OFFICE OF THE AUDITOR GENERAL

Transcription

1 OFFICE OF THE AUDITOR GENERAL THE REPUBLIC OF UGANDA TREASURY OPERATIONS REPORT AND OPINION OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF TREASURY OPERATIONS FOR THE YEAR ENDED 30 TH JUNE 2016 DECEMBER, 2016 OFFICE OF THE AUDITOR GENERAL UGANDA

2 TABLE OF CONTENTS Page 1.0 INTRODUCTION BACKGROUND INFORMATION ENTITY FINANCING OBJECTIVES OF THE ENTITY AUDIT SCOPE AUDIT PROCEDURES PERFORMED FINDINGS Categorization of Findings GOVERNMENT INVESTMENTS DOMESTIC DEBT BILATERAL AND MULTILATERAL DEBT MANDAMUS PAYMENTS STATUS OF PRIOR YEAR AUDIT ISSUES...15 ii

3 LIST OF ACRONYMS ACRONYM DESCRIPTION ADB African Development Bank AO Accounting Officer Bn Billion BoU Bank of Uganda FY Financial Year GoU Government of Uganda IDA International Development Association IMF International Monetary Fund ISSAIs International Standards of Supreme Audit Institutions MOFPED Ministry of Finance, Planning and Economic Development MOJCA Ministry of Justice and Constitutional Affairs MoUs Memoranda of Understanding NORAD Norwegian Agency for Development Cooperation OAG Office of the Auditor General PFAA Public Finance and Accountability Act, 2003 PS/ST Permanent Secretary/Secretary to the Treasury TAI Treasury Accounting Instructions, 2003 UCF Uganda Consolidated Fund UEB Uganda Electricity Board UEDCL Uganda Electricity Distribution Company Limited UEGCL UETCL UGX USD Uganda Electricity Generation Company Limited Uganda Electricity Transmission Company Limited Uganda shillings United States of America Dollars iii

4 REPORT AND OPINION OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF TREASURY OPERATIONS FOR THE YEAR ENDED 30 TH JUNE 2016 THE RT. HON. SPEAKER OF PARLIAMENT I have audited the financial statements of the Treasury Operations for the year ended 30 th June These financial statements comprise of the Statement of Financial Position as at 30 th June 2016, statement of financial performance, statement of changes in equity, cash flow statement together with other accompanying statements, notes and accounting policies. Management Responsibility Under Article 164 of the Constitution of the Republic of Uganda (as amended) and Section 45 of the Public Finance Management Act, 2015, the Accounting Officer is accountable to Parliament for the funds and resources of the Treasury Operations. The Accounting Officer is also responsible for the preparation of financial statements in accordance with the requirements of the Public Finance Management Act (PFMA), 2015, and the Financial Reporting Guide, 2008, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement whether due to fraud or error. Auditor s Responsibility My responsibility as required by Article 163 of the Constitution of the Republic of Uganda and Sections 13 and 19 of the National Audit Act, 2008 is to audit and express an opinion on these statements based on my audit. I conducted the audit in accordance with International Standards on Auditing (ISA s). Those standards require that I comply with the ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing audit procedures to obtain evidence about the amounts and disclosures in the financial statements as well as evidence supporting compliance with relevant laws and regulations. The procedures selected depend on the Auditor s judgment including the assessment of risks of material misstatement of financial statements whether due to fraud or error. In making those risk assessments, the Auditor considers internal control relevant to the entity s preparation and fair presentation of financial statements in order to design audit procedures that are appropriate in the circumstances but not for purposes of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting 1

5 policies used and the reasonableness of accounting estimates made by management as well as evaluating the overall presentation of the financial statements. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my opinion. Part A of this report sets out my opinion on the financial statements. Part B which forms an integral part of this report presents in detail all the significant audit findings made during the audit which have been brought to the attention of management and will form part of my Annual Report to Parliament. Opinion In my opinion, the financial statements of the Treasury Operations for the year ended 30 th June 2016 are prepared, in all material respects, in accordance with Section 51 of the Public Finance Management Act, 2015, and the Financial Reporting Guide, Emphasis of matter Without qualifying my opinion, I draw attention to the following matters described in note 21 of the financial statements; Irregular Conversion of Loan into Equity - UGX.563,502,895,496 I observed that the Government of Uganda irregularly converted debt worth UGX.563,502,895,496 which had been on-lent by Government to UEB successor companies (UEDCL, UETCL, and UEGCL) into equity. Absence of Share Certificate for Government Investment Included in the financial statements is an investment of UGX.2,100,000,000 in a local Hotel. However, though the investment was made 7 years ago, Government does not hold a share certificate and the sole shareholder does not recognise Government s interest in the company as shown by the records at the registrar of companies. Other Matter I consider it necessary to communicate the following matter other than those that are presented or disclosed in the financial statements that, in my judgement, is relevant to users understanding of the audit, the auditor s responsibilities or the auditor s report. 2

