Police and other
institutions to mainstream insurance in their activities.
5. Develop and
implementation of policies to support
insurance penetration & industry business
expansion
Develop policy proposals for
insurance of Government assets and employee.
Hold policy level
engagement meetings and sessions to present
proposals and seek approval.
The process of developing
an insurance policy for Uganda and the East African
region is on-going.
6. Formulate policies to facilitate and promote
uptake of insurance
services by the public
Develop policy proposals for enhancement of insurance
industry incentives to
increase penetration and expansion of life products.
Hold stakeholder consultation workshop to
discuss and agree on policy proposals for enhancement
of insurance industry
incentives. Hold consultative sessions
with policy stakeholders to present proposals for the
enhanced insurance industry
incentive framework.
We engaged the Industry players to come up with the
proposals and we are yet to
conclude on it.
7. Develop and implement
an incentive strategy to
support insurers in product development.
Establish an incentive
scheme for development of
insurance products in all key productive sectors, to
enhance insurance access and penetration
Hold consultations with stakeholders and policy to
agree on a feasible
insurance products development incentive
programme.
IRA will continue engaging
Government for tax
incentives and engage stakeholders for new
incentive ideas.
8. Develop a consumer
protection policy
Disseminate consumer
protection policy
Draft consumer protection
regulations are under review.
9. Develop a framework to
promote life insurance
Develop mortality tables Consultant being sought at
EAC level to advice on the use of mortality tables.
10. Establish policy holders
compensation fund
Establish institutional
arrangements and modalities for establishment and
A draft policy holder’s
compensation fund is being reviewed.
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management of the policy holder compensation fund.
11. Develop a framework for regulation of
emerging insurance
areas
Sensitise stakeholders about the licensing guidelines.
This will be developed as the new areas emerge e.g.
Takaful, micro insurance
among others
12. Establishment of
guidelines for approval
of texts of policies and other insurance
documents
Organising stakeholders’
workshops to discuss draft
guidelines.
Finalise, print and disseminate guidelines to
industry players.
A draft proposal is being
reviewed.
13. Formulation of guidelines for
reinsurance
Carry out periodical re-insurance development
workshops
Will be carried out as and when needed with the help
of PTA Re and Africa Re.
14. Linkage of insurance regulatory authorities in
the region as a strategy for growth of the
insurance services
(harmonization of laws in the region)
Establish a regional database for sharing information to
develop the market.
The East African Insurance Supervisors Association
provides for the necessary linkages. We have also
signed MOUs with other
regulations within Africa.
162. MICROFINANCE SUPPORT CENTRE LIMITED – YEAR ENDED 30TH JUNE 2015
162.1 Compliance with the Financing Agreement and Government of Uganda
Provisions
A review was carried out on the project compliance with the grant agreement provisions
and GOU financial regulations and it was noted that the project complied in all material
respects with the provisions in the agreement and applied GOU regulations except in the
following matter:
162.2 Low Level of Disbursements
I noted that some loan products exhibited insignificant growth as detailed in the table
below;
Table 1: Loan products with insignificant growth rates 2014/2015 2013/2014
Disbursements Disbursements Disbursements Disbursements
Loan
Product Number
Value UGX
'000 Number Value UGX'000
Environmental
loans 3 200,000 2 60,000
Teachers' SACCO loans
17 1,105,000 - -
Out of the UGX.9.3 billion available for Teachers’ SACCO loans, the company disbursed only
UGX.1.1 billion during the year. There is a risk that stakeholder expectations may not be
achieved hence the company’s failure to fulfil its mandate.
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Management explained that they will intensify the marketing and sensitisation of the
environmental product to the public. Management attributed the low disbursements on the
teachers fund to negative pronouncements by UNATU advising the SACCOSs not to access
the funds from MSCL.
I advised management to have a target weighting for all its credit categories to ensure that
it is meeting its objective and mission.
162.3 Inadequate monitoring, follow up and recovery of loans written off
I noted weaknesses in monitoring, follow up and recovery of delinquent loans as evidenced
by low recovery rates from previously written off loan accounts. Of the written-off loans
and advances amounting to UGX.6.198 billion in the financial year 2012/2013, only
UGX.354 million has been recovered as of 30 June 2015. This represents a recovery rate of
about 6% as a percentage of total write-offs as indicated in Table 1 below. The company
wrote-off loan accounts in the current year which amounted to UGX.8.091 billion. There is
a risk of financial loss hence the company’s failure to meet the strategic objectives.
Analysis of recovery rates from previously written off loans
2012/2013 2013/2014 2014/2015 Total
Ushs'000 Ushs'000 Ushs'000 Ushs'000
Write-offs 6,197,730 - 8,091,110 14,288,840
Recoveries 33,808 174,489 145,867 354,164
%-age of recoveries from 2012/2013 write-offs to date 6%
Management explained that in February 2015 they established a Debt Collection
Unit and its objective is to minimize the rate of default in addition to following up all
delinquent and written off loans. In July 2015, management contracted Debt
Collectors and Service level Agreements have been signed with a number of them.
This is in addition to continuous follow up by Zonal Staff. Management is also in the
process of ascertaining the collectable loans out of the written off loans so that
performance in future is measured against collectable loans.
Management action on the matter is awaited.
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163. NATIONAL PLANNING AUTHORITY – YEAR ENDED 30TH JUNE 2015
163.1 Human Resource Management
NPA has a functioning Human resource department. The following Human resource issues
were observed during the course of the audit.
163.2 Understaffing
As noted in the previous year, the entity has an approved staff structure of 118. However,
only 69 positions had been filled as at 30th June 2015. These constitute only 58% of the
required staff numbers. Although management took some steps and recruited five staff
including one board member and the Executive Director during the year, 49 staff positions
are yet to be filled. The table below refers.
Staffing gap per directorate
Directorate/staff
Approved
posts
Filled
posts
Vacant
posts
Department of ICT 5 1 4
Dept. Human Resource Planning 5 1 4
Dept. of policy, Research and Innovation 9 2 7
Dept. of Macro Economics 4 1 3
Dept. of Infrastructure and Physical Planning 7 3 4
Dept. of Production, Trade and Planning 7 3 4
Directorate policy, Research and Innovation 2 1 1
Dept. of Governance 6 3 3
Executive Director and Associated Officers 12 8 4
Department of Economic & Strategic Planning 6 4 2
Dept. of Social Development Planning 6 4 2
Dept. Monitoring and Evaluation 6 4 2
Finance and Administration 27 20 7
Administration 13 11 2
Directorate of Development Planning 3 3 0
Total 118 69 49
Staff shortages are likely to affect the organisation in achieving its objectives. Management
explained that they had written to Ministry of Finance, Planning and Economic Development
and Ministry of Public Service to allow recruitment in stages until full capacity is achieved.
I informed the Accounting Officer of the need to complete the process of recruitment so as
to improve performance.
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163.3 Non-compliance with the Workers Compensations Act CAP 225
Section 18 of the Workers Compensation Act requires every employer to insure and keep
workers insured in respect of any liability which workers may incur. Section 2 of the same
Act provides that insurance shall apply to all employment within Uganda except for active
members of the armed forces in Uganda. A review of payments for the period revealed that
no payment for the workers compensation to any insurance company was made. It was
further noted that there was no budget provision for the insurance of workers.
Management promised to undertake consultation with relevant authorities specifically
Ministry of Gender Labour and Social Development for guidance.
I advised the Accounting Officer to ensure that they adhere to these rules as provided in
the HR manual.
163.4 Review of the National Development Plan
163.4.1 Lack of gender and disability aspect in developing National Plans
Section 7 (2)(h) of the NPA Act, among other functions highlights the need to ensure that
all national plans are gender and disability sensitive. A review of the expenditure
documentation relating to the development of Vision 2040 in the ongoing course of the
development of National Development Plan II, did not show evidence to confirm that the
gender and disability expertise was considered in developing the national plans. There were
no expenditures related to gender and disability sensitivity aspects. There is a risk that
management may be omitting the aspects of gender and disability sensitivity in the
development of National Plans.
Management explained that it facilitated a study of women economic empowerment and a
technical committee of experts to analyze sector issues papers for NDPII with a view of
assessing and integrating gender aspects and that report fed into NDPII development,
these activities were funded under NPA-UN Joint Programme on Gender Equality project.
I advised the Accounting Officer to translate the learning experience from the study into
practice while developing the next National Development Plan.
163.4.2 Lack of technical staff to review annual budgets for MDAS
Section 13(7) of the Public Finance Management Act requires National Planning Authority to
issue certificates of compliance of the annual budget of the previous year to accompany
the current budget of all MDAs. However, the Authority’s staffing structure did not provide
for sector experts/professionals to analyze the compliance of the various sectors in line with
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the prior year annual budgets. Besides, there was no evidence to show that the 2015/16
MDA’s respective annual budgets were reviewed and certificates issued prior to submission
to Parliamentary Budget Committee for scrutiny and eventual approval by Parliament.
There is a risk that the authority may not have the capacity to review the entire annual
budget by MDAs in terms of compliance with the annual budget.
Management explained that Public Finance Management Act, 2015 was enacted towards
the end of 2014/15 financial year and NPA used its internal staff to review the budgets and
issued the first certificate of compliance. Management is reviewing the NPA staff structure
to include experts to analyze sector budgets.
I await management action on the matter.
164. FINANCIAL INTELLIGENCE AUTHORITY FOR THE YEAR ENDED 30TH JUNE, 2015
164.1 Budget performance
According to a report of Committee of Finance, Planning & Economic Development
of Parliament on Ministerial Policy Statement and Budget estimates for Financial
year 2014/2015 the committee recommended that the Minister of Finance, Planning
and Economic Development identifies UGX.5,937,707,428 to fund the activities of
the Authority. However, the approved estimates was reduced to
UGX.1,880,952,805 creating a shortfall of UGX.4,056,754,623. As a consequence, I
noted that a number of activities were not implemented .These include;
training/capacity development of staff, software for data analysis, public awareness
of the AML/CFT, staff recruitment, installation of security equipment and purchase
of motor vehicles for FIA activities.
I explained to management that failure to implement activities has an effect on the
attainment of objectives of the entity.
Management explained that FIA provided a detailed budget and work-plan to MoFPED,
however, this was after the budgeting process had approved only UGX.100m as
vote on account for FIA. As such, out of the required UGX.59bn, the Ministry only
processed a supplementary of UGX1.7bn.
I advised the Accounting Officer to liaise with MoFPED and have the funds released to
enable implementation of activities.
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164.2 Understaffing
Section 24(e) requires the Board to approve the organization structures and terms
and conditions of service for all staff. I noted that the Authority has an approved
structure of 39 positions but only 18 positions have been filled leaving 21 vacant,
representing 46% of filled posts. Inadequate staff limits the authority from
executing the mandate and hence poor performance. Management explained that
they are yet to contact the relevant authorities and have the vacant posts filled. As
explained in 8.1 above, this activity was affected by inadequate release of funds.
I await the Accounting Officer’s action to have the vacant posts filled.
165. PRIDE MICRO FINANCE LIMITED – YEAR ENDED 31ST DECEMBER 2014
165.1 Variances between the general ledger and sub-ledgers
I noted a variance between the loan book and the general ledger of Shs.21 million. This
increased the risk of misstatement of the financial statements.
Management explained that differences are continuously investigated on a weekly basis
and resolved as and when the causes are identified.
I advised management to continue regular reconciliations of the sub-ledgers and the
general ledger and seek a permanent solution to resolve the matter.
165.2 Inadequate physical controls at the branches
The monitors of the surveillance/CCTV system at the City Centre, Entebbe Road, Bukoto,
Wandegeya, Kawempe and Katwe branches were located in the server room at the time of
our visit. Failure to have real-time surveillance of the activities in the banking halls
increases the security risk of the company. The surveillance system which could have
otherwise been used as a prevent control, would now be used only for investigations in
case of any irregularities.
Management explained that the CCTV monitor will be relocated to the Branch Manager’s
offices to ease monitoring.
Management action on the matter is awaited.
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165.3 Incident management application not used
The company does not use the incident management application to track and resolve
incidents. Incidents sent in by users may not be tracked and resolved in a timely manner.
It may also be difficult to allocate incident tickets to the various process owners.
Management explained that currently incident management is being handled manually
through the IT service desk. The current installed incident management application is a
trial version. Management intends to install Microsoft service desk manager by end of July
2015 to track incidents.
The action to improve the incident management application is awaited.
165.4 Inadequate password controls for vision application
A review of the passwords for vision application indicated that password complexity is not
enforced. Password controls are weak in that the minimum password length is not enforced
hence passwords of any length can be used. System inactivity timeouts are also not set.
There is a risk of unauthorised access to the system resources and utilities.
Management explained that the ATM system vendor is working on an upgrade for the ATM
Switch that will fix the password complexity gap and system inactivity timeout. The
upgrade is expected at the end of Quarter 2 of 2015.
I advised management to adjust the password setting as recommended by IT general
applications and also set a session time out set to about 15 minutes.
166. PRIVATIZATION AND UTILITY SECTOR REFORM PROJECT-DIVESTITURE AND
REDUNDANCY ACCOUNT (PUSRP) – YEAR ENDED 30TH JUNE 2014
166.1 Un-Implemented Divestiture Work Plan Activities
A review of the Divestiture budget and work plan for the year revealed that PU had
planned to spend a total of UGX.10,546,000,000 on various activities during the year.
However, it was noted that the planned activities were not implemented reportedly due to
lack of funding. The unimplemented activities include valuation of shares in Kinyara Sugar
Works, sale of government shares in Munyonyo Common Wealth Resort Limited, disposal
of the remaining properties of Uganda Railways Corporation and UEDCL Pole Plant
Divestiture among others.
The intended objectives of work-plan were therefore not achieved.
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The Accounting Officer explained that it has written to Treasury and the Accountant
General on several occasions communicating the need for funding the work-plan activities
but did not receive positive response.
I urged the Accounting Officer to continue engaging the responsible authorities and ensure
the necessary funding is availed.
166.2 Inspection of Kilembe Mines
166.2.1 Non availability of Exploration Guarantee
Section19.6.1 of the concession agreement requires the concessionaire within ninety (90)
days following the effective date to provide an exploration guarantee that is equivalent to
15% of the approved work program. However, a copy of the exploration guarantee was
not provided for verification. The work program on which the exploration guarantee is
based is derived from the 15% guarantee value of the work program that had not yet been
approved by the time of writing this report. This may hinder the achievement of planned
activities in the concessionaire.
The Accounting Officer explained that the Concessionaire’s work program as per the
Concession agreement was later approved by the Commissioner, Department of Geological
Survey and Mines on 22nd October 2015. Subsequently, PU wrote to Tibet requesting them
to submit the required exploration guarantee. The Commissioner’s approval is awaited.
I advised the Accounting Officer to follow up the matter with the responsible authorities
and have the guarantee in place.
166.2.2 Impact of the floods on the infrastructure
Section 18.8.2 of the concession agreement provides that the Government shall use its
reasonable efforts to assist the Concessionaire to integrate any item of infrastructure
acquired with similar existing public utilities or facilities operated or provided by the
Government and the Director Privatization Unit and the Chief Executive Officer of KML Act
as the duly authorized representative for all purposes connected with the concession
agreement.
During filed inspections, it was noted that following the flooding that affected Kasese
District in May 2013, (see the picture below) and through a cabinet memorandum (CT
2014/52), a supplementary budget of UGX.25,064,258,167 through the OPM for Kesese
District recovery plan was approved to construct flood walls. This activity had not been
implemented.
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Administration Block Destroyed by Floods
Because the retainer wall that controlled floods collapsed, the concessionaire could not
carry out some of the activities agreed as per the Terms of Reference (TORs) in the
concession agreement due to interruptions that damaged most of the essential
infrastructure mostly the roads, bridges and buildings.
Tarmac Road washed away by floods
Management explained that it is liaising with the Ministry of Disaster Preparedness in the
Office of the Prime Minister to ensure that the retainer wall is constructed.
I await the outcome of the Accounting Officer’s follow up. 167. PRIVATIZATION AND UTILITY SECTOR REPORM PROJECT- OPERATIONS
ACCOUNT – YEAR ENDED 30TH JUNE 2015
167.1 Shortfall of Government Funding
The project budgeted for UGX.12,798,981,000 expected from the divestiture of public
enterprises account and subvention from Ministry of Finance, Planning and Economic
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Development. However, only UGX.4,058,850,617 was received including a
subvention of UGX.1,016,100,000. This led to a shortfall of UGX.8,740,130,383
representing 70% of the budgeted funds. Shortfall in releases affected implementation of
planned project activities such as staff training UGX(2bn), replacement of two motor
vehicles UGX(412 m), payment of office rent UGX(214m), statutory deductions- NSSF and
PAYE UGX(945M), payment of salary arrears of UGX.235m were not undertaken.
Although management explained that they are in consultations with the Ministry of Finance,
Planning and Economic Development to explore means of bridging the funding gap, I was
informed by the Ministry that limited funds were allocated by the Ministry to PU on the
basis that divestiture activities had ceased and the structure down-sized.
I advised the Accounting Officer to liaise with the Ministry with a view to reviewing the
justification or the continued operations of the project.
