ANNUAL GENERAL REPORT OF THE CONTROLLER AND AUDITOR GENERAL

Transcription

1 ANNUAL GENERAL REPORT OF THE CONTROLLER AND AUDITOR GENERAL On the Financial Statements of Local Government Authorities for the financial year ended 30 th June, 2009

2 THE UNITED REPUBLIC OF TANZANIA NATIONAL AUDIT OFFICE Telegram: Ukaguzi Telephone: 255(022) /8 Fax: 255(022) Web site: In reply please quote Ref. No.CA.4/37/01/2008/2009 Office of the Controller and Auditor General Samora Avenue, P.O. Box 9080, DAR ES SALAAM. 26 th March, 2010 Your Excellency Dr. Jakaya Mrisho Kikwete, The President of the United Republic of Tanzania, State House, P.O. Box 9120, DAR ES SALAAM. Re: Submission of the Annual General Report of the Controller and Auditor General on the Audit of Local Government Authorities (LGAs) for the financial year ended 30 th June, 2009 Pursuant to Article 143 of the Constitution of the United Republic of Tanzania of 1977 (revised 2005) and Sect. 48 of the Local Government Finances Act No.9 of 1982 (Revised 2000), together with Sect. 34 of the Public Audit Act No.11 of 2008, I hereby submit to you the above mentioned report for your information and necessary action. I submit, Ludovick S.L. Utouh CONTROLLER AND AUDITOR GENERAL Controller and Auditor General (CAG) General Report on LGAs for 2008/09 iii

3 Office of the Controller and Auditor General, National Audit Office of the United Republic of Tanzania (Established under Article 143 of the Constitution The statutory duties and responsibilities of the Controller and Auditor General are enshrined in Article 143 of the Constitution of the URT of 1977 (revised 2005), further elaborated in Sections 45 and 48 of the Local Government Finances Act No 9 of 1982 (revised 2000) and in Sect.10 (1) of the Public Audit Act No. 11 of Vision To be a centre of excellence in public sector auditing Mission To provide efficient audit services in order to enhance accountability and value for money in the collection and use of public resources. Our Core Values are:- Objectivity: We are an impartial organization, offering services to our clients in an objective, and unbiased manner. Excellence: Integrity: People s focus: Innovation: We are professionals providing high quality audit services based on best practices. We observe and maintain high standards of ethical behaviour and the rule of law. We focus on stakeholders needs by building a culture of good customer care and having competent and motivated work force We are a creative organization that constantly promotes a culture of developing and accepting new ideas from inside and outside the organization This audit report is intended to be used by Government Authorities. However, upon tabling of this report in Parliament, the report becomes a matter of public record and its distribution may not be limited. Controller and Auditor General (CAG) General Report on LGAs for 2008/09 iv

4 Foreword By virtue of the provisions of Article 143 of the Constitution of the United Republic of Tanzania of 1977 (revised 2005), and Section 45 of the Local Government Finances Act No. 9 of 1982 (revised 2000) together with Sect. 9 of the Public Audit Act No.11 of 2008, the Controller and Auditor General to carry out financial audits for the purpose of establishing the financial performance of any expenditure or use of resources in the Local Government Authorities which involves enquiring, examining, investigating and reporting in so far as I consider necessary. I have the honour therefore, to submit to the President of the United Republic of Tanzania, Dr. Jakaya Mrisho Kikwete and through him to Parliament my Annual General Report on the audit of Local Government Authorities (LGAs) for the year ended 30 th June, This report contains conclusions and recommendations that directly concern the Local Government Authorities which operate under the Prime Minister s Office - Regional Administration and Local Government Authorities (PMO-RALG). The said Local Government Authorities have been given opportunity to scrutinize and discuss the factual contents of the draft individual reports issued to each LGA during the exit meetings. I wish to acknowledge that the discussions with the auditees have been very constructive. My Office intends to carry out a follow up at an appropriate time regarding necessary actions taken by the Government through the Minister responsible with Local Government Authorities in relation to the recommendations of this report. The Local Government Authorities have a wide range of responsibilities for the provision of essential services and good governance for the citizens of their locality. In order to carry out these responsibilities, they have to collect revenues through taxes, licences, fees and other sources. In this respect, sound Controller and Auditor General (CAG) General Report on LGAs for 2008/09 v

5 financial management is crucial if the Local Government Authorities are to convince the public that such revenues have been properly accounted for and utilized for the intended purposes, and have achieved the maximum benefit possible. The objective of carrying out the financial audit on the Local Government Authorities is to enable the Controller and Auditor General to form a professional opinion on the financial statements of LGAs and, in particular; To ensure that the existing LGA s organization structure for adminstration, accounting, finance, technical matters and information technology are reliable enough to manage LGA funds propely. To appraise all financial operations undertaken by LGAs and to ensure that financial statements and activity reports are complete, accurate and reflect the state of resources managed under the LGAs precisely, and the surporting documentary evidence matches the expenditure to which it relates To check whether funds granted to the Councils through the Regional Administrative Secretariat for support of the LGAs have been used for the purpose intended. To certify whether the funds have been used exclusively to cover expenses relevant to the purpose of LGAs within the financial framework To ensure that Internal Audit and Audit Committee functions are in place and active in protecting LGAs funds. To ensure that the Tender Board and the Procurement Management Unit (PMU) are in place and functional. Finally, I would like to express my gratitude to all those who created an enabling environment for me to discharge my Controller and Auditor General (CAG) General Report on LGAs for 2008/09 vi

