ANNUAL GENERAL REPORT OF THE CONTROLLER AND AUDITOR GENERAL

Transcription

1 ANNUAL GENERAL REPORT OF THE CONTROLLER AND AUDITOR GENERAL ON THE AUDIT OF DEVELOPMENT PROJECTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2017

2 UNITED REPUBLIC OF TANZANIA NATIONAL AUDIT OFFICE Office of the Controller and Auditor General, Samora Machel Avenue, P.O. Box 9080, DAR ES SALAAM. Telegram: Ukaguzi", Telephone: 255(022) /8, Fax: 255(022) , Website: In reply please quote Ref.No. FA 27/249/01/2016/ March 2018 Dr. John Pombe Magufuli, The President of the United Republic of Tanzania, State House, P.O. Box 9120, 1 Barack Obama Road, DAR ES SALAAM. Your Excellency, Re: Submission of Annual General Report of the Controller and Auditor General on the Audit of Development Projects for the year ended 30 June, 2017 Pursuant to Article 143(4) of the Constitution of the United Republic of Tanzania of 1977 (as amended from time to time) and Section 34 (1) (c) of the Public Audit Act No. 11 of 2008, I hereby submit to you my seventh Annual General Report on audit of Development Projects for the year ended 30 June, I submit. Prof. Mussa J. Assad CONTROLLER AND AUDITOR GENERAL

3 Office of the Controller and Auditor General, The National Audit Office United Republic of Tanzania. (Established under Article 143 of the Constitution of the URT) The statutory duties and responsibilities of the Controller and Auditor General (CAG) are given under Article 143 of the Constitution of the URT of 1977 (as amended from time to time) and Public Audit Act, No. 11 of 2008 amplified by the Public Audit Regulations of Vision To be a Highly Regarded Institution that Excel in Public Sector Auditing. Mission To Provide High Quality Audit Services that Improves Public Sector Performance, Accountability and Transparency in the Management of Public Services. Core Values In providing quality services, the National Audit Office of Tanzania (NAOT) is guided by the following Core Values: Objectivity: We are an impartial organization, offering services to our clients in an objective and unbiased manner; Excellence: We are professionals providing high quality audit services based on best practices; Integrity: We observe and maintain high standards of ethical behavior and the rule of law; People focus: We focus on stakeholders needs by building a culture of good customer care and having competent and motivated work force; Innovation: We are a creative organization that constantly promotes a culture of developing and accepting new ideas from inside and outside the organization; and Best resource utilization: We are an organization that values and uses public resources entrusted to it in efficient, economic and effective manner. We do this by: Contributing better stewardship of public funds by ensuring that our clients are accountable for the resources entrusted to them. Helping to improve the quality of public services by supporting innovation on the use of public services; Providing technical advice to our clients on operational gaps in their operating systems; Office of the Controller and Auditor General AGR/DP/2016/2017 i

4 Systematically involving our clients in the audit process and audit cycles; and providing audit staffs with adequate working tools and facilities that promote independence. Pursuant to Section 39 of the Public Audit Act No. 11 of 2008 this audit report is intended to be used by Government Authorities. However, upon receipt of the report by the Speaker and once tabled in the Parliament, the report becomes a matter of public record and its distribution may not be limited. Office of the Controller and Auditor General AGR/DP/2016/2017 ii

5 TABLE OF CONTENTS Vision i Mission.i Core Values... i List of Tables... v List of Abbreviations... vi Preface... ix Acknowledgements... xi EXECUTIVE SUMMARY... xii i. Introduction... xii ii. Summary of Significant Audit Findings... xii iii. Recommendations... xv iv. Status of Audit Opinions Issued... xv CHAPTER ONE... 1 BACKGROUND AND GENERAL INFORMATION Introduction Audit Mandate and Rationale for Audit Responsibilities of the Controller and Auditor General Organization of Audit Work Scope and Applicable Audit Standards Responsibilities of Accounting Officers... 4 CHAPTER TWO... 5 IMPLEMENTATION STATUS OF PRIOR YEARS AUDIT RECOMMENDATIONS Introduction Implementation of Prior Years Recommendations... 5 CHAPTER THREE... 7 TYPES AND TREND OF AUDIT OPINION ISSUED Introduction Types of Audit Opinions Issued Trend of Audit Opinions Issued CHAPTER FOUR PROJECTS FINANCIAL PERFORMANCE Introduction Agriculture Sector Development Programme (ASDP) Health Basket Fund (HBF) Roads Fund (RF) TASAF III Productive Social Safety Net Office of the Controller and Auditor General AGR/DP/2016/2017 iii

6 4.5 Water Sector Development Program (WSDP) Other Projects CHAPTER FIVE SUMMARY OF AUDIT FINDINGS Introduction Finance and Budget Management Procurement and Contract Management Projects Physical Performance CHAPTER SIX CONCLUSIONS AND RECOMMENDATIONS Introduction General Conclusion General Recommendations ANNEXURES Office of the Controller and Auditor General AGR/DP/2016/2017 iv

7 List of Tables Table 1: Implementation status of prior year recommendations... 6 Table 2: Summary of audit opinions issued... 8 Table 3: Trend of issued audit opinions Table 4: Total receipts and transfers of the ASDP Table 5: Total receipts and transfers of the HBF Table 6: Funds released for HBF implementers Table 7: Three years trend of the fund received from the RFB Table 8: TASAF III Financing Table 9: Source of Funds for WSDP Table 10: Funds released for WSDP implementing partners Office of the Controller and Auditor General AGR/DP/2016/2017 v

