THE REPUBLIC OF UGANDA REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF UGANDA INVESTMENT AUTHORITY (UIA) FOR THE YEAR ENDED 30 TH JUNE 2015 OFFICE OF THE AUDITOR GENERAL UGANDA
TABLE OF CONTENTS LIST OF ACRONYMS... 2 REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF THE UGANDA INVESTMENT AUTHORITY (UIA) FOR THE FINANCIAL YEAR ENDED 30 TH JUNE, 2015... 3 1.0 INTRODUCTION... 5 2.0 BACKGROUND INFORMATION... 5 3.0 ENTITY FINANCING... 5 4.0 OBJECTIVES OF THE AUTHORITY... 6 5.0 AUDIT OBJECTIVES... 6 6.0 AUDIT PROCEDURES PERFORMED... 6 7.0 CATEGORIZATION AND SUMMARY OF FINDINGS... 7 7.1 Summary of categorization... 7 7.2 Summary of findings... 8 8.0 DETAILED FINDINGS... 8 8.1 Over Expenditure... 8 8.2 Human Resource issues... 9 8.3 Un-Planned Procurement of Land... 10 8.4 Shortfall in NTR Collections... 10 8.5 Failure to recover outstanding rent and issue current bills... 11 8.6 Un-authorized inter-account borrowing... 11 8.7 Irregular procurements... 11 8.8 Occupancy of available space... 12 8.9 Status of previous years audit recommendations... 13 1
LIST OF ACRONYMS Acronym Meaning RT Right HON. Honourable UIA Uganda Investment Authority ISA International Standards on Auditing ISSAIs International Standards of Supreme Audit Institutions EIA Environmental Impact Assessment NSSF National Social Security Fund MDAs Ministries, Departments and Agencies PAYE Pay As You Earn PPDA Public Procurement & Disposal of Assets SME Small and Medium Enterprises UNBS Uganda National Bureau of Standards MoFPED Ministry of Finance, Planning and Economic Development URA Uganda Revenue Authority ULC Uganda Land Commission MAAIF Ministry of Agriculture Animal Industry & Fisheries PFMA Public Finance Management Act, 2015 2
REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF THE UGANDA INVESTMENT AUTHORITY (UIA) FOR THE FINANCIAL YEAR ENDED 30 TH JUNE, 2015 THE RT. HON. SPEAKER OF PARLIAMENT I have audited the financial statements of Uganda Investment Authority for the year ended 30 th June, 2015. These financial statements comprise of the statement of financial position, the statement of financial performance, statement of changes in equity, cash flow statement together with other accompanying statements, notes and accounting policies. Management s Responsibility for the Financial Statements The Board of Directors are responsible for the preparation of financial statements in accordance with the requirements of Section 45 of Public Finance Management Act, 2015, the Financial Reporting Guide, 2008 and for such internal controls as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility My responsibility as required by Article 163 of the Constitution of the Republic of Uganda,1995 (as amended) and Sections 13 and 19 of the National Audit Act, 2008 is to express an opinion on these statements based on my audit. I conducted the audit in accordance with International Standards on Auditing. Those standards require that I comply with the ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing audit procedures to obtain audit evidence about the amounts and disclosures in the financial statements as well as evidence supporting compliance with relevant laws and regulations. The procedures selected depend on the Auditor s judgment, including the assessment of risks of material misstatement of the financial statements whether due to fraud or error. In making those risk assessments, the Auditor considers internal controls relevant to the entity s preparation of financial statements in order to design audit procedures that are appropriate in the circumstances but not for purposes of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall 3
presentation of the financial statements. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion. Part A of this report sets out my opinion on the financial statements. Part B which forms an integral part of this report presents in detail all the significant audit findings made during the audit which have been brought to the attention of management. PART A Opinion In my opinion, the financial statements of Uganda Investment Authority for the year ended 30 th June 2015 are prepared, in all material respects, in accordance with Section 51 of the Public Finance Management Act, 2015, and the Financial Reporting Guide, 2008. John F.S Muwanga AUDITOR GENERAL KAMPALA 12 th November, 2015 4