6 Constitutional obligations with the timely completion of the Local Government Authorities report for the financial year ended 30 th June, Ludovick S.L. Utouh CONTROLLER AND AUDITOR GENERAL Office of the Controller and Auditor General, National Audit Office, Dar es Salaam, 26 th March, 2010 Controller and Auditor General (CAG) General Report on LGAs for 2008/09 vii

7 Controller and Auditor General (CAG) General Report on LGAs for 2008/09 viii

8 Acknowledgement It is indeed my pleasure and great honour to extend my appreciation once again to the President of the United Republic of Tanzania, His Excellency, Dr. Jakaya Mrisho Kikwete and his entire Government, the Speaker of the Parliament of Tanzania Rt. Hon. Samwel Sitta (MP), the three Parliamentary Oversight Committees i.e PAC, LAAC and POAC, all Parliamentarians, the PMO-RALG, all Accounting Officers within the LGAs and the Development Partners for the invaluable support of our work. Their invaluable support and spirit of taking seriously matters raised in my reports with a common goal of disseminating and fostering a culture of financial discipline along with transparency and accountability within the government is plausible. It is my belief that, this kind of concerted efforts shall enhance Public Sector Financial Performance for useful contributions towards MKUKUTA and the Millennium Development Goals (MDGs). Next, I would like to thank my staff for maintaining a strong relationship with the auditees, without compromising their independence. Whilst our position is entrenched in the Constitution, we would be powerless without credibility. Our audits have always been conducted without fear or favor and our contribution to public sector accountability has been growing and recognized both locally and internationally. I would like to thank every member of my staff for their endeavors to have worked so hard and diligently, to have once again been able to meet the statutory reporting deadline of my 2008/09 report. I would also, like to express my gratitude and appreciation to all role players I have had the chance of working with during the course of this audit and the preparation of the report thereon. It has been an honor for me to have been a part of the process of once again fulfilling our mission and remain focused on our vision. I am certain that our values will be reflected in our determination to ever-improve our annual general reports; and I am optimistic that they shall continue adding value to all our stakeholders. Controller and Auditor General (CAG) General Report on LGAs for 2008/09 ix

9 In this respect I feel obliged to extend my regards to the Parliament through its oversight Standing Committees for their commitment in enforcing accountability in the use and management of public resources through their deliberations and resolutions on my reports. It is my belief that since this report is being issued on time, it will expedite the Committee s hearings so that this oversight function is brought up to date. The performance of functions and the exercise of the powers of the Controller and Auditor General require a strong institutional frame work equipped with tools of modern technology, trained and skilled personnel supported by a comprehensive legal regime. In this regard, the Public Audit Act No.11 of 2008 was enacted by the Parliament of the United Republic of Tanzania and became operational on 1 st July, I thank the Government and Parliament for facilitating the enactment of the Act. Further, I extend my gratitude to the Development Partners particularly the Swedish National Audit Office (SNAO), the Government of Sweden through SIDA, the DPs through PFMRP project, AFROSAI-E and all well wishers who have contributed immensely towards the modernization of the Office. I am equally indebted to all other stakeholders including the Permanent Secretary PMO-RALG, Paymaster General, the Treasury and all Accounting Officers of the LGAs for the much needed support, cooperation and information availed to me. I would also like to thank the Government Printer for expediting the printing of this report to enable its timely submission. The Media is another important group that I would like to thank. This is a group which makes possible my audit reports to reach many Tanzanians as required. By so doing they create awareness of what is contained in my reports once they are made public. Controller and Auditor General (CAG) General Report on LGAs for 2008/09 x

10 The other group I would like to take time to thank is the public servants throughout Tanzania, whether in Local or Central Government or Public Authority Institutions. Their invaluable contributions being criticisms or praise should not be underestimated. I just hope that their inputs are reflected in my report whilst they still can see and appreciate that my office is striving hard in this transitional era with lots of reforms taking place nationally and globally. Last but not least, I would like to thank staff members of my Office who have worked tirelessly towards the timely release of this report. Their commitment and dedication has been very inspirational to me. I urge them to uphold the team spirit they have demonstrated in their future endeavors. Finally, I would like to thank the Tanzania Public whom we ultimately serve. I strongly encourage the Tanzanian Public to ever continue demanding and pushing for greater transparency and accountability on the use of public resources in the Country. Controller and Auditor General (CAG) General Report on LGAs for 2008/09 xi