6 Unsustainable Interest Payments Whereas the GoU Public Debt Management Framework, 2013 puts a cap on the ratio of total nominal interest payments to total government revenue at 15%, this ratio has for the first time gone beyond this cap and in the year under review, it reached 16% in relative terms and UGX.1.67 trillion in absolute terms compared to UGX.1.27 trillion last year.this is attributed to high-interest rates on domestic borrowing. John F.S. Muwanga AUDITOR GENERAL KAMPALA 21 st December,

7 PART "B" DETAILED REPORT OF THE AUDITOR GENERAL ON TREASURY OPERATIONS FOR THE FINANCIAL YEAR ENDED 30 th JUNE 2016 This Section outlines the detailed audit findings, management response, and my recommendations in respect thereof. 1.0 INTRODUCTION Article 163 (3) of the Constitution of the Republic of Uganda, 1995 (as amended) requires me to audit and report on the public accounts of Uganda and all public offices including the courts, the central and local government administrations, universities, and public institutions of the like nature and any public corporation or other bodies or organizations established by an Act of Parliament. Accordingly, I carried out the audit of the Treasury Operations to enable me report to Parliament. 2.0 BACKGROUND INFORMATION Treasury Operations is a vote run by the Department of Treasury Services in Ministry of Finance, Planning and Economic Development. The Department acts as a back office in the debt management function. 3.0 ENTITY FINANCING The Treasury Operations Vote was financed by grants from Central Government totalling to UGX.6,389,302,393,852. The Department also collected UGX.75,960,145,735 in other revenue and UGX.1,376,445,464 in Transfers received from other government units and UGX.538,821,370,669 in External Grants bringing total revenue to UGX.7,005,460,355,720. The central government grants revenue of UGX.6,389,302,393,852 constituted 91.2% of its actual revenue receipts. Out of the released amount UGX.2,289,731,741,656 was spent leaving a revenue surplus of UGX.4,715,728,614,064 which was used for loan redemption. 4.0 OBJECTIVES OF THE ENTITY The main objectives of Treasury Operations are to ensure that; Data in relation to public debt is up-to-date and accurately maintained. All payments of principal and interest are made when they fall due. A complete stock of Government investments is maintained at the right values. 4

8 5.0 AUDIT SCOPE The audit was carried out in accordance with International Standards on Auditing and accordingly included a review of the accounting records and agreed on procedures as was considered necessary. In conducting my reviews, special attention was paid to establish whether; a. The financial statements have been prepared in all material respects, in accordance with consistently applied Accounting Policies and fairly present the revenues and expenditures for the period and of the financial position as at the end of the period. b. All funds were utilized with due attention to economy and efficiency and only for the purposes for which the funds were provided. c. To evaluate and obtain a sufficient understanding of the internal control structure of the department, assess control risk and identify reportable conditions, including material internal control weaknesses. d. The entity Management was in compliance with the Government of Uganda financial regulations. e. All necessary supporting documents, records, and accounts have been kept in respect of all department activities, and are in agreement with the financial statements presented. 6.0 AUDIT PROCEDURES PERFORMED The following audit procedures were undertaken; a. Revenue Obtained schedules of all revenues collected and reconciled the amounts to the entity s cashbooks and bank statements. b. Expenditure The entity payment vouchers were examined for proper authorization, eligibility and budgetary provision, accountability, and support documentation. c. Internal Control System Reviewed the internal control system and its operations to establish whether sound controls were applied throughout the period audited. 5

