THE REPUBLIC OF UGANDA

Transcription

1 THE REPUBLIC OF UGANDA REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF MINISTRY OF FINANCE, PLANNING AND ECONOMIC DEVELOPMENT FOR THE FINANCIAL YEAR ENDED 30 TH JUNE 2016 OFFICE OF THE AUDITOR GENERAL UGANDA

2 TABLE OF CONTENTS LIST OF ACRONYMS... iii 1.0 INTRODUCTION BACKGROUND INFORMATION ENTITY FINANCING AUDIT OBJECTIVES AUDIT OBJECTIVES PROCEDURES PERFORMED CATEGORIZATION AND SUMMARY OF FINDINGS Categorization of findings Summary of findings DETAILED FINDINGS Funding Gap Failure to fund the Agricultural Credit Facility Un- released capitalization budget Mischarge of Expenditure Breach of contractual obligation to BIDCO Payment of taxes on behalf of AYA investments without certification of BOQ Lack of set time limit or condition for continued tax support to AYA Investments Un-disclosed status of condemned property Basis for release of funds to URA for both operations and tax refunds Failure to grant URA sufficient access to IFMS for proper tax management PROJECT FOR FINANCIAL INCLUSION IN RURAL AREAS (PROFIRA) Budget Under Absorption Capacity Building, training and skilling SACCOs Project Partnership with Ministry of Trade and its sustainability ENTERPRISE UGANDA Delay in obtaining funds for the construction of office block and training Centre PRESIDENTIAL INITIATIVE ON BANANA INDUSTRIAL DEVELOPMENT (PIBID) Delay in undertaking transformation of TBI to BIRDC Lack of Supply Chain Management Plan prior to commencement of production Un-availed Land Title ii

3 LIST OF ACRONYMS Acronym MoFPED URA ISA ISSAI PPDA OBT EACCET NSSF UCF PFI MDI MoU ACF EU RFSP SACCO UCSCU POPSEC TAT PFA IT NL NLB VAT BoU URA BFP TAI PIBID MSME PFA RFSS MOP NTR TBI NPAP NPART Meaning Ministry of Finance Planning & Economic Development Uganda Revenue Authority International Standards on Auditing International Standards of Supreme Audit Institutions Public Procurement and Disposal of Assets Output Budget Tool East African Community Common External Tariff National Social Security Fund Uganda Consolidated Fund Participating Financial Institutions Micro Deposit taking Institutions Memorandum of Understanding Agricultural Credit Facility Enterprise Uganda Rural Financial Services Program Savings and Credit Cooperatives Organization Uganda Cooperatives Savings and Credit Union Population Secretariat Tax Appeal Tribunal Public Finance and Accountability Information Technology National Lottery National Lottery Board Value Added Tax Bank of Uganda Uganda Revenue Authority Budget Framework Paper Treasury Accounting Instructions Presidential Initiative on Banana Industrial Development Micro, Small & Medium Scale Enterprises Prosperity For All Rural Financial Services Strategy Micro-Finance Outreach Plan Non-Tax Revenue Training Business Incubator National Population Action Plan Non-Performing Assets Recovery Trust iii

4 REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF MINISTRY OF FINANCE, PLANNING AND ECONOMIC DEVELOPMENT FOR THE YEAR ENDED 30 TH JUNE 2016 THE RT. HON. SPEAKER OF PARLIAMENT I have audited the accompanying financial statements of Ministry of Finance, Planning and Economic Development for the year ended 30th June These financial statements comprise of the statement of financial position as at 30th 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 for the Financial Statements Under Article 164 of the Constitution of the Republic of Uganda, 1995 (as amended) and Section 8 of the Public Finance Management Act 2015, the Accounting Officer is accountable to Parliament for the funds and resources of Ministry of Finance, Planning and Economic Development. The Accounting Officer is also responsible for the preparation of financial statements in accordance with the requirements of the Financial Reporting Guide, 2008, and for such internal control as management determines 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, 1995 (as amended) and Sections 13 and 19 of the National Audit Act, 2008 is to express an opinion on these statements based on my audit. I conducted the audit in accordance with International Standards on Auditing (ISA)/International Standards of Supreme Audit Institutions (ISSAIs). Those standards require that I comply with the ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing audit procedures to obtain audit 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 the financial statements whether due to fraud or error. In making those risk assessments, the Auditor considers internal controls relevant to the entity s preparation of financial statements in order to design audit procedures that are appropriate in the circumstances iv

