OFFICE OF THE AUDITOR GENERAL UGANDA

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1 THE REPUBLIC OF UGANDA REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF THE PROJECT FOR FINANCIAL INCLUSION IN RURAL AREAS (PROFIRA) IFAD LOAN UG FOR THE YEAR ENDED 30 TH JUNE 2017 OFFICE OF THE AUDITOR GENERAL UGANDA

2 TABLE OF CONTENTS List of Acronyms Key Audit Matters... 4 Other Matters... 5 Responsibilities of the Accounting Officer for the Financial Statements... 7 Auditor s Responsibilities for the Audit of the Financial Statements... 8 REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF THE STATEMENT OF SPECIAL ACCOUNT FOR THE YEAR ENDED 30 TH JUNE Appendix

3 LIST ACRONYMS ABTs AGM AMFIU BOU CARE CBTs CCA CCF CDOs COMVIS CPU Advanced Business skills Trainings Annual General Meeting Association for Microfinance Institutions in Uganda Bank of Uganda Care International Uganda Community Based Trainers Canadian Cooperative Association Central Finance Facility Community Development Officers Community Vision Uganda Central Processing Unit CREAM Community Organisation for Rural Enterprise Activity Management CSCGs Community Savings and Credit Groups CSR DCD DCDOs DCOs DLGs FFIs FL&DM FSD FURA GIZ IFAD IGAs IIRR IPSAS ISAs KPSDC LAMP LPO Corporate Social Responsibility Department of Cooperatives Development District Community Development Officers District Commercial Officers District Local Governments Formal Financial Institutions Financial Literacy & Deposit Mobilization Financial Services Department Foundation for Urban & Rural Advancement Germany Technical Cooperation International Fund for Agricultural Development Income Generating Activities International Institute of Rural Reconstruction International Public Sector Accounting Standards International Standards on Auditing Karamoja Private Sector Development Centre Lead Advisory & Mentorship Team Local Purchase Order 2

4 MDIs MFIs MFPED MOU MTIC PDU PIM PMU PROFIRA PSDC READ SACCA SACCOs SAVIX SDR SEPSPEL SUPCO TA TNA TORs TOT UCA UCCK UCSCU UGX UMRA UPS USD UWESO WA Micro Finance Deposit Taking Institutions Micro Finance Institutions Ministry of Finance, Planning and Economic Development Memorandum of Understanding Ministry of Trade, Industry and Cooperatives Procurement and Disposal Unit Project Implementation Manual Project Management Unit Project for Financial Inclusion in Rural Areas Private Sector Development Companies Rural Efforts for Action in Development Savings and Credit Cooperative Association Savings and Credit Cooperative Organizations Savings Group Information Exchange Special Drawing Right South Eastern Private Sector Promotion Enterprise Ltd Supervisory Committee Technical Assistance Training Needs Assessment Terms of Reference Training of Trainers Uganda Cooperative Alliance Uganda Cooperative College Kigumba Uganda Cooperative Savings and Credit Union Uganda Shilling Uganda Microfinance Regulatory Authority Uninterrupted Power Supply United States Dollar Uganda Women s Efforts to Save Orphans Withdrawal Application 3