9 d. Entity Financial Statements Examined, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessed the accounting principles used and significant estimates made by management; as well as evaluating the overall financial statement presentation. 7.0 FINDINGS 7.1 Categorization of Findings The following system of profiling of the audit findings has been adopted to better prioritise the implementation of audit recommendations; Table showing categorisation of findings No Category Description 1 High significance 2 Moderate significance 3 Low significance Has a significant/material impact, has a high likelihood of reoccurrence, and in the opinion of the Auditor General, it requires urgent remedial action. It is a matter of high risk or high stakeholder interest. Has a moderate impact, has a likelihood of reoccurrence, and in the opinion of the Auditor General, it requires remedial action. It is a matter of medium risk or moderate stakeholder interest. Has a low impact, has a remote likelihood of reoccurrence, and in the opinion of the Auditor General, may not require much attention, though its remediation may add value to the entity. It is a matter of low risk or low stakeholder interest. Accordingly, the table below contains a categorized summary of the findings that follow in the subsequent paragraphs of the report; Table showing categorized summary of the findings No Finding Significance Shareholding and board representation Low Investment in a Local (Ugandan) Hotel High Irregular Conversion of Loan into Equity (UGX.563,502,895,496) High Failure to disclose government interest in companies in financial statements High Interest rate risk Domestic Borrowing High High-interest rates on Domestic Borrowing High Low debt Absorption/Non-performing loan High Foreign debt composition and Exchange rate risk High Court Orders with no Writ of Mandamus UGX.53.7 Bn High Memoranda with the Judgement Creditors Low 7.6 Status of Prior Year Audit Issues Moderate 6

10 7.2 GOVERNMENT INVESTMENTS Shareholding and Board Representation Section 27 (i) of the Public Enterprises Reform and Divestiture Act (PERD), 1993, authorises the Minister to acquire and hold shares in any enterprise in which the State is required to hold shares. Section 9(4) of the PERD Act 1993 and Section 194 of the Companies Act, 2012 authorise shareholders to appoint board members. I noted that in a number of entities in which Government holds majority interest, the Minister for Finance holds the Government shares in several companies and, as the law mandates, he appoints representatives to the shareholders meetings. Audit notes that with this arrangement, there are risks such as the following; The sector objectives included in the National Development Plan may not be enforced or monitored as effectively as when the shareholding and/or board representation and decision making is held within the responsible sector. Without adequate line ministry participation in the operations of the enterprise, Government is unlikely to adequately meet the development strategies for which the enterprise was set up. I also note that the line ministry cannot enforce board representation as the decision to appoint a board member lies with the shareholders (as provided for under Section 9(4) of the PERD Act, 1993 and in the Companies Act) who may or may not appoint a suitable official of the line ministry to the board. In his response, the Accounting Officer informed me that there is a residual responsibility with the Ministry of Finance to monitor the financial health of these institutions; however, appointments to these boards is also guided by the respective laws. In addition, Sections 11, 12 and 13 of the PERD Act also allow participation of the line Minister in the oversight of State Enterprises together with the Minister responsible for Finance. I have advised that where a particular enterprise serves interests of multiple sectors, government could consider having more than one Ministry to hold shares on its behalf in that entity, to ensure that they are part of the decision-making process of the organisation through board representation. 7

11 7.2.2 Investment in a Local (Ugandan) Hotel - UGX.2,100,000,000 Included in the financial statements is an investment of UGX.2,100,000,000 in a local Hotel. However, though the investment was made seven (7) years ago, Government does not hold a share certificate and the sole shareholder does not recognise Government s interest in the company as shown by the records at the Registrar of Companies. Under the circumstances, the government shareholding as well as its rights in regard to management of the Hotel, cannot be enforced in the absence of a share certificate evidencing ownership. This matter has been raised in my previous audit reports; however, the status quo has not changed. The Accounting Officer indicated that efforts by the Ministry to get share certificates from shareholders are ongoing and letters had been written to the investor in this regard. I have advised government to initiate concrete measures to either obtain the share certificates that will enable it exercise its rights over the management of the Hotel or recover the advanced amount with interest from the sole shareholder Irregular Conversion of Loan into Equity UGX.563,502,895,496 I observed that the Government of Uganda irregularly converted debt worth UGX.563,502,895,496 into equity which it had on-lent to UEB successor companies (UEDCL, UETCL, and UEGCL). I noted that the successor companies originally contracted loans totalling to USD Million from ADB, IDA and NORAD in 2010 for developing infrastructure in generation and transmission and by the end of December 2013, the outstanding loan obligations were USD Million and accrued interest of USD.35.7 million for all the three companies. However the following anomalies were noted; There is no evidence that an opinion was sought from the Attorney General in accordance with articles 119 (4) (b) and 119 (5) of the 1995 Constitution of the Republic of Uganda. Consultations appear to have been only limited to Electricity Regulatory Authority, Ministry of Energy and Mineral development and Ministry of Finance, Planning and Economic Development and Uganda Manufacturer s Association. This presents a risk of the debt conversion to equity being null and void. I also noted that whereas there is no policy framework guiding Government investments, following best practice criteria for making investments, the debt- 8