8 List of Abbreviations AfDB AFROSAI-E ASDP ASDS ASSP CAATs CAG CC CCHP DFID EFR GIZ GPSA HBF IAU IDA IFAC IFAD INTOSAI IPs IPSAS ISA ISSAIs JICA LAAC LGAs LGFM LPO African Development Bank African Organization of Supreme Audit Institutions - English speaking Countries Agricultural Sector Development Programme Agricultural Sector Development Strategy Agricultural Sector Support Programme Computer Assisted Audit Techniques Controller and Auditor General City Council Council Comprehensive Health Plan District Council Department for International Development Electronic Fiscal Receipts Germany Society for International Cooperation Government Service Procuring Agency Health Basket Fund Internal Audit Units International Development Association International Federation of Accountants International Fund for Agricultural Development International Organization of Supreme Audit Institutions Implementing Partners International Public Sector Accounting Standards International Standards on Auditing International Standards of Supreme Audit Institutions Japan International Cooperation Agency Local Authority Accounts Committee (LAAC) Local Government Authorities Local Authority Financial Memorandum Local Purchase Order Office of the Controller and Auditor General AGR/DP/2016/2017 vi

9 MC MDAs MDG MoHCDGEC MoU MSD MWI NAOT NSC NWSDS OPEC PAA PAC PAP PAs PFA PFP PFR PO-PSM PO-RALG PPR PSSN RF RFB RSSP SDR SNAO TANROADS TASAF TC TPRS TRA Municipal Council Ministries, Departments and Agencies Millennium Development Goals Ministry of Health Community Development Gender Elderly and Children Memorandum of Understanding Medical Stores Department Ministry of Water and Irrigation National Audit Office of Tanzania National Sanitation Campaign National Water Sector Development Strategy Organisation of Petroleum Exporting Countries Project Area of Authority Public Accounts Committee Project Affected People Public Authorities Public Finance Act Private Forestry Programme Public Finance Regulations President s Office Public Service Management President's Office - Regional Administration and Local Government Public Procurement Regulations Productive Social Safety Net Road Fund Road Fund Board Road Sector Support Project Special Drawing Right Swedish National Audit Office Tanzania Roads Agency Tanzania Social Action Fund Town Council Tanzania Poverty Reduction Strategy Tanzania Revenue Authority Office of the Controller and Auditor General AGR/DP/2016/2017 vii

10 UN UNICEF URT USD VAT WB WSDP United Nations United Nations International Children s Emergency Fund United Republic of Tanzania United States Dollars Value Added Tax World Bank Water Sector Development Programme Office of the Controller and Auditor General AGR/DP/2016/2017 viii

11 Preface This Annual General Report for development projects is a summary of results on the audits of development projects for the year ended 30 th June, This is the seventh annual general report of development projects which comprises of four major projects funded by the Government of the United Republic of Tanzania (URT) and Development Partners through basket funding arrangement and Roads Fund (RF) which is locally funded through fuel levy. The four development projects funded through basket funding arrangement are Agricultural Sector Development Programme (ASDP), Health Basket Fund (HBF), Tanzania Social Action Fund (TASAF III) Productive Social Safety Net (PSSN) and Water Sector Development Programme (WSDP). In addition, the report includes other projects that are funded by the African Development Bank, United Nations (UN) Agencies, bilateral funding arrangements, and the World Bank (WB). The report is to be submitted to the President of the URT in accordance with Article 143 of the Constitution of the URT of 1977 (as amended from time to time) and Section 34(1) & (2) of the Public Audit Act No. 11 of It contains a summary of main findings that were separately issued in detailed management letters and audit reports to the project implementers. It is my expectation that the report would assist our stakeholders to make evaluation on the appropriated funds whether they were exclusively utilized for intended purposes, their contribution to the economy and social development of this country, including challenges encountered; and whether value for money was realized. Pursuant to Article 143(2)(c)& (4) of the Constitution of the URT of 1977 (as amended from time to time) the Controller and Auditor General is required to audit at least once a year and submit to the President of the URT every report he makes that are later tabled to the Parliament. Office of the Controller and Auditor General AGR/DP/2016/2017 ix

12 Operational independence of the NAOT has been enhanced by the Public Audit Act No.11 of 2008 and the Public Audit Regulations of However, there is a need of improvement for the working resources in order to effectively discharge my constitutional mandate and obligations. I hope that the Government, Parliament, Development Partners and the Public in general will find this report useful in knowing how the development projects are managed by the Accounting Officers. In this regard, for the purpose of future improvement I will appreciate to receive the feedback and comments from users of this report at their earliest convenience. Prof. Mussa J. Assad CONTROLLER AND AUDITOR GENERAL National Audit Office of Tanzania, Dar es Salaam. March, 2018 Office of the Controller and Auditor General AGR/DP/2016/2017 x