5 REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF THE PROJECT FOR FINANCIAL INCLUSION IN RURAL AREAS (PROFIRA) IFAD LOAN I-900-UG FOR THE YEAR ENDED 30 TH JUNE 2017 THE RT. HON. SPEAKER OF PARLIAMENT REPORT ON THE FINANCIAL STATEMENTS Opinion I have audited the financial statements of Project for Financial Inclusion in Rural Areas for the year ended 30 June 2017 set out on pages 46 to 54, which comprise the statement of receipts and expenditure, statement of special account activity, statement of special account reconciliation, withdrawal applications submitted and notes to the project financial statements, including a summary of significant accounting policies. In my opinion, the financial statements give a true and fair view of the sources and application of the funds for the Project for Financial Inclusion in Rural Areas for the year ended 30 June 2017 in accordance with the terms of the loan agreement and in conformity with the basis of accounting described in Note 1 of the financial statements. Basis for Opinion I conducted my audit in accordance with International Standards on Auditing (ISAs) and the IFAD Guidelines for Project Audits. My responsibilities under those standards are further described in the Auditor s Responsibilities for the Audit of the Financial Statements section of my report. I am independent of the project in accordance with the International Federation of Accountants Code of Ethics for Professional Accountants (IFAC Code) and other independence requirements applicable to performing audit of Project for Financial Inclusion in Rural Areas. I have fulfilled my other ethical responsibilities in accordance with the IFAC Code, and in accordance with other ethical requirements applicable to performing the audit of Project for Financial Inclusion in Rural Areas. I believe that my opinion. Key Audit Matters Key audit matters are those matters that, in my professional judgement, were of most significance in my audit of the financial statements of the current year. I have determined that there are no key audit matters to communicate in my report. 4

6 Other Matters I consider it necessary to communicate the following matters other than those presented or disclosed in the financial statements: Performance of contracted service providers under sub component 2.1- Establishment of new Community Savings and Credit Groups (CSCGs) In my field review of service providers activities, CSCGs were established and trained as per the performance reports submitted at PMU. I visited some CSCGs in West Nile region (41), Eastern region (27) and Mid North Acholi region (52). However, most CSCGs visited have data collected differing from what the service providers entered in the SAVIX system. There is a risk of PMU taking wrong decisions basing on inaccurate data in SAVIX system and PROFIRA objectives may not be achieved. Management explained that payments to service providers will be made after validation of data. The project will formulate an M&E and oversight plan for monitoring service providers throughout the contract period for better performance. I recommended to PMU that the Component Manager, CSCGs and Monitoring and Evaluation Manager should scale up monitoring activities of contracted service providers to rectify the data inconsistence. Safety of CSCGs accumulated savings I noted that the safety of the provided savings tool kits is not satisfactory yet some CSCGs have accumulated savings ranging from UGX.8 million to over UGX.10 million. According to CSCGs members, this is reasonable amount of money in some villages where the CSCGs were established. As a result of the safety of the savings tool kits not being satisfactory, some CSCGs have resorted to depositing the accumulated savings to the treasurers bank accounts whose trust worthy may not be satisfactory and some CSCGs have shared the accumulated savings before the saving cycle elapsed. The CSCGs members keeping the savings tool kits are at risk of being attacked and the accumulated savings stolen. Further, I noted that the accumulated savings are not insured, the accumulated savings of the established CSCGs deposited on the treasurers bank accounts may be misappropriated by the treasurers. Further, the CSCGs which 5

7 share the accumulated savings before the saving cycles elapse may not achieve the initial objectives of why the CSCGs were established. Going forward, trainings of CSCGs will incorporate aspects of ways and means of improving safety of savings. In addition, the training will address ways of promoting linkage banking facilities. Business skills training will be introduced to CSCGs so as to increase the update of loans in the CSCGs and reduce the risk of excessive idle savings being kept in the CSGs. I recommended to management that there should be training of CSCGs on better options of securing members savings. Performance of contracted service providers under sub component 1.1- SACCO strengthening In the field review of service providers activities, SACCOs were trained and provided with technical assistance as per the performance reports submitted to PMU. I visited some SACCOs in Western region (16) and Central region (13). However, my interaction with some members of management of the different SACCOs revealed that some services provided by some contracted service providers were not satisfactory as indicated in appendix 1. There is a risk that Project activities may not be achieved as envisaged. Management takes note of the concern of conducting training in Luganda language. The project will organize a repeat training in a language that is understood by the SACCO members. The project will work with Uganda Corporate College Kigumba (UCCK) to review the training modules and simplify them to be responsive to the needs of SACCOs. The project will also compile a report on the feedback issues and avail them to the trainers for usage to improve the trainings. Further, the project takes note of the need to provide feedback to the SACOO after technical assessment. In particular, the project will notify the service provider to upscale technical assistance to assist Trudi SACCO. In addition, project will draw up and implement up and implement a plan for increased oversight and monitoring of the project activities relating to trainings. 6