11 Controller and Auditor General (CAG) General Report on LGAs for 2008/09 xii

12 List of abbreviations A/C Account AAGs Assistant Auditors General ACGEN Accountant General ACT Local Government Finances Act No. 9 of 1982 AfDB African Development Bank AFROSAI-E African Organisation of Supreme Audit Institutions - English Speaking CAG Controller and Auditor General CC City Council CHF Community Health Fund CIDA Canadian International Development Agency CSPD Child Survival Protection and Development DAP Director of Administration and Personnel DC District Council DDC Dar es Salaam Development Coorperation DPs Development Partners EAMEATCO East African Meat Company F/Y Financial Year GDC German Development Cooperation GFS Government Finance Statistics GTZ German International Agency for Technical Cooperation HIV/AIDS Humman Immuno Deficiency Virus/Acquired Immune Deficiency Syndrome IDA International Development Association IFAC International Federation of Accountants IFRS International Financial Reporting Standards INTOSAI International Organization of Supreme Audit Institutions IPSAS International Public Sector Accounting Standards ISA International Standards on Auditing JRF Joint Rehabilitation Funds KfW German Agency for International Financial Cooperation LAAC Local Authorities Accounts Committee LAFM Local Authority Financial Memorandum, 1997 LAMP Land Management Program LAPF Local Authority Provident Fund LGAs Local Government Authorities LGDG Local Government Development Grant LGFA Local Government Finances Act, 1982 LGLB Local Government Loans Board LGRP Local Government Reform Programme Controller and Auditor General (CAG) General Report on LGAs for 2008/09 xiii

13 LLG Lower Level Government LPO Local Purchase Order MC Municipal Council MCC Millenium Challenge Coorporation MEATCO East Africa Meat Company MTEF Medium Term Expenditure Framework NAO National Audit Office PAA Public Audit Act No.11 of 2008 PEDP Primary Education Development Programme PFMRP Public Finance Management Reform Programme PMG Paymaster General PMO-RALG Prime Minister s Office Regional Adm. and Local Government PO-PSM President Office Public Service Management PPR Public Procurement (goods, works, non concultant services and disposal of public assets by tender) Regulations, 2005 RAS Regional Administrative Secretary SAR South Africa Rand SNAO Swedish National Audit Office TASAF Tanzania Social Action Fund TAZARA Tanzania Zambia Railway Authority TBL Tanzania Breweries Limited TC Town Council TEMESA Tanzania Electrical, Machenical and Electronics Services Agency WSDP Water Sector Development Programme Controller and Auditor General (CAG) General Report on LGAs for 2008/09 xiv

14 Table of contents Foreword. v List of abbreviations....xiii Executive Summary....xvii CHAPTER ONE Background and General Information Legal framework governing the Controller and Auditor General s Audit of Local Government Authorities Accounts Applicable Audit Standards and Reporting procedures Organization of LGAs audit work at NAO Scope and applicable audit standards Statutory responsibilities of LGAs... 7 CHAPTER TWO Types, Basis and Trend of Audit Opinions Basis of Opinions issued Audit opinions Basis of expressing other than unqualified audit opinion Analysis of audit opinions for LGAs CHAPTER THREE Presentation of Financial Statements and Analysis of Audit Results LGAs with unqualified opinion Councils with unqualified opinion with emphasis of matter Council s with Qualified Opinion Council with Adverse Opinion Financial statements preparation process CHAPTER FOUR Financial and Assets Management; Good Governance and Internal Controls Systems in LGAs Follow up of implementations of the previous years auditor s recommendations on General and Individual LGAs reports Assessment of Information Technology (IT) Control Environment in LGAs Cash Management Management of Non Current Assets Outstanding debtors Outstanding Creditors Missing revenue earnings receipt books Revenue collection not remitted by Collecting Agents Payments made without proper supporting documents (Improperly vouched expenditure) Missing payment vouchers (Unvouched expenditure) 148 Controller and Auditor General (CAG) General Report on LGAs for 2008/09 xv

15 4.11 Unspent Development Funds/Grants Non utilization of Government grants) Payroll Audit LGAs Financing Analysis Operational Performance of Special Funds % Contributions not transferred to Villages/Wards CHAPTER FIVE Review of Contracts and Compliance with Public Procurement Processes in LGAs Introduction Effectiveness of Procurement Management Unit (PMU) Appraisal of Contract management and procurement of goods, works and services in LGAs CHAPTER SIX Results of Special Audits Introduction A summary of matters arising from the Special Audits conducted in financial year 2008/ CHAPTER SEVEN Performance Review of Donor Funded Projects in LGAs Introduction Audit Results of the Tanzania Social Action Fund (TASAF) Water Sector Development Program (WSDP) Roads Fund in LGAs CIDA Financing for Health and HIV/AIDS CHAPTER EIGHT Performance Evaluation of Projects Under LGDG LGDG s projects performance evaluation review Unsatisfactory workmanship on the construction of community facilities/projects CHAPTER NINE Conclusions and Recommendations Conclusion Recommendations Annexure Controller and Auditor General (CAG) General Report on LGAs for 2008/09 xvi