5 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 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 audit 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. PART A Opinion In my opinion, the financial statements 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 your attention to the matters described below: Payment of taxes on behalf of a private company without certification of BOQ A private company imported ceramic tiles and other construction items worth UGX.1,281,778,058 for completion of a hotel. There was no evidence to show that each import is being tracked to the original quantities as certified by URA. The Ministry has no mechanism to establish the percentage of the import being paid for against the original approved BOQs. Besides, there is no evidence that URA is consulted on this matter prior to making each payment to enable reconciliation before any payments are made. Government risk losing funds because of this slack in the process. Breach of contractual obligation with a private company As noted in my prior year s report, Government has continued to breached the contract with a private investor by failing to provide the balance of the 10,000 hectares of land as had then been envisaged within the agreed 12 year period. I also noted that since the date of signing the agreement, thirteen years (13) have elapsed and the company has not started paying back the taxes with accrued v

6 interest that government has been paying on its behalf. This was attributed to government s failure to provide its obligations, and yet the Ministry has continued to settle all tax obligations on behalf of the company. In the year under review alone, the Ministry paid a total of UGX.12,364,819,655 to cater for these obligations. There is a risk that the funds government has paid on behalf of this company since the date of signing the agreement may not be recovered. Un- released capitalization budget Government has lost 1,347 shares in the African Development Bank due its failure to meet its subscription obligations worth US$.1,293, Government stands to lose more shares if the total outstanding obligations worth USD.1,655,488 as at 16/03/2016 is not cleared. Loss of shares and failure to make timely subscription will continue to affect the country s intended benefits from the Bank. John F.S. Muwanga AUDITOR GENERAL KAMPALA 23 rd December, 2016 vi

7 REPORT OF THE AUDITOR GENERAL AND SUPPLEMENTARY INFORMATION

8 PART "B" DETAILED REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF THE MINISTRY OF FINANCE, PLANNING AND ECONOMIC DEVELOPMENT FOR THE YEAR ENDED 30 TH JUNE 2016 This Section outlines the detailed introduction, background information, entity financing, audit findings, management responses, and my recommendations in respect thereof. 1.0 INTRODUCTION In accordance with Article 163(3), of the Constitution of the Republic of Uganda I am required to audit and report on the public accounts of Uganda that is to say, all public offices including the courts, the central and the 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 Ministry of Finance, Planning and Economic Development to enable me report to Parliament. 2.0 BACKGROUND INFORMATION The Ministry of Finance, Planning and Economic Development (MoFPED) mandate is derived from the 1995 Constitution of the Republic of Uganda and other related subordinate laws, including the Budget Act (2001), the Public Finance Management Act (2015) and acts establishing agencies and auxiliary organizations. One of the key prerequisites to achieving the Ministry s mandate is through utilization of credible statistics to facilitate effective and efficient policy formulation, planning and implementation. It is therefore of paramount importance that the statistics are of high quality. The Ministry of Finance, Planning and Economic Development headquarters is located at Plot 2-12 Apollo Kaggwa Rd, Kampala. The Ministry s Vision is to be the most effective and efficient Ministry of Finance, Planning and Economic Development that is capable of achieving the fastest rate of economic transformation among the emerging economies. The Mission is to formulate sound economic policies, maximize revenue mobilization, and ensure efficient allocation and accountability for public resources so as to achieve the most rapid and sustainable economic growth and development. 1