167.2 Non- remittance of statutory deductions
During the year under review UGX.398,546,691 was deducted from staff salaries in
respect of withholding tax, NSSF and P.A.Y.E from suppliers and project staff but these
funds were not remitted to the relevant statutory authorities. This comprised NSSF of
UGX.148,886,620, PAYE of UGX.239,599,252 and taxes withheld from the various suppliers
of UGX.10,060,819.
Management explained that the Ministry of Finance, Planning and Economic Development
has been consulted to provide funds to settle the outstanding statutory deductions.
I await the outcome of the Accounting Officer’s action.
168. PUBLIC PROCUREMENT AND DISPOSAL OF PULIC ASSETS – YEAR ENDED 30TH
JUNE 2015
168.1 Accounting Manual not updated
I observed that there was no updated documented financial management controls and
procedures to support the current accounting processes and procedures because the
Authority lacked an updated Finance and Accounting Manual as the existing one of 2004
required review. The introduction of the Output Budgeting Tool (OBT), IFMS, IPPS, Single
Account System and PFMA, the manual has been seen to be inapplicable. The areas of
budgeting, funds releases, EFT payments and accountability have changed over time.
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Management explained that they engaged a consultant to update the Authority
accounting manual and the consultant failed to deliver as expected. The Authority has
planned to re-budget for the activity and ensure the Accounting Manual is updated
accordingly.
I informed the Accounting Officer of the importance in updating its financial manual and
advised that the manual is urgently reviewed.
169. UGANDA BUREAU OF STATISTICS- YEAR ENDED 30TH JUNE 2015
169.1 Mischarge of Expenditure
The Government Chart of Accounts defines the nature of expenditure for each item code.
The intention is to facilitate better and consistent classification of financial transactions and
also track budget performance per item.
I noted that during the year under review, a sum of UGX.7,975,214,371 was charged on
items which do not reflect the nature of the expenditure as defined per Government Chart
of Accounts. Audit attributed the circumstance to lack of budgetary discipline by
management. Notably among the most mischarged codes were advertising and public
relations with a total of UGX.3.9bn, allowances UGX.825,677,749, and computer supplies
and IT services UGX.1,303,137,933.
Mischarge of expenditure impacts on the credibility of the financial statements, since the
figures reported therein do not reflect the actual amounts expended on the respective
items. It further impacts on the appropriateness of the future budgets since the reported
actual figures are misrepresented.
Management acknowledged the observation and accordingly promised to try as much as
possible to implement as guided. I advised the Accounting Officer to ensure that all
expenditures are charged on the approved budget lines during budget execution and
always seek for reallocations in unavoidable circumstances.
169.2 Advances to Staff
(vi) Transfer of Funds to Staff Personal Accounts
Sections 227, 228 and 229 of the Treasury Accounting Instruction (TAI), require that all
payments should be made by the Accounting Officer directly to the beneficiaries. Where
this is not convenient, an imprest holder should be appointed by the Accounting Officer
with the approval of the Accountant General.
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However, an analysis of payments made during the year revealed that a sum of
UGX.10,389,500,329 was transferred to personal accounts for undertaking various UBOS
activities contrary to the above provisions in the TAI.
Management in their response appreciated the level of risk involved, but also noted that
the nature of their activities is to collect data in the field and when doing so, they mainly
deal with temporarily recruited people to do the work. In their view, it poses a higher risk
to disburse these funds to temporary staff with all the allowances to cover the long period
assignments in the field in order to reduce the risk of likely disappearance upon receipt of
funds. Accordingly, the funds are disbursed to only those staff who have been with the
Bureau and/or Supervisors of the field activity. They also noted that since the main
activities of the Census have been concluded, they intend to seek help from the Accountant
General on how best they can handle the field allowance issue without breaking the law.
I advised the Accounting Officer to always adhere to the requirements under the law, and
seek permission and/or guidance from the PS/ST where circumstances do not permit
application of the laid down guidelines.
(vii) Un-accounted for Funds advanced through personal bank accounts
Section 217 of the TAI requires that accountabilities for funds advanced should be
submitted within 60 days from the date of payment. However, contrary to this
requirement, a total of UGX.402,335,100 advanced to staff through personal bank accounts
to carry out various activities, remained unaccounted for by the time of audit. Under the
circumstances, I could not establish whether the amounts in question were expended for
the intended purposes.
Although management had promised to provide the accountability in question, this had not
yet been availed by the time of writing this report. I have advised the Accounting Officer to
always enforce strict adherence with the financial regulations in place in order to ensure
full accountability for all funds expended. In addition, the outstanding amounts should be
followed up, failure of which, necessary recovery measures ought to be instituted from the
concerned staff.
169.3 Unauthorized Excess Expenditure
Contrary to Section 17 of the Public Finance and Accountability Act, 2003, an analysis of
budget estimates and the actual expenditure of the Bureau for the financial year under
review revealed an excess expenditure of UGX.23,434,276,656 by the Bureau. It was noted
that, whereas Parliament appropriated UGX.111,556,460,695 to the Bureau and
UGX.110,580,912,601 was released by Treasury, a total of UGX.134,990,737,351 was
spent by the Bureau as seen in the table below;
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Details Amount - UGX
Expenditure from TSSA 110,580,912,601
Expenditure from Field-work account 30,341,591
Expenditure from NPHC 12-Opening balance 24,379,483,159
Total 134,990,737,351
Amount appropriated 111,556,460,695
Excess Expenditure 23,434,276,656
I further noted that the above was caused by the off-budget financing of
UGX.24,434,244,439 that was kept on NPHC 12 account at the beginning of the financial
year, which was not appropriated. The Bureau has also not reflected this expenditure, in its
statements of appropriation, implying that the expenditure disclosed was understated by
UGX.23,434,276,656.
The practice undermines the intentions of the appropriating authority and exposes such
funds to a risk of misuse. I was not provided with evidence of any authorization for this
excess expenditure.
The Accounting Officer in his response stated that all the transactions had been
harmonized and accordingly incorporated in the financial statement.
I advised the Accounting Officer to always ensure budgetary discipline and where
circumstances do not permit, Parliamentary approval should always be sought for a
supplementary estimate, before incurring excess expenditures.
169.4 Examination of Transactions on NPHC 12 Account (Number 003430088000011)
In 2009, UBOS opened up a Uganda Bureau of Statistics - NPHC 2012 Bank Account
No.003430088000011 in Bank of Uganda (BOU). According to the account opening
documentation availed, the account was used to receive funds from development partners
for the NPHC census activities that were due to take place in 2012. However, due to
budget constraints, the Census never took place as planned, but the account was not
closed. The following observations were noted;
(viii) Commingling of Funds
Contrary to the initial purpose, during the financial year under review, the account received
funds from the TSSA and other project accounts. Whereas management explained that the
account was solely for census activities, we noted that funds from this account were also
paid out for none census activities. These included among other operational expenditures
like security, Statistics House repairs, annual end of year facilitation, wellness and sports
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facilitation allowances, air tickets to UBOS staff, front office flowers, demarcation of
Plot 9 Colville street, all totaling to UGX.5,986,474,376 in the year under review. These
payments would have been paid from the UBOS TSSA not from the NPHC account.
Under the circumstances, there is a risk that census funds were diverted and that the entity
was financing its operations outside the appropriated budget.
The Accounting Officer explained that the National Population and Housing Census (NPHC)
was a national program and at its implementation, the entire UBOS was actively involved.
All regular activities were scaled down and all UBOS operations were all targeted to the
promoting and implementation of the census. All the identified activities including
procurement of a bus, front office flowers and the face lifting of statistics house were for
the purpose of promoting the Census. Therefore all funds to that respect were incurred to
the implementation of the NPHC.
I advised the Accounting Officer to always ensure that the funds are utilized for the
intended purposes and that commingling of funds is avoided to ensure proper
accountability.
(ix) Transfer and utilization of funds on NPHC 12 Account
I noted that the Accounting Officer was granted authority by Treasury, to retain unutilised
funds at the closure of the FY 2013/14. Accordingly, following this authorisation, an
amount of UGX.18,315,717,031 was transferred from the Treasury General Account (TGA)
to the NPHC 12 Account, which resulted into an opening balance of UGX.24,434,244,439 as
of 1st July 2014.
I however noted that the entire balance of UGX.24,434,244,439 was erroneously written
off as expenditure during the FY 2013/14 as opposed to recognising the cash balance on
the NPHC 12 Account. I further noted that in the current year 2014/15, whereas disclosure
and presentation in the financial statements has been made in the statement of financial
performance and under note 15 of the final accounts, the disclosure is only done as a block
figure categorized as ‘other expenses’ and does not reflect the nature of the expenditure
incurred. This implies that management has not properly presented the underlying
expenditure.
The Accounting Officer explained that the National Population and Housing Census is
always categorized as a project and a disclosure as a project was made in the final
accounts of the financial year 2013/14. I advised the Accounting Officer to always ensure
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that full disclosure of the Bureau’s financial transactions is made in the financial
statements.
(x) Non-maintenance of ledgers for NPHC 12 account
Treasury Accounting Instruction 401 states that, “Accounts and records shall be kept by
Accounting Officers to ensure that all monies received are properly brought to account, all
payments are correctly made and properly authorized and that adequate control is
maintained over assets and liabilities. TAI 402 further clarifies that Accounting Officers will
maintain the following books or records: Cash books; Vote Control Register (book) and
General Ledger and subsidiary ledgers.
I observed that apart from the cash book (maintained in Ms Excel), no ledgers and vote
books were maintained for the expenditures on this account. This was contrary to the
above regulation.
I have advised the Accounting Officer to always maintain proper books of accounts as
required by the regulations.
(xi) Doubtful Expenditure
A review of payments totaling to UGX.27,080,000 revealed the following;
There were no activity reports attached for the said activities. As such, we could not
establish whether the activities were undertaken at all.
Payments for some activities were being made at UBOS headquarters directly to
District Technical Officers (DTOs) and yet funds were also being sent to the districts
for similar activities. There is a risk that some payments could have been
duplicated.
Accountabilities attached were not sufficient to show that payments reached the
intended recipients.
Under the circumstances, there is a risk that the above funds may not have been used for
the intended purposes given the nature of the accountabilities that were submitted.
Management explained that these funds were paid to district technical officers from
headquarters to beef up the team mainly in Kampala and Wakiso because of the staff
shortages the two unique districts realized in the respective areas when the deadline of the
actual enumeration had reached. I advised the Accounting Officer to obtain proper
accountability for the funds in question or else initiate recovery measures from the
concerned beneficiaries.
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(xii) Stores Not Recorded
A physical inspection of the stores and a review of the stores documentation/records as
well as a reconciliation of receipts and issues from the stores revealed that some item
balances did not tally with the physical balances in the stores. As a result, items valued at
UGX.252,241,892 were found not recorded. I observed that the controls surrounding the
management of stores were not adequate as there were no regular stock takings and
reconciliations undertaken. There is a risk that the items in question may have been
misused without management’s knowledge.
Management in their response explained that since the receiving and arranging of materials
from districts was completed, they were now updating the stock cards for proper
documentation. By the time of completing the audit (December, 2015), the updating
exercise was ongoing.
I advised the Accounting Officer to strengthen the controls in the management of stores
and complete the store records updating exercise with a view of accounting for all stores.
169.5 Review of Districts Accountabilities
(xiii) Doubtful Accountabilities
Paragraph 5.6 of the Census 2014 Financial Management Guidelines requires that all
original documents relating to the census activity shall be submitted to UBOS in their
entirety at the end of the Census. In addition, paragraph 5.7 states that no accountability
will be accepted if it does not match the expenditure line items against which it was
advanced.
I reviewed accountabilities from a sample of districts and observed that a sum of
UGX.101,744,600 was incurred on various activities, but the payments were doubtful as
detailed in the table below;
DISTRICT AMOUNT - UGX
Abim 10,441,000
Adjumani 36,921,000
Masaka 54,382,600
Total 101,744,600
The accountabilities were doubted due to the following matters;
• Some of the payment vouchers lacked the necessary supporting attachments,
• Some of the accountabilities attached were inconsistent with the intended expenditure.
For example, expenditure on fuel where the dates, prices and receipt numbers of the
receipts were not in line with the activities.
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• Signatures of purported beneficiaries in some instances were also inconsistent.
• There were instances where payments were made to service providers for services that
were beyond their capacities.
In such circumstances, there is a risk of misuse of the amounts involved.
Similarly, accountabilities totalling to UGX.92,535,000 appeared to be false as summarized
in the table below;
DISTRICT AMOUNT - UGX
Ajumani 3,780,000
Arua 7,850,000
Lira 14,997,500
Moyo 4,181,500
Jinja 17,550,000
Kumi 17,726,000
Mubende 4,500,000
Sembabule 4,300,000
Amuru 7,930,000
Lamwo 9,720,000
TOTAL 92,535,000
A review of the transactions relating to the above revealed the following anomalies;
• Signatures of beneficiaries of allowances paid in cash that appeared to be made in the
same handwriting;
• Where a single person would sign for funds meant for other beneficiaries without
authorization;
• Forged receipts; and
• Vehicles drawing fuel beyond there tank capacities.
I further observed instances where districts were given funds to hire venues and other
services, but instead used district facilities. From the sample, I observed that
UGX.11,500,000 (i.e. for Agago – Ugx.5,500,000 and Amuria Ugx.6,000,000) was
withdrawn and district receipts were issued. Such expenditures are irregular and avoidable
as the district is expected to use its facilities free of charge. However, this would have been
avoided had UBOS established the districts with such facilities before budgeting for hire of
similar facilities.
Management in their response acknowledged the observations.
I advised the Accounting Officer to have all the funds properly accounted for or else initiate
recovery measures for the amounts in question from the responsible officers.
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(xiv) Expenditures beyond District Budgetary Provisions
The main objective of the Census 2014 Financial Management Guidelines among others
was “To ensure compliance to budget provisions and work plans”. It was further
emphasised in the signed MoUs that all expenditure at the district level shall be
implemented as elaborated in the detailed district budgets.
Analysis of the accountabilities from the sample of districts, revealed instances where
districts spent funds beyond the amount allowed on individual budget items totalling to
UGX.81,519,100 as summarised in the table below;
Amount over spent by Districts
District Amount (UGX)
ABIM 34,578,500
BUKEDEA 9,255,500
ADJUMANI 2,120,000
NAKAPIRIPIRIT 28,264,600
ADJUMANI 2,120,000
MASAKA 5,180,500
TOTAL 81,519,100
I was not provided with evidence that the districts were authorized to spend over and
above the budgeted provisions on certain items. This tantamounts to a diversion and
implies that the other items that were budgeted for were suppressed.
Management in their response acknowledged the observations.
I advised the Accounting Officer to always ensure enforcement of the operational
guidelines issued to the districts, in order to enhance budgetary discipline.
(xv) Funds not Accounted for – UGX.311,706,050
Chapter IV paragraph 181 of the Treasury Accounting Instructions, 2003, Part I – Finance,
requires all vouchers to contain full particulars of each service or goods and be
accompanied by such supporting documents as may be required so as to enable them to
be checked without reference to any other documents.
From the review of accountabilities from a sample of districts, it was noted that
UGX.311,706,050 advanced to various officers at the districts to carry out census activities
was not accounted for as indicated in the table below;
DISTRICT AMOUNT (UGX)
BUKEDEA 39,516,500
ADJUMANI 53,658,600
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NAMUTUMBA 2,841,000
NAKAPIRIPIRIT 3,185,000
ARUA 37,066,600
AMURIA 45,935,250
JINJA 20,557,000
KUMI 9,310,500
HOIMA 45,789,100
AMURU 2,500,000
LAMWO 8,954,000
MUBENDE 17,000,000
MASAKA 5,205,500
SEMBABULE 20,187,000
TOTAL 311,706,050
In absence of the relevant accountabilities, I was unable to confirm whether the funds
were put to the intended purposes.
Management in their response acknowledged the observations.
I advised the Accounting Officer to strengthen controls over advances as prescribed under
the regulations and also ensure that the funds are accounted for by the concerned districts.
(xvi) Non deduction of PAYE
It was noted that the districts paid honoraria and taxable allowances to various census
officials. However, contrary to the tax law, UGX.394,264,000 in lieu of PAYE, was not
deducted from these payments as summerised in the table below;
DISTRICT AMOUNT (UGX)
ADJUMANI 3,090,000
AGAGO 9,075,000
APAC 12,360,000
ARUA 119,810,000
AMURIA 14,790,000
JINJA 21,225,000
KUMI 13,935,000
NTUNGAMO 25,520,000
BULAMBULI 60,825,000
KIBAALE 3,210,000
AMURU 37,860,000
LAMWO 34,740,000
MUBENDE 32,820,000
MASAKA 5,004,000
TOTAL 394,264,000
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Failure to deduct taxes exposes the entities to a risk of penalties and fines, and also
culminates into loss of Government revenue.
Management in their response acknowledged the observation. I advised the Accounting
Officer to institute recovery measures for the un-deducted amounts for onward remittance
to URA.
170. UGANDA DEVELOPMENT BANK LIMITED (UDBL) – YEAR ENDED 31ST
DECEMBER,2014
170.1 Significant delays in system implementation close out
The Bank implemented a new system, Rubikon, which went live on 25th March, 2014.