8 I recommended to PMU that the Component Manager, SACCOs and Monitoring and Evaluation Manager should scale up monitoring activities of contracted service providers to ensure better series to the SACCOs. Inconsistency of data in the Management Information System (MIS) I noted that out of the twenty nine (29) SACCOs visited, 3 SACCOs did not appear in the Management Information System of the Project. Further, out of the twenty six (26) SACCOs visited and traced in the Management Information System, two (2) SACCOs did not have information about savings, membership, loans and share capital. This may lead to PMU taking wrong decisions based on inaccurate data in MIS and PROFIRA objectives not being achieved. According to management, the PMU maintains MIS that captures performance data on all project supported SACCOs. The data is collected by Service providers on a quarterly basis and verified by the PMU using reports submitted b District Commercial Officers. It is only verified data that is entered in the MIS to ensure that data entered into the MIS is accurate. The data on savings and loans that was not yet entered at the time of audit was pending verification. It shall be entered into the MIS as soon as it has been verified to be accurate. The project will undertake a data validation exercise and update the MIS. I recommended to PMU that the SACCOs data in the MIS should be accurately updated to capture all information required in the Management Information System. Responsibilities of the Accounting Officer for the Financial Statements Project management is responsible for the preparation and fair presentation of these financial statements in accordance with generally accepted accounting standards, accounting policies and the requirements of the loan agreement and for such internal controls as management determines are necessary to enable the preparation and fair presentation of project financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the management is responsible for assessing the project s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the management 7

9 either intend to liquidate the project or to cease operations, or have no realistic alternative but to do so. Auditor s Responsibilities for the Audit of the Financial Statements My objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor s report that includes my opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs and the IFAD Guidelines will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with ISAs and the IFAD Guidelines, I exercise professional judgement and maintain professional scepticism throughout the audit. I also: Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for my opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the project s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the management. Conclude on the appropriateness of the management use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the project s ability to continue as a going concern. If I conclude that a material uncertainty exists, I am required to draw attention in my auditor s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify my opinion. My conclusions are based on the audit evidence obtained up to the date of my auditor s 8

10 report. However, future events or conditions may cause the project to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. I communicate with the management regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that I identify during my audit. I also provide those charged with governance with a statement that I have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on my independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, I determine those matters that were of most significance in the audit of the financial statements of the current year and are therefore the key audit matters. I describe these matters in my auditor s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, I determine that a matter should not be communicated in my report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. John F.S. Muwanga AUDITOR GENERAL KAMPALA 13 th December,

11 REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF THE STATEMENT OF SPECIAL ACCOUNT FOR THE YEAR ENDED 30 TH JUNE 2017 THE RT. HON. SPEAKER OF PARLIAMENT REPORT ON THE SPECIAL ACCOUNT STATEMENT Opinion I have audited the Special Accounts Statements of the Project for Financial Inclusion in Rural Areas (PROFIRA) IFAD Loan UG for the year ended 30 th June 2017 which are set out on pages 46 to 54 of Appendix 2. In my opinion, the project management complied in all material respects with loan rules and procedures and the Special Accounts Statements for the Project for Financial Inclusion in Rural Areas (PROFIRA) IFAD Loan UG present fairly in all material respects the accounts transactions and the closing balances as at 30 th June Management Responsibility for the Special Account Statement Project management is responsible for preparation of the special account statement and its fair presentation in accordance with the requirements of the Government of Uganda regulations, and IFAD guidelines. Management is also responsible for designing and implementing internal controls relevant to the preparation of the special account statement that is free from material misrepresentation, whether due to fraud or error and selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances. Auditor s Responsibility My responsibility is to express an opinion on the special account statement based on my audit. I conducted my audit in accordance with ISAs and the IFAD guidelines. Those standards and the loan guidelines require that I plan and perform the audit to obtain reasonable assurance about whether the special account statement is free from material misstatement. 10