13 Acknowledgements I appreciate the support given to my office by the key stakeholders that enabled us to carry out our constitutional obligation; they include the Parliamentary Committees such as Public Accounts Committee (PAC) and Local Authority Accounts Committee (LAAC), Parliamentary Budget Committees, Paymaster General, Accounting Officers in respect of Ministries, Departments and Agencies (MDAs), Local Government Authorities (LGAs) and Public Authorities (PAs) who implemented the development projects. My sincere appreciation goes to all NAOT staff for their dedicated hardworking and due diligence to accomplish this constitutional commitment. It is my hope that they will continue to provide efficient and effective audit services in order to enhance transparency and accountability in the collection and use of public resources. I would like to extend my special appreciation to the development partners particularly the African Development Bank (AFDB), Department for International Development (DFID), Germany Development Fund (GIZ), National Audit Office of Sweden (SNAO), USAID, World Bank (WB) and all other well-wishers that contributed their funds for capacity building and working resources towards modernization of audit functions. When I submitted my reports, in March 2017 the President directed the Prime Minister to ensure that my presentation that day was also heard by all Ministers, Permanent Secretaries, Regional Commissioners and Regional Administrative Secretaries. Through the efforts of the Prime Minister this meeting was convened that attributed to the stronger sense of dedication demonstrated by project implementers towards my reports. Lastly, I would like to thank the Printer for expeditiously publishing this report. Office of the Controller and Auditor General AGR/DP/2016/2017 xi

14 EXECUTIVE SUMMARY i. Introduction This part highlights major issues detailed in this report that need attention of the Government, Parliament, respective Accounting Officers and other stakeholders. The report comprised a summary of audit findings whereby detailed findings were separately issued in management letters and audit reports to the project implementers. Presented in this report are issues that were considered significant to be brought to the Government, Management of the audited entities and the Public. I identified a number of issues and weaknesses that require managements implementation for future improvement, the weaknesses are on compliance issues, financial management, internal control and governance issues that have been presented in detail in Chapter five of this report. ii. Summary of Significant Audit Findings This paragraph presents material findings that need due efforts to resolve as its recommendations have been included in paragraph 6.2 of this report. Below is the summary of significant audit findings; a) Unpaid Compensation to Project Affected People (PAP) TZS 11.9 Billion I noted that compensation amounting to TZS 11,870,767,751 was not paid to people who were affected by three projects (PAP); the projects are Water Sector Development Project phase II, Transport Sector Support Programme and Multinational Arusha-Taveta/Holili-Voi road project (annexure 1(i)). Office of the Controller and Auditor General AGR/DP/2016/2017 xii

15 b) Non-payment of Cost Sharing Contribution by MoHCDGEC and the Global Fund TZS 61.4 Billion My review of the Global Fund activities for financial year ended June 2017 noted that Ministry of Health, Community Development, Gender, Elderly and Children (MoHCDGEC) and the Global Fund did not pay their contribution of 5.6 percent equivalent to TZS 61,441,762, to the Medical Stores Department (MSD) related to cost sharing for clearance, storage and distribution of drugs and medical equipment contrary to the Memorandum of Understanding (MoU) between MSD, MoHCDGEC and Global Fund which requires these costs to be shared between the counterparts (annexure 1(ii)). c) Interest Charged as Penalty Due to Delays in Paying Contractors Claims TZS 3.9 Billion I noted three projects Road Sector Support Programme phase I (RSSP I), RSSP II and Water Sector Development Programme phase II (WSDP II) were penalized by the contracts to pay TZS 3,889,404,110 due to delay on paying claim certificates raised by the contractors. I was informed that the delay to pay the claim certificates was due to inadequate release of funds by Treasury but I am of the view that this nugatory expenditure to the government could have been avoided if contractors claims could have been paid on time (annexure 1(iii)). d) Under Remittance of Collections from Fuel Levy and Transit Charges by TRA into Road Fund Account TZS 14.8 Billion Normally TRA collects fuel levy and transit charges which are then transferred to Road Fund after approval by the Ministry of Finance and Planning. I noted that TZS 740,859,918, was transferred into Road Fund bank account instead of the entire collection Office of the Controller and Auditor General AGR/DP/2016/2017 xiii

16 during the year amounting to TZS 755,688,604, leaving a balance of TZS 14,828,686, not transferred to Road Fund bank account. e) TASAF Payments Made to Ineligible Households Are Yet to be Recovered TZS Million I noted that total of TZS 593,320,300 was paid to ineligible households made of 13 ineligible PAA/project area of authority) and the amount is yet to be recovered from the benefited ineligible households contrary to para 1.7 of the TASAF III operational manual (annexure 1(iv)). f) Expenditure Incurred Out of the Approved Budget TZS 4.3 Billion Total of TZS 4,296,264, were utilized by 46 project implementers to finance activities that were not in the approved budget. The budget overrun limits adequate utilization of the allocated project funds such that some budgeted line items may fall deficit (annexure 1(v)). g) Insufficient Release of Funds to the Development Projects TZS Billion I noted under release of TZS 274,647,963, from 257 implementers approved budget due to insufficient release by the Treasury and Donors. In some projects the under release was due to delays and incomplete submission of fund accountability reports which inhibit credit holding donors to release monies as in line with the agreements. The under release snags projects completion and exposes them to cost escalation (annexure 1(vi) and 1(vii)). h) Unsupported Expenditure Amounting to TZS 8.7 Billion I noted payments amounting to TZS 7,248,937, which were made by 163 projects without adequate supporting documents. Furthermore, I also noted missing payment vouchers amounting to TZS 1,464,506, from 21 project Office of the Controller and Auditor General AGR/DP/2016/2017 xiv