Whereas the initial plan was to have the system closed out by 21st April 2014, the system
close out happened on the 15th February, 2015. Significant delays in the system closure
could be an indication of inadequate oversight and management of the system
implementation process.
Management explained that due to the various system issues that were experienced when
the Rubikon went live, the project steering committee took the decision to extend the
closure of the project until all the identified issues had been addressed by the vendor.
I advised Management to have a robust system change management process in place prior
to system introduction to avoid significant delays in major future projects.
170.2 System inability to compute penalty charges accurately
It was noted that the Rubikon system does not accurately compute penalty charges. As
such, management manually computes the expected penalties which are then posted to
correct the interest penalty charge. Manual intervention is susceptible to human error.
There is therefore a possibility that income arising from penalty charges could be
misstated. In addition this is an indication of a system malfunctioning.
Management explained that the new core-banking system, Rubikon, computes interest
arrears based on the loan scheduled balances and as a result of this, the system currently
only accrues penalty interest on the current outstanding scheduled balances. Management
further explained that for facilities that have carried forward outstanding accrued interest
from prior scheduled balances, the system is unable to compute the penalty interest on
both the current outstanding balance and the carried forward outstanding balances and the
issue had been highlighted to the system vendor for resolution.
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I advised Management to engage the vendor and ensure that the system is configured
to accurately compute the penalty charges so as to perform as originally intended in
support of the bank operations.
170.3 Difference between the loan listing and the general ledger
I noted variances between the loan listing and the amounts recorded in the general ledger
as at 31st December 2014. Details of the difference are highlighted below;
Details Amount (Shs)
Loan listing 118,803,844,301
General ledger 118,743,359,287
Variance 60,485,014
Differences in the two financial records may lead to misstatement of the loan balances in
the financial statements.
Management explained that this is a system issue as the General Ledger balance is a
summation of the individual loan listing balances and should tally. Further, management
explained that the variance of Shs.60million had been highlighted to the vendor for
resolution.
I advised management to investigate and resolve the differences. In addition, periodic
reconciliations between the listing and the general ledger should be undertaken and any
variances promptly investigated and cleared.
171. UGANDA INVESTMENT AUTHORITY – YEAR ENDED 30TH JUNE 2015
171.1 Over Expenditure
A review of the financial statements revealed that the authority had initially budgeted to
spend a total of UGX.6,420,940,000 under employee costs and goods & services consumed
which was later revised upwards to a sum of UGX.6,433,740,000.
It was subsequently noted that a higher amount of UGX.7,368,573,560 was spent on the
two items leading to over expenditure of UGX.934,833,559 without authority. This action
resulted into a diversion of expenditure.
Refer to table below;
Expenditure
Items
Initial Budget
(UGX)
Revised
Budget (UGX)
Actual Expenditure
(UGX)
Variance
(UGX)
717
Employee Costs 3,191,265,473 3,411,242,146 3,574,668,235 163,426,088
Goods & Services
Consumed
3,229,674,527 3,022,497,854 3,793,905,325 771,407,471
Total 6,420,940,000 6,433,740,000 7,368,573,560 934,833,559
Management explained that UGX.771,407,474 was part of payable carried forward and paid
during the year. The extract on employee costs was a result of increase in medical
insurance and promotions.
I advised the Accounting Officer to have realistic budget and spend within the budget
provisions. Should there be need for reallocation, authority should be sought.
171.2 Human Resource issues
171.2.1 Understaffing
A review of the Authority organizational structure revealed that out of the approved 78
posts, only 52 were filled leaving 26 posts vacant. For example, key positions of Deputy
Executive Director, Deputy Director ICT and Senior Communications and Public Relations
Executive were vacant. The core division of investment promotions does not have a
Director with only (5) out of (14) Investment Executive required/provided. Lack of key staff
limits the authority from achieving the intended results and creates heavy workload on
existing staff.
Departments/ Divisions Approved
Posts
Filled Posts Vacant Posts
Executive Director ‘s office 13 10 3
Investment Promotion Division 14 5 9
Investment Facilitation & Aftercare
Division
10 6 4
Land Development Division/KIBP 18 11 7
Finance & Administration Division 18 16 2
SME Division 5 4 1
78 52 26
Management attributed the understaffing to inadequate funding. The Board and Ministry
responsible have been notified of the matter. I await the results of the engagement of the
Accounting Officer with the stakeholders.
171.2.2 Lack of training needs analysis report and training plan
Section 6.3.2 (a-b) of UIA HR Manual requires the Authority to adopt a systematic
approach to training involving identifying training needs and developing a training plan. It
was noted that the authority lacked a training needs analysis report and training plan. This
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may lead to un-coordinated and unproductive training being awarded to staff not
in line with their need hence leading to wasteful expenditure.
Management promised to develop a Training Needs Assessment and Training Plan next
financial year 2015/16.
I await the Accounting Officer’s action on the matter.
171.3 Un-Planned Procurement of Land
During the year under review, UIA procured land adjacent to Nakasero Hospital for a sum
of UGX.4,579,200,000 for purposes of leasing to the Hospital for expansion. A review of
documents available indicates that this amount was paid in two installments of
UGX.3,874,003,200 on 10th June, 2015 excluding 6% WHT of UGX.274,276,200 and the
balance of UGX.430,475,200 in July, 2015.
A review of the entity procurement plan revealed that the purchase of land was not
planned. Since the funds were specifically released by the Ministry of Finance, Planning and
Economic Development for the land purchase, it is likely that the procurement was not
planned for hence, its omission from the procurement plan. There is a risk of breach of
procedures since the board authority supporting the land procurement was also not
provided for review.
Although management explained that procurement plan was subsequently revised, the
revision was not provided for review.
I advised the Accounting Officer to always ensure that proper procedures for adjusting and
approval of procurement plans are followed.
171.4 Shortfall in NTR Collections
The Authority had budgeted to collect NTR of UGX.7,220,000,000 as per the statement of
appropriation account on page (12) to the financial statements. However, only
UGX.6,343,339,517 (87.85%) was realized leading to a shortfall of UGX.876,660,483. This
was attributed to un-realistic budgeting on the part of management. There is a risk that the
activities for which the NTR was budgeted to finance were not implemented.
Management explained that the shortfall was due to companies which declined to pay
service fees of 0.5% as stipulated in the lease agreement.
I advised the Accounting Officer to enforce the collection of such fees in accordance with
the Authority’s debt procedures.
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171.5 Failure to recover outstanding rent and issue current bills
According to the schedule of outstanding rent arrears provided by the Mbarara Park
Manager, it was reflected that a sum of UGX.194,770,000 remained un-collected by the
end of June 2015.
Besides, the outstanding amount provided by the SME park manager varied from the
ledger amount maintained by the finance division. The tenants were not invoiced on time
and the response from them was equally poor. It appears management is not following up
the debtors promptly which may result into the debtors not paying rent in time.
Management explained that a private law firm was engaged to recover the outstanding
rent and utility bills from the park Manager and the contracted law firm who are following
up the matter closely.
I await the Accounting Officer’s action.
172. UGANDA REVENUE AUTHORITY – YEAR ENDED 30TH JUNE 2015
172.1 Irregular tax refunds
Procedure (5) of the tax refunds policy referenced F1 provide that for tax refund claims
where a prepayment audit by the Manager or Supervisor is required, the Accounts Officer –
Tax Refund must ensure that this has been done before initiating the processing of
payment.
It was noted that a local company was paid tax refunds of UGX.4,331,524,576. However,
the authority is having court cases with the same company regarding irregular tax refund
claims. Management did not provide the details of the court cases involving the fraudulent
tax refund payments limiting the audit. The prepayment audit reports for these refunds
were also not provided for review when requested.
Management explained that the matter has been under the Anti-Corruption court, and
judgment was passed and the culprits were duly sentenced and 3.9 million recovered.
I urged the Accounting Officer to ensure full recovery and also establish strong controls to
guide tax refunds prepayment audits.
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172.2 Retentions for Supplementary Funds
Section 28 of the Public Finance Management Act, 2015 provides that the Minister shall
authorise withdrawals from the contingencies fund for supplementary expenditure.
According to communication referenced TPD 81/167/04 of 7th May, 2015, the Minister
authorised the authority to retain a total of UGX.25 billion in two instalments between May
and June, 2015. However, it was noted that these funds were charged to the revenue
collection account instead of the contingencies fund.
In another communication referenced TPD 81/167/04 of 10th June, 2015, the Minister
advised URA that the source of funding for the supplementary expenditure was the Tax
refunds account and not the revenue collection account as had been done. Accordingly,
Uganda Revenue Authority transferred a sum of UGX.25 billion from the tax refunds
account to the Uganda Consolidated Fund (UFC) to replace the earlier charge to the
revenue collections account.
In both cases, the act requiring supplementary funding to be charged to the contingencies
fund was violated. The authority to vary the law and finance the supplementary from the
Tax refunds was not provided for review. There is a risk that the planned tax refunds were
not achieved due to the diversion of funds to finance the supplementary expenditure;
otherwise the tax refunds budget was over provided to the extent of the supplementary.
Management explained that the funds spent from the Tax refund account was a
reallocation from tax refund account to expenditure accounts as authorised by the Minister
and PS&ST.
I advised the Accounting Officer to always comply with the law by liaising with Treasury to
ensure that supplementary expenditures are financed form the contingencies fund as
required.
172.3 Retentions for Normal Operations
During the year, the Authority retained a total of UGX.223,151,120,885 from the revenue
collection accounts for normal operations as indicated in note (2) on page (83) of the
financial statements. It was noted that the Authority’s releases have been based on
retentions from the revenue collection accounts instead of a direct charge on the
Consolidated Fund. The basis on which the retentions have been authorised was not
explained. There is a risk that the retentions were in violation of the above cited sections of
the law, hence non-compliance.
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Management explained that given the nature of the authority operations, the Minister
authorises monthly retentions to avoid the delays through the consolidated fund account.
I advised the Accounting Officer to comply with the law by liaising with Treasury to
harmonise the Act and the method of financing the authority.
172.4 Non-remittance of un-spent balances to the UCF
Section 17 of the Public Finance Management Act, 2015 provides that every appropriation
by Parliament shall expire and cease to have effect at the close of the financial year for
which it is made and that unspent money at the close of the financial year shall be
returned to the Consolidated Fund. According to note (11) (Bank and Cash balances) on
page (90) to the accounts, the URA expenditure account had un-spent balances of
UGX.4,784,227,114 at the year-end which was not returned to the Uganda Consolidated
Fund as required. The authority did not comply with the Act.
Management explained that the Authority had outstanding commitments to settle in
addition to EFT and cheque payments that had not cleared on the bank account as at 30th
June 2015.
Although the funds were eventually replaced and transferred I urge management to always
comply by making timely transfers to the Uganda Consolidated Fund immediately the
appropriation of the funds as voted expires.
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SECURITY SECTOR
173. UGANDA AIR CARGO CORPORATION – YEAR ENDED 30TH JUNE 2015
173.1 Un-paid Salaries - UGX.1,343,905,985
It was observed that Uganda Air Cargo has failed to pay salaries for staff amounting to
UGX.1,343,905,985 for a period of six months up to 30th June 2015. This amount is
significant and may affect the smooth running of the corporation and in future may attract
litigation costs. Failure to pay staff salaries demotivates employees and affects entity
performance. It is also an indicator of a company with going concern issues.
Management attributed the failure to pay salaries to the revocation of the Air Operation
Certificate (AOC) by CAA but promised to pay all salary arrears by the end of January 2016
since the Company has now secured the AOC and is operating normally.
I await the outcome of the Accounting Officer’s action.
173.2 Expired Lease in Entebbe
Uganda Air Cargo Corporation was allocated land at Entebbe (Plot 103A-107A and Plot 137)
by the Ministry of Defence in 2010 and the company embarked on the process of acquiring
the land title from Uganda Land Commission. On 23rd October 2014, Uganda Land
Commission awarded a lease of 5 years to Uganda Air Cargo Corporation commencing
September, 2010. One of the conditions in the lease agreement was either to develop the
said land before 31st August 2015 or else the land reverts to the ULC. However, no
developments have taken place on the land. There is a risk that ULC is at liberty to allocate
the land to another developer. It was also observed that this land was not included in the
financial statements because the land has not been valued.
Management explained that they were following up on the extension of the lease with
Uganda Land Commission.
I await the outcome of the follow up.
173.3 Grounded Aircraft – C 130-5x-UDF
It was observed that aircraft C130-5X-UDF has been grounded for over a year and is due
for a major modification to replace its center wing box. The amount involved as per the
estimates from the company approved by the manufacturer to carry out the maintenance,
repair and overhaul of such air crafts is USD.7,000,000. This amount cannot be raised by
the corporation in the short run but should be incurred if the air craft is to fly again. The
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company has continued to incur costs such as insurance, flight crews and technical
support.
Management explained that the delay to repair the aircraft was a result of expiry of the
term of the Board of Directors. A new Board of Directors have now been appointed and one
of the immediate matter to be discussed is the repair of the C130-5X-UDF Aircraft.
I await the Accounting Officer’s action.
173.4 Withdrawal of assets by the Ministry of Defence
It was observed that two air crafts (Y 12s) were withdrawn from the Corporation by the
Ministry of Defence to assist in the fight against terrorism. Uganda Air Cargo has continued
to incur costs worth US$.359,279 in respect of these air crafts in form of Air crews’ salaries,
insurance and maintenance costs without any corresponding revenue from the Ministry. I
noted that management of Air Cargo has prepared the handover report of the aircraft
together with the corresponding costs incurred on putting the infrastructure on the
withdrawn assets, however, the Ministry has neither signed the handover report as
evidence of acceptance of responsibility of the assets nor reimbursed the costs. I explained
to management the risks of sustaining the Corporation after the withdrawal of two aircrafts
from the fleet.
Management explained that they are waiting for response from the Ministry of Defence on
the matter.
I advised the Accounting Officer to follow up the matter to its logical conclusion.
173.5 Insurance Payable
Included in Trade payables in the financial statements as at 30th June 2015 is an amount of
USD 248,511.25 due to an insurance company for the services rendered to the corporation.
This amount includes USD.38,782.75 payable to cover insurance of the Y 12s which were
taken over by the Ministry of Defence. I was not given clear explanation as to why the
Corporation has continued to incur insurance costs on assets which are now in use by the
Ministry of Defence.
Management explained that the insurance cost of USD.38,782.75 for Aircrafts (Y12s) have
been included in the claim for the reimbursables from the Ministry but has not been
refunded. The Ministry has called for a meeting to discuss the claim with Uganda Air Cargo.
I await the Accounting Officer’s follow up of the matter.
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173.6 Debt collection charges
It was observed that Uganda Air Cargo Corporation spent a total of UGX.187,890,300 on
debt collectors during the year. I could not verify the corresponding revenue collected to
justify this payment. Spending this huge sums of money on debt collectors is a waste of
Corporation resources that could have been avoided if the policy on debt collection was
effective.
Management explained that the debt collector was authorized by the Board and has so far
delivered the certificate of payment from the Democratic Republic of Congo as evidence
that the outstanding amount of US$.1m will be paid. All expenses incurred by the
Corporation in collection of the debt will be recovered from the debt collector.
I await recovery of the debt from DRC.
173.7 Outstanding interest on Rent
Included in the Trade payables is USD.90,962 equivalent to UGX.245,596,520 payable to
Civil Aviation Authority in respect of interest charge which remained unpaid when the
Government of Uganda took up all obligations of the Corporation to pay CAA up to 30th
June 2006. While CAA passed on the principal amount to Government, the interest element
was not included. As a result the interest outstanding has continued to attract interest to a
tune of UGX.245,596,520. Management has contested the payment of this interest on
grounds that CAA should have passed the interest to Government at the time for payment.
In response the Accounting Officer explained that they have held meetings with CAA
management on this matter. It is on record that once CAA obtains approval from its Board
of Directors to waive the interest disputed, the Corporation will be notified.
I await the outcome of the decision.
NEC & SUBSIDIARIES
174. NEC HEADQUARTERS – YEAR ENDED 30TH JUNE 2015
174.1 Land in Namanve Business Industrial Park
Uganda Investment Authority allocated 10 acres of land to NEC in 2005. This land is
located in the Kampala Industrial Business Park (KIBP) Namanve. NEC was required to pay
US$.800,000 as premium in addition to UGX.2,000,000 to cover the cost of surveying the
land. NEC embarked on execution of preliminary works that included grading, leveling and
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construction of an access road. This was an urgent requirement after NEC had signed a
Memorandum of Understanding (MOU) between GoU and the Islamic Republic of Iran to
launch a tractor assembly plant.
UIA exempts organizations dealing in only Agriculture and ICT from payment of premiums
for any land allocated in the park. However, UIA categorized NEC as a manufacturing metal
and metal products and was required to pay lease premiums. Subsequently, NEC requested
for a waiver of the premium from UIA since its activities were of Agricultural nature, but
the waiver was not granted.
There is a risk that the land will be withdrawn for non-payment.
The Accounting Officer explained that they have requested again for a waiver from UIA
since this business has been classified under agricultural category since the tractors and
implements to be assembled specifically Tractor Assembling Plant. This will exempt NEC
from paying the USD.800,000 premium.
