NATIONAL AGRICULTURAL ADVISORY SERVICES (NAADS) PROGRAMME

Transcription

1 THE REPUBLIC OF UGANDA NATIONAL AGRICULTURAL ADVISORY SERVICES (NAADS) PROGRAMME FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 TH JUNE 2014 TOGETHER WITH THE REPORT AND OPINION THEREON BY THE AUDITOR GENERAL OFFICE OF THE AUDITOR GENERAL UGANDA

2 TABLE OF CONTENTS LIST OF ACRONYMS... iii REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS... iv OF NATIONAL AGRICULTURAL ADVISORY SERVICES (NAADS) FOR THE YEAR ENDED 30 TH JUNE iv 1.0 INTRODUCTION PROGRAMME BACKGROUND AUDIT SCOPE AUDIT OBJECTIVE AUDIT PROCEDURES PERFORMED FINDINGS Compliance with the Financing Agreement Monitoring and Evaluation of interventions by NAADS secretariat Procurement Management Framework contracts Distribution of farm inputs Tea Intervention Project Commitments through local letters of credit at the year-end Fixed Assets Unaccounted for funds Summary issues from inspection of Districts and sub-counties Progress on Issues raised in the Previous Year s Audit Report ii

3 LIST OF ACRONYMS Acronym NAADS ATAAS EAAPP BOU IDA IFAD URA AASP NARO SESA CBF UGX Meaning National Agricultural Advisory Services Agricultural Technology and Agribusiness Advisory Services East African Agricultural Productivity Project Bank of Uganda International Development Agency International Fund for Agricultural Development Uganda Revenue Authority Agricultural Advisory Services Providers National Agricultural Research Organisation Strategic Environmental and Social Assessment Community Based Facilitators Uganda Shillings iii

4 REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF NATIONAL AGRICULTURAL ADVISORY SERVICES (NAADS) FOR THE YEAR ENDED 30 TH JUNE 2014 THE RT. HON. SPEAKER OF PARLIAMENT I have audited the accompanying financial statements of the National Agricultural Advisory Services (NAADS) Programme for the year ended 30 th June The financial statements which are set out on pages 14 to 55 comprising of; Consolidated Statement of Receipts and Payments. Statement of Financial Position Consolidated Statement of Sources and Uses of Funds Statement of Budget Comparison Notes to the financial statements including summary of significant accounting policies adopted. Management s Responsibility for the financial Statements Management is responsible for the preparation and fair presentation of the Programme financial statements in accordance with the modified Cash receipts and payments basis of accounting and the terms of Memorandum of Understanding and for such internal controls as management determines is necessary to enable the preparation and fair presentation of the Project Financial Statements that are free from material misstatements whether due to fraud or error. Auditor s Responsibility My responsibility is to express an opinion on the financial statements based on my audit. I conducted the audit in accordance with International Standards on Auditing (ISA). 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 misstatements. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the Auditor s judgment, including the assessment of the risks of material misstatements 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 and fair presentation of the financial statements in order to design audit procedures that are appropriate in the iv

5 circumstances. 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 obtained is sufficient and appropriate to provide a basis for my qualified opinion. PART A Basis for Qualified Opinion Supplies of tea seedlings Shs.18,555,353,908 incurred on the purchase and distribution of 38,168,367 tea seedlings. However, I was unable to confirm the expenditure as it lacked information of actual acreage planted. Further, discrepancies were noted in the availed delivery/distribution records. Unsupported expenditure The secretariat incurred Shs.3,953,424,825 on the purchase and distribution of farm inputs to farmers that were not supported by evidence of receipt by the beneficiary farmers. Further still, I was not provided with accountability for funds amounting to Shs.499,088,800 at the secretariat and Shs. 7,913,477,134 in Districts and sub counties. As such, I was unable to confirm that the funds in this respect were put to intended use. Qualified Opinion In my opinion, except for the possible effect of the matters described in the Basis for Qualified Opinion paragraph, the financial statements present fairly in all material respects the Financial Position as at 30 th June 2014 and the funds received and expenditure incurred for the year then ended in accordance with the terms of the Memorandum of Understanding and in compliance with the basis of accounting described under Note 6.0 of the financial statements. John F.S. Muwanga AUDITOR GENERAL KAMPALA 23 rd March 2015 v