12 I believe that the audit evidence I have obtained provides a reasonable basis for my opinion. John F.S. Muwanga AUDITOR GENERAL KAMPALA 13 th December

13 Appendix 1 Observation Some CSCGs visited were not entered in SAVIX system by the respective contracted service providers. Some CSCGs visited have their names mis spelt in SAVIX system. Some CSCGs visited have different total number of registered (female and male) members. Some CSCGs visited and traced to SAVIX system have different interest rate charged on loans issued to their registered members. Some CSCGs visited and traced to SAVIX system have different SDF share value. Some CSCGs visited and traced to SAVIX system have different total number of registered female members. Such cases were 13 CSCGs in Eastern region, 18 CSCGs in West Nile region and 24 CSCGs in Mid North Acholi region. Some CSCGs visited and traced to SAVIX system have different total number of registered male members. Such cases were 13 CSCGs in Eastern region, 17 CSCGs in West Nile region and 24 CSCGs in Mid North Acholi region. Name of CSCGs Tweyunge Women, Khungula Kazana and Kilayi Women in Eastern region (Mbale district). Kilayi Iyonga (Kilayi Iyuunga in SAVIX) in eastern region (Mbale district), Makiroki Ber I, Makiroki Ber II and Makiroki Ber III (Makiroki Ber entered 3 times in SAVIX) in Eastern region (Tororo district). Ongako United with 30 registered members (25 in SAVIX) and Kica Ber Women with 30 registered members (28 in SAVIX) in Mid North Acholi (Gulu district). Budwale B with 5% (10% in SAVIX) in Eastern region (Mbale district), Ale Hill and Onyicara with 10% and 20% respectively (20% and 10% in SAVIX) in West Nile region (Arua district). Openy Lucan with Ushs 2,000 (Ushs 1,000 in SAVIX) in Mid North Achole region (Nwoya district), Kica Ber Women and Kica Ber with Ushs 1,000 and Ushs 2,000 respectively (Ushs 2,000 and Ushs 1,000 in SAVIX) in Mid North Acholi region (Gulu district). Examples of CSCGs with highest variances Friend in need with 20 registered female members (26 in SAVIX) and Shimendera with 24 registered female members (19 in SAVIX) in Eastern region (Tororo and Mbale districts respectively). Likico with 22 registered female members (13 in SAVIX) and Leng Cwiny with 16 registered female members (25 in SAVIX) in West Nile region (Arua and Nebbi districts respectively). Anga Ma Konyi with 19 registered female members (25 in SAVIX) and Kica Ber Women with 30 registered female members (25 in SAVIX) in Mid North Acholi region (Nwoya and Gulu districts respectively). Examples of CSCGs with highest variances Friend in need with 10 registered male members (4 in SAVIX) and Shimendera with 6 registered male members (11 in SAVIX) in Eastern region (Tororo and Mbale districts respectively). Likico with 8 registered male members (17 in SAVIX) and Leng Cwiny with 14 registered male members (5 in SAVIX) in West Nile region (Arua and Nebbi districts respectively). Ongoko United with 11 registered male members 6 in SAVIX) and Wan Acel Women with 6 registered male members (11 in SAVIX) in Mid North Acholi region (Gulu district). 12

14 FINANCIAL STATEMENTS APPENDIX 2

THE REPUBLIC OF UGANDA

THE REPUBLIC OF UGANDA REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF MICROFINANCE SUPPORT CENTRE FOR THE YEAR ENDED 30 TH JUNE 2017 OFFICE OF THE AUDITOR GENERAL UGANDA 1 LIST OF ABBREVIATIONS