I advised the Accounting Officer to follow up on the matter so that a waiver is obtained or
source for funds to secure the land.
174.2 Expiry of the term of office for the Board of Directors (BoD)
Section 6 of the NEC Act provides for the appointment of Board of Directors as the policy
making organ of NEC. However, it was noted that the term of office for the BOD expired on
30th April 2015 and no new Board had been appointed. In the absence of a Board, strategic
and policy direction of the company is greatly affected.
The Accounting Officer explained that they have notified the matter to the Minister of
Defence who is the appointing authority regarding the expiry of the term of Board
members.
I await the outcome of the Accounting Officer’s action.
174.3 Long outstanding debtors
It was observed that debtors amounting to UGX.317,666,860 had been outstanding for a
period of over three years. It appears NEC has taken minimal effort to recover the
outstanding debt. Management risks losing out on the much needed cash-flows. The trend
of non-recovery since 2012 would imply that there is difficulty in recovering these amounts.
See the table below:
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Trade Debtors 2014/2015
(UGX)
2013/2014
(UGX)
2012/2013
(UGX)
NEC Tractor Hire Scheme 22,386,500 22,386,500 23,386,500
NEC Health-world
Pharmaceuticals
56,000,000 56,000,000 56,000,000
Stem Apparel 131,250,000 131,250,000 131,250,000
NEC Works 108,030,360 118,035,360 -
Total 317,666,860 327,666,860 209,636,500
In response, the Accounting Officer explained that the amounts due from NEC Tractor Hire
Scheme and NEC Works will be recovered when the revenue generation in these companies
improves. Recovery from NEC Health-World Pharmaceuticals Limited is doubtful because
the Joint Venture failed to take off. Management has instituted legal measures to recover
the amount due from Stem Apparel.
I advised the Accounting Officer to provide for the doubtful debts in the financial
statements. In the meantime recovery is awaited.
174.4 Investment in Subsidiaries
It was observed that since 1989 when NEC was established, the following investments
have been made:
Subsidiary Investment up to
2014 (UGX)
Investment during
the year (UGX)
Cumulative
Investment
(UGX)
NEC Works 4,504,557,083 927,500,000 5,432,157,083
NEC Farm Katonga 1,820,357,537 47,100,000 1,867,457,537
NEC Hire Scheme 2,682,301,572 361,500,000 3,043,801,572
NEC Tractor Project 586,513,872 33,500,000 620,013,872
NEC Luwero Industries 27,095,515,000 160,000,000 27,255,515,000
NEC Kamba Ltd 250,000,000 - 250,000,000
NEC Pharmaceuticals 2,460,326,736 - 2,460,326,736
Total 39,399,671,800 1,482,500,000 40,882,171,800
These investments were expected to generate profitable returns. However, it was noted
that the entity continued to make cumulative losses of which UGX.721,590,467 relates to
the year under review. Besides, assets of NEC Kamba Ltd were allocated to National
Council for Science and Technology. The equipment of NEC Pharmaceuticals Ltd was
installed in 1995 and since then the initial objective of production of drugs has never kicked
off.
In response, the Accounting Officer was optimistic that with increased capitalization, the
subsidiaries were to improve production of goods and services and generate more income
727
and remit some of the profits to the holding company. In addition, NEC was seeking
prospective partners to utilize the Assets of NEC Pharmaceuticals Ltd and was still awaiting
for the acknowledgement of the allocated assets of NEC Kamba to National Council for
Science and Technology to remove them from NEC books.
I await the outcome of the Accounting Officer’s action.
174.5 Overdue Creditors
Analysis of the trade creditors revealed that creditors totaling to UGX.44,961,595 have
remained outstanding for a period of more than 20 years, as per table below.
Trade creditors 2014/2015 2013/2014 2012/2013
Technology Consultants 1,750,000 1,750,000 1,750,000
Rosebell Kirungi 32,647,811 32,647,811 32,647,811
Computer Wise 670,000 670,000 670,000
Wamuco Motors 6,200,899 6,200,899 6,200,889
Airtel 3,086,784 3,086,784 3,086,784
N.I.C 607,000 607,000 607,000
Total 44,961,595 44,961,595 44,961,595
Management risks being taken to court over the matter resulting into avoidable litigation
costs.
The Accounting Officer promised to consult the Accountant General on the matter
specifically on treatment of such cases in the books of account.
I advised the Accounting Officer to devise means of paying them off or seek advice from
the Board to write off creditors which no longer exist.
175. NEC CONSTRUCTION, WORKS & ENGINEERING YEAR ENDED 30TH JUNE 2015
175.1 Outstanding Gratuity
I noted during the course of audit that NEC Works Ltd has not paid any gratuity to staff for
a long time and by close of 30thJune 2015, outstanding gratuity had accumulated to
UGX.233,890,066. I was not availed with management action on how these arrears will be
settled. Non-settlement of gratuity arrears may result into litigation by the beneficiaries.
The Accounting Officer explained that they are in the process of sourcing for funds and
once this is done, a reserve fund account will be opened to cater for future gratuities that
accrue.
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I await the outcome of the Accounting Officer’s action.
175.2 Performance of NEC works
A review of the budget of NEC Works revealed that management had planned to raise
revenue from both running and anticipated contracts to the tune of UGX.3,192,000,000.
Management had planned to strengthen the construction department through improved
capitalization by borrowing UGX.1,000,000,000 from commercial banks and also obtaining
subvention of UGX.500,000,000 from NEC Headquarter.
The following matters were however observed:-
i) I was not availed with the performance plan to enable me assess whether if the
entity achieved its intended plans.
ii) I could not assess how far management had reached in regard to capitalization of the
entity.
iii) Management indicated that it has 6 running contracts with Nsambya Hospital,
Makerere University Business School, Ministry of Defence, Post Bank (U) Ltd, Police
and Office of Prime Minister. I was not availed with the progress reports for the
running contracts to allow me establish whether there were delays or not.
iv) NEC Works signed an agreement with Office of the Prime Minister on 30th July 2014
for the construction of four new blocks of semi-detached staff houses with sanitary
facilities at a cost of UGX.1,073,719,920. The completion date was 12 months after
the date of signing i.e. 30th July 2015. At the time of audit in November 2015, the
project was incomplete yet the contracted period had expired.
In response, the Accounting Officer explained that the budgeted cash flows were not
achieved due to low capital levels to compete for construction works. Capitalization of
company is still lacking and the stakeholders have been notified. Management is also in
consultation with the legal department to consider all legal procedures to enable the entity
borrow.
I await the Accounting Officer’s action.
176. NEC FARM KATONGA-YEAR ENDED 30TH JUNE 2015
176.1 Land allocation to the Islamic Republic of Iran
On 24th September 2003, Government of Uganda entered into an MOU with Islamic
Republic of Iran where NEC Farm land measuring 17 square miles (4500 hectares) was
allocated to the Islamic Republic of Iran with the intention to improve and develop
agriculture in Uganda. The Islamic Republic of Iran went ahead and appointed Iran Agro
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industrial group to utilise the Katonga land. During the audit, the following issues were
observed:-
The lease granted to the Iranian Agro industries was agreed at 49 years with an initial
lease of 5 years, renewable on condition that the requirements in the feasibility report
submitted to Uganda Investment Authority were fulfilled. However, the five year initial
period elapsed in 2010 and the investor failed to fulfill the conditions set in the initial
lease.
I also noted under-utilisation of the land as only 3 acres of maize were planted out of
the 17 square miles land which is an indication that the investor has no capacity or
interest to undertake the intended project activities.
Further, it was observed that the Accounting Officer of NEC was unable to take actions
against the Iranian Agro Industry because this was a bilateral arrangement between two
countries which can only be dealt with at a diplomatic level.
The Accounting Officer stated that he has notified the company through Ministry of Foreign
Affairs of the intention to terminate the lease due to failure to fulfill the conditions set in
the initial lease. I await the outcome of management action.
176.2 Encroachment on farm land
I inspected the farm on 2nd July 2015, and observed that the farm land has been
encroached heavily by Herdsmen and other encroachers who have fenced off part of the
land. Management at the farm indicated that these Herdsmen transfer diseases to the farm
and there was also theft registered at the farm. One of the encroachers had fenced off land
measuring approximately 4 hectares and denied the farm cattle access to the water point.
If management does not take action, this farm is at risk of heavy encroachment.
In response, the Accounting Officer explained that a decision has been taken to open up all
boundaries and evict all encroachers within the farm boundaries and eventually fence off
the land. I await the outcome of management action.
176.3 Losses
I noted that although the entity losses have reduced from UGX.146,543,534 in the previous
year to UGX.63,817,756 during the year under review. the entity’s performance is however
still unhealthy.
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The Accounting Officer promised to embark on diversification by introducing dairy
cows that produce more milk for sale and enhance revenue performance.
I wait the outcome of the Accounting Officer’s action.
177. NEC-LUWERO INDUSTRIES – YEAR ENDED 30TH JUNE 2015
177.1 Outstanding debts
177.1.1 Trade debtors
A review of the trade debtors revealed that out of UGX.563,566,368 reflected in the
financial statement, debtors worth UGX.335,121,026 which is 59% of the total debtors
have been outstanding for a period of over three years. It appears minimal efforts have
been made by management to recover the money. The age analysis of these debtors is
indicated in the table below;
Trade debtors 2014/15 2013/14 2012/2013 2011/12
Amount (UGX)
Amount (UGX)
Amount (UGX)
Amount (UGX)
Allied Security System &
Investigation
6,303,700 6,303,700 6,303,700 6,303,700
Alarm Protection Services Ltd 1,750,240 1,749,900 1,749,900 1,750,240
Bruce Wright 5,018,957 5,018,957 5,018,957 5,018,957
Car trucks (U) Ltd 14,200,000 14,200,000 14,200,000 14,200,000
Cobra Security Services 3,016,000 3,016,000 3,016,000 3,016,000
Brigadier Mugenyi Gavas 1,076,000 1,076,000 1,076,000 1,076,000
Col Katerega 1,503,000 1,503,000 1,503,000 1,503,000
Brigadier Kawaga 4,460,000 4,460,000 4,460,000 4,460,000
Complete Security 15,205,500 15,205,500 15,205,500 15,205,500
Detail Protection Services 21,428,000 21,428,000 21,428,000 21,428,000
Director Special Branch 1,289,977 1,289,977 1,289,977 1,289,977
Global Ps Lotts Investment (U) Ltd
4,267,468 4,267,468 4,267,468 4,267,468
G.M Tumpeco 1,404,000 1,404,000 1,404,000 1,404,000
K9 Patrol Ltd 17,260,000 17,260,000 17,260,000 17,260,000
Lt Bwomegi 13,019,924 13,019,924 13,019,924 13,019,924
Luwero District Administration 2,525,321 2,525,321 2,525,321 2,525,321
Mubuya Pinalson 1,027,500 1,027,500 1,027,500 1,027,500
Marshal Security Group 2,096,000 2,096,000 2,096,000 2,096,000
Mukunzi Alex 1,126,045 1,126,045 1,126,045 1,126,045
National Focal Point 1,563,200 1,563,200 1,563,200 1,563,200
Rhino Guards 2,125,000 2,125,000 2,125,000 2,125,000
Silver Shadow 4,147,200 4,147,200 4,147,200 4,147,200
Special Revenue Services 4,836,268 4,836,268 4,836,268 4,836,268
SPLA 204,471,726 204,471,726 204,471,726 204,471,726
Total 335,121,026 335,120,686 335,120,686 335,121,026
I also noted that other debtors (prepayments) of UGX.731,887,667 have remained
outstanding for a long time. If these funds are not recovered, management risks having
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these as bad debts; thus affecting the entity projected cash flows and implementation
of government programmes.
In response, the Accounting Officer explained that majority of the debts amounting to
UGX.676, 865,787 represents Withholding Tax which was declared out of date and not
claimable from URA. This matter has been brought to the attention of the Board for write
off, and formed part of the bad debt provision in the accounts.
The Accounting Officer’s action on the matter is awaited.
177.2 Losses
The company has accumulated losses of UGX.23,885,019 over the past years of operation;
an indicator that the entity is not profitable and sustainability of business is questionable.
This is so despite the fact that Government has continued to capitalise the business to a
tune of UGX.30,517,642,452.
The Accounting Officer attributed the losses to break down of machinery and as such it
made it difficult for the business to be profitable. However, new equipment have been
installed and production will soon be at full capacity.
I await the outcome of management intervention.
177.3 Lack of Board of Directors (BoD)
I noted that the company was operating without a Board of Directors since November
2014. In the absence of the Board, the company may have challenges in terms of long
term strategic direction as well as corporate governance. This may negatively impact on
the performance of the company.
Management explained that this matter has been pointed out to the Ministry of Defence for
necessary action.
I advised the Accounting Officer to remind the Ministry of their obligation on the matter
and have the Board instituted.
177.4 Non-disclosure of Gratuity Payable
The terms and conditions of service of National Enterprise Corporation require a member of
staff to be entitled to gratuity at the end of employment. The company therefore made a
provision of UGX.1,020,000,000 being staff gratuity payable. I could not verify this amount
because the staff gratuity account was being updated.
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I advised the Accounting Officer to have this matter resolved to avoid litigation that could
arise.
178. NEC TRACTOR HIRE – YEAR ENDED 30TH JUNE 2015
178.1 Budget performance
In order to realise the objectives of the entity, management developed an annual work-
plan that detailed key activities for achievement of the objectives. A review of the annual
work plan of NEC Tractor Hire Scheme Ltd revealed that most of the planned activities
were not implemented as per the table below;
No PLANNED
OUTPUT ACTIVITY Total (UGX) Status
1 Revenue Hire out equipment to
farmers. Supply up to 30%
of the maize meal required by MOD.
New Capitalization
3,963,527,750
526,400,000
Not implemented
Partially
implemented
only received UGX.361,500,000
during the year.
2 Expenditure
Plough 96.000 acres annually
Ensure that all the 12
tractors are refurbished and that repair and services are
done on time.
Secondly reorganize the
tractors to ensure that we
concentrate on viable contracts like out growers
of sugar factories where gardens are better
prepared.
Carry out a massive
advertising campaign to
sensitize our clients about our products.
Continue to write proposals
to the government seeking
a grant to acquire bush
clearing equipment.
Continue to write proposals
to the government seeking a grant to acquire bush
clearing equipment.
Bush clear 100 acres,
transfer at least two
tractors to Mubende and prepare the ground for the
241,150,000 All the activities were not
implemented
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August 2014 season.
Recruit a farm manager to
be based at Mubende. Additionally liaise with CPW
to deploy experienced personnel as operational
workers.
Clear a road to the selected
location and contract NEC Works to construct the
structures.
Liaise with CPW to organise
the casualties who are
already growing maize and beans.
Process maize flour
Acquire shelling and milling machines to be located in
Mubende.
1,593,839,520 Not implemented
Failure to implement planned activities impacted negatively on the revenue performance of
the NEC Tractor Hire Scheme.
Management explained that the contract to supply 30% of maize meal was not awarded to
NEC by Ministry of Defence. A number of activities such as ploughing could not be
undertaken because funds expected were never released.
I advised the Accounting Officer to liaise with the Holding Company to seek ways of
funding these activities.
178.2 Doubtful project sustainability
Out of the thirteen (13) tractors owned by the Tractor hire scheme, only one tractor in
Amuru is in working condition. Two other tractors in Amuru require minor repairs. The
remaining ten (10) tractors are in the Tractor Project yard lined up for repair as listed in the
table below:
S/N Registration Description Location Condition
1 UAM-271Q 285-4WD Tractor Project Yard Broken down
2 UAM-287Q 285-2WD Amuru Require minor repair
3 UAM-239Q 399-4WD Tractor Project Yard Broken down
4 UAM-241Q 399-4WD Tractor Project Yard Broken down
5 UAM-518Q 285-2WD Tractor Project Yard Broken down
6 UAM-269Q 285-2WD Tractor Project Yard Broken down
7 UAM-346Q 399-4WD Tractor Project Yard Broken down
8 UAM-535Q 399-4WD Tractor Project Yard Broken down
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9 UAM-365Q 399-4WD Tractor Project Yard Broken down
10 UAM-291Q 399-4WD Amuru Require minor repairs
11 UAM-537Q 285-4WD Tractor Project Yard Broken down
12 UAM-208Q 240-2WD Tractor Project Yard Broken down
13 UAM-234Q 399-4WD Amuru In working condition
Because of the status of these tractors, works worth UGX.75,608,960 were certified
throughout the year of which works worth UGX.53,857,560 were from the Ministry of
Defence. It appears the going concern of the Tractor Hire Scheme is uncertain.
In response, the Accounting Officer explained that the Board of Directors resolved to sell
off six tractors and invest in upgrading the remaining seven which will be deployed to
generate revenue to the company.
I await the outcome of management action.
178.3 Non remittance of Statutory deductions
Management of NEC Tractor Hire Scheme did not remit UGX.78,515,833 and
UGX.40,886,357 in respect of NSSF and PAYE respectively to the responsible statutory
bodies contrary to the law. Details are in the table below.