6 REPORT OF THE AUDITOR GENERAL AND SUPPLEMENTARY INFORMATION

7 PART B DETAILED REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF NATIONAL AGRICULTURAL ADVISORY SERVICES (NAADS) PROGRAMME FOR THE YEAR ENDED 30 TH JUNE 2014 This Section outlines the detailed audit findings, management responses, 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. In accordance with the same provisions I appointed Team & Co Certified Public Accountants to carry out the audit on my behalf and report to me on the above Project to enable me report to Parliament. 2.0 PROGRAMME BACKGROUND 2.1 SECRETARIAT BACKGROUND The Government of Uganda (GOU), through the National Development Plan (NDP) aims at raising agricultural incomes thorough increased productivity and value addition. The Development Strategy and Investment Plan (DSIP) of the Ministry of Agriculture and Animal Industry and Fisheries (MAAIF) have been designed within the framework of NDP to guide sectorial growth. The DSIP seeks to transform substance farming into commercial agriculture. Agricultural research and advisory services are core mandates of MAAIF for enhancing agricultural production and productivity among others. For this purpose the Government of Uganda established the National Agricultural Advisory Services Organization. The National Agricultural Advisory Services (NAADS) is a statutory organization that was established by an act of parliament in Section 5 of the NAADS Act 2001 sets out the seven (7) objectives of the organization, which are to; Promote food security, nutrition, and household incomes, through increased productivity and market oriented farming; Empower all farmers to access and utilize contracted agricultural advisory services; Promote farmer groups to develop capacity to manage farming enterprises; 1

8 Create options for financing and delivery of agricultural advice for the different types of farmers, but with emphasis on subsistence farmers, particularly women, youth and people with disabilities; Gradually shift from public delivery to private delivery of agricultural advice; Develop private sector agricultural advisory delivery capacity and systems and assure quality of advice; Catalyse the participation of the private sector to fund agricultural advisory services. The NAADS program is financed through a Basket/Budget Support mechanism where donors and GOU pool resources together based on agreed common flow of funds mechanism for the program as prescribed in the Project Appraisal Document (PAD) May 23, 2010 for the Agricultural Technology and Agribusiness Advisory Services (ATAAS). As a decentralized program, funds are budgeted and released to the districts through the districts individual Votes with the balance of funds being budgeted and released to the NAADS Secretariat, the national coordinating arm of the program. The beneficiary District/sub county local governments and farmers co-fund the program. Among its coordination functions, the NAADS Secretariat is responsible for the compilation and submission of program financial reports (PFR) to Government and the Participating Partners. Final accountability to the Participating Partners is through an attribution of expenditures based on their financing shares in the annual NAADS budget. By FY 2012/13 the program had gradually expanded to cover a total of 1,352 sub counties in 112 districts including Kampala. The sub counties constitute the population sampled in respect of the 2012/13 statutory audit. 2.2 In the FY 2013/14, NAADS implemented the following three (3) projects; Agricultural Technology and Agribusiness Advisory Services (ATAAS) Project The project includes five components: Component 1: Developing Agricultural Technologies and Strengthening the National Agricultural Research System. The objective of this component is to develop agricultural technologies through research, and to strengthen agricultural research institutions. 2

9 Component 2: Enhancing Partnerships between Agricultural Research, Advisory Services and other stakeholders. The objectives of component 2 are to enhance the efficiency and effectiveness of technology development and dissemination by supporting closer linkages between NAADS, NARO, and other stakeholders. Component 3: Strengthening the National Agricultural Advisory Services. The objective of this component is to support improved delivery of demand driven and market oriented advisory services to farmers to promote their progression from subsistence to market orientation. Component 4: Supporting Agribusiness Services and Market Linkages. The objective of this is to promote integration of smallholders in value chains by supporting collaboration between agribusiness, farmers, advisers, and researchers to create viable sustainable market and agribusiness linkages. Component 5: Program Management. The objective of component 5 is to support the NARO and NAADS secretariats to ensure: (i) Efficient execution of administrative, financial management and procurement functions;(ii) coordination of project activities among various stakeholders;(iii) implementation of safeguard measures mandated by the Government of Uganda and The World Bank; and (iv) an effective use of the joint M&E and ICT systems established under component East African Agricultural Productivity Project (EAAPP) NAADS is also involved in the implementation of the East African Agricultural Productivity Project. EAAPP is a five year project whose implementation commenced in The project objectives are; (i) enhance regional specialisation in agricultural research; (ii) Facilitate increased sharing of agricultural information, knowledge and technology across boundaries. The objectives are pursued through strengthening existing Uganda national agriculture research program in cassava, supporting regional research, training and dissemination of relevant technologies and supporting increased availability of improved genetic materials. The project is implemented by NARO and MAAIF but NAADS as the National Organisation responsible for extension is responsible for the coordinating farmers training and dissemination of technologies to end users. 3