12 equity conversion was done without due regard to parliamentary approval as required by the Public Finance and Accountability Act of 2003 (the applicable law by then), since the Government was made to write off a receivable (Asset) from these companies. In their response, management informed me that to enable UEDCL, UETCL and UEGCL play their respective roles in the ongoing developments in the electricity sector; the Minister responsible for Finance in 2013/14 undertook financial restructuring of the mentioned Public Enterprises by converting their debts to equity in line with Section 20 (2)-(4) of the PERD Act, which allows the Minister responsible for Finance to undertake restructuring and reform of Public Enterprises. However, it should be noted that since the restructuring involved a write-off of public moneys, approval was required in accordance with Section 41 of the PFAA, 2003 (which was the existing law by then). I have advised government to consider initiating steps to correct the irregularities made by converting the debt into equity Failure to Disclose Government Interest in Companies It was noted that there was no disclosure of the following companies in which GOU invested both in the Treasury Accounts and/or respective ministry accounts; Table showing companies not reflected as investments No. Company 1 Dairy Corporation Limited 2 Uganda Refinery Holding Company Limited 3 Victoria Airways Ltd As a result, Government of Uganda risks losing the funds that were invested in these companies. In his response, the Accounting Officer stated that the enlisted entities have been contacted to submit Financial Statements to enable Treasury to update the investment schedule with its net worth; however, this had not yet been done and efforts to engage them are still ongoing. I have advised the Accountant General to follow up all Government investments and include them on the investment register and also reflect the value of the investments in the financial statements as required by the PFMA,

13 7.3 DOMESTIC DEBT Interest Rate Risk - Domestic Borrowing Under Section 2.3(3) of the Public Debt Management Framework 2013, GoU aims to ensure that the ratio of total nominal interest payments (on domestic and external debt combined) to total government revenue (excluding grants) does not exceed 15% and that interests shall continue to be fixed. My review of interest payments revealed that in the financial year 2015/2016, the debt office was in breach of its debt management policy when finance interest repayments for the first time reached 16% of total government revenue (excluding grants). Further analysis revealed that the finance costs as a percentage of total government revenue (excluding donor) have increased at an accelerated rate from 12% in the financial year 2012/2013 to 16% in 2015/2016 (refer to table below); Table showing Interest payment for Debt Year URA collections - UGX Interest payment - UGX Percentage 15/16 11,036,411,683, ,751,640,689, % 14/15 9,879,661,854, ,272,446,531, % 13/14 8,094,437,031, ,367,279, % 12/13 7,231,400,621, ,320,813, % The drastic increment was attributed to high cost on domestic borrowing and an increased share of bilateral loans which are not concessional, examples of which are shown below; Table showing Bilateral/multi-lateral loans with high-interest rates CURR Loan Amount Creditor Name USD 84,979,502 Exim Bank Of China USD 645,821,407 Exim Bank Of China 10 Project Name LUZIRA, MUKONO, IGANGA & NAMANVE KARUMA DAM HYDROPOWER Interest Rate (%) y y USD 9,000,000 Govt Of Nigeria NIGERIAN LOAN y EUR 15,000,000 Govt. Of Germany 132 KV Double Circuit Tr. Line USD 4,833,325 ADB HEALTH SERVICES REHAB PROJECT y y Maturity (Years) I have advised government to always undertake adequate evaluations of the wider implications of any new debt to the existing debt stock, so as to ensure that the set policy targets are not exceeded.