9 3.0 ENTITY FINANCING The Ministry was financed by grants from central Government. Grants totaling to UGX.244,204,123,067 were received which constituted 49.55% of its approved budget estimates of UGX.492,847,994,405. Total expenditures during the year amounted to UGX.303,091,056, AUDIT OBJECTIVES Formulate policies that enhance stability and accelerate economic growth and development. Plan and design strategies for rapid economic growth and transformation. Mobilize domestic and external resources. Ensure efficient allocation and utilization of public resources. Monitor and account for the utilization of public resources. 5.0 AUDIT OBJECTIVES The audit was carried out in accordance with International Standards on Auditing and accordingly included a review of the accounting records and agreed procedures as was considered necessary. The audit was carried out with regard to the following objectives:- a. The financial statements have been prepared in accordance with the requirements of the Public Finance Management Act 2015 and the regulations, and fairly present the income and expenditures for the year and of the financial position as at the end of the year. b. All the Ministry funds were utilized with due attention to economy and efficiency and only for the purposes for which the funds were provided. c. Goods and services financed have been procured in accordance with the PPDA law. d. Evaluating and obtaining a sufficient understanding of the internal control structure of the Ministry, assess control risk and identify reportable conditions, including material internal control weaknesses e. Management was in compliance with the Government of Uganda financial regulations. f. All necessary supporting documents, records and accounts have been kept in respect of all activities, and are in agreement with the financial statements presented. 2

10 6.0 PROCEDURES PERFORMED The following audit procedures were undertaken:- a. Revenue Obtained all schedules of all revenues collected and reconciled the amounts to the Ministry s cashbooks on the IFMS and bank statements. b. Expenditure The Ministry payments 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. d. Procurement Reviewed the procurement of goods and services under the Ministry during the period under review and reconciled with the approved procurement plan. e. Fixed Assets Management Reviewed the use and management of the assets of the Ministry assets during the period under review. f. 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 CATEGORIZATION AND SUMMARY OF FINDINGS 7.1 Categorization of findings The following system of profiling of the audit findings is used to prioritise the implementation of audit recommendations: No Category Description 1 High 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. 2 Moderate significance 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. 3 Low significance Has a low impact, has a remote likelihood of 3

11 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. 7.2 Summary of findings For the Ministry of Finance, Planning and Economic Development risks have been classified as follows: No Issue Raised Category 8.0 MAIN MINISTRY 8.1 Funding Gap - UGX.246, 869,302,716 High 8.2 Failure to fund the Agricultural Credit Facility High 8.3 Un- Released Capitalization Budget High 8.4 Mischarge of Expenditure - UGX.51,891,596 Moderate 8.5 Breach of contractual obligation to BIDCO High 8.6 Payment of taxes on behalf of AYA investments without High certification of BOQ 8.7 Lack of Set Time Limit or Condition for Continued Tax High Support to AYA Investments 8.8 Un-Disclosed Status of Condemned Property Moderate 8.9 Basis for Release of Funds to URA for both operations Moderate and tax refunds 8.10 Failure to grant URA Sufficient Access to IFMS for Proper Moderate Tax Management 9.0 PROFIRA 9.1 Budget Under Absorption High 9.2 Capacity Building, training and skilling SACCOs High 9.3 Project Partnership with Ministry of Trade and its High sustainability 10.0 ENTERPRISE UGANDA 10.1 Delay in obtaining funds for the construction of office High block and training Centre 11.0 PIBID 11.1 Delay in undertaking transformation of TBI to BIRDC High 11.2 Lack of Supply Chain Management Plan prior to High commencement of production 11.3 Un-availed Land Title High 8.0 DETAILED FINDINGS 8.1 Funding Gap - UGX.246, 869,302,716 The Ministry budgeted to receive transfers from Treasury totalling UGX.492,847,994,405 but only UGX.244,204,123,067 was received, creating a funding gap of UGX.248,643,871,338. The shortfall mainly affected the development budget which had an approved budget of UGX.364,584,792,160 but only 4