Statutory Obligations 2014/2015
(UGX)
2013/2014
(UGX)
PAYE 40,886,357 27,657,510
NSSF 78,515,833 49,816,625
Total 119,402,190 77,474,135
Non-remittance of statutory deductions may attract fines and penalties from the statutory
bodies in question.
Management explained that the entity had signed agreements with the concerned statutory
bodies on how to clear the outstanding arrears.
I await the Accounting Officer’s action plan to settle the outstanding obligations.
178.4 Outstanding Creditors
The Tractor Hire Scheme had an opening balance of creditors of UGX.368,523,462 and a
closing balance of UGX.553,670,387 an indication of an increasing trend. Some creditors
have remained un-cleared for quite a long time. Details of the outstanding creditors which
have not been paid for the past three years are in the table below:
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Trade Creditors 2014/2015
(UGX)
2013/2014
(UGX)
2012/2013
(UGX)
NEC Tractor project 340,696,499 243,497,699 243,497,699
NEC Hqrs 24,886,500 24,886,500 24,886,500
Total 365,582,999 268,384,199 268,384,199
Failure to settle creditors for such long periods could lead to litigation costs for the entity
and impact on the going concern.
Management explained that the arrears will be cleared as soon as revenue improves.
I await the outcome of the Accounting Officer’s action.
178.5 Vacant Post of a General Manager
Section 13 of the NEC Act requires every subsidiary company of NEC to have a General
Manager who shall be responsible for management of the subsidiary. However, the
company has been operating without a General Manager for over two years. In the
absence of a General Manager, the company’s operational activities and strategic guidance
are adversely affected. Management explained that this matter was brought to the
attention of the Board.
I advised the Accounting Officer to remind the Board of its obligation in effecting the
appointment of the General Manager.
179. NEC TRACTOR PROJECT – YEAR ENDED 30TH JUNE 2015
179.1 Un-sold Tractors worth – UGX.1,450,803,400
The company imported twenty one (21) tractors at a cost of UGX.1,768,946,400 from Iran
in July 2013 for sale and also to be used as advertisement for the planned NEC tractor
assembling plant at Namanve Industrial Park. However, since 2013 only two tractors have
been sold on credit at UGX.279,044,000 with cash deposit of UGX.39,099,000. The
remaining nineteen (19) tractors worth UGX.1,450,803,400 have not been sold.
Management attributed the low sales to competition from private companies and failure by
government agencies to procure from this subsidiary. Besides, the tractor assembly plant
has never been established purportedly due to limited funds.
The purpose for which this project was established may not be achieved.
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I advised the Accounting Officer to devise strategies to ensure tractors are sold and also
pursue further the matter of having the tractors assembled locally.
179.2 Non remittance of statutory obligations of UGX.42,411,461
It was observed that a sum of UGX.25,193,678 and UGX.17,217,783 in respect of PAYE and
NSSF had not been remitted to URA and NSSF respectively despite withholding the funds
from staff salaries.
Non-remittance of statutory obligations attracts fines and penalties from the statutory
bodies including freezing of bank accounts.
Management explained that they anticipate to make an improvement in sales in the near
future and this will assist in clearing these obligations.
I await the outcome of the Accounting Officer’s action
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PUBLIC WORKS AND TRANSPORT SECTOR
180. CIVIL AVIATION AUTHORITY – YEAR ENDED 30TH JUNE 2014
180.1 Debtors position
Included in the Statement of Financial Position is an amount of UGX.94.4 bn reflected as
debtors, net of provision for bad debts (UGX.105 bn before provision for bad debts). The
delayed collection of debtors hold Civil Aviation Authority’s working capital. There is a risk
that some of the debtors may not be collected.
Management explained that it will engage the Ministry of Finance, Planning and Economic
Development after the verification of the amounts.
I await the outcome of management’s efforts.
180.1.1 Work In Progress at time of project completion not capitalized
It was noted that some projects completed over 4 years ago have remained disclosed
under Capital Work In Progress. For example LPA Consultancy of year 2002 (UGX
91,450,000 and UGX.28,197,369); Point of Sale Equipment by Bloom Electronics PVT Ltd of
year 2008 (UGX.76,914,360 and UGX.84,983,346); Professional Fees Kasese Project of year
2008 (UGX 210,000,000); Regravelling Jinja Airfield by Nicontra Limited of year 2009
(UGX.81,094,314); and Arua Terminal Building General Reconstruction and Maintenance of
year 2010 (UGX.218,626,809).
Capital work in progress is overstated and Property, Plant and Equipment are understated
by this treatment. Further, these are not charged depreciation, and as such depreciation
was understated.
Management promised to address the issue and have the Work-In-Progress capitalized in
2014/2015.
I advised that all work in progress should be capitalized at the time of project completion
or asset deployment.
180.2 Payables and Receivables
180.2.1 Long outstanding creditors
I noted that some creditors/payables on the CAA payables schedule as of 30 June 2014
were long outstanding, yet there is communication from creditors demanding for payment.
See table below for examples:
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A/C Code Supplier Bal. as at 30 June 2014 UGX Last transaction date on statement
4C-C053 Cementers Limited 626,825,324 14 February 2012
4C-E029 Eastern Builders & Engineers Ltd
137,152,539 06 April 2004
4C-N041 Nortrup Grumman 420,095,954 27 June 2011
4C-N059 Nicontra Limited 41,236,958 30 June 2011
4C-R007 Roko Technical Services 646,115,316 15 July 2012
1,871,426,091
There is a risk that these creditors could resort to courts of law.
Management explained that they will undertake a thorough review and reconciliation
exercise of Creditors accounts in 2015. I await the outcome of management efforts on the
matter.
180.3 Long outstanding CAA debtors
A verification of the Authority’s debtors was undertaken and it was noted that Civil Aviation
Authority had outstanding debtors amounting to UGX.105,116,790,491. The debtors were
verified to comprise of Government debtors (UGX.54,422,156,502), Non-Government
debtors (UGX. 48,477,132,246) and IATA debt (UGX.2,217,501,743). The findings are
summarized in Paragraphs 7.6.1 to 7.6.3 below:
180.3.1 Government debts
Government indebtedness to CAA verified as at 30th June 2014 was UGX.54,422,156,502.
The amount is shown in the table below:
AS AT 30/06/2014
CATEGORY
BALANCE AS AT
30/06/2014 $
EXCHANGE
RATE
$ BALANCE AS
AT 30/06/2014
IN UGX
UGX BALANCE AS
AT 30/06/2014
IN UGX
TOTAL UGX
30/06/2014
AVIATION 14,676,304.01 2,599.68 38,153,694,009 - 38,153,694,009
RENTAL 312,127.96 2,599.68 811,432,814 15,457,029,679 16,268,462,493
14,988,431.97 38,965,126,823 15,457,029,679 54,422,156,502
The above debt further increased to UGX.57,443,214,539 by 30th September 2014.
It was also noted that whereas some government entities signed contracts with CAA for the
services provided, the majority did not. CAA prepared contracts and requested these
entities to sign but they never responded. Only one Government Entity (National Drug
Authority) had a running signed contract that was provided by CAA management for
739
verification. The lack of contracts coupled with debts outstanding for a long time
increases the risk of non-collection.
180.3.2 Non-Government debts
The Non-Government Debt verified as at 30 June 2014 was UGX.48,477,132,246. The
amount is detailed in the table below:
CATEGORY
Total balance as at
30/06/2014 UGX
RENTAL NON GOVERNMENT 10,686,330,717
AVIATION NON GOVERNMENT 37,790,801,529
TOTAL NON GOVERNMENT 48,477,132,246
Analysis of the age of the debtors was undertaken and it was noted that there were a
number of non-government dormant debtors (over two years) as at 30 June 2014,
amounting to UGX.1,427,534,230 (Rental) and UGX.9,893,985,531 (Aviation). There is a
risk that these debts may not be collectible.
180.3.3 IATA (International Air Transport Association) Debts
The IATA debts relate to services provided to various air transport service providers that fly
over Ugandan Airspace and are collectable by IATA International on behalf of CAA. The
balance as at 30 June 2014 stood at UGX.2,217,501,743.
I advised that All CAA non-government debts that have been dormant for over two years
are subjected to debt collection as per guidelines contained in the CAA Credit Policy. All
possible legal effort should be put in place to collect these long outstanding debts. CAA
Management should follow up with the Ministry of Finance, Planning and Economic
Development for recovery of the Government Debt. Further, all Government entities should
sign contracts with CAA for rental and aviation services provided.
181. UGANDA RAILWAYS CORPORATION YEAR ENDED 31ST DECEMBER 2012
181.1 Non – compliance with the revaluation model under IAS 16 Property, Plant and
Equipment
It was observed that 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 does not differ materially from that which
would be determined using fair value at the statement of financial position date. Although
740
revaluation of some assets was carried out for the purposes of concession in April 2005,
the results cannot be relied upon for accounting purposes because of the valuation method
adopted.
Management indicated that the costs involved in carrying out revaluation had been
budgeted and the exercise will be conducted in the subsequent year. The procurement of
an independent valuer has also commenced. But by the time of writing this report, this
exercise had not commenced. Management did not therefore comply with the revaluation
requirements of IAS 16.
I advised 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 in accordance with the requirement of IAS 16.
181.2 Impairment of Investment in subsidiary
The Corporation holds the controlling (98%) stake in Nalukolongo Railway Workshop
Limited (NRWL). It was observed that the Corporation is still accounting for this investment
in its books at cost – UGX. 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.
Management explained that NRWL is under liquidation. They further indicated that the
investment will be written off after all the supporting documents have been obtained from
the Government liquidator.
I await the results of management efforts.
181.3 Accounting for Government grants
The Corporation management does not properly account for Government grants in the
accounts. As at 31 December 2012, the Government of Uganda‘s contribution to the
Corporation amounted to UGX.39.9 billion. These contributions comprise both non-
monetary/capitalization grants and revenue grants which were used for asset acquisition.
According to the requirements of IAS 20, 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. However, the treatment of the grants by Management was not
741
clear. Lack of clarity on the accounting treatment for the grant may lead to mis-
classification of the obligations and probable sanctions for failure to meet the grant terms.
Management explained that when URC was formed in 1977, the value of the assets
transferred from the defunct East African Railways and Harbours was treated in URC’s
books as Government Contribution. Between 1977 and 1990, Government, using funds
from the Ministry of Finance also acquired wagons, passenger coaches, wagon ferries and
constructed the Nalukolongo Workshop on behalf of URC. Whereas URC treated the value
of these assets as grants, the Ministry of Finance treats them as loans. Management is in
discussion with the Parastatal Monitoring Unit who advised that URC reconciles these
amounts with Ministry of Finance. Management will follow up after the review of historical
records is complete.
I await the results of management efforts.
181.4 Long term loans – no repayment and review of the payment terms for the loans
The Corporation recorded several long term loans in its books. This comprises of funds
borrowed or mobilized by the Government of Uganda from various multilateral and bilateral
funding agencies for onward lending to the Corporation.
However, there was no movement in these loans over the years. Management did not
provide any documentation for rescheduling the terms of payment. Failure to recognize and
classify such borrowings may lead to penalties and sanctions.
Management explained that they are holding discussions with Ministry of Finance (PMU) to
establish the status of these loans. An exercise to review historical records has been
instituted and a final position is expected by 30th November 2014.
I advised Management to follow up on the terms of these loans and make the necessary
adjustments if any in the financial statements.
181.5 Long outstanding trade and other payables
I reviewed the Corporation’s payables of UGX.28.2billion. Included in this figure is
accumulated interest on loans of UGX.9.5billion which did not show any movement over
the last two years. Management did not circularize these loans to establish the actual
status. Long outstanding payables may result into litigation risk and loss of funds by the
Corporation.
742
Management explained that the interest on loans of UGX.9.5billion is yet to be confirmed
by government.
I advised management to establish the terms of the loans and related interest with
Government. The other non-moving payables should be circularized so as to come up with
a well reconciled position.
181.6 Inadequate system for tracking concessions income
There was an inadequate system of control for concession income on which reliance could
be made for the purpose of the audit. Management relies on concession income
computations made by RVR as a basis to raise invoices. I was therefore unable to verify the
completeness of concession income as stated in the financial statement amounting to
UGX.4,451,405,955. There is a risk of under declaration of income by the Concessionaire
resulting into loss of revenue.
Management explained that given the concession terms, URC cannot predetermine the
income but rather relies on the information provided by RVR. They further explained that a
Concession Monitoring Unit has been setup to carry out periodic verifications of the
concession fees as declared by RVRU.
I advised Management to ensure that the URC officials liaise with the RVR management to
provide timely reports of income statistics for reconciliation with reports from the
concessionaires. Follow up of independent audit should be done as provided in the
concession agreement so as to gain assurance on completeness and accuracy of
concession revenue due to URC from RVR.
181.7 Corporation losses and liabilities
The financial statements indicate that the Corporation incurred a net loss of UGX.2.27billion
during the year ended 31/12/2012 and its liabilities exceeded its current assets by
UGX.141.73 billion. Continuous loss position poses a threat to the Corporation continued
existence and possibly bankruptcy.
I recommend that management reviews Corporation’s operational procedures so as to
revamp it to profit making position.
182. UGANDA RAILWAYS CORPORATION YEAR ENDED 31ST DECEMBER 2013
182.1 Non-valuation of Property, Plant and Equipment
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Under IAS 16 Items of Property, Plant and Equipment should initially be recognized at
Cost. However, for subsequent measurement the entity should choose either the Cost or
Revaluation model. The Corporation adopted revaluation model for its subsequent
measurements as its policy. Further, IAS 36 (Impairment of Assets) requires that assets
should not be carried at more than their recoverable amount.
It was noted that Uganda Railways Corporation reflected a balance of
UGX.111,663,550,000 in its financial statements for the year ended 31st December 2013 as
being Property, Plant and Equipment. However, I noted that the Corporation last revalued
its assets in 1988 despite indicative areas of impairment. The following examples are
indicative of impairments;
Passenger boats MV Barbas and MV Mvule valued at UGX.1,600,000,000 suspended
operations on lake Victoria and are anchored at Port Bell pier due to declining marine
passenger services. Whereas MV Mvule was conceded to RVR and returned, MV Barbus
and MV Pamba are still at Port Bell and Barbus is due to be Disposed through sale
while MV Pamba and MV Mwanga are awaiting repairs. MV Kaawa collided with MV
Kabalega and sunk. MV Barbus, MV Mwanga and MV Pamba are not generating any
economic benefits to URC.
The Corporation owns many rental properties in various towns in Uganda and Kenya
which are dilapidated. However, the Corporation earns rental income from them which
is far below market rates due to their state.
Management explained that impairment reviews will be done in the financial year 2015.
Revaluation of the assets by an independent valuer is expected to commence during the
year.
I await management action on the matter.
182.2 Un-serviced Long Term Loans
The Corporation recorded a number of long term loans in its books amounting to
UGX.22,067,482,000. This amount comprised of borrowed funds or funds mobilized by the
government of Uganda from various multilateral and bi-lateral funding agencies for onward
lending to the Corporation. However, these loans have not shown any movement from year
to year yet there is no documentation for rescheduling the terms of payment. The balances
have been outstanding in the Corporation’s books for over 28 years. In absence of
documentation to support the reflected outstanding amounts, I am unable to establish
whether the outstanding amounts are fairly stated.
744
Management explained that a follow up with the Parastatal Monitoring Unit (PMU) of
Ministry of Finance was done, and PMU recommended an exercise to establish the
breakdown of this amount. This has been done, and the report will be sent to MoFPED with
a request to treat these as grants, after appointment of the Board.
I await the results of management efforts.
182.3 Trade and other Payables
The Corporation had a balance of UGX.17,774,682,000 outstanding as trade and other
payables by the end of the year. It was observed that there was an increase of 23% in the
component of trade payables from UGX.924,362,000 in the previous year to
UGX.1,140,337,000 in the current year. Further, Note 24 did not disclose to whom the
balance of interest payable of UGX.9,511,880,000 that constituted part of the payables,
was due to. This balance has been outstanding for over five years i.e. since 2008 without
any movement. The balances of items in the payables accounts were not supported by
original documents (LPOs, Contracts, Inward Invoices, claims, demand notes, schedules
etc.) and there was no effort to carry out payables age analysis including lack of an invoice
register. It was also noted that the payables have been under-stated by UGX.864,284,608
after netting off of creditors with debit balances.
As such, I was not able to confirm that the Corporation’s payables were complete, accurate
and properly measured. The Corporation is at risk of litigation and eventual payment of
fines due to delays to settle these accounts.
Management explained that the anomalies will be sorted done during the Balance Sheet
Clean up exercise.
I advised Management to settle obligations as and when they fall due. I also advised that
adequate disclosure of note 24 should be made with schedules and the supporting source
documents to enable me confirm that the balances.
182.4 Insufficient disclosure of balance due to Related Party
IAS 24 Related Party Disclosure requires entities that have a relationship to disclose the
nature of transactions between themselves. It was noted that there was a transaction
between Uganda Railways Corporation (Parent entity) and Nalukolongo Railway Workshop
limited (Subsidiary) of UGX.2,306,482,000 which has not been substantially disclosed.