10 The project is funded by an IDA credit and this funding complements the IDA supported ATAAS Project described above Pilot Goat Breeding and Production Scheme for Export This is a project that is implemented by NAADS, Ministry of Agriculture Animal Industry and Fisheries and Sembeguya Estates in Sembabule district. The project is fully funded by the Government of Uganda. The project objective is to enhance goat production in the country to exploit export opportunities for goats. 3.0 AUDIT SCOPE The audit involved a review of transactions undertaken during the FY 2013/2014, covering the NAADS Secretariat and the participating Districts and 50% of the Subcounties. 4.0 AUDIT OBJECTIVE The Audit was conducted in accordance with International Standard of Auditing. The objective of the audit was to form an opinion on the financial affairs of NAADS organization for the FY 2013/ At NAADS Secretariat, special attention was paid to establish: a. Whether designated Accounts have been maintained in accordance with the provisions of the Financing / Grant agreements and funds disbursed out of the Accounts were used only for the purpose intended in the financing / grant agreement; b. Whether the NAADS secretariat is in compliance with the Treasury Accounting Instructions 2003, issued under the Public Finance & Accountability Act 2003 and provisions of the Project Implementation Manual; c. Compliance with the budget execution requirements at the Secretariat, Districts and Sub Counties including adherence to budget provisions under various vote heads; d. Whether Funds Flow and Disbursement from the MFPED to the NAADS Secretariat, Districts and Sub Counties was in compliance with agreed arrangements including banking arrangements; e. Whether staff claims/payments are in line with their appointments and salaries and allowances of whatever nature are claimed against proper documentation; f. Whether advances to staff and third party individuals/ institutions from the NAADS Secretariat vote were properly accounted for and properly retired; 4

11 g. Whether the management of organisation activities is in line with the approved Government of Uganda framework, and also in accordance with Participating Partner agreements. The auditor will be required to report on the effectiveness of some of the arrangements including farmer groups and technology transfer; h. Whether procurement at the Sub Counties, Districts and NAADS Secretariat had been conducted in accordance with the guidelines approved by the Government of Uganda and the Participating Partners. i. Whether the assets procured from project funds exist and there is verifiable ownership by the implementing agency or beneficiaries in line with the financing agreement. In addition, whether the Assets of NAADS are being used for organisation activities including whether vehicles are being used in the interest of the Programme or have been intercepted by senior government officials and consultants for their own routine use instead of serving the programme; j. Whether programme reporting to both Government of Uganda and the Participating Partners is accurate and represents the affairs as at the time of the audit. Particular emphasis was made to verify the preparation and accuracy of Programme Management Reports to the stakeholders; including reconciling the quarterly IFRs submitted to the Bank to the financial statements; k. Whether the organisation met its tax obligations, social security and other statutory obligations. Particular attention was made to verify whether these were dully deducted and remitted to the relevant authorities; l. Physical existence of project outputs at the beneficiary level. m. Whether ineligible expenditures were incurred. 4.2 At the participating Local Authorities special focus was given to the following areas:- a. The system in place at local authorities in relation to management of NAADS funds, operations and controls including the performance of internal audit, the local authority s management and tender procedures; b. Compliance with Local Government Act and Local Government Accounting and Financial Regulations and any other applicable laws and regulations on the transactions that local authorities undertake; c. Breaches of Government Regulations; d. Accountability of NAADS expenditure; e. Performance of private service providers in the participating NAADS Districts/ Sub-counties as contained in the progress reports; 5

12 f. Procurement is being implemented in accordance with the relevant procurement guidelines including the revised community guidelines; g. Utilisation of ATAAS funds in line with the approved work plan /budget; h. Verification of the quarterly financial reports; i. Physical existence and utilisation of NAADS assets at the District and Sub-county level; j. Whether the District/ Sub-counties / Farmer contributions to the programme were in line with the approved budget with particular emphasis on the documentary evidence to establish whether these contributions were deposited on the respective NAADS Accounts. 5.0 AUDIT PROCEDURES PERFORMED a. Revenue/Receipts Obtained a schedule of all programme funds provided by the development parties and Government of Uganda and reconciled the amounts to the programme cash books and bank statements. b. Expenditure Reviewed the Programme funding Agreement to ascertain agreed budget line activities for the Basket funding and checked whether funds had been utilized in accordance with the approved work plan; Vouched transactions of the programme in particular funding received and expenditures incurred during the period covered by the audit in order to establish that documentation in support of expenditure agreed with the amount and description on the payment vouchers and or applications, bank statements and was properly controlled and accounted for. 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 procurement of goods and services for the project and reconciled with the approved procurement plan. e. Fixed Assets Management Reviewed use and management of project assets during the period under review. f. Periodic Reports about project Activities Reviewed the programme agreement provisions, and reconciled it to the project activities during the period under review. 6