12 UGX.110,430,567,999 was release (approximately 30% performance level). There is a risk that most of the development planned activities were not achieved as planned. Management explained that the funding gap was failure by government to release a non-resource budget of UGX.200,000,000,000 budget specifically to capitalize Bank of Uganda. The other gap totalling UGX.46.9bn could not be released because of inadequate resources in the national envelope. Included in this amount is UGX bn annual contribution to ACF to facilitate the operation of the agricultural credit scheme. I advised Accounting Officer to continue to liaise with the Treasury to secure funding to finance the affected activities. 8.2 Failure to fund the Agricultural Credit Facility The Agricultural Credit Facility (ACF) was set up in 2009 by Government in partnership with commercial banks; Credit Institutions and Participating Financial Institutions (PFIs) with the aim of providing medium and long term loans to projects engaged in agriculture and agro-processing on more favourable terms than usually available from Financial Institutions. The facility is meant to provide financing for agricultural and agro-processing machinery, equipment and implements at affordable terms to support the commercialization and modernization of agriculture in Uganda. Government was supposed to contribute UGX.30 billion annually and the Participating Financial Institutions (PFIs) were to match the GoU contribution thereby creating a revolving pool of loanable fund amounting to UGX.60 billion for eight years. It was noted that the Ministry budgeted for UGX.27,291,494,010 as the annual contribution but no funds were remitted to the scheme. I informed management that non-provision of annual contributions may negatively affect the operation of agricultural credit scheme. The Accounting Officer explained that GOU has so far provided a total of UGX.58bn out of which only UGX.14bn has been utilised by the scheme an indicator of low absorption of funds and hence releases for the budgeted funds for the year was not given. I advised management to engage BoU to establish the reasons and implications for low credit absorption with a view of assessing the success of the agricultural facility. 5

13 8.3 Un- released capitalization budget Under the capitalisation budget, the Ministry aims to provide resources to capitalise banks to which Uganda subscribes. In return the banks provide long term development financing needs for the economy. The banks involved include East African development Bank (EADB), Islamic Development bank (IDB), African Development Bank (ADB), Uganda Development Bank (UDB) and PTA Bank. I noted that the Ministry budgeted UGX.32,302,344,100 for capitalization of the banks, however, only UGX.21,716, 847,786 was released leading to a shortfall of UGX.10,585,496,314. As a result, Uganda lost 1,347 shares in the African Development Bank specifically due to government failure to meet its subscription obligations worth US$.1,293, A communication from ADB indicates that Uganda stands to lose more shares if the total outstanding obligations worth USD.1,655,488 as at 16/03/2016 is not cleared. I explained to management that underfunding and non-release of budgeted amounts has led to increased domestic arrears. Loss of shares and failure to make timely subscription will continue to affect the country s benefits from these organizations. The Accounting Officer explained that the action by the bank was majorly due to inadequate releases and cash limits to fund the capitalisation item. I urge the Accounting Officer to liaise with Treasury to ensure sufficient budget provisions are made for capitalization of banks otherwise government stands to lose the benefits that come with these initiatives. 8.4 Mischarge of Expenditure - UGX.51,891,596 The Parliament of Uganda appropriates funds through the budget in which funds are tagged to particular activities and outputs using account codes and MTEF codes. The Government Chart of Accounts defines the nature of expenditures for each item code to facilitate better classification of financial transactions and also track budget performance per item. It was noted that the ministry charged wrong expenditure codes to a tune of UGX.51,891,596. Mischarges may lead to misreporting in the financial statements and undermines the importance of the budgeting process. 6