Under note 19, URC has not disclosed the nature of relationship, information about the
nature of transaction, the terms and conditions of transaction, nature of consideration and
provisions for doubtful debts related to outstanding balances. Merely stating that the
745
transactions with the related party were made on an arm’s length basis and the terms
and conditions were similar to those that would be offered to other entities was not
sufficient and should thus be substantiated. In the absence of detailed disclosure, I am
unable to establish that indeed these were related party transactions.
I advised Management to disclose all information as required by the accounting standards.
182.5 Improper recognition of investment in subsidiary
On 30 January 1998, the Corporation and Adtranz GmbH, a limited liability company
incorporated in Germany entered into a contractual agreement that established a company,
Adtranz Nalukolongo Limited, to jointly operate the Nalukolongo locomotive workshop.
With effect from 1 October 2001, Adtranz Nalukolongo Limited changed its name to
Bombardier Transportation Uganda Limited. This was a result of the sale of Adtranz GmbH
of Germany to Bombardier Transportation Inc. of Canada. A balance of UGX.1,787,408,000
disclosed as investment in subsidiary represents the Corporation’s contribution to the
registered capital of Bombardier Transportation Uganda Limited. This was a non-cash
contribution equivalent to US Dollars 600,000 and comprised spare parts and other
components which was valued at 40% of the shareholding in Bombardier Transportation
Uganda Limited. The joint venture expired and on 30 June 2004 it was mutually agreed by
both parties to terminate it.
On 23 June 2004, the Corporation bought off the 60% shareholding owned by Bombardier
transport (Management) Germany GMBH in Bombardier Transport (Uganda) Limited to
become the majority shareholder owning 98% while Ministry of Finance and Economic
Development and the Ministry of Works, Transport and Communications owned 1% each.
While the Corporation first acquired Nalukolongo under joint venture arrangement in 1998
at UGX.1.7 billion with 40% shareholding, it was noted that it is still accounting for this
investment in its books at cost – UGX.1.7 billion yet it now has 98% shareholding. I was
not able to establish the amount of consideration given in order to raise its shareholding
from 40% to 98%. The accounting treatment is contrary to the requirements of IFRS 10
which requires full consolidation.
Further, pursuant to the concession agreement between RVR and the Corporation, 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 now.
746
Management responded that NRWL is under liquidation and that the investment will be
written off after all the supporting documents have been obtained from the Government
liquidator.
I advised Management to review all documentation relating to the investment and have it
treated in line with the relevant IFRS.
182.6 Financial analysis and assessment of going concern
I carried out ratio analysis of Financial Information and the following were observed for the
attention of management with a view of ensuring entity survival:
Year 2013 2012 2011 2010 Implications and remarks
Current Ratio 0.9 times 0.8 times 0.8 times 0.6
times
Measures ability to meet short
term liabilities when they fall due.
Current assets were not adequate
to cover current liabilities in all the
years. The higher the ratio the
better and ideal is 2:1 This is not
healthy for URC.
Quick Ratio 0.9 times 0.8 times 0.8 times 0.6
times
Measures ability of current assets
minus stock/ Inventory to meet
short term obligations when they
fall due. Current assets were
insufficient to cover current
liabilities for the past four years.
The higher the ratio the better.
This again is not healthy for URC.
The ideal is 1:1
Average
collection
Period
1,029
Days
813 Days 3,943
Days
1,514
Days
This Ratio measures average
number of days required to
convert receivables into Cash. It
can be noted that it takes years to
collect cash and this is worsened
by lack of credit policies. Ideal
debtors policy should be not less
than 60 days.
Accounts
Receivable
Turn-Over
0.3 times 0.4 times 0.09
times
0.2
times
This Ratio indicates how many
times, on average, accounts
receivables are collected during
the year. It can be noted that the
Corporation converted accounts
receivables into cash only 0.3
times in 2013. Past years were not
good either.
Total Assets
Turn over
0.044
times
0.045
times
0.027
times
0.029
times
This Ratio assesses managements’
efficiency in managing all the
Corporation’s assets. The higher
the ratio, the smaller the
investment required and the more
the profitability of the Corporation.
It can be noted that the
Corporation’s total assets turnover
has worsened from last years but
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better than 2011 and 2010.
Debt Ratio 45.4% 48.7% 58.9% 48% This Ratio measures the
proportion of all assets financed
with debt. Use of debt involves
risk due to fixed interest charges
and principal repayments. Failure
to satisfy the fixed charges may
result into bankruptcy. Another
risk is that a firm with too much
debt has difficulty in raising
additional debt finance when
needed. It can be noted that the
Corporation is facing high risks
related to debt financing.
Debt to Equity
Ratio
1.49
times
1.70
times
2.65
times
1.78
times
This Ratio measures the riskiness
of the Corporation’s capital
structure in terms of creditors and
equity owners. The higher the
proportion the greater the degree
of risk. It can be noted that the
Corporation is facing a high risk
related to debt financing.
The ratios are an indication that Uganda Railways Corporation may not be able to
sustain provision of services and its mandate.
Management explained that the debts are historical arising out of un-reconciled pre-
concession freight debts and inter-railway accounts, these are planned be handled during
the Balance Sheet clean-up. Management further explained that policies will be formulated
and forwarded to the Board for approval with a view of improving the affairs of the entity.
I await the results of management action.
182.7 Revenue
182.7.1 Inadequate system for tracking concession income
The concession agreement for 25 years signed between GoU/URC and Rift Valley Railways
(RVR) in 2006 provided among the terms of the agreement a requirement by RVR to
declare the revenue/income earned every month to URC upon which income accruing to
the later/URC of 11.1% was to be paid to URC. Section K.1 (3) and K.2 of the agreement
empowers URC to perform independent audits of concessionaire to establish and confirm
Gross revenue earned by RVR from which the 11.1% concession fees are computed.
I noted that the concessionaire has been remitting funds and management has been
relying on concession income computations made by RVR as a basis to raise invoices.
748
There is a risk of under declaration of concession income by the Concessionaire thus
loss of revenue to the Corporation.
Management explained that the procurement of an independent audit firm is on-going. The
exercise is expected to commence by mid October 2015.
I advised Management to expedite the engagement of a competent firm to verify the
amounts disclosed by the concession.
182.7.2 VAT Dispute between URC and RVR
Uganda Revenue Authority carried out a tax audit in January 2008 and ascertained that
Uganda Railways Corporation had not collected VAT on concession fees for the period
November 2006 to January 2008. The amount then outstanding was computed as
UGX.570,283,160 which comprised of Principal tax-UGX.483,086,641 and interest of
UGX.87,196,519. URC made payments to URA from its own resources and by November
2013, it had paid UGX.2,115,465,715. VAT arrears had accumulated to UGX.3,202,015,672
comprising of Principal tax UGX.2,798,395,023 and interest of UGX.403,620,649 due to
further accumulated arrears. Further, while the Uganda Railways Corporation was engaging
RVR to recover the VAT from RVR, Uganda Revenue Authority went ahead to issue an
agency notice in July 2013 to URC bankers whereby credit balances standing on bank
accounts were garnished and URA recovered UGX.717,165,420.
There is a risk of the Corporation failing to sustain its operations given that already its
earnings are below projections in the concession agreement.
Management explained that the matter is before the commercial division of the High Court
for legal interpretation. However, Management will continue to hold consultations with
MoFPED, MoWT, Attorney General and PU on the matter.
I await the outcome of the Management efforts.
182.8 Strategic Issues and corporate governance
182.8.1 Inappropriate Legal Framework for post concession URC
Sections 2, 3 and 4 of the Uganda Railways Corporation Act 1992 outline the
establishment, objects and functions of the Corporation. The second schedule of the Public
Enterprise Reform and Divestiture Act recognizes a concession contract as a method of
privatization.
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After the signing of the Concession agreement in November 1, 2006 between the
Government of Uganda and M/s Rift Valley Railways Uganda Limited, some assets as well
as Railway Freight services formerly offered by Uganda Railways Corporation were
conceded to the Rift Valley Railways Uganda limited. Given the concession agreement and
the proposed construction of the Standard Gauge railway line, the new post concession
mandate and objectives of URC has changed yet there is no new legal framework to cater
for the changes. As such the mandate is not aligned with the annual work plans of the
Corporation.
Management explained that the Minister of Works and Transport has not appointed a Board
to undertake this responsibility. A task force of stakeholders comprising of officials from
MoWT, MoFPED, MoJCA and URC is being set up by MoWT to consider the issue of a new
legal framework.
I await the results of management efforts.
182.8.2 Budget performance
Section 3.1.7 (2) and (3) of the URC financial accounts manual 2007, entrusts the chief
executive officer with the responsibility to ensure achievement of targeted growth and
profitability, coordination and monitoring of the departmental targets and Head of
Department’s targets in line with the strategic plan and annual budgets. It was observed
that management did not perform as expected. Some targets were partially or not
achieved at all during the year and thus a number of Corporation objectives were not met.
Details are below;
Specific
objectives
Specific plans Amount (UGX) Remarks
1. Concessi
on monitoring
(i) Perform an independent revenue audit
of RVR to establish the correctness of
concession fee remittances to date.
528,000,000 Unimplemente
d
(ii) Procure a motor inspection trolley. 81,000,000 Unimplemented
2. Managem
ent of assets
(i) Complete the disposal process of the
remaining 2,620 tonnes (79%) of
railway steel scrap.
4,358,000,000
Unimplemented
(ii) Update the Corporation’s fixed asset
register to accurately reflect the
existence, condition and value of the
assets.
2,025,000,000
Unimplemented
(iii) Rehabilitate and upgrade the wagon
ferry MV Pamba and the motor service
launch MV Mwanga.
13,912,350,885
Unimplemented
750
(iv) Obtain marine class for the recently
rehabilitated and re-commissioned
floating dry dock and then insure it.
561,600,000
Unimplemented
, surveys
undertaken but
not insured
(v) Embark on the physical marking of the
railway reserve boundaries using
reinforced concrete pillars and mitigate
the increasing encroachment and illegal
allocation of railway land.
1,000,000,000
Unimplemented
Service delivery was hampered.
I advised Ma bnagement to ensure that realistic estimates are made and adequate
supervision of the projects is undertaken.
182.9 Lack of Board of Directors
URC lacks a Board of Directors in place since the previous one was dissolved. A board of
directors exists to conduct the strategic business affairs of the Corporation as required by
good corporate governance practices. However since dissolution of the interim board, the
Corporation has not had a substantive board to manage its governance and strategic affairs
since 13th December 2013. Lack of board of directors limits the Corporation from
benefiting from the governance role.
Management explained that since the Board term expired in December 2013, there has not
been a replacement. The responsibility of appointing a new Board lies with the Minister of
Works and Transport. Consultations have been made and a new Board is expected by end
of December 2014.
I advised management to follow up the matter and have the Board in place.
183. UGANDA RAILWAYS CORPORATION FOR THE YEAR ENDED 31ST
DECEMBER 2014
183.1 Non-valuation of Property, Plant and Equipment
Under IAS 16 Items of Property, Plant and Equipment should initially be recognized at Cost.
However, for subsequent measurement the entity should choose either the Cost or
Revaluation model. The Corporation adopted revaluation model for its subsequent
measurements as its policy. Further, IAS 36 (Impairment of Assets) requires that assets
should not be carried at more than their recoverable amount.
751
It was noted that Uganda Railways Corporation reflected a balance of UGX.
105,906,512,000 in its financial statements for the year ended 31st December 2014 as
being Property, Plant and Equipment. However, I noted that the Corporation last revalued
its assets in 1988 despite indicative areas of impairment. The following examples are
indicative of impairments;
Passenger boats MV Barbas and MV Mvule valued at UGX.1,600,000,000 suspended
operations on lake Victoria and are anchored at Port Bell pier due to declining marine
passenger services. Whereas MV Mvule was conceded to RVR and returned, MV Barbus
and MV Pamba are still at Port Bell and Barbus is due to be Disposed through sale
while MV Pamba and MV Mwanga are awaiting repairs. MV Kaawa collided with MV
Kabalega and sunk. MV Barbus, MV Mwanga and MV Pamba are not generating any
economic benefits to URC.
The Corporation owns many rental properties in various towns in Uganda and Kenya
which are dilapidated. However, the Corporation earns rental income from them which
is far below market rates due to their state.
Management explained that impairment reviews will be done in the financial year 2015.
Revaluation of the assets by an independent valuer is expected to commence during the
year.
I await the Accounting Officer’s action on the matter.
183.2 Un-serviced Long Term Loans
The Corporation recorded a number of long term loans in its books amounting to
UGX.22,067,482,000. This amount comprised of borrowed funds or funds mobilized by the
government of Uganda from various multilateral and bi-lateral funding agencies for onward
lending to the Corporation. However, these loans have not shown any movement from year
to year yet there is no documentation for rescheduling the terms of payment. The balances
have been outstanding in the Corporation’s books for over 28 years. In absence of
documentation to support the reflected outstanding amounts, I am unable to establish
whether the outstanding amounts are fairly stated.
Management explained that a follow up with the Parastatal Monitoring Unit (PMU) of
Ministry of Finance was done, and PMU recommended an exercise to establish the
breakdown of this amount. This has been done, and the report will be sent to MoFPED with
a request to treat these as grants, after appointment of the Board.
I await the results of the Accounting Officer’s efforts.
752
183.3 Trade and other Payables
The Corporation had a balance of UGX.16,213,289,000 outstanding as trade and other
payables by the end of the year. It was noted that though there was a decrease of 26% in
trade payables from the previous year, the outstanding amount of Shs.848,391,000 in the
current year was quiet significant. Further, Note 24 did not disclose to whom the balance of
interest payable of UGX.9,511,880,000 that constituted part of the payables, was due to.
This balance has been outstanding for over five years i.e. since 2008 without any
movement. The balances of items in the payables accounts were not supported by original
documents (LPOs, Contracts, Inward Invoices, claims, demand notes, schedules etc.) and
there was no effort to carry out payables age analysis including lack of an invoice register.
It was also noted that the payables have been under-stated by UGX. 955,401,493 after
netting off of creditors with debit balances.
As such, I was not able to confirm that the Corporation’s payables were complete, accurate
and properly measured. The Corporation is at risk of litigation and eventual payment of
fines due to delays to settle these accounts.
Management explained that the anomalies will be sorted done during the Balance Sheet
Clean up exercise.
I advised the Accounting Officer to settle obligations as and when they fall due. I also
advised that adequate disclosure of note 24 should be made with schedules and the
supporting source documents to enable me confirm that the balances.
183.4 Insufficient disclosure of balance due to Related Party
IAS 24 Related Party Disclosure requires entities that have a relationship to disclose the
nature of transactions between themselves. It was noted that there was a transaction
between Uganda Railways Corporation (Parent entity) and Nalukolongo Railway Workshop
limited (Subsidiary) of UGX.2,306,482,000 which has not been substantially disclosed.
Under note 19, URC has not disclosed the nature of relationship, information about the
nature of transaction, the terms and conditions of transaction, nature of consideration and
provisions for doubtful debts related to outstanding balances. Merely stating that the
transactions with the related party were made on an arm’s length basis and the terms and
conditions were similar to those that would be offered to other entities was not sufficient
and should thus be substantiated. In the absence of detailed disclosure, I am unable to
establish that indeed these were related party transactions.
753
I advised the Accounting Officer to disclose all information as required by the
accounting standards.
183.5 Improper recognition of investment in subsidiary
On 30 January 1998, the Corporation and Adtranz GmbH, a limited liability company
incorporated in Germany entered into a contractual agreement that established a company,
Adtranz Nalukolongo Limited, to jointly operate the Nalukolongo locomotive workshop.
With effect from 1 October 2001, Adtranz Nalukolongo Limited changed its name to
Bombardier Transportation Uganda Limited. This was a result of the sale of Adtranz GmbH
of Germany to Bombardier Transportation Inc. of Canada. A balance of UGX.1,787,408,000
disclosed as investment in subsidiary represents the Corporation’s contribution to the
registered capital of Bombardier Transportation Uganda Limited. This was a non-cash
contribution equivalent to US Dollars 600,000 and comprised spare parts and other
components which was valued at 40% of the shareholding in Bombardier Transportation
Uganda Limited. The joint venture expired and on 30 June 2004 it was mutually agreed by
both parties to terminate it.
On 23 June 2004, the Corporation bought off the 60% shareholding owned by Bombardier
transport (Management) Germany GMBH in Bombardier Transport (Uganda) Limited to
become the majority shareholder owning 98% while Ministry of Finance and Economic
Development and the Ministry of Works, Transport and Communications owned 1% each.
While the Corporation first acquired Nalukolongo under joint venture arrangement in 1998
at UGX.1.7 billion with 40% shareholding, it was noted that it is still accounting for this
investment in its books at cost – UGX.1.7 billion yet it now has 98% shareholding. I was
not able to establish the amount of consideration given in order to raise its shareholding
from 40% to 98%. The accounting treatment is contrary to the requirements of IFRS 10
which requires full consolidation.
Further, pursuant to the concession agreement between RVR and the Corporation, 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 now.
Management responded that NRWL is under liquidation and that the investment will be
written off after all the supporting documents have been obtained from the Government
liquidator.
