THE REPUBLIC OF UGANDA

Transcription

1 THE REPUBLIC OF UGANDA REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF THE ENERGY FOR RURAL TRANSFORMATION PROJECT II (ERT II) PRIVATE SECTOR FOUNDATION (PSFU) COMPONENT (IDA CREDIT AGREEMENT NO.4554 UG) FOR THE YEAR ENDED 30 TH JUNE, 2015 OFFICE OF THE AUDITOR GENERAL KAMPALA

2 TABLE OF CONTENTS LIST OF ACRONYMS... ii REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF THE ENERGY FOR RURAL TRANSFORMATION PROJECT II (ERT II) PRIVATE SECTOR FOUNDATION (PSFU) COMPONENT (IDA CREDIT AGREEMENT NO.4554 UG) FOR THE YEAR ENDED 30TH JUNE, DETAILED REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF THE ENERGY FOR RURAL TRANSFORMATION PROJECT II (ERT II) PRIVATE SECTOR FOUNDATION (PSFU) COMPONENT (IDA CREDIT AGREEMENT NO.4554 UG) FOR THE YEAR ENDED 30TH JUNE, INTRODUCTION BACKGROUND INFORMATION PRINCIPAL ACTIVITIES STATUS OF VARIOUS ACTIVITIES AUDIT OBJECTIVES PROCEDURES PERFORMED FINDINGS i

3 LIST OF ACRONYMS BDS BOU BUDS ERT GOU ICT IDA KVA PSFU REA SME SOE UGX USD $ Business Development Services Bank of Uganda Business Uganda Development Scheme Energy for Rural Transformation Government of Uganda Information Communication Technology International Development Agency Kilo Voltage Amps Private Sector Foundation Uganda Rural Electrification Agency Small and Medium Enterprises Statement of Expenditure Uganda Shillings United States Dollar ii

4 REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF THE ENERGY FOR RURAL TRANSFORMATION PROJECT II (ERT II) PRIVATE SECTOR FOUNDATION (PSFU) COMPONENT (IDA CREDIT AGREEMENT NO.4554 UG) FOR THE YEAR ENDED 30TH JUNE, 2015 THE RT. HON. SPEAKER OF PARLIAMENT I have audited the financial statements of the Energy for Rural Transformation Project II (ERT II) Private Sector Foundation (PSFU) component (IDA credit agreement no.4554 UG) for the year ended 30th June, These financial statements comprise of the Statement of Financial Position as at 30 th June, 2015, Statement of Comprehensive Income, Statement of Cash Flows and Special Activity Statement, together with other accompanying schedules, notes and accounting policies. Management Responsibility for the Financial Statements The management of Energy for Rural Transformation Project-Business Development Scheme (BUDS ERT), PSFU is responsible for preparing the financial statements for each financial year which give a true and fair view of the state of affairs of the project as at the end of the financial year. The Project management is required to ensure that the project keeps proper accounting records which disclose with reasonable accuracy at any time the financial position of the project. They are also responsible for safeguarding the assets of the project. Auditor s Responsibility My responsibility as required by Article 163 (3) of the Constitution of the Republic of Uganda, 1995 (as amended) and Sections 13 and 19 of the National Audit Act, 2008 is to audit and express an opinion on these statements based on my audit. I conducted the audit in accordance with the International Standards on Auditing (ISAs). The standards require that I comply with the ethical requirements, plan and perform the audit to obtain reasonable assurance on whether the financial statements are free from material misstatement. 1

5 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 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 financial statements in order to design audit procedures that are appropriate for the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal controls. 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 obtained is sufficient and appropriate to provide a basis for my opinion. Part A of this report sets out my opinion on the financial statements. Part B which forms an integral part of this report presents in detail all the significant audit findings made during the audit which have been brought to the attention of management. PART A Opinion In my opinion, the Financial Statements present fairly in all material respects, the financial position of the Energy for Rural Transformation project II (ERT II) - Private Sector Foundation (PSFU) component as at 30 th June, 2015, and of its financial performance and cash flows for the year ended, in accordance with the basis of accounting set out in note (a) to the financial statements and in conformity with the donor reporting guidelines, terms and conditions. Report on other Legal and Regulatory Requirements The World Bank Guidelines require that in carrying out my audit, I consider and report to you on the following matters. I confirm that; I have obtained all the information and explanations which to the best of my knowledge and belief were necessary for the purposes of my audit. In my opinion proper books of accounts have been kept by the project, so far as appears from my examination of those books and, 2

6 The Receipts and Payments Statements are in agreement with the books of account. John F.S. Muwanga AUDITOR GENERAL 14 th December,