14 Management explained that these were expenses charged to respective outputs where they were budgeted which make it appear mischarged because of the categorisation. I advised Accounting Officer to liaise with the Accountant general to reconcile the chart of accounts to the budgeting tool. 8.5 Breach of contractual obligation to BIDCO On April 4, 2003, Government and BIDCO Oil Refineries Limited entered into an agreement for the development of oil palm industry in Uganda. Under article 5(7) of the agreement, GOU was required to pay VAT on the product of the project from all companies envisaged under the project from the first year of the project activities and ending after a period of eleven (11) years from the year of handing over the 26,500 hectares of land. It was agreed that the company would then refund (subject to clause 3 of article 4) the VAT paid by government with interest over a period of eight(8) years in eight equal instalments, including accrued interest starting in the twelfth (12 th ) year. As noted in my prior year s report, Government has breached the contract by failing to provide the balance of the 10,000 hectares of land as had then been envisaged. There is no documentation to show that the Ministry has made any follow-up on this matter. I also noted that since the date of signing the agreement, thirteen years (13) have elapsed and BIDCO has not started paying back the taxes with accrued interest that government has been paying on its behalf. Because of government s failure to provide the balance of the required land, the Ministry has continued to settle all tax obligations on behalf of BIDCO. In the year under review, the Ministry paid a total of UGX.12,364,819,655 to cater for the agreed obligations. There is a risk that the funds government has paid VAT on behalf of BIDCO since the date of signing the agreement may not be recovered. There is also a risk that government will continue to lose more funds to BIDCO in form of tax payments. The Accounting Officer explained that Ministry of Agriculture has identified 6,500 hectares of land on Buvuma Island which is being procured for the purpose and a sum of UGX.30bn was provided for the purpose. 7

15 I advised Accounting Officer to liaise with Ministry of Agriculture to expedite the process of identifying and procuring all the required balance of land for BIDCO and also seek legal advice from the Attorney General on the possibility of amending the terms of the agreement affecting the VAT payment. 8.6 Payment of taxes on behalf of AYA investments without certification of BOQ According to the conditions set out in the correspondence signed by the Minister of Finance with the Managing Director of AYA Investments Limited dated 29 th July 2013, condition one (1) state that the goods and respective quantities are limited to the bills of quantities certified by URA. In addition, condition four (4) requires that the said construction materials will not be sold or transferred to another person or used for any other purpose under any circumstances, implying that each import should be tracked to the BOQs as certified by URA to ensure they are not exceeded. In the interest of prudency, the Ministry needed to establish a tracking mechanism to monitor all imports by AYA by coordinating with URA with a view of only limiting to the approved quantities only. During the year, AYA investment limited imported ceramic tiles and other construction items worth UGX.1,281,778,058 for completion of Kampala Hilton Hotel. However, there was no evidence on file to show that each import was being tracked to the original quantities as certified by URA. The Ministry has no mechanism in place to establish the percentage of the import being paid for to the original approved BOQs and what the balance is to avoid overshoots. Besides, there is no proof that URA is consulted on this matter prior to making each payment to enable a reconciled position. In the circumstances, the Ministry had no current position on what had been paid for and what the balance is in relation to the originally approved BOQs. There is a risk of overpayments beyond the approved BOQs because the process is not being tracked. Besides, there are no controls to ensure that the items do not end up in the open market. Although management explained that AYA submitted the BOQs as requested and that URA carries out detailed verification and assessment on behalf of the Ministry before payments are effected; there was no reconciled position with URA availed for my verification. 8