17 implementers such that my audit scope was limited to conclude authenticity of the expenditure incurred (annexure 1(viii) and 1(ix)). i) Unclaimed VAT Refunds by Project Implementers TZS 1.6 Billion I noted VAT refunds amounting to TZS 1,588,581, from 16 project implementers had not been claimed from the supplied goods and services contrary to their signed agreements (annexure 1(x)). j) Expenditure Paid Through Inappropriate Account Code TZS 1.1 Billion Expenditure amounting to TZS 1,091,406,059 made by 43 implementers were charged through inappropriate expenditure code resulting into budget overrun in expenditure line items (annexure 1(xi)). iii. iv. Implementation Status of Prior Years Recommendations I noted that Accounting Officers, Chief Executives and Project Managers do not adequately implement my recommendations that 2,720 recommendations equivalent to 35 percent of the total outstanding recommendations issued in prior years were not implemented as reflected in Para 2.1 of the report. Status of Audit Opinions Issued My audit covered 742 development projects in financial year 2016/2017 of which 664 were from the major five development projects namely ASDP, HBF, RF, TASAF and WSDP with 56, 181, 177, 70 and 180 opinions respectively; In addition there were 78 other development projects. Out of 742 audit opinions issued in financial year 2016/ opinions equivalent to 94 percent were unqualified meaning that the audited financial statements were fairly presented in all material respect, and 44 opinions equivalent Office of the Controller and Auditor General AGR/DP/2016/2017 xv

18 to 6 percent were qualified meaning that the audited financial statements were not fairly presented. One adverse opinion was issued and there is no disclaimer opinion. I did not notice any significant improvement on the opinions issued in the current year compared to previous financial year. However, siginificant number of qualified opinions was issued to HBF and WSDP with 14 and 13 opinions respectively. Office of the Controller and Auditor General AGR/DP/2016/2017 xvi

19 CHAPTER ONE BACKGROUND AND GENERAL INFORMATION 1.0 Introduction The statutory audit on the financial statements of the development projects implemented in the country for the financial year ended 30 June 2017 has been completed. The audit covered five major development projects; ASDP, HBF, RF, TASAF and WSDP, I also covered other projects financed by the African Development Bank, Bilateral Funding Arrangements, United Nations (UN) Agencies and the World Bank. My office planned to carry out a total of 768 project audits which included the five major projects and the other projects. As at 31 March 2018, I completed the audit of 742 projects; ASDP, HBF, RF, TASAF, WSDP and the other projects numbered 56, 181, 177, 70, 180 and 78 respectively while 26 audits were in progress. In addition, I completed 31 audits which were in progress in the financial year 2015/2016. The report comprises a summary of main findings derived from detailed findings from the Management Letters and Audit Reports which were separately issued to the Project Implementers. 1.1 Audit Mandate and Rationale for Audit I am required by Article 143 of the Constitution of the URT to audit Public Accounts and all Offices, Courts and Authorities of the Government of Tanzania and submit my reports thereon to the President who shall cause them to be laid before the Parliament. In discharging these duties, I am also required by Section 10 of the Public Audit Act No. 11 of 2008, to satisfy myself on Office of the Controller and Auditor General AGR/DP/2016/2017 1

20 safeguarding the collection of public monies, and that all expenditure of public monies has been properly authorized and applied to the purposes for which they were appropriated and that the laws, directions and instructions applicable thereto have been duly observed; and economy, efficiency and effectiveness have been achieved on the use of public resources. 1.2 Responsibilities of the Controller and Auditor General My responsibility as Auditor is to express an opinion on the financial statements of development projects based on the performed audit. I conducted my audit in accordance with the International Standards of Supreme Audit Institutions (ISSAIs), Memorandum of Understanding requirements and such other procedures I considered necessary in the circumstances. I am required by Section 10 (2) of the Public Audit Act No. 11 of 2008 to satisfy myself that the accounts have been prepared in accordance with the appropriate accounting standards and legal framework and that reasonable precautions have been taken to safeguard the collection of revenue, receipt, custody, disposal, issue and proper use of public property, and that the law, directions and instructions applicable thereto have been duly observed and expenditures of public money have been properly authorized. I am also required by Section 48(3) of the Public Procurement Act No.7 of 2011 to state in my Annual Audit Report whether the project implementers have complied with the procurement laws and its regulations. 1.3 Organization of Audit Work The report provides a summary of the final results of the audit exercise carried out throughout the country. In order for my office to effectively conduct the audit for all Office of the Controller and Auditor General AGR/DP/2016/2017 2

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22 1.4.2 Applicable Audit Standards The NAOT is a member of the International Organization of Supreme Audit Institutions (INTOSAI) and the African Organization of Supreme Audit Institutions of English Speaking Countries (AFROSAI-E). Therefore, the applied audit procedures were in line with the International Standards of Supreme Audit Institutions (ISSAI) issued by INTOSAI and International Standards on Auditing (ISA) issued by the International Federation of Accountants (IFAC). I am required by these standards to comply with ethical requirements of planning and performing of the audit to obtain reasonable assurance on whether the financial statements are free from material misstatements and are prepared according to the signed MoU. 1.5 Responsibilities of Accounting Officers Accounting Officers of LGAs, MDAs and Chief Executive Officers of the Implementing Partners are required by Section 25(4) of the Public Finance Act (PFA) No. 6 of 2001 (revised 2004) to prepare the financial statements for each financial year which give a true and fair view on the receipts and payments made under the project as at the end of the financial year. Again, Order number 11, 14 and 31(1) of the Local Government Financial Memorandum of 2009, and Memorandum of Understanding (MoU) between Project Implementers and Development Partners require managements to ensure that proper accounting records are kept and sound system of internal control is maintained within the entity. Office of the Controller and Auditor General AGR/DP/2016/2017 4