13 g. Programme Financial Statements Examined on a test basis, evidence supporting the amounts and disclosures in the programme financial statements; assessed the accounting principles used and significant estimates made by programme management as well as evaluating the overall financial statement presentation. 6.0 FINDINGS 6.1 Compliance with the Financing Agreement Component 3 of the financing agreement focussed on the provision of advisory services. However, Government changed the implementation of this component to free input distribution which led to disagreements with the development partners that resulted in their suspension of funding for the component. The change in implementation to provision of free inputs to farmers implies that the expenditure of Shs 84,823,360,000 recorded under component 3 of the ATAAS project is ineligible for funding by the participating partners and achievement of the ATAAS project intended objectives for component 3 may have been compromised. Management explained that discussions were held with development partners during the mission of August 2014 and it was agreed that GOU funds should solely be used to input purchase for distribution to farmers. As such the development partners agreed to fund other components excluding component 3. I advised management to ensure that project activities are implemented as agreed with the development partners to avoid suspension of funding to the project. 6.2 Monitoring and Evaluation of interventions by NAADS secretariat NAADS is involved in implementation of strategic government interventions in the agricultural sector for enhancement of household income. The interventions include the distribution of farm inputs across the country. To assess the impact of the intervention and to further focus government efforts on priority areas in the sector, it is necessary to establish a strong and functioning monitoring and evaluation function. However, it was noted that the existing monitoring and evaluation function at NAADS is lacking in aspects such as; (i) Beneficiaries are not identified and documented before procurement of inputs which creates the risk of diversion of inputs. (ii) There is no data base of farmers supported by NAADS to track their progress and success of the interventions. 7

14 The absence of a strong monitoring and evaluation mechanism leads to ad-hoc implementation of the interventions and this may lead to failure to achieve intended objectives. Management explained that NAADS Secretariat provided technology inputs to beneficiaries to address strategic and special demands usually identified at the top political and policy leadership level. Management further explained that the support would therefore normally be provided to clearly defined target groups known well before procurement and initiation and approval of the procurements of technology inputs for such support would require evidence of the source of demand. I advised management to establish a well-functioning monitoring and evaluation department to measure performance of government s interventions. Further a welldocumented process should be developed to identify beneficiaries prior to distribution of farm inputs. 6.3 Procurement Management In implementing ATAAS project and other programs, NAADS makes various procurements for supplies and services. However, my review of procurement procedures and controls revealed the following anomalies; (i) The procurement plan was not approved by the World Bank contrary to the provisions of the financing agreement. (ii) The department does not maintain procurement complaints register where bidders can register their complaints. (iii) There is no procurement notice board for publicity. Failure to ensure approval of the procurement plan by the participating partners implies non-compliance with the financing agreement provisions which may lead to the partners refusal of funding procurements under the ATAAS project. Further, absence of a notice board does not only compromise transparency in the procurement process but also violates established standard government procurement procedures. In these circumstances, procurements are not done in accordance with approved plan which impacts adversely on the implementation of various activities. 8

15 Management explained that the procurement plan was approved by the Board and submitted to the World Bank which never responded. Management further informed me that indeed they don t have a specific procurement notice Board but are using a general notice board at NAADS Secretariat on the Ground floor at the reception area and will put in place a specific notice board for procurement I advised management to ensure that a procurement plan is prepared and approved in accordance with the Project financing agreement provisions. Further, a procurement notice board and a complaints register should be put in place to ensure transparency and accountability within the process of procurement. 6.4 Framework contracts A framework contract with an Estates firm was signed on 20 th February 2014 to supply 80 motorised Knapsack Sprayers at a price of UGX 1,850,000 per sprayer. However, the call-off order made to the company on 23 rd March 2014 was for 250 units. The additional 170units of motorised Knapsack Sprayers were in excess of the contracted quantity of 80 units and therefore supplied without being subjected to the procurement rules and regulations. Management explained that this was due to the tremendous increased demand for motorised Knapsack Sprayers following a successful demonstration stage of the efficient technology in the control of pests and diseases of fruit trees crops notably citrus, mangoes and coffee. As such, more of the knapsacks were urgently required. I advised management to ensure full compliance with procurement rules and regulations to obtain value for money at competitive prices. 6.5 Distribution of farm inputs During the year, the secretariat incurred UGX 3,953,424,825 on the purchase and distribution of inputs to farmers that was not supported by lists of beneficiaries or acknowledgement by the beneficiaries. Further still the distribution of the inputs is not properly planned because the procurement of the inputs was done before determination of the beneficiaries. As a consequence the expenditure on farm inputs was not adequately supported and there is a risk that some of the inputs did not reach the targeted beneficiaries implying that the intervention may not achieve the intended objectives. 9