PART "B" DETAILED REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF THE UGANDA INVESTMENT AUTHORITY FOR THE YEAR ENDED 20 TH JUNE, 2015 This Section outlines the detailed audit findings, management responses, and my recommendations in respect thereof. 1.0 INTRODUCTION In accordance with Article 163(3) of the Constitution of the Republic of Uganda, 1995 (as amended), I am required to audit and report on the Public Accounts of Uganda that is to say, all Public Offices including the Courts, the Central and the Local Government Administrations, Universities and Public Institutions of the like nature and any public corporation or other bodies or organizations established by an Act of Parliament. Accordingly, I carried out the audit of Uganda Investment Authority to enable me report to Parliament. 2.0 BACKGROUND INFORMATION Uganda Investment Authority (UIA) was established by the Investment Code Act of 1992. The Authority is an agency of the Government and is under the general supervision of the Minister of Finance, Planning and Economic Development. The entity does not have a separate vote of its own but rather obtains subvention from the mother Ministry. UIA s vision is to Lead Uganda in identifying and promoting investment opportunities that bring sustainable economic growth and its mission is to advocate and promote a competitive business environment, provide serviced land and facilitate investment projects. 3.0 ENTITY FINANCING The Authority was financed by grants from Central Government, Grants from International Organizations, transfers from other Government Units, Non Tax Revenues and miscellaneous revenue. Revenue totaling to UGX.20,556,842,889 from all revenue sources were received. The total revenue of UGX.20,556,842,889 was increased to 165% of its approved budget estimates of UGX.12,433,740,000. 5
4.0 OBJECTIVES OF THE AUTHORITY Attract value adding investment that brings technology, skills and jobs to Uganda; Promote Uganda as a leading African Investment destination; Provide serviced sites, buildings and competitive infrastructure to meet the needs of growing Ugandan based businesses; and Stimulate and lead key stakeholders in creating a competitive business environment. 5.0 AUDIT OBJECTIVES The audit was carried out in accordance with International Standards on Auditing and accordingly included a review of the accounting records and agreed procedures as was considered necessary. In conducting my reviews, special attention was paid to establish:- a. Whether the financial statements have been prepared in accordance with consistently applied Accounting Policies and fairly presents the revenues and expenditures for the period and of the financial position as at the end of the period. b. Whether all Authority funds were utilized with due attention to economy and efficiency and only for the purposes for which the funds were provided. c. Whether goods and services financed have been procured in accordance with the Government of Uganda procurement regulations. d. To evaluate and obtain a sufficient understanding of the internal control structure of the organization, assess control risk and identify reportable conditions, including material internal control weaknesses e. Whether the management was in compliance with the Government of Uganda financial regulations. f. Whether all necessary supporting documents, records and accounts have been kept in respect of all activities, and are in agreement with the financial statements presented. 6.0 AUDIT PROCEDURES PERFORMED The following audit procedures were undertaken:- 6
(a) Revenue Obtained schedules of all revenues collected and reconciled the amounts to the cashbooks and bank statements. (b) Expenditure The payments vouchers were examined for proper authorization, eligibility and budgetary provision, accountability and support documentation. (c) Internal Control System Reviewed the internal control system and its operations to establish whether sound controls were applied throughout the period audited. (d) Procurement Reviewed the procurement of goods and services by the Authority during the period under review and reconciled with the approved procurement plan. (e) Fixed Assets Management Reviewed the use and management of the assets of the Authority during the period audited. (f) Authority s Financial Statements Examined, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessed the accounting principles used and significant estimates made by management; as well as evaluated the overall financial statement presentation. 7.0 CATEGORIZATION AND SUMMARY OF FINDINGS 7.1 Summary of categorization The following system of profiling of the audit findings has been adopted to better prioritise the implementation of audit recommendations: Category Description 1 High significance Has a significant/material impact, has a high likelihood of reoccurrence, and in the opinion of the Auditor General, it requires urgent remedial action. It is a matter of high risk or high stakeholder interest. 2 Moderate significance Has a moderate impact, has a likelihood of reoccurrence, and in the opinion of the Auditor General, it requires remedial action. It is a matter of medium risk or moderate stakeholder interest. 7