23 CHAPTER TWO IMPLEMENTATION STATUS OF PRIOR YEARS AUDIT RECOMMENDATIONS 2.0 Introduction The chapter presents audit follow up on implementation of qualitative and quantitative prior year recommendations issued by CAG as summarized from the individual audit reports in order to verify whether they have been implemented or not. My recommendations intend to assist project implementers to rectify anomalies noted during the audit and suggest the respective solution for future improvement. 2.1 Implementation of Prior Years Recommendations As shown in annexure 3, there were 7,740 outstanding audit recommendations from all development projects during the financial year ended 30 th June Out of which, 2,220 equivalents to 29 percent were implemented; 1,325 equivalents to 17 percent were under implementation; 2,720 equivalents to 35 percent were not implemented, and 1,475 equivalents to 19 percent were overtaken by events. Looking at the implementation of my prior years recommendations I am of the view that the implementation status is still unimpressive despite a small improvement of 5 percent as 35 percent of my recommendations were not implemented compared to 40 percent of prior year. My project-by-project analysis shows that 145 out of 408 ASDP s outstanding recommendations equivalents to 36 percent were not implemented, 728 out of 2,043 RF s outstanding recommendations equivalents to 36 percent were not implemented, 1,014 out of 2,437 HBF s outstanding recommendations equivalents to 42 percent were not implemented, 678 out of 2,058 WSDP s outstanding Office of the Controller and Auditor General AGR/DP/2016/2017 5

24 recommendations equivalents to 33 percent were not implemented, 84 out of 424 TASAF s outstanding recommendations equivalents to 20 percent were not implemented, and 71 out of 370 Other Project s outstanding recommendations equivalents to 19 percent were not implemented. Table below summarizes the implementation status by projects; Table No. 1: Implementation status of prior year recommendations Project Name Outstandin g Issues Implement ed Under Implementat ion Not Implemen ted Overtaken by Events ASDP RF 2, HBF 2, TASAF WSDP 2, Other Projects Total 7,740 2,220 1,325 2,720 1,475 Percentage Source: Prior year CAG management letters Therefore, I recommend the government and project implementers to ensure that my recommendations are implemented on a timely manner in order to avoid recurrence of similar weaknesses in future and improve accountability on utilization of funds. Office of the Controller and Auditor General AGR/DP/2016/2017 6

25 CHAPTER THREE TYPES AND TREND OF AUDIT OPINION ISSUED 3.0 Introduction I am obliged to give an assurance to stakeholders of the respective development projects whether their financial statements present fairly in all material respects, the financial position of the development projects as at 30 th June, 2017, and its financial performance, cash flows and other financial accounts prepared in order to comply with statutory requirements. Auditor s opinion is considered an essential tool when reporting financial information to users. In the public sector, it is intended to inform Parliament and other stakeholders on whether financial statements of development projects have been prepared in conformity with the International Public Sector Accounting Standards (IPSAS) and in the manner required by Section 25(4) of the Public Finance Act, 2001 (revised 2004) and Order Number of the Local Government Financial Memorandum (LGFM) of 2009 as well as MoU s between the Government and the Development Partners. According to my audits on the development projects I give three types of assurance on the financial statements, internal control and compliance. I issued 742 opinions on the financial statements, 35 opinions on internal control and 6 opinions on compliance which relate to projects financed by USAID, UNDP, UNICEF and the Global Fund. However, I did not find any significant deficiency on the 41 opinions issued for internal control and compliance. Opinions related to financial statements are discussed in the following paragraphs; 3.1 Types of Audit Opinions Issued In financial year 2016/2017, I concluded the audit of 742 development projects and issued three types of opinions; unqualified, qualified and adverse as summarized in the table below: Office of the Controller and Auditor General AGR/DP/2016/2017 7

26 Table No. 2: Summary of audit opinions issued Project Opinion Issued Unqualified Qualified Adverse Disclaimer Project total ASDP HBF RF TASAF WSDP Other Projects Grand total Source: Audit reports of financial year 2016/ Unqualified Opinion Unqualified opinion (ISSAI ) is expressed when the auditor concludes that the financial statements of an audited entity give a true and fair view or are presented fairly in all material respects in accordance with the applicable financial reporting framework. Total of 697 unqualified opinions equivalent to 94 percent of total opinions were issued to implementers of ASDP, HBF, RF, TASAF, WSDP and Other Projects with 55, 167, 169, 66, 166 and 74 opinions respectively. This meaning that the audited financial statements were fairly presented in all material respects. As discussed in para 3.2, there is an improvement of 3 percent on unqualified opinions issued compared to 725 unqualified opinions equivalents to 91 percent from the financial year 2015/2016 (annexure 4(i) and 4(ii).) Qualified Opinion A qualified opinion (ISSAI ) is issued when; (a) The auditor, having obtained sufficient appropriate audit evidence, concludes that misstatements, individually or in the aggregate, are material, but not pervasive, to the financial statements; or (b) The auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion, but the auditor concludes that the possible effects Office of the Controller and Auditor General AGR/DP/2016/2017 8