16 Executive Summary This part of the report gives an overview of the General Report followed by major irregularities and weaknesses noted during the course of our audit, summary of recommendations and highlights the structure of this report. A. Overview We have completed the audit of the financial statements for Local Government Authorities for the financial year ended 30 June, The summary of important findings of the audit is contained in this general report and the details of the same have been issued separately in the management letter of the individual respective Councils. Generally, it is worth mentioning upfront that the LGA s financial reporting for the financial year 2008/09 has considerably improved as compared to the accounts of the financial year 2007/08. The obvious reasons which have facilitated inter-alia this improvement include the following: Following a bold decision of adopting wholesale the International Accounting Standards effective 1 st July, 2004 by the Accountancy Professional Board in Tanzania, that is the National Board of Accountants and Auditors (NBAA), the Government through the Permanent Secretary PMO-RALG issued a directive vide letter Ref.No. CA:26/307/01A/79 dated 28 th September, 2009 instructing all LGAs in the country to prepare their accounts in accordance with the International Public Sector Accounting Standards (IPSAs) - accrual basis of accounting beginning this financial year 2008/2009. Adoption of these standards provides the basis for competent financial reporting accompanied by more Controller and Auditor General (CAG) General Report on LGAs for 2008/09 xvii

17 disclosures which are very useful to users of financial statements for their decision making. PMO RALG took the initiative and made a decision of training Council officers entrusted with the duty to prepare financial statements basing on the adopted IPSAS accrual basis of accounting. A single guideline for the preparation of financial statements for 2008/09 was issued by PMO RALG as opposed to the 2007/08 when LGAs experienced a multiple conflicting and contradicting guidelines from different unreliable sources. A participative audit approach introduced by the Office of the Controller and Auditor General has been well received by auditees including LGAs. In this approach auditees are taken on board from the planning stage of the audit to issuing the audit reports. PMO RALG has been pro-active in issuing guidance materials to all LGAs on how to rectify shortcomings basing on best practices instead of waiting for changing the whole guiding legislations. B. Major irregularities and weaknesses noted during the course of our audit Inspite of the noted improvements in financial reporting in LGAs, through our audit reviews, which involved enquiring, examining, investigating as we considered necessary under the circumstances we were able to come up with the following major irregularities and weaknesses: Periodic checks not carried out by the Council management to confirm the validity of all payroll entries as a result payments of salaries to retired, absconded, resigned and terminated employees were paid through their bank accounts without being detected. Such payments are very difficult to recover once detected since the money would have already been drawn and spent by the beneficiaries. Controller and Auditor General (CAG) General Report on LGAs for 2008/09 xviii

18 Unspent balances for the preceding financial year were not subsquently brought forward to the Statement of Capital Expenditure and its financing for the year under review. Payments were made to various suppliers of goods and services without calling for competitive bidding or at least three quotations contrary to the requirements of Reg. 4(2) (b) of the Local Government Authorities Tender Board (Establishment and Proceedings) Regulations, Payment vouchers aggregating to Shs.2,526,117,587 from 33 Councils were not availed for audit and payments amounting to Shs.5,313,071,671 from 62 Council s were not supported by proper documentation to enable verification of the payments for authenticity and occurrence as per Order No. 5(c) of the Local Authority Financial Memorandum of We were thus uncertain as to whether such payments were actually incurred and are related to Council s activities. Most of the Councils did not transfer 20% of the abolished taxes to Villages contrary to Government instructions. 1,341 fixed receipt books and open receipt books used to collect revenues were not availed for audit verification from 50 Councils contrary to Order No. 101 of LAFM Laxity in control over contract payments and supervision of Councils projects including construction works by Councils management. Unclaimed salaries amounting to Shs.1,755,207,927 in respect of 58 Councils was not surrendered to the Treasury as per directives given through Circular Letter No. EB/AG/5/03/01/VOL.VI/136 dated 31 st August Current liabilities amounting to Shs.1,114,230,706 in respect of employees statutory contributions to LAPF from 20 selected Councils were not disclosed in the financial statements. Non clearance of outstanding items in the bank reconciliation. Controller and Auditor General (CAG) General Report on LGAs for 2008/09 xix

19 Misstatements of the financial statements due to improper recording of accounting transactions and accounting treatments. Although the Councils had established Internal Audit Units to oversee the Internal Control system within the Councils, still we have noted some weaknesses including understaffing and inadequate coverage of auditable areas. Councils did not prepare the CHF and Women and Youth Revolving Fund statements to show the financial position of the Fund. This is contrary to the requirements of Order 84 (iii) of the Local Authority Financial Memorandum, 1997 Trend of outstanding matters from the previous years which remained unresolved is as shown below: F/ Year Amount of outstanding matters (Shs) No. of Councils involved 2006/2007 4,643,565, / , 903,395, / ,463,558, The above trend of events is disappointing in the sense that given the amount of energy, resources and efforts devoted in improving financial reporting in LGAs, the amount of outstanding matters and even the number of LGAs involved is supposed to decrease and not increase as reflected on the table above. Non collection of revenue from internal sources including: - Outstanding Billboards fees Shs.1,960,425,011 in respect of 5 Councils not collected - Revenue from collecting agents Shs.1,095,113,399 in respect of 43 Councils was not remitted to the Council - Revenue from produce cess Shs.313,887,389 in respect of 2 Councils not collected and - Shs.2,063,206,119 accruing from Cashewnut Export Levy from 7 Councils not recovered. Controller and Auditor General (CAG) General Report on LGAs for 2008/09 xx