754
I advised the Accounting Officer to review all documentation relating to the
investment and have it treated in line with the relevant IFRS.
183.6 Trade and other Receivables
183.6.1 Uncollected Trade receivables
There was no movement on the trade receivables account balance of UGX 2,936,156,000
for the last two year. This implies that the Corporation did not make any effort to recover
debts. Further, it was observed that there were no comprehensive debt management
policies to guide the staff while granting credit to clients. It was also noted from the review
of the ledgers that the total receivables were under stated by UGX.1,214,504,667 as a
result of netting off receivables with prepaid accounts.
The Corporation risks loss of income due to non-collection.
Management explained that the trade debtors relate to pre-concession debts arising from
freight services. Management plans to carry out a Balance Sheet clean up, for all debts and
payables. In the meantime Management has written to all tenants to resume rental
payments.
I advised the Accounting Officer to develop a comprehensive Debtors management policy
and carry out regular ageing analysis to enable management make informed decisions.
183.6.2 Inappropriate provision for bad debts
IAS 37 on Provisions, contingent liabilities and contingent assets requires that the provision
recognised by management should be the best estimate at the end of the reporting period.
Contrary to the standard, it was noted that management provided the same amount of
provision to its trade and rental debtors of UGX 1,084,826,000 for both the current and
previous years and yet there was an increase in the outstanding amount from UGX.
3,892,984,000 to UGX.3,939,495,000 from previous year to current year.
There is a risk that the amount provided is not fairly stated.
Management explained that the provision related to pre-concession debts arising from
freight services. A determination of how to treat these debts will be reached at after the
Balance Sheet clean up exercise.
I advised the Accounting Officer to make prudent provisions which are based on clear
documented guidelines that are in line with IAS 37 to ensure fair disclosures of receivables
in the financial statements.
755
183.7 Non-compliance with IFRS 5 on assets held for sale
I noted that the Corporation has quite a number of assets which they intend to sell or are
due for phased disposal. Among the items are houses and properties in various towns, MV
Barbus and an assortment of office items and equipment. However, contrary to the IFRS 5,
these assets have not been presented and disclosed separately in the financial statements.
Users of the financial statements cannot make informed decisions and projections about
the financial position, profits and cash flows of the Corporation.
Management responded that compliance with IFRS 5 will be implemented in the financial
year 2015.
Management was advised to adjust the financial statements and reflect the assets
separately on the face of the statement of financial position and the results of discontinued
operations to be presented separately in profit and loss as prescribed by the IFRS.
183.8 Accounting for Government grants
The Corporation Management did not properly account for Government grants in the
accounts. As at 31st December 2014, the Government of Uganda‘s contribution to the
Corporation amounted to UGX 39.9 billion. These contributions comprise both non-
monetary/capitalization grants and revenue grants which were used for asset acquisition.
The Government grant share was not accounted for in accordance with the requirement of
IAS 20, which provides 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 were no movements in these amounts to reflect amortization during the
year.
Management explained that a follow up with the Parastatal Monitoring Unit (PMU) of
Ministry of Finance was done. PMU recommended an exercise to establish the breakdown
of this amount, which has been done, and the report will be sent after appointment of the
Board.
I advised the Accounting Officer to follow up the matter with the Board and have the
disclosures done in line with IAS 20.
756
183.9 Capacity Building loan
A Capacity building loan of UGX.69,312,000 was acquired over eight years ago following a
need to increase the Corporation’s wagon fleet and meet customer needs. The loans
advanced were to be recoverable from freight bills within a period of three years. I noted
that this obligation has been outstanding for a long time and without repayments of both
the interest and principal amount. Further, the relevant loan agreements were not availed
for verification and the obligation has not been sufficiently disclosed in the financial
statements. Management risks litigation for failure to meet its obligations under the funding
agreement and is likely to suffer fines or penalties.
Management responded that this was a pre-concession balance. Reconciliation will to be
carried out during the Balance Sheet clean up exercise and the related adjustments made.
I await the results of the Accounting Officer’s action.
183.10 Net Inter-Railway accounts
UGX.116,004,000 has been outstanding in URC books for more than a year with no effort
to collect it from Kenya Railways as a result of inter railway transactions. While Uganda
Railways Corporation owed UGX.40,376,715,000 to Kenya Railways Corporation, the later
owed UGX.40,492,719,000 to the former.
This is due to failure by URC to follow up and demand payment from Kenya Railways
Corporation. It is likely that the debt may not exist or may not be accurately stated since
no effort was made to reconcile the amounts with the Kenya Railways. The receivables
could be misstated in the financial statements.
Management stated that they will undertake the reconciliation.
I advised the Accounting Officer to reconcile the balances with the counter parts in Kenya,
so that settlement of outstanding amounts effected.
183.11 Financial analysis and assessment of going concern
I carried out ratio analysis of Financial Information and the following were observed for the
attention of management with a view of ensuring entity survival;
YEAR 2014 2013 2012 2011 IMPLICATIONS AND REMARKS
Current Ratio
0.9 times
0.9 times
0.8 times
0.8 times
Measures ability to meet short term liabilities when they fall due. Current assets were not adequate to cover current liabilities in all the years. The higher the ratio the better and ideal is 2:1 This is not healthy for URC.
757
Quick Ratio 0.9
times 0.9 times
0.8 times
0.8 times
Measures ability of current assets minus stock/ Inventory to meet short term obligations when they fall due. Current assets were insufficient to cover current liabilities for the past four years. The higher the ratio the better. This again is not healthy for URC. The ideal is 1:1
Average collection Period
1,422 Days
1,029 Days
813 Days
3,943 Days
This Ratio measures average number of days required to convert receivables into cash. It can be noted that it takes years to collect cash and this is worsened by lack of credit policies. Ideal debtors policy should be not less than 60 days.
Accounts Receivable Turn-Over
0.2 times
0.3 times
0.4 times
0.09 times
This Ratio indicates how many times, on average, accounts receivables are collected during the year. It can be noted that the corporation converted accounts
receivables into cash only 0.2 times in 2014 and has been worsening since 2011.
Total Assets Turn over
0.033 times
0.044 times
0.045 times
0.027 times
This Ratio assesses managements’ efficiency in managing all the corporation’s assets. The higher the ratio, the smaller the investment required and the more the profitability of the corporation. It can be noted that the corporation’s total assets turnover has worsened since 2012 but better than 2011.
Debt Ratio 46.3% 45.4% 48.7% 58.9% This Ratio measures the proportion of all assets financed with debt. Use of debt involves risk due to fixed interest charges and principal repayments. Failure to satisfy the fixed charges may result into bankruptcy. Another risk is that a firm with too much debt has difficulty in raising additional debt finance when needed. It can be noted that the corporation is facing high risks related to debt financing.
Debt to Equity Ratio
1.44 times
1.49 times
1.70 times
2.65 times
This Ratio measures the riskiness of the corporation’s capital structure in terms of creditors and equity owners. The higher the proportion the greater the degree of risk. It can be noted that the corporation is facing a high risk related to debt financing.
The ratios are an indication that Uganda Railways Corporation may not be able to
sustain provision of services and its mandate.
Management explained that the debts are historical arising out of un-reconciled pre-
concession freight debts and inter-railway accounts, these are planned to be handled
during the Balance Sheet clean-up. Management further explained that policies will be
formulated and forwarded to the Board for approval with a view of improving the affairs of
the entity.
I await the results of the Accounting Officer’s action.
758
183.12 Un-updated Fixed Assets Register
A review of property, plant and equipment and other assets revealed that the fixed assets
register was not up dated as required by the corporation’s financial regulations and best
practice. Some of the anomalies noted are as below;
Land and buildings sold are still on the register
MV Kawa was rehabilitated but the capitalisation was not recognised in the register
Rehabilitation of the floating dock not capitalised
380 railway wagons rehabilitated under the KFW project grant not capitalised
Culverts along Busembatya –Jinja road not captured
Kampala – Kasese line was uprooted but still in the register
Kampala-Malaba line had some lines uprooted but all are still in the register
Some wagons have been cut and used to repair others but they are still on the register
Absence of an updated fixed assets register weakens controls over fixed assets and the
periodic reconciliation between the general ledger and the physical assets cannot be
undertaken. In addition depreciation computation cannot be promptly and correctly
ascertained as it is based on global figures rather than individual assets.
Management explained that uupdating the fixed assets register is one of the deliverables in
the revaluation exercise to commence by mid October 2015. They further explained that
after the revaluation exercise, Management will set up an asset management system.
I advised the Accounting Officer to set up a comprehensive updated fixed assets register
for the Corporation with the details required by the Financial and Accounting Manual for
better management of its fixed assets.
183.13 Revenue
183.13.1 Inadequate system for tracking concession income
The concession agreement for 25 years signed between GoU/URC and Rift Valley Railways
(RVR) in 2006 provided among the terms of the agreement a requirement by RVR to
declare the revenue/income earned every month to URC upon which income accruing to
the later/URC of 11.1% was to be paid to URC. Section K.1 (3) and K.2 of the agreement
empowers URC to perform independent audits of concessionaire to establish and confirm
Gross revenue earned by RVR from which the 11.1% concession fees are computed.
I noted that the concessionaire has been remitting funds and management has been
relying on concession income computations made by RVR as a basis to raise invoices.
759
There is a risk of under declaration of concession income by the Concessionaire thus
loss of revenue to the Corporation.
Management explained that the procurement of an independent audit firm is on-going. The
exercise is expected to commence by mid October 2015.
I advised the Accounting Officer to expedite the engagement of a competent firm to verify
the amounts disclosed by the concession.
183.13.2 VAT Dispute between URC and RVR
Uganda Revenue Authority carried out a tax audit in January 2008 and discovered that
Uganda Railways Corporation had not collected VAT on concession fees for the period
November 2006 to January 2008. As noted in my previous years report, Uganda Railways
Corporation has continued to pay VAT on the concession earnings thus eroding its
anticipated earnings.
Uganda Railways Corporation is likely to experience a strain on its cash flows, which cannot
be sustained given the fact that its earnings are below projections in the concession
agreement.
Management explained that the matter is before the commercial division of the High Court,
for legal interpretation. However, Management will continue to hold consultations with
MoFPED, MoWT, Attorney General and PU on the matter.
I await the outcome of the Accounting Officer’s efforts.
183.13.3 Under remittance of Funds from Ministry of Works to the Corporation
The Ministry of Works and Transport in the financial year 2012/2013 budgeted UGX
1,000,000,000 for Uganda Railway Corporation (URC) under the project code- 002
Institutional support to URC, marking railway reserve boundaries with reinforced concrete
pillars (phase 1) and rehabilitation and upgrade of Wagon ferry Pamba. However, it was
observed that Ministry of Finance, Planning and Economic Development released all the
funds to Ministry of Works to undertake the above activities but only UGX. 909,893,145
was remitted to URC leaving a balance of UGX. 90,106,855. Under remittance of funds to
the Corporation affects performance and service delivery to the public.
Management indicated that they will follow up with the Ministry of Works on the matter.
760
I await the results of the Accounting Officer’s efforts.
183.13.4 Use of non-approved rates for collection of Port Fees
Best practice requires that for revenue to be properly assessed, collected and accounted for
the entity should formulate guidelines relating to the types and rates to be collected. Port
fees are mainly collected from operations in Jinja and Port bell ship terminals where dock
hire charges, docking fees and gate collections are charged on a daily basis.
The Corporation experienced a decline in earnings from the port facilities during the year
2014 compared to the financial year 2013. Collections reduced from UGX 331,345,000 to
UGX 192,733,000 (42% reduction) which was UGX. 138,612,000. It was further noted that
no official port tariff is in place and the rates used were determined by the marine officer
who is in charge of the two port facilities. There is a risk that fees collected are under-
declared.
Management explained that the decline in earnings was due to the withdrawal of a major
customer, M/S Barkhresa, from the southern route as a result of Government imposing
import duty on his products. Management further explained that the rates being used were
adopted from the RVRU tariff book, and that new tariffs have been determined after survey
of similar ports around Lake Victoria and will be put in place after approval of the Board
and the Minister of Works and Transport.
I await the results of the Accounting Officer’s action.
183.14 Strategic Issues and corporate governance
183.14.1 Inappropriate Legal Framework for post concession URC
Sections 2, 3 and 4 of the Uganda Railways Corporation Act 1992 outline the
establishment, objects and functions of the Corporation. The second schedule of the Public
Enterprise Reform and Divestiture Act recognizes a concession contract as a method of
privatization.
After the signing of the Concession agreement in November 1, 2006 between the
Government of Uganda and M/s Rift Valley Railways Uganda Limited, some assets as well
as Railway Freight services formerly offered by Uganda Railways Corporation were
conceded to the Rift Valley Railways Uganda limited. Given the concession agreement and
the proposed construction of the Standard Gauge railway line, the new post concession
mandate and objectives of URC has changed yet there is no new legal framework to cater
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for the changes. As such the mandate is not aligned with the annual work plans of the
Corporation.
Management explained that the Minister of Works and Transport has not appointed a Board
to undertake this responsibility. A task force of stakeholders comprising of officials from
MoWT, MoFPED, MoJCA and URC is being set up by MoWT to consider the issue of a new
legal framework.
I await the results of the Accounting Officer’s efforts.
183.15 Lack of Strategic plan
It was observed that URC does not have a strategic plan in place although annual work
plans and budgets were prepared annually. In the absence of the strategic development
plans, URC’s performance may not be given due attention because annual work plans and
budgets only focus on short term objectives which do not specifically address the long term
challenges and ambitions.
Management explained that they are in the process of preparing a 5-year Strategic Plan
(2016 to 2020).
I advised the Accounting Officer to expedite the formulation and approval of its strategic
development plan to enable it prepare focused operational annual plans and budgets for
the implementation of its activities.
183.16 Human Resource
183.16.1 Failure to Substantively appoint key staff
Section 21, 22 and 23 of the URC Act 1992 requires the Corporation to have a managing
director appointed by the Minister on the recommendation of the board who shall hold
office for a period of four years. The same sections further provide for appointment of
other staff.
It was noted that the Board failed to execute its mandate of appointing a substantive
Managing Director and the Chief Finance Officer for the last six years. Instead the two key
officers serve on acting appointment contrary to paragraph 12.1.1.2 (b) of the Human
Resource Manual that requires such appointments not to exceed a consecutive period of six
(6) months from the date of appointment to such a position. Since 2006 the Corporation
has had two Managing Directors and the Chief Finance Officer in acting assignments for
more than five years.
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Management responded that the Minister of Works and Transport is yet to appoint the
Board whose responsibility will be to appoint staff.
I advised that the Minister expeditiously appoint a new Board to undertake its mandate.
183.17 Performance of RVRU Concession
Review of the RVRU concession agreement 2006 by the URC Chief Concession Officer
revealed some shortcomings in regard to compliance with set timelines, targets and
deliverables as outlined below;
S/N Complianc
e area
Key areas Expectation Shortcoming
1 Business
environment
Investment Injection of USD
6.7 mn in the conceded assets
account by 23rd
October 2012
RVRU did not meet this obligation in
time.
Reporting –
Annual/quarterly and
financial
reporting
Quarterly and
annual reports produced within 21
days after the end
of each quarter and by 31st October of
every year respectively.
Both quarterly and annual reports are
not submitted in time as per the contract. For example, Quarterly
company performance reports for
Quarter 2 and 3 for 2012/13 were submitted alongside the annual report
dated 18th January 2014.
2 Concessio
n fees
Revenue
sharing ratio
Sharing in the ratio
of 60:40 between Kenya and Uganda
Starting with August to October 2013
quarter, RVRU changed the ratio to 80:20 for Kenya and Uganda
respectively to be based on distance alone. This presents a significant drop
in URC revenue to a tune of 50%, this
poses as grave concern.
VAT on
concession
fees and WHT
certificates
Concession fees
payable VAT
exclusive and WHT deductions by RVR
to be accounted for with tax credit
certificates
(i) Payments are made VAT exclusive.
Due to this, Uganda Revenue Authority
placed agency notices on to URC accounts and URC was forced to bear
this VAT. The accumulated VAT payable is
$2.364mn as at end of July 2014 (ii) RVRU deducted Withholding tax on
concession fees to a tune of US$
275,000 and respective Withholding tax certificates are yet to be presented
to URC.
3 Freight services
Freight volumes
Anticipated 2014 volumes targets of
24 million Net-tonne-Kilometer per
month target spelt
out in the concession
agreement
(i) 12 million net tonne kms on average which is still way below
target. (ii) With delayed investments, this
means that concession’s performance
has not achieved the desired objectives of upgrading and
rehabilitating the main railway line and
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growing the freight volume by 75% by fifth year so RVRU has not achieved
the stipulated target of 25% freight volume increase by the end of June
2014
4 Maintenance of
Conceded assets
Infrastructure
(i) RVRU is obliged to rehabilitate and
maintain the Railway track in
accordance with
Good Industry Practice. The active
railway track measures 634 km
(ii) RVRU to uphold
busoga loop and Packwach line to
concession class I
track standard.