7 REPORT OF THE AUDITOR GENERAL ON THE SPECIAL ACCOUNT OPERATIONS OF ENERGY FOR RURAL TRANSFORMATION (ERT II) PROJECT PRIVATE SECTOR FOUNDATION UGANDA (PSFU) (IDA CREDIT AGREEMENT NO UG) FOR THE YEAR ENDED 30 TH JUNE, 2015 During the course of audit of the financial statements for Energy for Rural Transformation Project II (ERT II) Public Sector Foundation Uganda (PSFU) component together with the notes thereon for the year ended 30 th June, 2015, I examined the Special Accounts Statements of the Project. Management s responsibility for the Special Accounts Management is responsible for the preparation and fair presentation of the special accounts statements on the basis of cash deposits and withdrawals for the purpose of complying with the Financing Agreements and for such internal controls as Management determines is necessary to enable the preparation of the statement that is free from material misstatement whether due to fraud or error. Auditors responsibility My responsibility is to express an opinion on the Special Accounts Statements, based on my audit. I carried out the audit in accordance with International Standards on Auditing and the World Bank guidelines on auditing. Those standards require that I comply with the ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the special accounts statements are free from material misstatement. An audit involves performing audit procedures to obtain audit evidence about the amounts and disclosures in the special accounts statements. The procedures selected depend on the auditor s judgment, including the assessment of risks of material misstatement of the special accounts, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of special accounts statements 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 entity s internal control. An audit also includes evaluating the appropriateness of accounting 4

8 policies used and the reasonableness of accounting estimates made by management as well as evaluating the overall presentation of the special accounts statements. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my opinion. Opinion In my opinion, the receipts were properly accounted for and withdrawals were made for the purposes of the programme in accordance with the Financing Agreement. The special accounts statements and notes thereon fairly present in all material respects the account operations for the year ended 30 th June, 2015 in accordance with the basis of accounting described in the financial statements and in conformity with the donor reporting guidelines and terms and conditions. John F.S. Muwanga AUDITOR GENERAL 14 th December,

9 PART B DETAILED REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF THE ENERGY FOR RURAL TRANSFORMATION PROJECT II (ERT II) PRIVATE SECTOR FOUNDATION (PSFU) COMPONENT (IDA CREDIT AGREEMENT NO.4554 UG) FOR THE YEAR ENDED 30TH JUNE, 2015 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 a like nature, and any public corporation or other bodies or organisations established by an Act of Parliament. Accordingly, I appointed M/S Price & King Certified Public Accountants to carry out the audit of the above project on my behalf and report to me to enable me report to Parliament. 2.0 BACKGROUND INFORMATION The Energy for Rural Transformation Project (ERT) was established in The funding of the project is a three phase Adaptable Program Loan from the World Bank. The purpose of the ERT project is to develop Uganda s energy and Information and Communication Technology (ICT) sectors, so that they make a significant contribution to the quality of life of households. The ERT project is being implemented by various components, BUDS-ERT being one of them. Phase I ended on 28th February 2009 and Phase II became effective on 25th November The objective of Phase I was to put in place an environment and related capacities conducive to commercially oriented, sustainable service delivery of rural / renewable energy and ICTs. The objectives of Phase II are to accelerate investments and increase regional coverage and, to increase energy efficiency and use of renewable energy technologies. 6

10 2.1 PRINCIPAL ACTIVITIES BUDS-ERT undertook three broad tasks: i) Provision of financial support for transaction advisory services on a cost share basis to activities related to renewable energy generation development. The objective of the support is to facilitate financial closure for the renewable energy projects ii) Provision of financial support on a cost share basis towards implementation of energy efficiency measures. The objective of the support is specifically to facilitate installation of power factor and power quality improvement equipment so as to reduce a given industry s electrical energy demand from the electricity grid, among other benefits iii) Provision of financial support on a cost share basis subsidy towards solar water heater market development. The objective of the support is to upscale investment in solar water heaters so as to reduce the peak demand from the electricity grid. 7

11 2.2 STATUS OF VARIOUS ACTIVITIES During the period under review, the following activities were carried out and achieved; a. Energy Efficiency Improvement Power Factor improvement equipment was installed at Rusekere Tea Growers Factory, Tembo Steel Mill, Cable Corporation, Nakana Coffee factory, Uganda Batteries Ltd, Jesa Dairy Farm and the verified energy savings were 1.08 MVA. Equipment was also installed at Kyebando Combined Millers and Lugazi Kinyoro Millers but verification of energy savings at these sites was not carried out during the reporting period. b. Preparatory activities for ERT3 Project A concept for the proposed activities and budget for the PSFU component was prepared, submitted and approved by the Government/ World Bank and now forms part of the ERT 3 Project Appraisal Document. As part of the ERT 3 Project preparatory activities, reconnaissance visits were carried out to potential pico/micro village hydro project sites, namely, Kithabona, Bikone and Kitegana in Kasese District; Hamabare in Kabarole District; Bugahane and Rwaso in Mbale District; Awiti & Bardyel in Gulu District. c. Pre-Investment activities for Renewable Energy Generation Projects Kakaka (5MW) and Lubilia (5.4 MW) mini hydro projects: Monitored progress of various pre- construction activities by mini hydro project sponsors as the projects progress towards financial closure. 3.0 AUDIT OBJECTIVES The audit was carried out in accordance with the 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: 8