16 I advised the Accounting Officer to reconcile the AYA imports status clearly indicating how much has so far been imported and paid for and what the balance is in relation to the approved BOQs. In addition, a proper tracing system should be instituted to track all imports. 8.7 Lack of set time limit or condition for continued tax support to AYA Investments Best practice requires investment incentive and tax holidays to be given for a specific period of time guided by the business plan submitted by the investors to avoid abuse and misuse. It was observed that AYA Investments appears to have been given an open-ended tax holiday (through annual renewals) without due consideration to the associated risks of projects which overrun timelines set in their business plans. As a result, the Ministry has continued to settle all tax obligations for AYA since 2013 when the MoU was signed. There was no indication that the Ministry is about to stop supporting the investor soon. There is a risk that the originally envisaged benefits like employment opportunities when the hotel becomes operational and resulting taxes when the business starts filing tax returns may not be achieved. The Accounting Officer explained that the Ministry has been paying import duty and taxes due for projects that are deemed strategically important. The extensions have been based on the challenges faced by investors in completing the project. I urge the Accounting Officer to evaluate the prudency and assess the sustainability of continued support against originally expected economic benefits given that it s not open to all investors in the hotel industry. 8.8 Un-disclosed status of condemned property A review of communication from KCCA indicated that the Ministry owns property number K1/ comprising of Plots 3, 5 & 7 on Nkuruma Road that has been condemned and un-fit to be maintained in Kampala metropolitan area. Accordingly, the Ministry engaged the Chief Government Valuer to value this property with the intention to dispose off the property. Since receiving the valuation report dated 23 rd January 2015, there was no evidence of management action on this property. 9

17 The Accounting Officer explained that the disposal process is ongoing and is awaiting final clearance from Uganda Land Commission. I advised the Accounting Officer to ensure that the disposal is undertaken in accordance with the PPDA regulations and other applicable laws. 8.9 Basis for release of funds to URA for both operations and tax refunds Section 15 of the Public Finance Management Act, 2015 provides that after approval of the annual budget by Parliament, the Secretary to the Treasury shall issue the annual cash flow plan of Government which shall be the basis for release of funds by the Accountant General to the Accounting Officers. Section 15 of the URA Act, 1991 further requires the funds for the Authority to be appropriated by Parliament and that its expenditure shall be a charge on the Consolidated Fund. It was noted that URA does not receive releases from the consolidated funds account like other MDAs as required by the Act. Instead URA relies on retention of revenue from source collection accounts as authorised by the Minister. During the year, URA retained a total of UGX.437,279,609,180 from the revenue collection accounts out of which UGX.201,739,609,186 was for operations and UGX.235,540,000,000 was for tax refunds. There is a risk that the Ministry has continued to allow URA to irregularly make retentions from source contrary to the Act. Besides, the retentions may not be accounted for as part of the consolidated funds with regard to revenue recognition under the consolidated financial statements. Management agrees that the practice is not in accordance with the PFMA 2015 and that URA funds will be released from the Consolidated Funds Account starting in the 2016/17 financial year. I await management actions to streamline the provision of budget releases to URA through the Consolidated Funds Account as provided for in the Act Failure to grant URA sufficient access to IFMS for proper tax management Most of the Government expenditure is made to suppliers and service providers through the IFMS. Although the IFMS is configured to automatically deduct WHT due, the system cannot deal with other tax heads such as VAT and corporation tax directly due to the nature and timing of when they become due and how the tax is 10

18 calculated and accounted for. Given the importance URA attaches to the incomes earned by suppliers and service providers to Government, a request was made by URA to access to the IFMS to enable tracking of these payments for proper tax management. However, it was noted that the access given to URA is not sufficient to enable them fully track tax payers incomes earned when transacting with Government through the IFMS. The information URA can access in IFMS is limited and not useful in the circumstance. My review of a sample IFMS payment files for various government entities revealed that 117 taxpayers who received government payments worth UGX.14,196,378,727 made false declarations of VAT in their monthly VAT returns to URA by excluding output tax (sales). Some of the suppliers signed contracts with Government and got paid VAT inclusive when they were actually not registered. This is a clear indication that e-tax system and the IFMS system are not interfacing for purposes of information sharing. URA does not obtain substantial accountability of revenues from VAT as a result of false declaration of returns by service providers to government hence loss of funds. I advised the Accounting Officer to ensure that the Ministry and Treasury partner with URA to work out modalities aimed at interfacing e-tax with IFMS for purposes of enhancing tax collections. 9.0 PROJECT FOR FINANCIAL INCLUSION IN RURAL AREAS (PROFIRA) 9.1 Budget Under Absorption According to the Ministry of Finance approved estimates for the FY 2015/2016 specifically Support to Micro Finance, external funding to the project was budgeted at UGX.13,251,632,000. The donors (IFAD) use an imprest system of funding to finance the PROFIRA project whereby funds are reimbursed to the project account when the minimum balance has been reached. It was noted that total reimbursements during the year amounted to only UGX.9,507,634,334 leading to under release of UGX.3,743,997,666. As a result, SACCO census was conducted in only 109 districts instead of all the 112. Besides, the signing of contracts with service providers to train in Credit and Default management were not carried out as anticipated. 11