14 7.3.2 High Interest Rates on Domestic Borrowing Analysis of the trend of interest rates for domestic borrowing revealed a significant increment over the last four years, as shown in the table below; Table showing comparison between Government and private sector borrowing rates Year 364 day Treasury bill rate Commercial loans Differential (risk premium) % 23.3% 10.2% % 21.6% 8.9% % 22.6% 4.1% % 24.9% 5.8% Source: Bank of Uganda website The above table shows that the differential in interest rates (risk premium) between commercial lending rates and Treasury bill rates is getting smaller each year. This is an indicator of either a higher perceived risk by the market in regard to Government borrowing or that the Government borrowing rate may not be determined by free market forces. The higher risk is manifested by a number of indicators, including; increased volume of domestic borrowing arising from increased Government expenditure; failure to follow the treasury instruments issuance calendar; failure to commit funds for redemption of domestic borrowing (all redemptions are done through refinancing); and downgrading of the sovereign credit rating by Moody s from B1 to B2 status. Under the current circumstances, this has an effect of crowding out the private sector; going by the risk-return relationship it is more lucrative to lend to Government than to the private sector. If the above trend persists, the cost of finance to Government from the domestic market will become a deterrent to borrowing from the domestic market. In his response, the Accounting Officer explained that 2015/16 saw a sharp increase in domestic government yields, especially before the February 2016 election when yields on government securities rose up to 25%. This was caused by several factors, including Investor uncertainty on whether the Government would stick to its domestic financing budget; a sharp depreciation in the Ugandan shilling; a global sell-off of Emerging Market Assets as well as the increase in the domestic debt stock to finance the Government s budget. He further explained that as yields are not expected to decline significantly further, the Government has taken steps to control interest payments in 11

15 future, by reducing net domestic government borrowing over the medium term as evidenced by the reduction in the net domestic financing targets as agreed with the IMF. I have advised Treasury to investigate the causes of the ever increasing cost of domestic borrowing and provide a lasting solution to the problem. 7.4 BILATERAL AND MULTILATERAL DEBT Low debt absorption/non-performing loans My review of the loan disbursements revealed that several loans appeared to be performing poorly, with some nearing expiry; while others reached the closing date without fully disbursing (Details are shown in Appendix 1). As at 30 th June 2016, committed but un-disbursed debt stood at UGX.18.1 trillion (comprising of UGX.8.6 trillion multilateral and UGX.9.5 trillion bilateral). Such low levels of performance undermines the attainment of planned development targets and render commitment charges of UGX.20,922,168,282 paid in respect of undisbursed funds nugatory. Besides, Government may suffer sanctions from the lenders/development Partners which may affect future funding and service delivery as was the case with the World Bank. In their response the Accounting Officer stated that Government has committed to avail Project Preparation Funds for projects to ensure the Feasibility Studies, Environment Impact Assessments (EIAs), Projects Affected Persons (PAPs) and Project Managements Units (PMUs) are established early enough so that by Loan signature, the projects are ready to take off in the first year of implementation as per agreed disbursement Schedules. In addition, government is now emphasizing linking work plans and budgets to cash flow requirements and providing timely counterpart funds through identification of all counterpart obligations and strictly enforcing the protection of budgeted resource meant for counterpart funding and payment of taxes. I advised Government to undertake a comprehensive analysis to identify all the bottlenecks hindering the smooth implementation of the above projects with a view of resolving them so as to enhance the absorption rates. 12

16 7.4.2 Foreign Debt Composition and Exchange rate risk Under Section 2.3(5) of the Public Debt Management Framework 2013, GoU aims to ensure that the proportion of foreign currency debt to total debt does not rise above a maximum of 80% over the lifetime of the framework. Audit noted that since the operationalization of the framework, the foreign debt composition (including disbursed and undisbursed debt) to total debt has significantly been increasing from 67% as at June 2013 to 77% as at June 2016 (Refer to table below); Table showing Foreign debt composition to total debt( includes all commitments) year External Debt (UGX) Total (UGX) % 15/ trillion 46,270,530,231, % 14/ trillion 33,133,576,066, % 13/ trillion 22,698,495,901, % 12/13 15 trillion 22,325,040,846, % Further analysis revealed that the accelerated increment in the absolute value of foreign debt was caused by both increase in the nominal amounts borrowed and also the increase in the translation rate arising from the depreciation of the Uganda shilling against major currencies especially the US dollar. If the current trend persists Government is likely to exceed the 80% cap in the near future, which may negatively impact on the risk perception of the lenders to Government; translating into higher interest rates on foreign denominated loans. I have advised government to prudently manage the rate of acquisition of fresh debt, so as to ensure sustainability. 7.5 MANDAMUS PAYMENTS In 2015/16 financial year, UGX.63,501,117,771 was paid out to beneficiaries of court awards from Treasury Operations. The following matters were noted from my review of the transactions; Court Orders with no Writ of Mandamus UGX.53.7Bn A writ of mandamus is a court order to a Government agency compelling that Government agency to abide by a ruling of the court. The Ministry of Finance settled various court awards on the basis that a writ of mandamus had been served on the 13