20 Non collection of revenue from internal sources is due to laxity in internal control and monitoring of revenue collections accruing from the Councils. In addition, analysis of the type of opinions issued to LGAs in the 2008/2009 as compared to 2007/2008 is summarized in the table below: Councils Unqualified opinion Qualified opinion Adverse opinion Total 2007/ / / / / / / /09 City Councils Municipal Councils Town Councils District Councils Total Percentage 54% 58% 46% 41% - 1% Notably, there is only one (1) Council, which has been given an Adverse Opinion during the year under review. This scenario has been attributed by the fact that when we were conducting audit at Kilosa District Council it transpired that our scope of revenue and expenditure verification was limited as we were unable to verify several expenses incurred and revenue collected. There were 744 missing revenue earning receipt books and payment vouchers aggregating to Shs.1,000,002,020, which we could not verify. Under the circumstances we have decided to conduct a Special Audit of Kilosa District Council. C. Summary of Recommendations (i) Non-Collection of revenue from internal own source During audit, we noted laxity in internal control over collection of revenues from internal sources in LGAs. We Controller and Auditor General (CAG) General Report on LGAs for 2008/09 xxi

21 recommend that PMO RALG should come up with enforceable guidelines on all contracts entered by LGAs. The expectation is that these guidelines will point out the minimum criteria to be met by the Council management before even presenting the suggestions to Council Committees which involves Councillors. Also, Councils should seriously collect internal sources of revenues to build financial base and independence. There should be a mechanism to enforce Councils to collect all revenues due in the respective year. Respective Council Treasurers should make adequate financial and accounting arrangements to ensure the proper recording of all monies due to the Council and the proper collection, custody, and banking of such monies. (ii) Option for Councils to utilize services from IFMS - EPICOR accounting system The IFMS EPICOR system being used by the Central Government is supported administratively by the Accountant General, whereas the same system being used by LGAs does not have a strong administrative and technical support in case of technical failure and for its sustainability. We noted during audit of accounting records under IFMS Epicor that, many Councils IFMS - EPICOR are either not operational or their utilization is still at low levels. We recommend that the Government should come up with the best ICT solution for LGAs. (iii) Payment of salaries to Council employees through Payroll We noted salaries being paid to non-existing employees. As previously recommended; that the concerned offices (LGAs, MoF, PO PSM) responsible for paying Government employees salaries should closely work together to ensure prompt update of the payrolls. Also, the Treasury should not pay salaries to employees individual bank accounts Controller and Auditor General (CAG) General Report on LGAs for 2008/09 xxii

22 without endorsement of the management of the Council concerned. The respective Council management should also strengthen their Salaries Sections to collaborate with the Heads of Councils departments to ensure that salaries are paid to the existing employees and also promptly providing inputs for updating the payrolls. (iv) Updating the Local Government Legislations LGAs operate within the prescribed legal frameworks. Some of these instruments include the Local Government Finances Act No. 9 of 1982 (revised 2000), Local Government (District Authorities) Act No 7 of 1982(revised 2000), Local Government Finances Act No. 9 of 1982 (revised 2000). These Acts are supported by the Local Authority Financial Memorandum of 1997 and Local Authority Accounting Manual of These legal frameworks are outdated. In order to have meaningful reforms especially on the adopted frameworks which are based on the best practices like adoption of IPSAS and establishment of Audit Committees, the outdated guiding legal framework also need to be repealed or amended to cope with the current demand. (v) Reporting on Development Projects Management It has come to our attention that many Councils are preparing projects implementation reports which does not have a base in the actual status of the concerned projects, hence misleading the decision making organs. In some extreme cases these reports are just reports prepared in the office without taking into account the real situation in the field. From this background, it is recommended that the project implementation reports which are discussed by Council s Committees and LAAC should be declared as part Controller and Auditor General (CAG) General Report on LGAs for 2008/09 xxiii

23 of auditable reports and be submitted to the CAG along with the financial statements for audit purposes. (vi) Sustainability of the adopted IPSAs accrual basis of accounting To be assured of the sustainability of the adopted IPSAs accrual basis of accounting, the Government should again consider the possibility of having an office entrusted with the functions of the Accountant General for LGAs. This Office will be equivalent to that of the Accountant General in the Central Government. Alternatively as earlier pointed out in my previous audit reports; is to extend the roles of the existing Accountant General to LGAs. This suggestion goes hand in hand with the Government decision to adopt IPSAS - accrual basis of accounting. The adopted IPSAS are usually very frequently updated; hence the LGA s Accountant General will be a champion to ensure that the Councils adopt the changes as required. (vii) Lack of Accountability of Funds operating under the Council PMO RALG should guide Councils to prepare accounts of these Funds in order to have meaningful accountability mechanisms and attain the goal for establishing these Funds. Examples of funds operating under LGAs are Women and Youth Fund and Community Health Fund. (viii) Top management of the Council should be employed under Renewable Contract Employment basis Major irregularities and weaknesses in LGAs are the same year in and year out. In actual fact in real terms the financial management situation in LGAs is not improving as expected. In order for the Government s philosophy of decentralization by devolution (D by D) to succeed, the country needs very strong and committed leadership in the Controller and Auditor General (CAG) General Report on LGAs for 2008/09 xxiv