(iii) Mbale –Gulu reopened in august
2013 (pursuant to
the concession amending deeds of
August 2010 after being rehabilitated)
(i) The track has not been maintained as per the stipulated standards and
RVRU does not have an adequate track maintenance regime in place and in
addition, basic track maintenance tools
are lacking. This is resulting in a deteriorating railway track
(ii) RVRU has not upheld the Busoga Loop (Jinja - Kakira section) and the
Pakwach Line (Tororo - Mbale
section)1 to Concession Class 1 Track Standard. In fact, 80% of the railway
track steel of 15km of the Busoga Loop (Jinja - Kakira section) has been
vandalized. RVR must bear full responsibility for this loss
(iii) The Mbale - Gulu section of the
Pakwach line was re-opened by RVRU in September 2013 (one month late).
However, no revenue train has plied the route ever since it’s opening.
Therefore, it is
unlikely that this concessionaire obligation will be fulfilled.
Locomotives Forty Three (43)
Locomotives maintained
(i) out of the conceded Forty Three
(43) Locomotives, 11 were working, 2 were in Nalukolongo Work Shop for
routine service and several repairs and 4 were in Work Shops for heavy
Engine and other repairs. The
remaining 26 are located at Nalukolongo Workshop, were stopped
for heavy repairs rehabilitation and survey. Three (No 73U18, 73U29 and
73U07) have sustained grave accident
damages since concession commencement.
(ii) Inspection indicated that all active Locomotives are long overdue the OEM
recommended overhauls and because of lack of the requisite repair spare
parts, stopped Locomotives in
Nalukolongo Work Shop have been heavily cannibalized by RVRU so as to
be able to maintain the active locomotive Fleet.
Workshop,
plant and equipment
Workshop equipment in Tororo,
Kampala, Nalukolongo and Port Bell are not operational and has not been
used by RVR since concession commencement. Also the equipment in
Tororo had been cannibalized while
others had been vandalized
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5 Non Conceded
assets under
RVRU
Rolling stock spares
Spares worth US $ 673,660.97 and
UGX.2,742,852,761
On 1st November 2006, RVRU took over URC Rolling stock spares. These
were not part of the conceded assets except those at Nalukolongo workshop
meant for conclusion of the overhaul
and maintenance of the 62 class Kenyan locomotives. This implies that
RVRU is obliged to pay for all the spares handed over.
Motor
vehicles hire charges
Handover of all
vehicles not selected for
concession after three months of
concession
commencement.
(ii) At the commencement of the
concession, URC motor vehicles were shared as part of items to be
considered in the concession but RVRU never selected these assets and are
not considered in the Concession
Assets Account computations but these vehicles have been and some are still
being used by RVRU for operations. (ii) URC requests that hire charges be
levied on the vehicles under RVR from the commencement of the concession.
6 Encroach
ment
RVRU is obliged to
take the measures available to avoid
further
encroachment on 10.52 meters on
the immediate railway land
reserve
RVRU has not prevented further
encroachment onto the conceded railway reserves. Substantial
encroachment has occurred during the
concession. Of the existing encroachment, an estimated (at least)
64% (October 2010) has occurred during the concession. This assertion is
based on encroachment estimate in a joint URC-RVRU encroachment
baseline survey carried out in October
2010.
The performance of RVR up to 2010 was low and marginally satisfactory after change of
shareholding thereafter. They had prior to 2010 defaulted on most of the key
concessionaire obligations including payment of concession fees, maintenance of conceded
assets and growing the rail freight volumes though performance review in 2014 portrayed
an improvement of only 52% to Gross tones carried.
A Joint Railway Commission recommended an extension of up to 15 months to RVR to be
able to overcome the poor performance and be able to meet its targets. It also
recommended that RVR and Government of Uganda should agree on introduction of a
commuter train service in Kampala by December 2014. However, this seems not to be
plausible under the prevailing conditions.
Management explained that URC is monitoring the concession with RVRU in accordance
with the concession agreements.
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I advised the Accounting Officer to continue engaging RVRU with a view of meeting
the Freight Volume Targets which are largely dependent on critical investment in order to
improve the track standards and reduce the areas under Temporary Speed Restrictions and
increase capacity through rehabilitation and overhaul of the existing locomotives as well as
the proposed purchase and lease of new locomotives.
183.18 Encroachment on Uganda Railways Corporation Land
I reviewed the estates portfolio of URC and noted that a number of properties are spread
all over the country. It was however observed that some individuals have encroached on
the URC properties and have unlawfully gone ahead to put up developments without
authority. URC is at risk of losing the properties if no action is taken against the
encroachers.
Management explained that they have taken various measures such as litigation, eviction
and also communicated to the Commissioner, Land Registration for cancellation of illegal
titles in order to protect the Corporation’s land.
I advised the Accounting Officer to immediately take more steps to evict the encroachers
and repossess the land.
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JUSTICE, LAW AND ORDER SECTOR (JLOS) 184. AMNESTY COMMISSION – YEAR ENDED 30TH JUNE 2015
184.1 Payables UGX.207,007,620
A review of the financial statements revealed outstanding payables of UGX.207,007,620 of
which UGX.183,561,950 relate to rent and UGX.23,445,670 relate to outstanding balance
on a motor vehicle purchased. Accumulation of the arrears implies that management did
not comply with the commitment control system as guided by the Accountant General.
Management responded that payables were as a result of the budget shortfall. They further
explained that UGX.23,445,670 arrears on a motor vehicle procured, was as a result of the
sharp rise in the dollar exchange rate that translated into an increase in the cost price of
the motor vehicle.
I advised the Accounting Officer to liaise with the Ministry of Finance Planning and
Economic Development and ensure that the rental and motor vehicle arrears are cleared to
avoid risk of litigation and the likely consequences of eviction.
184.2 Unfilled positions
According to the Amnesty Act 2002, the Commission should have six commissioners
chaired by a Judge while running the Commission business. A review of the Commission
structure and staffing establishment revealed that there were two Commissioners who left
the Commission sometime back but their positions have never been filled. The structure of
the Commission has remained inadequate to accomplish its mandate, which may explain
the underperformance of the Commission during the year under review. This matter was
raised in my previous years’ reports to Parliament, however, no action has been taken to-
date.
The Accounting Officer explained that they are following up the matter with the appointing
authority.
I advised the Accounting Officer to keep liaising with the relevant authorities and have the
vacant posts filled as per the Act.
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185. LAW DEVELOPMENT CENTRE – YEAR ENDED 30TH JUNE 2015
185.1 Land and Buildings
185.1.1 Valuation of Land and Buildings
As at 30th June 2015, the Centre’s Land and buildings were stated at UGX.19,900,000,000
and UGX.8,283,697,095 in the financial statements respectively. The Centre follows the
revaluation model when measuring the value of land and buildings. This model requires
assets to be revalued with sufficient regularity. In the period 2012/2013, the Centre only
revalued part of its land. As stated in my previous report, the value of buildings and part of
the land may be misstated because of failure to ascertain the correct current values.
Management explained that they are now procuring a private surveyor as advised by the
Commissioner land registration to survey and value all its assets.
I await the results of the Accounting Officer’s efforts.
185.1.2 Un-titled plots
As noted in my previous reports, seven (7) plots (34, 508, 509, 510, 613, 614, 615) on
Block 9 Makerere, Kampala were acquired by the Centre under the land acquisition
instrument S.1 No. 74 of 1987-Kibuga block. However, it was noted that these plots do not
have titles to evidence ownership. The plots were also not recorded in the assets register.
There is a risk of loss of land since it is not appropriately recorded and titled.
Management regretted the delay in securing the titles, and indicated that they are following
up the matter.
I advised the Accounting Officer to closely follow up on the title processing and obtain titles
for the said plots. The land should be disclosed in the Fixed Assets Register (FAR) as
required by TAIs.
185.1.3 Un-valued plots of land
I noted that six (6) plots of land disclosed in the fixed asset register did not have land titles
and were not in the valuation report. The plots were allocated the following asset codes in
the assets register; 167945, 157710, 933(2), 74, 933 and 334593 (1). The Centre’s land is
at risk of loss and the value of land in the financial statements as such is understated.
768
Management explained that they are now procuring a private surveyor as advised by
the Commissioner land registration to survey and value its assets.
I await the results of the Accounting Officer’s efforts.
185.1.4 Encroached on Land
(a) Plots 245,221,464
As raised in my previous report, the Law Development 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
were valued at UGX.300,000,000 as follows; plot 221 (UGX.80m), Plot 245 (UGX.70m), Plot
464 (UGX.150m) as per valuer’s report of 2008. However, it was observed that the plots
are occupied by occupants who have put up permanent structures thus encumbering any
developments the Centre may wish to make.
Furthermore, the value of these plots has not been included in the value of the Centre’s
land thus understating it by 300m. The land has also not been revalued since 2008
rendering the value attached to the plots not fairly stated.
Management responded that the legal process of securing the plots is ongoing in the
Courts of law. I await the results of the court process.
(b) Plots 481 and 482
The Law Development 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. The two strategically located plots are also being claimed by an individual Mailo
land owner. The plots have not been valued but have been included in the asset register
for the Centre. This matter has been outstanding for the last three years.
Management explained that the LDC issued instructions to its advocate to handle the
matter so that LDC can secure the plots. I await the results of the Accounting Officer’s
efforts.
(c) Plots 1 and 69 Bukoto Estate, Kampala
The Centre is also 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.
769
Part of this land is occupied by persons that claim to have bought the land from the
caretaker and about 0.60 acres is occupied by the Northern by pass. I could not ascertain
whether the Centre was compensated by the Uganda National Roads Authority at the time
the Northern by pass was being constructed and if it was compensated how the funds were
eventually accounted for.
Management explained that they have instructed their lawyer to handle the matter. I await
the results of the Accounting Officer’s efforts.
185.2 Delayed Completion of Auditorium
The Center contracted a local company to construct the LDC Auditorium at a contract sum
of UGX.3,971,880,902. The original completion period date for the construction works was
June 2013. It was observed that in the process of executing the contract, the contractor
incurred additional construction costs that were outside the contract worth
UGX.953,251,416 which constituted 24% of the contract price. The contract manager
however, approved only UGX.588,596,596 as additional costs. It was also noted that the
LDC Contracts Committee did not approve the contract variations, and as a result
construction work stalled for a period of two years.
A technical review by the Engineers from the Ministry of Works and Transport, advised the
Centre to terminate the contract and the un completed works be completed with a new
contract. A new contract of UGX.1,620,910,733 was drawn and has now been signed with
the same company to complete the works bringing the total construction cost to
UGX.5,592,791,635.
The LDC Contracts Committee refusal to approve the contract variations as approved by
the project supervisor and delays by the technical committee to advise on time caused
Government a financial loss of UGX.1,032,314,137. I find this expenditure wasteful.
The Accounting Officer explained that a new contract has been signed, and works are
expected to be completed in February 2016.
I advised the Accounting Officer to follow up and ensure completion of the auditorium
within the agreed time.
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APPENDICES APPENDIX 1: TWO-YEAR ANALYSIS OF AUDIT OPINIONS
S/N ENTITY TYPE OF OPINION
2014/15 (Current) 2013/14 (previous)
1. Uganda Medical and Dental Practitioners Council Unqualified Unqualified
2. National Medical Stores Unqualified Unqualified
3. Uganda Nurses and Midwives Council Unqualified Unqualified
4. Joint Clinical Research Centre Unqualified Unqualified
5. Electricity Regulatory Authority Unqualified Unqualified
6. Kilembe Mines Unqualified Qualified
7. Uganda Electricity Transmission Company Limited Unqualified Qualified
8. Public Procurement and Disposal of Assets Unqualified Unqualified
9. Uganda Revenue Authority Unqualified Unqualified
10. Financial Intelligence Authority Unqualified NA
11. PU – Operations Unqualified Unqualified
12. PU – Divestiture Unqualified Unqualified
13. National Planning Authority Unqualified Unqualified
14. Uganda Industrial Research Institute Unqualified Unqualified
15. Uganda National Bureau of Standards Unqualified Qualified
16. Uganda Export Promotion Board Unqualified Unqualified
17. Uganda Investment Authority Unqualified Unqualified
18. Insurance Regulatory Authority Unqualified Qualified
19. National Agricultural Research Organization (NARO) Unqualified Unqualified
20. Diary Development Authority (DDA) Unqualified Qualified
21. National Enterprise Corporation Headquarters Unqualified Unqualified
22. National Enterprise Corporation Luwero Industries Unqualified Unqualified
23. Uganda Air Cargo Corporation Unqualified Qualified
24. Credit Reference Bureau Unqualified Unqualified
25. National Council for Children Unqualified Unqualified
26. National Council For Disability Unqualified Unqualified
27. National Women’s Council Unqualified Unqualified
28. Uganda National Cultural Centre. Unqualified Unqualified
29. National Environment Management Authority. Unqualified Qualified
30. Uganda Wildlife Training Institute Unqualified Unqualified
31. The Hotel and Tourism Training Institute Unqualified Unqualified
32. National Curriculum Development Centre Unqualified Unqualified
33. Uganda National Examination Board Unqualified Unqualified
34. Uganda Communication Commission Unqualified Unqualified
35. Uganda Institute of Communication Technology Unqualified Unqualified
36. POSTA Uganda Limited Unqualified Unqualified
37. National Information Technology Authority Uganda Unqualified Unqualified
38. Uganda National Council for Science and Technology Unqualified Qualified
39. Uganda Development Corporation Unqualified Unqualified
40. Uganda Property Holdings Unqualified Unqualified
41. Capital Markets Authority Unqualified Unqualified
42. Uganda Development Bank Unqualified Unqualified
43. Bank of Uganda Unqualified Unqualified
44. Centre for Control of Trypanasomiasis in Uganda
(COCTU)
Unqualified Unqualified
45. Uganda Coffee Development Authority (UCDA) Unqualified Unqualified
46. National Enterprise Corporation Farm Katonga Unqualified Unqualified
47. National Enterprise Corporation Tractor Hire Scheme
LTD
Unqualified Unqualified
48. National Enterprise Corporation Tractor Project Unqualified Unqualified
49. Microfinance Support Centre Unqualified Unqualified
50. Management Training and Advisory Centre Qualified Qualified
51. National Council For Higher Education Qualified Unqualified
52. National Forest Authority. Qualified Qualified
53. Nakivubo War Memorial Stadium Qualified Qualified
54. National Council of Sports Qualified Qualified
771
55. Mandela National Sports Limited Qualified Qualified
56. The Uganda Tourism Board Qualified Qualified
57. Nile Hotel International Limited Qualified Qualified
58. Uganda Electricity Distribution Company Limited Qualified Unqualified
59. Uganda Electricity Generation Company Limited Qualified Qualified
60. Law Development Centre Qualified Qualified
61. Uganda Retirement Benefit Regulatory Authority Qualified Qualified
62. Uganda Broadcasting Corporation Disclaimer of Opinion Disclaimer of Opinion
63. Uganda Railways Corporation Disclaimer Disclaimer
64. National Drug Authority Unqualified Unqualified
65. ERT BOU Unqualified Unqualified
66. ERT PSFU Unqualified Unqualified
67. ERT REA Unqualified Unqualified
68. ERT UCC Unqualified Unqualified
69. ERT UECCL Unqualified Unqualified
70. ERT PCU Unqualified Qualified
71. ESDP Kawanda Masaka Unqualified Unqualified
72. National Library of Uganda Qualified Qualified
73. National Youth Council Qualified Qualified
74. Uganda Wildlife Authority Unqualified Qualified
75. Bujagali Interconnection Unqualified Unqualified
76. Mbarara – Nkenda and Tororo – Lira Power
Transmission Lines Project
Unqualified Unqualified
77. UECTL Statnett Twinning Project Unqualified Unqualified
78. Rural Electrification Agency Unqualified Unqualified
79. REA – NORAD Unqualified Unqualified
80. NELSAP Unqualified Unqualified
81. National Water and Sewerage Corporation Unqualified Unqualified
82. National Social Security Fund Unqualified Unqualified
83. Allied Health Professionals Council Unqualified Unqualified
84. New vision Ltd Unqualified Unqualified
85. Uganda Wildlife Education Centre Unqualified Unqualified
86. National Housing and Construction Company Ltd Qualified Disclaimer of Opinion
87. Cotton Development Organisation Unqualified Unqualified
88. National Animal Genetics Centre and Data Bank Unqualified Qualified
89. Uganda Seeds Ltd Qualified Qualified
90. Apex Agricultural Credit Facility Unqualified Unqualified
91. Pride Microfinance Ltd Unqualified Unqualified
92. Uganda Bureau of Statistics Qualified Unqualified
93. Civil Aviation Authority Unqualified Qualified
94. Amnesty Commission Unqualified Unqualified
95. Uganda Printing and Publishing Corporation Qualified Unqualified
96. Agricultural Credit Facility Unqualified Unqualified
APPENDIX 2: AUDIT OPINIONS FOR BACKLOG AUDITS
Entity Opinion
1 Uganda Railways Corporation (Dec 2012) Disclaimer of Opinion
2 Uganda Railways Corporation (Dec 2013) Disclaimer of Opinion
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APPENDIX 3: CONSOLIDATED FINANCIAL STATEMENTS OF THE GOVERNMENT OF THE REPUBLIC OF UGANDA FOR THE YEAR ENDED 30TH JUNE 2015