27 on the financial statements of undetected misstatements, if any, could be material but not pervasive. Total of 44 qualified opinions equivalent to 6 percent of total opinions were issued to implementers of ASDP, HBF, RF, TASAF, WSDP and Other Projects with 1, 14, 8, 4, 13 and 4 opinions respectively. Basing on these results, HBF accounts for a significant share of 32 percent of total qualified opinions issued to all development projects, followed by WSDP and RF with 30 percent and 18 percent respectively. Significant number of qualified financial statements was attributed to unsupported expenditure and unadjusted misstatements (annexure 4(iii)). In view of unsupported expenditure it signifies serious lapses of expenditure control and recordkeeping systems for the projects in question. As such, it technically provides a room for projects monies to be diverted to uses other than intended or even abuse of such monies. Therefore, the Government and other project implementers have to pay attention on such acts and ensure that project expenditures are properly supported Adverse Opinion Adverse opinion (ISSAI ) is expressed when the effect of disagreement is so material and pervasive to the financial statements that, the auditor concludes that qualification of the report is not adequate to disclose the misleading or incomplete nature of the financial statements. It is issued when he has determined that the misstatements are material individually or in aggregate and that they are pervasive to the financial statements. In the current audit, I issued an adverse opinion to Makete District Council in respect of WSDP project. Office of the Controller and Auditor General AGR/DP/2016/2017 9

28 3.1.4 Disclaimer Opinion Disclaimer opinion (ISSAI ; 10) is issued when the possible effect of limitation of scope or uncertainty is so material and pervasive that the auditor has not been able to obtain sufficient, appropriate and reliable audit evidence and accordingly is unable to express an opinion on the financial statements. I have not issued a disclaimer opinion to any development project in the financial year 2016/ Trend of Audit Opinions Issued I present the analysis of audit opinions issued from past two financial years, insignificant changes have been noted in the audit opinions issued when compared with the financial year 2015/2016 (table 3 below): Table No. 3: Trend of issued audit opinions Financial Opinion Issued year Unqualified Qualified Adverse Total No. % No. % No. % 2016/ / / Source: Audit reports and previous development projects annual general report The table indicates an improvement on unqualified and qualified opinions as there is an increase of 3 percent and decrease of 3 percent respectively compared to previous year. However, there was no change on percentage related to adverse opinion whereby 0.13 percent was attributed for two consecutive years. As explained in para and 3.1.3, I issued 44 qualified opinions and 1 adverse opinion due to unadjusted errors and unsupported expenditure which were taken as basis of qualification for particular project (annexure 3 (ii)). Office of the Controller and Auditor General AGR/DP/2016/

29 CHAPTER FOUR PROJECTS FINANCIAL PERFORMANCE 4.0 Introduction This chapter gives details of financing of the audited development projects ASDP, HBF, RF, TASAF, WSDP and the other projects. It provides summaries of funds disbursed and utilized by the implementers for the year under audit. Detailed summary of financial performance for each individual project is shown in annexure Agricultural Sector Development Programme (ASDP) Introduction The programme presents an integration of the ASDP National and Local components into one consolidated set of interventions financed through the ASDP Basket Fund that supersedes the Agricultural Sector Support Programme (ASSP) and District Agricultural Development Programme (DADP). The ASDP activities are implemented at national and local level by Ministries and LGAs respectively and their objectives have been set under the Agricultural Sector Development Strategy (ASDS) framework Financing ASDP Basket Fund is financed by contributions and loans from Development Partners through the Embassy of Ireland, IDA, and International Fund for Agricultural Development (IFAD) and Japan International Cooperation Agency (JICA). Funds are received through the Holding Account maintained by the Treasury thereby transfers are made to the corresponding implementers. Office of the Controller and Auditor General AGR/DP/2016/

30 The Programme had an opening balance of USD 4,218, (TZS 9,361,194,080.05) in the Basket Fund Holding Account and did not receive any fund from Development Partners. During the year the transfers amounting to USD 344, (TZS 765,237,777.69) were made leaving USD 3,873, (TZS 8,595,956,302.36) as closing balance at the year-end. While ASDP II BRN Basket Fund Holding Account had an opening balance of USD 611, (TZS 1,357,996,182.80) and received total of USD 351, (TZS 779,579,228.33) from IDA. A sum of USD 361, (TZS 801,714,801.85) and USD 157, (TZS 349,583,444.03) were transferred to Ministry of Agriculture and Ministry of Water and Irrigation respectively and ended with the closing balance of USD 444, (TZS 986,277,165.24) as reflected in the table below; Table No. 4: Total receipts and transfers of the ASDP Detail Amount (USD) ASDP Basket Fund Holding Account ASDP II BRN Basket Fund Holding Account Opening Balance 4,218, , Funds received during the year: IDA - 351, Funds available 4,218, , Transfers: Ministry of Water and Irrigation - 157, Ministry of Agriculture 204, , Refund Unutilized to IDA 139, Total Transfers: 344, , Closing balance 30 th June ,873, , Source: Statement of receipts and transfers of the ASDP Holding Accounts of 30 June 2017 Office of the Controller and Auditor General AGR/DP/2016/

31 4.1.3 Funds Released to LGAs During the year under review, 56 LGAs had a total fund available of TZS 14,496,390, for implementation of ASDP s activitie whereby TZS 13,348,387, were opening balance and TZS 1,148,002,923 were received during the year for implementation of ASDP activities. TZS 9,177,271,288 were spent during the year remaining with a closing balance of TZS 5,319,119, Equivalent to 37 percent of the total fund available carried forward to complete the outstanding commitments. 4.2 Health Basket Fund (HBF) Introduction HBF is financed by the development partners through the Holding Account at the Central Bank of Tanzania (BoT) and transferred to the Ministry of Health, Community Development, Gender, Elderly and Children (MoHCDGEC), PO- RALG and the respective LGAs on a quarterly basis through the Exchequer Account. The financing process follows normal URT s system whereby development partners financial commitments are included in the annual budget Financing With an opening balance of USD 15,547, (TZS 33,704,866,845.71), the HBF holding account received a total USD 74,682,274.4 (TZS 161,616,252,402.8) and transferred USD 68,008, (TZS 148,705,727,340) to 181 implementers to end with a closing balance of USD 22,220, (TZS 49,308,745,964.51).The main contributors during the year were Denmark (12 percent), Ireland (12 percent), Switzerland (8 percent), KOICA Japan (1.3 percent), UNICEF (1.3 percent), IDA (46 percent) and Canada (19 percent); see table below: Office of the Controller and Auditor General AGR/DP/2016/