24 LGAs. The current employment framework of permanent and penshionable system has failed to provide that kind of leadership in the LGAs. Hence, in order to strengthen the Councils management, the appointing authority should shift from the permanent and penshionable employment system to the contract and renewable employment system of the Councils top leadership. This system should start by having performance contracts with predetermined performance deliverables during the tenure of office by the top management of the LGAs. Re-appointment should be performance based and should continue until one reaches retirement age. Such a system will allow the Government to weed out the non performers before they cause too much damage to the Councils they are serving. This will expectedly make the top managers fully responsible for coming up with the workable strategies and plans which will bring an obvious impact to the society being served while improving public financial management in our LGAs. This will also put into practice the D by D philosophy of the Government, whereby people will be motivated to participate in development activities and demand to be led by managers who are accountable. D. Structure of the Report The LGA s General report on the financial statements for financial year 2008/09 has been arranged in nine (9) chapters as summarized below: Chapter 1: Background and General Information This chapter provides detailed information on the Legal framework governing financial reporting in LGAs namely; the Constitution of the URT of 1977, the Local Government Finances Act No.9 of 1982 (revised 2000) and Public Audit Act No.11 of Other issues dealt with in this chapter are functions and responsibilities of NAO, reporting procedures, the scope of audit, standards applicable to the audit of LGAs in Tanzania and statutory responsibilities of LGAs. Controller and Auditor General (CAG) General Report on LGAs for 2008/09 xxv

25 Chapter 2 Types, Basis and Trend of Audit Opinions This chapter provides an insight into the meaning of various types of audit opinions, which the Controller and Auditor General (CAG) issues on the audit of financial statements of LGAs, namely Unqualified Opinion, Qualified Opinion, Adverse Opinion and Disclaimer of Opinion. Chapter 3 Presentation of financial statements and analysis of audit results A detailed analysis of audit results of LGAs for the year 2008/2009 is given in this chapter. This includes reasons that have contributed to the type of audit opinions given to various LGAs in the year under review. The analysis of audit results has shown that out of 133 LGAs audited, 77 (58%) were given Unqualified Opinions, whereas 55 (41%) LGAs were given Qualified Opinions and one (1) Council has been given an Adverse Opinion. Chapter 4 Financial and assets management; good governance and Internal Controls Systems in LGAs This chapter highlights shortcomings and weaknesses observed in the financial and assets management inherent in LGAs. These include follow up on implementation of the previous years auditors recommendations on individual audit reports. In addition, this chapter gives analysis of cash and assets management, good governance and Internal Controls Systems in LGAs Chapter 5 Review of contracts and compliance with public procurement processes in LGAs This chapter deals with compliance with the Public Procurement Act No.21 of 2004 and its related Regulations, appraisal of procedures for Controller and Auditor General (CAG) General Report on LGAs for 2008/09 xxvi

26 procurements of goods, works and services in LGAs and other procurement irregularities observed by auditors during the course of audit of the LGAs. Chapter 6 Chapter 7 Chapter 8 Chapter 9 Results of Special Audits This chapter gives highlights on the CAG s rationale of conducting Special Audits in LGAs and also summarises the outcomes of special audits carried out in 2008/09. During the year under review, eight (8) Special Audits were conducted based on the Terms of References given by the CAG and results communicated to the management of the respective LGAs and other Government Institutions for further actions. Perfomance review of Donor funded projects in LGAs This Chapter gives highlights on the auditors reports and specifically on salient issues noted during audit of the following donor funded projects i.e TASAF, Roads Fund, Water Sector Development Programme and CIDA Financing for Health and HIV/AIDS. Performance evaluation of Projects under LGDG This chapter deals with the critical analysis and evaluation of LGAs selected projects namely: Health, Schools, Administration works and small water services. Conclusions and Recommendations This chapter covers concluding remarks and recommendations for future improvements. Controller and Auditor General (CAG) General Report on LGAs for 2008/09 xxvii

27 CHAPTER ONE 1.0 BACKGROUND AND GENERAL INFORMATION 1.1 Legal framework governing the Controller and Auditor General s Audit of Local Government Authorities Accounts This report is issued in accordance with the requirements of Article 143(4) of the Constitution of the United Republic of Tanzania of The report comprises of the results of audits of the financial statements of the Local Government Authorities for the year ended 30 th June, Pursuant to Article 143(2) (c) of the Constitution of the United Republic of Tanzania, I am required to perform audit, at least once in every year, and submit reports on the financial statements of the Government of the United Republic of Tanzania, financial statements prepared by all officers of the government of the United Republic of Tanzania, financial statements of all courts of the United Republic and the financial statements prepared by the Clerk of the National Assembly. On the other hand, Section 45(1) of the Local Government Finances Act No. 9 of 1982 (revised 2000) specifies that, The accounts of every District Council and of every Urban Authority shall be audited internally by an internal auditor employed by the authority concerned, and the external auditor for each of those authorities shall be the Controller and Auditor General Also, Section 10 (1) of the Public Audit Act, 2008 gives mandate to the CAG to audit the LGAs. Section 45(4) of LGFA No. 9 of 1982 (revised 2000) on the other hand specifies that, As soon as possible after the closure of the financial year of a Local Government Controller and Auditor General (CAG) General Report on LGAs for 2008/09 1