16 Although Management explained that all support documents required for payment as per the financial procedures were attached to the payment vouchers and were availed and reviewed during the audit process, I was not availed with the required documentation. I advised management to properly plan the distribution of the farm inputs by inspecting the intended beneficiaries to confirm their requirements and readiness before procurement of inputs is done. Further, management should ensure that deliveries are monitored, properly documented and the beneficiaries should acknowledge receipt of the inputs which acknowledgement should be used to support the payment. 6.6 Tea Intervention Project Expenditure amounting to UGX 18,555,353,908 was incurred on the purchase and distribution of 38,168,367 tea seedlings mainly in the Kigezi region. In the course of the audit i noted irregularities in the procurement, distribution, delivery and payment for the tea seedlings as elaborated below; (i) Suppliers of Tea seedlings It was observed that contracts for the supply of tea seedlings were made after supplies had taken place. This was contrary to the established government procurement laws and regulations which require contracts to be signed after a due procurement process. Management explained that this was an innovation after failing with the conventional procurement process which had revealed that nearly 60% of the seedlings were lost mainly due to mismatch in funds availability, completion of the procurement process and the agricultural/growing season and as a result of the delay most beneficiary farmers would abandon the tea on road sides thus negating the tea intervention efforts and wastage of funds. As a remedial measure, the District Authorities together with Kinkizi Development Company who are implementers of the project devised an innovative approach the garden store approach. Under this approach farmers who wish to plant tea in a given season do receive supplies directly from the supplier before completion of the procurement process and it was found to reduce the mortality rate of the tea plantlets from nearly 60% to 10% with adequate measures in-built in the approach to mitigate against risk of paying for undelivered supplies. 10

17 I advised management to adhere to the procurement regulations. (ii) Lead agencies The tea intervention in Kigezi area is implemented in collaboration with three lead agencies. These companies signed Memorandum Understanding (MOUs) with NAADS to provide services such as mobilizing farmers provide market outlets, training and field extension services, identify nursery operators, transport and distribution of plantlets and to facilitate farmers to form cooperatives. The initial MOUs signed in April 2013 did not provide any payment basis to the lead agency. Subsequently, an addendum was signed in April 2014 providing a 30% payment to the lead agency on the value of tea seedlings procured and planted. During the year payments amounting to UGX 3,659,524,377 were made to the project lead agencies. Issues of concern with this arrangement are; The MOU does not clearly justify the 30% payment of the value of tea plantlets to the lead agency. Payments to the lead agency are not supported by evidence of extension services provided. Management explained that the lead agency s responsibilities are stipulated in the Memorandum of understanding and payment is effected upon meeting the conditions there in and the lead agency provides periodic reports on activities carried out on basis of which payments are effected. I advised management to document activities undertaken to enable proper justification of the payments. (iii) Distribution/delivery of tea seedlings to farmers A field inspection was conducted to confirm existence of tea seedlings distributed. Four (4) farms were inspected and it was noted for the selected sample that tea was planted on farms but we were not provided with acreage planted except for one farm. Generally tea seedlings deliveries to the farms as recorded in the payment records do not appear to match farm acreage planted. For the farm where acreage was provided, there was a big discrepancy between the tea seedlings recorded as delivered and the tea plants that can be accommodated on the farm. The specific cases are noted below; A farm for a religious parish The tea garden was established in March 2012 and has received tea seedlings from NAADS from start to date. I requested for information on tea seedlings supplied for 11

18 the years 2012 and 2013 but this was not availed. For the year 2014 deliveries of 1,836,000 in May 2014 were noted. We were informed at the time of the audit (11/12/2014) by the farm manager that in September 2014, additional 1,460,000 tea seedlings were delivered to the farm. There was no information availed on the garden acreage. An individual s Farm The farm is located in Busengo Parish Nyarubuye Sub-county Kisoro. Acreage planted is unknown. Planting of tea in the garden started in March I was informed that the farm received seedlings in the subsequent tea seasons of September12, March 2013, September 2013, March 2014 and September In May 2014, the farm received 360,000 tea seedlings. Information on tea seedlings delivered in the other seasons was not availed. A Farm for Community Based Organisation The farm is located in Rubuguri and Ntenko parish in Kisoro district. It is adjacent to Bwindi National park. Farming commenced in 2012 with an initial delivery of 650,000 tea seedlings supplied. I was informed by the chairman of the community that these seeds were not planted and dried up on the road side. The actual acreage planted is unknown. A delivery of 1,793,793 tea seedlings was made to the farm on 20/05/2014 and received by the chairman. The farm has also received other tea seedlings over the years but information on these deliveries was not availed. An individual s Farm The farm called green valley dairy farm is located in Nyamasizi Kabale district. The total acreage of the farm was not availed. It is recorded that the farm received 3,006,640 tea seedlings on 02/04/2014. I was informed by the farm manager that he had also received an additional 1,000,000 million tea seedlings in September The procurement processes and procedures in the tea intervention project are not transparent and contravene procurements rules and regulations. In absence of clear acreage planted, it was not known how the supplies to particular farms are determined and there is a risk that some of the recorded deliveries of tea plants are not actually supplied to the farms/ gardens. Furthermore, I was not certain that the payments to lead agencies were for actual services rendered. Management admitted to the need to have records on acreage for tea planted but observed that tea growing areas in Kigezi sub region require experts to be able to 12