19 The Accounting Officer explained that the procurement process for service providers in Credit and Default Management training took long to be completed leading to under absorption capacity. In addition, SACCO census in Kampala was delayed because the SACCO database at MTIC was still being updated in order to establish the location of the SACCOs. I advised the Accounting Officer to rollover and budget for these activities to enable their eventual implementation. 9.2 Capacity Building, training and skilling SACCOs In an effort to build capacity and skills of SACCOs as a vehicle through which all parts of the country will be able to access financial services in an affordable and sustainable manner, the Ministry of Finance signed an MOU with Uganda Cooperatives College, Kigumba to provide training services. Under the (2) year MOU, the college is to undertake the following; Provide management development support to SACCOs through training of trainers; Develop skills of SACCO management and staff as well as District Commercial Officers; Provide leadership to the technical committee reviewing and endorsing SACCO training materials developed by contracted service providers; Produce best practice manuals for each of the training areas and Drawing on best modules from existing materials in accordance with the agreed work plan However, I noted that the training of SACCOs was for only two years implying the PROFIRA project life of seven (7) years may not create the required impact to consolidate the project gains. There is need for sustained training, monitoring and constant evaluation of SACCO performance in skills development and transfer since the SACCO boards and managers are subject to change and therefore the need for sustained training beyond the two (2) year contract. There is need to build capacity and skills in monitoring and evaluation of SACCO financial performance on an annual or regular basis. The Accounting Officer explained that the MoU signed between Uganda Cooperatives College Kigumba (UCCK) and MoFPED provides for a possibility of extension of the activities. 12

20 I advised the Accounting Officer to review the outcome of the 2 year period and assess whether there is need to reconsider sustainable training of SACCOs in consultation with the funders. 9.3 Project Partnership with Ministry of Trade and its sustainability In order to promote the objectives of PROFIRA project, the Ministry of Finance signed a three (3) year MOU with the Ministry of Trade specifically the department of cooperatives development to undertake the following; Maintain and update the register and database of SACCOs; Facilitate regional and district forums of SACCOs to share knowledge and information about regulatory requirements, transfer skills and identify areas of common interest for the benefit for SACCOs; Investigate non-compliance of SACCOs with a view to identify SACCOs for possible turnaround support or liquidation; and Undertake SACCOs liquidation process and maintain an updated register of fully compliant SACCOs It was noted that the support may not be sustainable since it runs for only three (3) years while the PROFIRA project life is (7) years. The Ministry of Trade may not have the resources to sustain facilitation and yet the project is currently providing facilitation to the District Commercial Officers to oversee and supervise the SACCOs at the district level. Besides, there is no proper exit plan in case the MOU expires without any extension to sustain the support to SACCOs currently provided by the Ministry of Trade, and the achievements made under the PROFIRA project support may not be realised unless the issue of sustainability is addressed early enough. Management explained that the MoU provides for a possibility of extension at the expiry of 3 years. This requirement will be assessed and gaps identified for implementation. The advised the Accounting Officer to consult with the relevant authorities to consider the issue of continuity and sustainability of the project achievements at the end of its life by developing an exit plan ENTERPRISE UGANDA Enterprise Uganda (EU) is a public entity duly registered and constituted according to the Laws of Uganda with the objectives among others to work with Government to 13