32 Table No. 5: Total receipts and transfers of the HBF Description Amount (USD) Percentage to the total contribution Opening balance 15,547, Receipt Denmark 8,724, Ireland 8,981, Switzerland 6,105, KOICA Japan 1,000, UNICEF 1,000, IDA 34,671, Canada 14,137, Reversal of excess fund 62, Total receipt 74,682, Total available fund 90,229, Transfer MOHCDGEC 67,879, PO-RALG 129, Total transfers 68,008, Closing balance 30 June 22,220, Source: HBF statement of receipt and payments holding accounts as of 30 June Funds Released to MoHCDGEC, PO-RALG and LGAs MoHCDGEC, PO RALG and LGAs received total of TZS 8,768,477,000 TZS 30,085,677,840 and TZS 105,827,586,360 whereby TZS 7,357,570,608, TZS 6,192,407, and TZS 115,546,902, were respectively spent on implementation of HBF activities as shown in the table below: Office of the Controller and Auditor General AGR/DP/2016/

33 Table No. 6: Funds released for HBF implementers Details Amount (TZS) MoHCDGEC PO RALG LGAs Opening balance 149,913,966 4,545,282, ,593,701,658 Funds received during the 8,768,477,000 30,085,677, ,827,586,360 year Total funds available during 8,918,390,966 34,630,959, ,970,149, the year Total expenditure 7,357,570,608 6,192,407, ,546,902, Refund to holding account 149,913, Closing balance 30 th June 1,410,906,392 28,438,552, ,423,246, Source: HBF financial statements as of 30 June Roads Fund (RF) Introduction RF derived its revenue from collection on fuel levy, transit charges, overloading fees, interest income, other income and external support specifically from DFID. The collected amount was distributed among the implementing partners such as RF, Ministry of Works, Tanzania Roads Agency (TANROADS), PO-RALG, and LGAs basing on a percentage set by the Parliament from time to time. RF as one of the implementing partners is required to utilize more than 90 percent of the allocated collection for maintenance and emergency repair of classified roads and the related administrative costs in Mainland Tanzania according to approved budget. The remaining percent is also to be used for roads development with the related administrative costs in Mainland Tanzania Financing During the year under review, RF collected an amount of TZS 870,518,855,605 including TZS 92,806,884,046 from the donors for implementation of the planned activities. See the table below; Office of the Controller and Auditor General AGR/DP/2016/

34 Table No. 7: Three years trend of the fund received from the RFB Source of (Amount in TZS) Revenue 2016/ / /15 Fuel levy 744,100,055, ,091,411, ,175,176, Transit Charges 11,588,549,889 9,491,496,859 7,904,356, Overloading fees 10,976,051,955 8,052,957,501 11,348,406,232 Donor Support 92,806,884,046 26,114,158,400 19,772,448,112 (DFID) Road reserve fund 10,000,578, ,939,182 Other income 284,678, ,491, ,310,481 Interest Income 762,057, ,778,313 Total 870,518,855, ,847,294, ,987,637, Source: RF financial statements as of 30 June 2017 From the above analysis, it is clear that the trend of the amount received as a portion from the RFB has been increasing by 16 percent in overall with significant percentage increase in contribution from DFID and road reserve fund as 255 percent and 100 percent respectively RF Local Government Authorities Financing LGAs had opening balance of TZS 54,555,130, and received total of TZS 219,391,809, whereby TZS 191,941,807, were spent remaining with a closing balance of TZS 82,005,132, equivalent to 30 percent of the total fund available for LGAs RF activities. 4.4 TASAF III Productive Social Safety Net Introduction The Tanzania Social Action Fund Project Phase III (TASAF III) Productive Social Safety Net (PSSN) was established on 15 th June 2012 from the signed development financing agreement between the URT and the WB through IDA whereby the recipient is allowed to extend the credit in an amount equivalent to Special Drawing Right (SDR) 141,900,000 at USD 220,000,000 for a duration of five years starting from 13 August 2012 to 31 December Office of the Controller and Auditor General AGR/DP/2016/

35 The fund is part of the National Poverty Eradication Strategy and was established to empower communities to access opportunities that contribute to improved livelihood as linked to the Millennium Development Goals (MDG) as stated in the Tanzania Poverty Reduction Strategy (TPRS). Project objective is to create a comprehensive, efficient, and welltargeted productive social safety net for the poor and vulnerable section within the URT Financing During the year TASAF III received TZS 318,577,767, and had opening balance of TZS 36,027,176, making the total funds available for use to be TZS 354,604,943, During the year TASAF III spent a total of TZS 324,188,446, (including transfers to Implementers) and remained with a closing balance of TZS 30,416,497, See details in the table below; Table No. 8: TASAF III Financing Donor/financier Amount (TZS) Opening balance 36,027,176, Funds received: IDA 211,484,550, UNDP 339,926, Development Partners 101,631,309, OPEC III 5,016,791, Private Forestry Programme (PFP) 105,190, Funds available 354,604,943, Total expenditure 324,188,446, Closing balance 30 th June ,416,497, Source: TASAF financial statements as of 30 June Funds Released to LGAs During the year under review, LGAs had a total fund available of TZS 3,074,534, for implementation of TASAF activities whereby TZS 738,939, were opening balance and TZS 2,335,594, were received during the year for Office of the Controller and Auditor General AGR/DP/2016/