19 determine contour acreage as opposed to horizontal acreage on which traditional land measurement systems are based. As such management promised to engage the services of an expert and aim to have the process completed by June Commitments through local letters of credit at the year-end Funds amounting to UGX 13,892,716,461 were transferred to Bank of Uganda as commitments to open local letters of credit between 19 th June and 27 th June Included in the funds transferred was UGX 137,551,648 as commission for the letters of credit. It was further observed that 6 months later after the commitment of the funds for the local purchases, UGX 6,977,959,526 remain unperformed local letters of credit. This is made of mainly commitment to the suppliers of citrus seedlings amounting to UGX 3,640,513,000. The transfer of these funds to Bank of Uganda in form of local letters of credit was done to retain unutilised funds at the year end and the additional cost of UGX 137,551,648 in form of the local letters of credit commission paid to Bank of Uganda was considered wasteful. Such avoidable costs reduce funds meant for service delivery in this case farm input distribution. Management explained that the funds transferred were for purposes of retaining unutilised funds which were for the contracts signed at the end of the year but had not yet performed due to the fact that the funds amounting to Shs. 30 billion were received in April towards the closure of the financial year and the procurement procedures had not been concluded. Management further explained that some of the supplies depend on the season/weather and being a dry season, it was advised that some supplies be put on hold for the dry season to end. I advised management to implement planned activities timely to avoid such year end funds retention schemes that result in wastage of resources. Further, management should not enter into contracts without forecasting and analysing weather conditions. 6.8 Fixed Assets It was observed that the fixed asset register is not properly maintained. It lacks most of the details of assets stipulated in the treasury accounting instructions. Some assets do not have date of purchase, cost and right location. Further, some of the motorcycles recorded this year appear twice in the register and one UAA 338F sold during the year was still maintained in the asset register. It was also noted that the 13

20 organisation started a disposal process of eight vehicles in 2012 when bids were received but to date, only one vehicle had successfully been disposed off with the rest still parked at Ministry of Agriculture Offices. The absence of a comprehensive, accurate and up to date Assets Register implies that there is a risk that asset losses and misuse may not easily be detected. Further, failure to timely dispose of assets further diminishes the realisable amount from the assets because of the continuous waste of these assets that reduces their value. Management explained that although some assets in the register lack details, efforts had been made in subsequent verifications to ensure that gaps of that nature and others are filled. Management further explained that during their quarterly financial back stopping to districts, reviewing the maintenance and updating of asset register of NAADS assets is always done. I advised management to ensure that there is an updated asset register showing all details as per the Treasury Accounting instructions. 6.9 Unaccounted for funds In the course of the audit I noted the following unaccounted for funds amounting to UGX 499,008,800. s/n Description Amount Remarks 1 Advance to PMA 352,000,000 Unaccounted for six months after advance Advance to Buginyanya 147,008,800 Training workshops for 44 Zardi SNCs and 88 AASPs from Mbale and Sironko Districts at a cost of Shs. 29,040,000. Payment to service providers totalling Shs.17,528,800 paid out on 30 th June There are no lists of workshop participants. Missing payment details amounting to Shs.59,749,000 payment references , and

21 Excessive cash drawn on cheque no amounting to Shs 40,691,000 for joint training Workshop with NARO. Accountability not sufficiently supported. In absence of support documents on payments I was unable to confirm that the funds were used for intended purposes. Management explained that it was following up the above accountabilities and failure to obtain satisfactory accountability would result into instituting recovery measures. I advised Management to expeditiously follow up the matter and institute recovery measures from responsible officers where misuse is confirmed Summary issues from inspection of Districts and sub-counties A review was carried on the programmes system of accounting and record keeping including implementation of programme activities. The review was undertaken in 761 sub counties/town councils in the 112 districts spread across the country and the following matters were observed. Details of the matters are attached in the management letters appendix to this report. (a) Unaccounted for Funds UGX 4,007,686,846 These are funds for which we were not availed accountability documents by the accounting officers. It includes expenditure for sub counties/town councils which did not avail their books for audit, missing payment vouchers and supporting documents and unbanked co-funding receipts. Further details are included in the District/sub county management letters. (b) Ineligible Expenditure UGX 47,296,801 It was observed that some districts/sub counties incurred ineligible expenditure under the ATAAS project by spending outside the approved annual budget or by failing to comply with ATAAS project procurement procedures. Further details are included in the respective district/sub county management letter. 15