12 a. To express an opinion whether the financial statements present fairly, in all material respects, project receipts and expenditure incurred for the period and are in conformity with generally accepted accounting principles. b. To evaluate and obtain a sufficient understanding of the internal control structure of the Project, assess control risk and identify reportable conditions, including material internal control weakness. c. To perform tests to determine whether the Project complied, in all material respects, with agreement terms and applicable laws and regulations. d. To establish whether all external funds have been used in accordance with conditions of the relevant legal agreements, with due attention to economy and efficiency and only for the purposes for which the financing was provided. e. To establish whether counterpart funds have been provided and used only for the purposes for which they were provided and in accordance with the relevant financing agreements, with due attention to economy and efficiency. f. To establish whether Goods, works and services financed have been procured in accordance with the relevant financing agreements including specific provisions of the World Bank Procurement Policies and Procedures. g. To establish whether proper books of account were duly kept in accordance with the generally accepted accounting principles. 4.0 PROCEDURES PERFORMED The following audit procedures were undertaken: a. Revenue Obtained all schedules of funds provided by the donor and Government of Uganda and reconciled the amounts to the Project s cashbooks and bank statement. Checked whether counterpart funds were provided and utilised in accordance with the conditions of the grant agreement. 9

13 b. Expenditure Vouched transactions included in the Statements of Expenditure and to establish whether documentation in support of expenditure agreed with the amount and description on the vouchers and/or applications and bank statements, and was properly controlled and accounted for. Checked whether all bank funds were utilised in accordance with the grant agreement, with due regard to economy and efficiency and only for the purposes for which they were provided. c. Treasury Management Checked whether the Project accounts were maintained in accordance with the provisions of the grant agreement and in accordance with the bank s disbursement procedures. d. Internal Control System Reviewed the internal control system and its operations to establish whether sound controls were applied throughout the period. e. Procurement Reviewed the procurement of goods and services under the Project during the period under review and reconciled with the approved procurement plan. Carried out a detailed review of procurement transactions to ensure adherence to control procedures required by the donor. f. Fixed Assets management Reviewed the use and management of the project assets during the period under review. Checked whether project fixed assets are real and properly evaluated and project property rights or related beneficiaries rights are established in accordance with loan conditions. g. Periodic reports about project activities Reviewed agreement provisions, operational manual and reports and reconciled it with the project activities during the period under review. 10

14 h. Compliance with laws Reviewed and assessed compliance with applicable laws, regulations and procedures. i. 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, and evaluated the overall financial statement presentation. 5.0 FINDINGS 5.1 Categorization of findings The following system of profiling of the audit findings has been adopted to better prioritise the implementation of audit recommendations: 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 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. 5.2 SUMMARY OF FINDINGS No Finding Significance 1 Budget overruns USD1,779 Moderate 2 Absence of an effective Internal Audit function Moderate 11

15 6.0 DETAILED FINDINGS 6.1 COMPLIANCE WITH FINANCING AGREEMENT PROVISIONS AND GOU FINANCIAL REGULATIONS It was noted that Management had in all material respects, complied with the Financing Agreement provisions and Government of Uganda financial regulations except the following; Budget overruns USD 1,779 The project had budget overruns totalling to USD.1,779 under the cost line items of operational/staff costs. Non-compliance with the budget can lead to penalties by the donors. Management explained that the budget overrun was caused by a commitment (gratuity) incurred in the year 2013/14 being paid in the current financial year. Management further stated that the commitment is eligible under the project and cumulatively the project will not overspend on the operational expenditure allocation. I advised management to always spend within the budget ceilings and where over expenditure on an item is deemed necessary, appropriate approval should be obtained. 6.2 GENERAL STANDARDS OF ACCOUNTING AND INTERNAL CONTROL It was noted that Management had in all material respects, put in place a satisfactory internal control system and measures to ensure proper accountability for all project funds except for the following matter; Absence of an effective Internal Audit function Though PSFU contracted a consultant in February 2013 to provide internal audit advisory services for all PSFU projects, it was noted that the annual work plan did not provide for internal audit activities under the project, and there were no internal audit reports during the period under review. Absence of an effective internal audit 12

16 function could lead to a break down or lapses in the risk management processes, control and governance processes of the project. Management explained that due to the large scope of work and inadequate time allocation arising from resource constraints, no internal audit activities were undertaken on the project during the period under review. However, the project benefited from the financial management review commissioned by the World Bank during the year. Furthermore, management intends to utilise internal audit services of the Ministry of Energy and Mineral Development. I await management s action in this regard. 13

17 FINANCIAL STATEMENTS 14