36 implementation of planned activities. TZS 2,124,715, were spent during the year remaining with a closing balance of TZS 949,818, equivalent to 31 percent of the total fund available. 4.5 Water Sector Development Programme (WSDP) Introduction Implementation of the WSDP was started in 2007/2008 under the guidance of the National Water Sector Development Strategy (NWSDS) in order to implement the strategic framework for the National Water Policy of The programme aims to enhance water resources management for socio-economic development and sustainable environment; and to ensure that all social groups in rural, urban and peri-urban areas have access to adequate, safe and clean water and sanitation services. The programme has been financed by the URT and the implementing partners (IPs) whereby contributions are deposited into the Water Sector Basket Fund Holding Account at Treasury which then transferred to Ministry of Water and Irrigation (MWI) account for distribution to the implementers Financing The Programme was mainly financed by three contributors (International Development Association, Fund from DFID and Agency Franchise De Development) who pooled their funds into WSDP basket fund (holding account) at Treasury. The URT and the DPs contributed their funds into the exchequer account. During the year, WSDP had TZS 327,444,233, for implementing its annual activities of which TZS 323,165,998, were contributed by development partners and the URT. Expenditure for the year was TZS Office of the Controller and Auditor General AGR/DP/2016/

37 317,476,708, out of the funds available ending up with a closing balance of TZS 9,967,525, as of 30 June See details in the table below: Table No. 9: Source of Funds for WSDP Donor/Government Amount (TZS) GoT Contributions (counterpart funding) 67,474,979,764 National Water Investment Fund (NWIF) 137,429,567,945 DPs contribution 65,959,245,377 DPs Contribution to the Earmarked 50,403,025, Projects Other sources-community Contribution 804,788, Adjustment: Gain/(Loss) due to 1,094,392, Exchange rate fluctuations Total Contribution/released 323,165,998, Add: Opening balance as on 1/7/2016 4,278,235,021 Total funds available during the year 327,444,233, Less Payments during the year 317,476,708, Closing Balance as at 30 June ,967,525, Source: WSDP financial statements as of 30 June Funds Released to MoHCDGEC, PO-RALG and LGAs MoHCDGEC under implementation of WSDP National Sanitation Campaign (WSDP NSC) had in total TZS 1,219,925, inclusive of TZS 789,256,499 as receipts for the year and opening balance of TZS 430,669, Audit noted that a sum of TZS 817,396, out of the funds which were available was spent leaving a balance of TZS 402,529, as of 30 th June Also a release amounting to TZS 104,296,994,806 was made to 180 LGAs with opening balance TZS 36,112,091,297 whereby TZS 109,015,286,092 were utilized to end with a closing balance of TZS 31,393,800,011. Also PO-RALG had total funds available for WSDP during the financial year of TZS 263,960, As at 30 th June, 2017 there was an unspent balance of TZS 2,672, indicating that the project spent TZS 261,287, equivalent to 99 percent of available funds. Details are shown in the table below. Office of the Controller and Auditor General AGR/DP/2016/

38 Table No. 10: Funds released for WSDP implementing partners Amount (TZS) Details MoHCDGEC LGA PO-LARG Opening balance 430,669, ,112,091,297 1,933, Funds received during the 789,256, ,296,994, ,027, year Total Funds available during 1,219,925, ,409,086, ,960, the year Total Expenditure 817,396, ,015,286, ,287, Closing balance 30 th June ,529, ,393,800,011 2,672, Source: WSDP financial statements as of 30 June Other Projects I audited a total of 78 Other Projects including AfDB, Global Fund, IFAD, UNDP, UNICEF, World Bank, and other Donors. This category covers various development activities ranging from health, education, infrastructure, poverty reduction, and capacity building. During the year the Other Projects received a total of TZS 1,557,495,429, with opening balance of TZS 196,728,362, whereby TZS 1,605,725,330, was spent into a closing balance of TZS 148,498,460, The closing balance was due to lately released funds to the projects and was carried forward for implementing the outstanding activities. Office of the Controller and Auditor General AGR/DP/2016/

39 CHAPTER FIVE SUMMARY OF AUDIT FINDINGS 5.0 Introduction This chapter highlights current years audit findings other than significant findings as presented in paragraph (ii) of the executive summary. The findings are presented as follows; 5.1 Finance and Budget Management Affected Budget Due to Deferred Payments TZS Million I noted payments amounting to TZS 222,320,191 made by 19 project implementers in LGAs to clear prior years liabilities. Due to lack of evidence I was unable to justify whether the deffered payments have been included in the reported creditors of financial year 2015/16 or current year s budget contrary to Order 22(1) of the LGFM, Certain project activities were not adequately implemented much as these deffered payments have not been included in the budget of 2016/17 (annexure 6(i)) Utilization of the Remaining Cash From Road Fund Without PO-RALG Approval TZS Million I noted that 4 Councils had spent total of TZS 872,487,546 from rolled over cash due to outstanding activities related to financial year 2015/2016 without obtaining an approval from PO-RALG contrary to para 3.5 of the Annual Performance Agreement for District, Urban and Feeder Roads which requires prior approval to be sought for unspent balance from the remaining activities (annexure 6(ii)). Office of the Controller and Auditor General AGR/DP/2016/