22 (c) Un-remitted Statutory Deductions UGX 179,906,634 In almost all the districts/sub counties audited, it was noted that withholding tax, PAYE and NSSF were either not deducted or where deducted, remittance to URA and NSSF was usually beyond the stipulated time. (d) Record Keeping I noted instances where the sub counties and districts financial reports amounts differed from the amounts in the underlying records, the cash books and payment vouchers implying that these reports are not derived from underlying records. These are noted in the respective district and sub county management letters. (e) Fixed assets and financial records I noted that the fixed assets of NAADS were not properly handed over for safe custody to the Chief Administrative Officers as per instructions during the transition period. NAADS Motor vehicles and motorcycles in many districts and sub counties continued to be used in activities unrelated to NAADS programme. Some of the former NAADS coordinators were still in possession of financial records like receipt books, cash books and payment vouchers in their homes at the time of the audit. (f) Project implementation Manual (PIM) Many of the districts and sub counties audited had diverted from the PIM. For instance the food security component was not fully supported. Funds meant for this component were in most cases diverted to market oriented component without approval. More still, the top ceiling of the market oriented farmers support of Shs.750,000 had been overridden thus supporting fewer farmers than planned. I advised management to make a follow up on the above matters Progress on Issues raised in the Previous Year s Audit Report A review of previous year audit report was done and the status of prior year recommendation is as below; 1. Budgeting and budget monitoring ISSUE The Project Implementation Manual (PIM) requires NAADS management to prepare a consolidated annual budget for NAADS organization and the ATAAS Project. The consolidated budget should then be submitted to the NAADS board for review 16 STATUS/PROGRESS Not done. There was no consolidated budget submitted to the world bank for approval. Response A consolidated budget was prepared for the financial year 2013/2014,

23 2. Irregular procurement of goods and services 3. Delegated procurements to districts 4 Procurements outside the procurement plan and approval. The budget and supporting work plan should also be submitted to MAAIF for inclusion in the expenditure estimates submitted to Parliament for approval. However two separate budgets are prepared, one that is submitted to Parliament for approval and the other for the ATAAS project submitted to the World Bank for approval. These budgets are not comparable. NAADS Secretariat contracted Alakaituk Enterprises Ltd to install and transport milk coolers. The contract value was UGX 310,665,969. It was however noted that this procurement was not on the approved procurement plan and management did not obtain a no objection from the World Bank or inform the bank about this procurement. Further still, the supplier was acquired through direct procurement/contracting without competition. NAADS procurement manual requires that the direct procurement method is used for small procurements of less than USD 5,000 or subject to prior review by participating partners and this was not done. We noted that the NAADS secretariat delegated various procurements amounting to UGX 7,307,260,000 to various District Local Governments. It is a requirement in the Project Implementation Manual (PIM) for each delegation to be approved by the Participating Partners. It was noted that management did not obtain approval for any of the delegated procurements from the Participating Partners. The procurements were done at the districts but the payments were made by the secretariat to the suppliers. The ATAAS Project Implementation Manual Chapter 10: Project Management clause requires the NAADS secretariat to prepare annual 17 submitted to the Board for approval and finally to MAAIF for inclusion in the expenditure estimates submitted to Parliament for approval. Not done. Irregular procurements were again noted during the audit of the financial year 2013/14 Response. NAADS did not delegate any procurements under ATAAS this FY. We delegated procurement of tea seedlings to a few LGS and were cleared by the contracts committee. All other LG procurements were made through the NAADS Zonal offices which are part of the NAADS Secretariat. The procurement plan was not submitted to the participating partners for approval.

24 5 Irregular procurement of tea seedlings in Kanungu 6 Missing payment vouchers 7 Unsupported expenditure procurement plans with estimated expenditures and the procurement method envisaged, it also provides for quarterly revision of this plan. The initial procurement plan and any revisions should be submitted to participating partners for approval. In the FY 2012/13, the secretariat procured works, goods and services valued at UGX 3,559,299,574 that were not in the approved procurement plan. On April 18, 2013, NAADS secretariat delegated the procurement and supply of 4,210,526 tea seedlings worth UGX 1,305,263,060 to Kanungu District Local Government under Kinkizi Development Company Limited and 1,097,645 tea seedlings worth UGX 340,269,950 under Kayonza Tea Factory. Kanungu district contracts committee sat on May 6, 2013 and awarded the contracts for supply of the seedlings to 15 nursery operators to supply the seedlings to beneficiary farmers. However, the contracts awarded related to supplies made between September and December 2012 implying that the procurement process was done retrospectively. According to available documentation, the deliveries were purportedly made between November and December 2012, six months before the procurement process to identify, evaluate and award contracts to the suppliers was done. The commitment letter was sent to the district on April 18, The treasury accounting instructions require accounting officers to maintain, serially numbered and properly filed vouchers that support the entries in the books, for audit reference. We however noted voucher number EFT for NFF hotel bills of UGX 114,211,525 is missing. Noted payments effected by the NAADS secretariat amounting to 18 Not done. The procurement of tea seedlings was again noted not to be in compliance with procurement rules and regulations No missing payment vouchers were noted during the audit. Not done. Instances of inadequate support for