21 promote Government policies, directives and programmes. EU envisages Micro, Small and Medium Scale Enterprises (MSMEs) as important vehicles for expanding production, providing self-employment and generally enhancing economic growth in the country. This is in line with the government objective of enhancing the quality and availability of gainful employment and uplifting the standards of living in households. A review of the expenditure records revealed the following: 10.1 Delay in obtaining funds for the construction of office block and training Centre According to the EU strategic plan for the period , one of the objectives is to build the institutional capacity for the development and promotion of small and medium scale enterprises. The expected output as per the objectives among others required EU to build a Centre of Excellence to address the needs of its different segments of clients. I noted that EU is in the process of acquiring land in a prime location in Kampala purposely for the construction of its office block and training Centre. However, this process has encountered delays due to lack of funds. Delay in securing funds for the construction undermines the achievement of the project objective and yet rental costs currently stand at US$.31,819 annually which could be avoided. Accounting Officer explained that Enterprise Uganda is in consultations with the Ministry of Finance to secure the financial resources for the development of the Entrepreneurship Centre. I urge the Accounting Officer to continue with the consultations with a view of securing funds for the construction of the office block to minimise rental costs PRESIDENTIAL INITIATIVE ON BANANA INDUSTRIAL DEVELOPMENT (PIBID) 11.1 Delay in undertaking transformation of TBI to BIRDC Review of the PIBID project five year strategic plan reveals that among the key objectives is to transform the Bushenyi Technology Business Incubator (TBI) into a Banana Industrial Research and Development Centre (BIRDC) and this was supposed to be done effective However, it was observed that the transformation has not yet taken place due to various strategic reasons among which is the delay to hand over the pilot processing 14

22 plant to the client (PIBID) by the contractor (Dott Services) reportedly due to nonpayment of outstanding certificates of works. The delay in under taking the transformation to BIRDC undermines the ultimate objectives of the project. Management explained that despite the delay, the project is in the interim transition phase awaiting final endorsement of the legal and operational framework. I advised the Accounting Officer to liaise with the relevant authorities to ensure timely endorsement of the legal and operational framework and settle all outstanding certificates due to the supplier to allow a formal hand over of the TBI and enable progress to BIRDC Lack of Supply Chain Management Plan prior to commencement of production The PIBID project is approaching the product development and marketing stage which requires proper planning. Best practice therefore requires the development of a supply chain management system to be put in place. This involves the design, planning, execution, control and monitoring of supply activities with the objective of creating net value, building a competitive infrastructure, leveraging logistics, synchronizing supply with demand and measuring performance. It was noted that the PIBID project has not yet developed a plan on how to manage its supply chain when the production of Tooke products commences in There is no documentation regarding handling of logistics, production, warehousing, material handling, packaging, marketing and transportation. There is a risk that the project may fail to move the Tooke products from the point of production to the point of consumption more so safely and efficiently. The Accounting Officer explained that the blue print for the supply chain is in place awaiting operationalization of the entire framework. I advised the Accounting Officer to expedite the operationalization of the framework prior to the commencement of production of Tooke products Un-availed Land Title A land tittle is an official record of who owns a piece of land with vital information such as mortgages, covenants, caveats and easements affecting the land. 15

23 Review of the entity documents revealed that although PIBID is currently in possession of the land located seven kilometres away from the Technology Business Incubator (TBI) pilot plant in kyamugambira Bushenyi district where the water treatment plant that supplies water to the TBI pilot plant was constructed, I was not availed with certificates of land. As a result, I was unable to confirm that PIBID indeed owns this piece of land and that there are no registered encumbers, encroachment and disputes. Management explained that an agreement for purchase of the land is available and the process of conveyance of all landed properties is ongoing. I urged the Accounting Officer to expedite the process of securing the land title for the plot of land in Kyamugambira 16

24 APPENDIX I FINANCIAL STATEMENTS 17