17 PS/ST. Budgeting and payment for court awards is done by the Ministry of Justice and Constitutional Affairs. During the year, the Ministry made payments for 17 court-ordered settlement cases and paid UGX.63,501,117,771. Only 3 of these court cases settled during the year is supported with a writ of mandamus implying that UGX.53,699,692,771 or 85% of the total payments made by the Treasury as mandamus was not supported by a writ of mandamus. The documentation availed indicates that the claims upon which the payments were made, were supported by court rulings (but not a writ of mandamus). In my view, these payments could have been paid from the Ministry of Justice and Constitutional Affairs where they were budgeted for as per their mandate. Management on their part explained that in June 2013, the Attorney General advised the ministry to clear payments for Court Cases with high interest to avoid further accumulation. I have advised the Accounting Officer to have payments without writ of mandamus paid through the established payment frameworks to reduce distortions Memoranda with the Judgment Creditors Correspondences between the Ministry of Justice and Constitutional Affairs, revealed that MoFPED negotiated with some beneficiaries/judgement creditors and reached agreements with them, intended to curtail the accumulation of interest while setting timelines within which payments would be finalized. The Solicitor General advised that such negotiated settlements subsequent to a court ruling can only amend a court order if they are filed with the court. Under the circumstances, there is a risk that negotiated settlements waiving costs may be deemed null and void if the Ministry has not ensured that they are sanctioned by the Attorney General and appropriately filed with the responsible courts. Management in their response explained that action is being taken to have the MOU s appropriately registered. I have advised that there is need to expedite this process and ensure that the MoUs that have been signed are properly registered in court. 14

18 7.6 STATUS OF PRIOR YEAR AUDIT ISSUES A review of the issues raised in the previous two audit reports revealed that a number of issues had not yet been addressed by management, as explained below; Table showing status of prior year audit issues No Audit Issue Details Current Status 1 Absence of Internal Audit Involvement in Treasury Operations 4 Lack of an Investment Policy 5 Exclusion of Companies Currently on Concession 6 Non collection of Government Dividends Internal audit function was not operational in the year under review, for the Treasury Operations Vote. There were no internal audit annual work plans and no quarterly reports on the integrity of the internal controls and financial management practices in the Treasury Operations. I also noted that no audit work was done on the consolidation process It was also observed that the Government does not have in place an investment policy, to clearly guide the processes of identification and evaluation of possible investment projects I observed that companies wholly owned by the GoU currently under concession were not included in the record of government investments. I also noted that there was no clear classification of how these companies are treated in the Consolidated GoU accounts In addition, I was not availed with evidence and a register of Intellectual Property owned by the GoU According to the Summary Statement of Financial Performance of Public Corporations and State Enterprises for the financial year ended 30 th June 2015; Housing Finance Bank Limited made a dividend declaration of UGX.2,554,043,092 implying that GoU s share was UGX.1,256,589, However, this amount was not received by GoU and Specific assignments undertaken in the year; i. UMEME ESCROW ii. GOU VERIFIED DOMESTIC ARREARS, however, full involvement not yet evident Not implemented Not yet resolved. The Accountant General engaged HFBL on non payment of dividends, they responded and communication received from HFBL detailed the dates on which to pay the deferred payments 15