25 8 Double payment of periderms to AASPS) 9 Transfers to Zonal Bank accounts 10 Unaccounted for funds at districts UGX 304,477,000 that lack adequate accountability. Management was advised to ensure that all payments made are adequately supported It was noted that a duplicate per diem payment was made to Agriculture Advisory Services Providers (AASPS) that participated in the AFRISA hay making training. Management was advised to recover the excess payment of UGX 27,300,000. It was noted that transfers to zonal bank accounts are expensed on disbursement. In some instances, actual expenditure in the zones differs from the expenditure indicated on the requisitions against which the zonal bank account is replenished by the secretariat leading to incorrect categorisation of expenses. Management was advised record the transfers of funds by the secretariat to zones as advances and only expense on receipt of accountability from the zones. It was noted that districts did not provide accountability to the secretariat for funds amounting to UGX 674,549,760.Management was advised to obtain full accountability for all funds transferred to districts. 11 Activity advances It was noted that advances to staff for activities and workshops are expensed on payment to staff before the actual activity is done. Further still in most cases, the accountability is not provided within 60 days and there is no evidence of advance accountability review. It was also observed that there is no advances ledger/register maintained at the secretariat to record activity advances. Management was advised to maintain advance registers and to ensure retirement of advances within 60 days. payments made were again noted. Responses. During the financial year under audit, all supporting documents for payment were attached before payments were made. Not done Response. Management is still pursuing the issue. Note done Not done. Some districts did not provide accountability for funds received for NAADS activities during the year. Not done 19

26 12 Financial Statements It was noted that although NAADS is required to prepare annual financial statements, the nature and form of these financial statements is not specified in the NAADS Act or the Financial Management Manual. Absence of clear financial reporting guidelines has resulted in the preparation of annual financial statements that do not comply with any generally accepted financial reporting framework and provide insufficient information on financial performance. It is necessary to develop and document the financial reporting guidelines for NAADS. 13 Statutory deductions Noted instances of failure to deduct Withholding Tax from suppliers and to timely file returns for PAYE and WHT. 14 Return of unexpended bank balances to consolidated fund It was noted that unexpended Bank balances of UGX11,947,541,888 and 10,404,580,442 as at 30 th June 2012 and 30 th June 2013 respectively were not returned to the consolidated fund. 15 Accounting System The NAADS secretariat accounting system is partially computerized with some of the transactions and financial statements processed by the Integrated Financial Management System (IFMS). However a substantial number of payments are made outside the IFMS. The funds are transferred to a NAADS expenditure bank account in Bank of Uganda referred to as Basket Account. It is from this bank account, that payments are made outside the IFMS and there are no ledgers maintained to record these payments. The secretariat financial statements are therefore prepared using both IFMS data and payment schedules prepared in Excel Work Sheets. Most funds deposited on the basket account are drawn from the treasury account as if they were payments to suppliers and this result into overstatement of expenditure. It is necessary to ensure that all 20 Not done Response. Management is till handling the issue with the Ministry of Finance, Planning and Economic Development. Responses. All statutory deductions were withheld and returns for PAYE and WHT filled on time. Done. Unexpended bank balances were returned to the consolidated fund The transfers that were made to the Basket account were immediately transferred to beneficiary accounts. The transfer were in respect to emergency payments that would not wait for processing the identification numbers in IFMIS system.

27 16 Procurements described partnerships 17 Agreement between Mugenga Holdings Ltd, Kisoro Potato Growers Association and Kisoro District Local Government as transactions at the secretariat are processed using IFMS so that there are captured in the ledgers. Alternatively manual ledgers should be maintained to record transactions made outside IFMS. It was noted that some of the cooperation agreements for partnerships were actually procurement of goods and services not competitively done and not done in accordance with the PPDA Act. Kisoro District Local Government signed a Memorandum of Understanding (MoU) on 12 th June 2012 between Mugenga Holdings Limited (MHL) and Kisoro Potato Growers and Marketing Association (KPGMA) to set up a potato agro processing plant to be located at Cyanika, Kisoro town to process Irish potatoes. On the basis of this MoU, NAADS secretariat made a payment of Ugx 500,000,000 on 23 August Noted deficiencies with this arrangement as explained below; There was no accountability provided for the payment of UGX 500,000,000 made to Mugenga Holdings Limited. The share capital of the company of UGX 20,000,000 is much lower than the contribution of UGX 500,000,000 by the NAADS secretariat on behalf of the farmers (Kisoro Potato Growers and Marketing Association). The beneficiary farmers are not registered with NAADS contrary to requirements of the project management procedures provided in the ATAAS Project Implementation Manual. At the time of the audit (4/02/2014), which is 17 months after the payment, the factory had not been completed. There is no work plan for implementation of this project and no date set for completion of the processing plant. Although 21 Not done. Similar agreements were made during the year. Not done