28 Authority, the authority shall submit its accounts for audit to the auditors, who shall complete the audit not later than six months after the closure of the financial year. Further, Section 45(5) of LGFA No. 9 of 1982 (revised 2000) specifies that, Every authority shall permit the auditor to check any cash, investments or other assets in its possession or over which it has control and to have access at all times to all its accounts and all books, vouchers and papers relating to them. Furthermore, Sect. 48(1), (2) and (4) of the Local Government Finances Act No. 9 of 1982 states that the auditor shall make and sign a report to the Local Government Authority on the accounts and the annual balance sheet and statement or abstract, and one copy of each of the report together with the annual balance sheet and statement or abstract or a copy of it shall be sent to the Minister, Regional Commissioner and the Director who shall table the report before the Full Council. The section further requires me to do the following: a) To draw attention to every item of expenditure charged in the accounts which is not authorized by Law or which has not been sanctioned by the Local Government Authority. b) To draw attention to any deficiency or loss incurred by the negligence or misconduct of any person accounting to any sum which has not been brought to account by such person. c) To certify the amount of that unlawful expenditure, deficiency or loss, this has not been brought to account. d) To submit a copy of the audit report of the LGAs to the Minister responsible for LGAs, National Assembly, Regional Commissioners and the Local Authorities Directors. Controller and Auditor General (CAG) General Report on LGAs for 2008/09 2

29 The audit results of the financial statements of the LGAs were submitted to the respective Council Chairpersons and copied to Council Directors who are the Accounting Officers of the LGAs. This report is the outcome of the summary of issues observed in the specific individual audit reports of each Council. We appreciate that the submitted financial statements of the LGAs for the year ended 30 th June, 2009 were prepared based on IPSAS accrual basis of accounting and Part iv of the Local Government Finances Act No. 9 of 1982 (revised 2000), and in accordance with the provisions of Order No. 53 of Local Authority Financial Memorandum (LAFM) of 1997 as the applicable reporting framework for Local Government Authorities. The accountancy profession in Tanzania under the National Board of Accountants and Auditors (NBAA) with the full support of the Government made a bold decision by pronouncing that effective 1 st July, 2004 Tanzania should adopt IPSAS basis of accounting, therefore requiring Local Government Authorities to prepare their financial statements based on IPSAS accrual basis of accounting. It therefore meant that, the financial statements of LGAs should be prepared in accordance with the International Public Sector Accounting Standards (IPSAS) - accrual basis of accounting. A complete set of financial statements prepared under IPSAS - accrual basis of accounting and submitted for audit should include the following: (a) A statement of financial position; (b) A statement of financial performance (c) A statement of changes in net assets/equity; (d) A cash flow statement; (e) A statement of comparison of budget Vs actual amount by nature (f) A statement of comparison of budget Vs actual amount by function (g) Notes to the financial statements Controller and Auditor General (CAG) General Report on LGAs for 2008/09 3

30 In lieu of the above, effective this financial year 2008/2009 and in accordance with the directive from the Prime Minister s Office vide Circular letter with Ref. No.CA:26/307/01A/79 dated 28 September, 2009 directed all Local Government Authorities to prepare their accounts based on IPSAS accrual basis of accounting. Furthermore, Order No. 90 of the Local Authority Financial Memorandum (LAFM) 1997 also, requires the Councils to publish at their own offices and in local newspapers within their areas of jurisdiction the following: (i) (ii) the audited consolidated statement of financial position (balance sheet) and statement of financial performance (income and expenditure)- abstract of accounts; and any signed audit report on the accounts. I consider the adoption and publication of accounts and audit report by LGAs as an opportunity for LGAs to encourage greater communication and dialogue with their inhabitants on their achievements and future direction. The National Audit Office is the Supreme Audit Institution (SAI) of the URT which has a unique responsibility to ensure that there is proper accountability, financial discipline and transparency within the United Republic of Tanzania. Furthermore, NAO has a unique responsibility to provide audit reports of good quality and ensure that the reports are issued within the statutory due date. These reports give detailed results of revenue collections and expenditure analysis and governance issues of the Local Government Authorities. 1.2 Applicable Audit Standards and Reporting procedures Being a member of the International Organization of Supreme Audit Institutions (INTOSAI) and AFROSAI-E, NAO is required to comply with the requirements of carrying out audits of the financial statements of Local Government Controller and Auditor General (CAG) General Report on LGAs for 2008/09 4

31 Authorities in conformity with the INTOSAI standards and the International Standards on Auditing (ISA) issued by the International Federation of Accountants (IFAC). During my audit, I critically examined and verified the financial statements together with their supporting documents to establish their validity to be charged as Councils expenditures. At the end of the audit, various audit opinions were expressed on the financial statements based on the findings. In compliance with the requirements of Article 143 (4) of the Constitution of the URT of 1977 (Revised 2000), this report has been submitted to the President of the URT on 26 th March, Individual audit reports of the LGAs have been submitted to the respective Council Chairpersons and copied to the Directors of these LGAs who are required to table them to their respective Full Councils. 1.3 Organization of LGAs audit work at NAO The report provides a summary of the final results of the audit exercise, which was carried out by the Office throughout the country. In order for my Office to be able to handle this enormous task of auditing all the LGAs in the country, it has established Regional Offices in all twenty one (21) Regions of Tanzania Mainland for administrative purposes. These Regional Offices are headed by the Resident Auditors who report to Zonal Auditors. For the purpose of auditing LGAs in the country, the regions in the country have been grouped into zones under the supervision of Zonal Auditors who report to the Assistant Auditor General (Regions) stationed at the National Audit Office (NAO) Headquarters. According to the organization structure of NAO, the Assistant Auditor General reports directly to the Controller and Auditor General. For the purpose of audits of LGAs currently NAO operates with five (5) zones as shown on the following organization structure:- Controller and Auditor General (CAG) General Report on LGAs for 2008/09 5