19 No Audit Issue Details Current Status 10 Absence of Reconciliation of Amounts paid by MOFPED and MOJCA 11 None collection of Receivables 12 Receivables from companies that have ceased operations 13 None disbursement of funds under the loan for the construction of Mutundwe - Entebbe transmission line was not recognized in the receivables balance for both the TOP and Consolidated Financial statements During the current audit, a review of the schedule of liabilities maintained by MOJCA and the one availed to audit, revealed that the balances maintained by the two ministries are at variance Out of the total outstanding balance as at 30 th June, 2014 of UGX.906,285,918,049, only UGX.7,643,421,348 was collected in the year under review representing only 0.8% of the previous amount. This may imply that there is a low commitment to recover Government outstanding receivables Audit also noted that among the private entities that owe GoU money, there were companies that had ceased operations and owed Government UGX.8,136,979,176. It is highly likely that GoU may never recover the funds from such companies hence implying that the reported receivables balance may be overstated in the financial statements. In addition, management has neither made any disclosure in the financial statements to the effect nor taken steps to have the amounts written-off. whereas Government of Uganda entered into an agreement with KFW of Germany for a loan amounting to UGX.55,521,150,000 to finance the construction of a 132 KV Double Circuit Mutundwe-Entebbe Transmission line, by the time of audit (December, 2015), no funds had been disbursed on this loan. It was noted that GOU incurred UGX.131,792,313 with the 1st installment due on 31st Dec Reconcile save for waivers of interest. No collections made This issue appeared in the previous audit reports and was escalated to PAC and discussed with the MoFPED in FY 2012/13. PAC recommended the use of auctioneers to sell off some assets of the importers to recover the said funds. Management handed over the schedules and documentation to Solicitor General as requested. There is slow progress by the Solicitor General on this matter. The GoU hasn t compesated the land owners where the transmission lines are supposed to pass to pave way for construction to take place. According to the 16

20 No Audit Issue Details Current Status in Commitment Fees and Late Interest fees agreement, this is the first requirement before the loan starts disbursing. Not yet disbursed I have advised he Accounting Officer to ensure that the above matters are addressed so as to enhance efficiency and effective operation of Treasury Operations. 17

21 APPENDICES Appendix 1 List of projects with low debt absorption PROJECT NAME CURRENCY UNDISBURSED AMOUNT AS AT 30-JUNE-16 EXIM BANK OF CHINA ISIMBA HYDROPOWER PROJECT USD 294,977, KARUMA HYDROPOWER DAM USD 517,287, KARUMA HYYDROPOWER DAM (PBC) USD 632,240, Kampala Entebbe Express Way USD 122,128, LUZIRA,MUKONO,IGANGA & NAMANVE USD 84,979, NATIONAL TRANS. BACKBONE 3 CNY 67,563, UPGRAD & EXP OF ENTEBBE AIRPT CNY 870,572, EXIM BANK S KOREA Education IV Project Korea KRW 17,310,882, FRANCE Hoima-Nkenda Transmission Line USD 20,000, K'la Water- L. Victoria WatSan EUR 57,000, RURAL ELECTRIFICATION PROJECT EUR 42,900, GOVT BELGIUM INLAND PORT BUKASA-COMMERZBANK EUR 31,671, GOVT. OF GERMANY 132 KV Double Circuit Tr. Line EUR 15,000, DEV'T OF INLAND PORT AT BUKASA EUR 42,500, INLAND PORT BUKASA-AKA EUR 10,829, JBIC PROCUREMENT OF EARTH MOVING EQ JPY 15,129,527, JICA BUJAGALI INTERCONNECTION PROJ. JPY 94,823, Electric Grids of Nile Equator JPY 1,310,280, KAMPALA FLYOVER CONSTRUCTION JPY 19,989,000, New Bridge Across R. Nile Jinja JPY 5,443,639, Upgrading of Atiak-Nimule Road JPY 986,065, KUWAIT FUND Equipping 4 Tech. Institutions KWD 3,097, KUWAIT FUND FOR UDBL KWD 1,409, SAUDI ARABIA FUND Rural Electrification Project SAR 20,374, Tech Institutes and Vocational SAR 24,779, YUMBE & KAYUNGA HOSP-SAUDI SAR 56,250, ADB 18