32 Controller and Auditor General Assistant Auditor General (Regions) Coastal Zone Dar es Salaam City is head office of Zone one Central Zone Dodoma is Head office of Zone two Lake Zone Mwanza is Head office of Zone Three Southern Zone Mbeya is Head Office of Zone Four Northern Zone Arusha is Head Office of Zone Five Dar es Salaam Mtwara Lindi Pwani Dodoma Singida Tabora Kigoma Morogoro Mwanza Kagera Mara Shinyanga Mbeya Ruvuma Iringa Sumbawanga Arusha Kilimanjaro Tanga Manyara 1.4 Scope and applicable audit standards Scope of audit Audit scope refers to the activities covered by an audit. Audit scope includes, where appropriate audit objectives, nature and extent of auditing procedures performed, period of audit and related activities not audited in order to define the boundaries of the audit. The main objective of conducting the audit is to enable the CAG to express a professional opinion on the financial statements of the LGAs for the period ended 30 th June The audit covered the evaluation of the effectiveness of the financial accounting system and internal control systems over their activities, examination and verification of the accompanying financial statements, the performance report and other auditing procedures as was considered necessary under the circumstances for the purpose of forming an opinion on the financial statements. The audit Controller and Auditor General (CAG) General Report on LGAs for 2008/09 6

33 was carried out on a risk based approach, therefore the audit findings are confined to the extent that records, documents and information requested for the purpose of audit were made available to us. 1.5 Statutory responsibilities of LGAs The responsibility for the preparation of the financial statements for audit purposes lies with individual LGAs. Sect. 40(1) of the Local Government Finances Act No. 9 of 1982 states as follows, Subject to the following provisions of this section, every LGA shall cause to be provided, kept and maintained books of accounts and records with respect to: (a) the receipt and expenditure of money by and other financial transactions of the authority; (b) the assets and liabilities of the authority, and shall cause to be made out for every financial year a balance sheet showing details of the income and expenditure of the authority and all its assets and liabilities. Therefore, the preparation and submission of LGA s accounts is a legal requirement as per the Local Government Finances Act No. 9 of 1982 (revised 2000). The management of LGAs must comply with this Act. LGAs annual audit reports provide information to assist citizens to assess the Council s performance and to hold Council management to account for their performance. Timely information is necessary for this to occur. This is the whole essence of accountability in the use of public resources. The publication of audited financial statements shall be made within six months of the receipt of the report of the auditor in compliance with the requirements of Sect. 49 of the Local Government Finances Act No. 9 of 1982 (revised 2000). Controller and Auditor General (CAG) General Report on LGAs for 2008/09 7

34 LGAs in the country are expected to have in place effective financial reporting arrangements that underpin financial statements preparation procedures including the early recognition and resolution of issues that impact on the financial statements themselves. The results of my audit this financial year, have shown that those LGAs that maximized the alignment of their year end financial reporting processes with effective internal control systems, segregation of duties in the Finance Department, prepared monthly bank reconciliations, instituted proper custody of accountable documents etc were more successful in meeting the deadlines for submission of better quality financial statements for audit purposes, than those which did not. Controller and Auditor General (CAG) General Report on LGAs for 2008/09 8

35 CHAPTER TWO 2.0 TYPES, BASIS AND TREND OF AUDIT OPINIONS 2.1 Basis of Opinions issued To comply with statutory requirement, I am obliged to give assurance to stakeholders of the respective Councils whether the information given in their financial statements present fairly, the results of the operations, cash flows and financial position of the Councils for the year ended 30 June This certification provides to stakeholders the audit assurance as to the genuineness of the financial operations of the Councils including the Council s compliance with prescribed requirements. Based on the International Standards on Auditing (ISA) and INTOSAI standards, the following opinions were issued as a measure of the assessment given on the financial information presented. These are unqualified opinion, unqualified opinion with emphasis of matter, qualified (except for) opinion, adverse opinion and disclaimer of opinion. 2.2 Audit opinions Definition of Audit Opinion An audit opinion expresses a view as to whether or not the financial statements audited have been prepared consistently using appropriate accounting policies, in accordance with relevant legislation, regulations, and applicable accounting standards/principles. The opinion also has to state whether there is adequate disclosure of information relevant to the proper understanding of the financial statements or not. For purposes of accountability and transparency to the National Assembly, regardless of the opinion given in the individual audit reports, audit findings are narrated alongside their implications, recommendations, Controller and Auditor General (CAG) General Report on LGAs for 2008/09 9