22 PROJECT NAME CURRENCY UNDISBURSED AMOUNT AS AT 30-JUNE-16 FARM INCOME ENHANCEMENT 2 USD 75,555, Mkts and Agric Trade Improvement USD 84,029, Support to Mulago Hospital AFU 4,281, Support to Mulago Hospital USD 776, UGANDA RURAL ELECTRICITY ACCES USD 99,828, ADF 2nd Community Agric Improv. Pr AFU 376, rd Community Agric Infrastruc AFU 11,294, ADB POST PRIMARY EDUCATION TRA AFU 21, AGRICULTURAL MODERNIZATION PR AFU 596, Community Agri. Infrast. Impro AFU 1,575, E.A's CENTRE OF EXCELLENCE AFU 22,333, Electric Grids of Nile Equator AFU 333, Improving Health Mulago & K'la AFU 18,752, Improving Health Mulago & K'la USD 3,152, KAMPALA SANITATION PROGRAM 1 AFU 9,210, LAKES EDWARD AND ALBERT INTERG AFU 4,761, MBARARA NKENDA POWER LINES AFU 11,469, Markets & Agri Trade Improv't AFU 344, ROAD SECTOR SUPPORT PROJECT 4 AFU 67,270, ROAD SECTOR SUPPORT PROJECT 5 AFU 69,614, Rd Sector Support II Fort-Bund AFU 4,498, Road Sector Support III AFU 5,833, Rural Income & Employment Enha AFU 484, Supp. to Higher Education(HEST AFU 55,670, Suppl. Loan to Finance Road Se AFU 76, Water Supply and Sanitation pr AFU 2,046, BADEA Masaka-Bukakata Road Project USD 11,853, N.NE Bridges USD 4,615, Nakaseke Technical Institute USD 2,465, RURAL ELECTRICFICATION PROJECT USD 3,137, RURAL ELECTRIFICATN IN KAYUNGA USD 15,000, SECOND LINE OF CREDIT-UDBL USD 1,718, URBAN MARKETS & AGRIC PRODUCTS USD 6,479, YUMBE & KAYUNGA HOSP-BADEA USD 7,000, EIB East Afric Transport Corridor EUR 22,176,

23 PROJECT NAME CURRENCY UNDISBURSED AMOUNT AS AT 30-JUNE-16 Lake Victoria WATSAN EUR 57,000, IDA 2 nd L. Victoria Enviro Mgt Proj SDR 5,491, ADD. FIN TO E.A PUBLIC HEALTH SDR 10,700, ADDIT. TO ERF 2 SDR 2,749, ALBERTINE REGION SUSTAINABLE SDR 93,010, Agric Tech & Agribusiness Adv. SDR 32,575, Competitiveness and Enterprise SDR 45,125, E.A Public Health Lab Network SDR 153, Electricity Sector Development SDR 50,073, Energy for Rural Transf II SDR 1,766, Energy for Rural Transf III SDR 97,900, Health Systems Strengthening SDR 10,943, KAMPALA INST. & INFRAST. DEV SDR 821, KIIDP 2 SDR 90,439, NORTH-EASTERN ROAD-CORRIDOR SDR 156,183, NUSAF 3 SDR 87,184, REGIONAL COMM INFRASTRUCTURE 5 SDR 54,400, Supp. to Municipal Infrastructure SDR 39,840, Transport sector Development SDR 11,981, Uganda Public Service Perform SDR 1,064, Water Mgt & Dev't Project SDR 53,747, IDB CAIIP III IDI 3,089, DRYLAND DEVPT PROJECT IDI 8,665, IDB-SMALL BRIDGES IN N.&NE UGA IDI 3,948, MILLENIUM VILLAGE PROJECT IDI 2,090, Mirama-Kabale Transmission Lin IDI 83,750, Muyembe-Nakapiripirit Road USD 110,000, National Educ Sup. Phase II IDI 6,614, National Education Support IDI 1,102, Opuyo-Moroto132KV Transm. Line USD 80,620, Rural Income & Employment IDI 6,290, Specialized Mater. & Neonatal IDI 7,056, IFAD Agric Tech & Agribusiness Adv. SDR 6,027, Community Agri. Infras. Improv SDR 265, District Development Support P SDR 6,

24 PROJECT NAME CURRENCY UNDISBURSED AMOUNT AS AT 30-JUNE-16 District Livelihoods Support P SDR 15, PROFILA SDR 16,680, RESTORATION OF LIVELIHOODS SDR 31,157, Suppl. Community Agric Infras SDR 1,690, Suppl. District Livelihoods SDR 10, Vegetable Oil Devt project 2 SDR 17,226, OPEC FUND Energy Dev't & Acces Expansion USD 8,336, Kayunga & Kamuli Rural Electri USD 15,000, Vocational Education Project USD 8,381,