3 Low significance Has a low impact, has a remote likelihood of reoccurrence, and in the opinion of the Auditor General, may not require much attention, though its remediation may add value to the entity. It is a matter of low risk or low stakeholder interest. 7.2 Summary of findings 8.1 Over expenditure High 8.2 Human Resource issues High 8.3 Un-planned procurement High 8.4 Shortfall in NTR collection High 8.5 Failure to recover outstanding rent and issue current bills High 8.6 Unauthorised inter-account borrowing Moderate 8.7 Irregular procurement Moderate 8.8 Occupancy of available space Moderate 8.9 Status of previous years audit recommendations Low 8.0 DETAILED FINDINGS 8.1 Over Expenditure A review of the financial statements revealed that the authority had initially budgeted to spend a total of UGX.6,420,940,000 under employee costs and goods & services consumed which was later revised upwards to a sum of UGX.6,433,740,000. It was subsequently noted that a higher amount of UGX.7,368,573,560 was spent on the two items leading to over expenditure of UGX.934,833,559 without authority. This action resulted into a diversion of expenditure. Refer to table below; Expenditure Items Initial Budget (UGX) Revised Budget (UGX) Actual Expenditure (UGX) Variance (UGX) Employee Costs 3,191,265,473 3,411,242,146 3,574,668,235 163,426,088 Goods & 3,229,674,527 3,022,497,854 3,793,905,325 771,407,471 Services Consumed Total 6,420,940,000 6,433,740,000 7,368,573,560 934,833,559 Management explained that UGX.771,407,474 was part of payable carried forward and paid during the year. The extract on employee costs was a result of increase in medical insurance and promotions. 8
I advised the Accounting Officer to have realistic budget and spend within the budget provisions. Should there be need for reallocation, authority should be sought. 8.2 Human Resource issues 8.2.1 Understaffing A review of the Authority organizational structure revealed that out of the approved 78 posts, only 52 were filled leaving 26 posts vacant. For example, key positions of Deputy Executive Director, Deputy Director ICT and Senior Communications and Public Relations Executive were vacant. The core division of investment promotions does not have a Director with only (5) out of (14) Investment Executive required/provided. Lack of key staff limits the authority from achieving the intended results and creates heavy workload on existing staff. Departments/ Divisions Approved Filled Posts Vacant Posts Posts Executive Director s office 13 10 3 Investment Promotion Division 14 5 9 Investment Facilitation & Aftercare 10 6 4 Division Land Development Division/KIBP 18 11 7 Finance & Administration Division 18 16 2 SME Division 5 4 1 78 52 26 Management attributed the understaffing to inadequate funding. The Board and Ministry responsible have been notified of the matter. I await the results of the engagement of the Accounting Officer with the stakeholders. 8.2.2 Lack of training needs analysis report and training plan Section 6.3.2 (a-b) of UIA HR Manual requires the Authority to adopt a systematic approach to training involving identifying training needs and developing a training plan. It was noted that the authority lacked a training needs analysis report and training plan. This may lead to un-coordinated and unproductive training being awarded to staff not in line with their need hence leading to wasteful expenditure. Management promised to develop a Training Needs Assessment and Training Plan next financial year 2015/16. 9
I await the Accounting Officer s action on the matter. 8.3 Un-Planned Procurement of Land During the year under review, UIA procured land adjacent to Nakasero Hospital for a sum of UGX.4,579,200,000 for purposes of leasing to the Hospital for expansion. A review of documents available indicates that this amount was paid in two installments of UGX.3,874,003,200 on 10 th June, 2015 excluding 6% WHT of UGX.274,276,200 and the balance of UGX.430,475,200 in July, 2015. A review of the entity procurement plan revealed that the purchase of land was not planned. Since the funds were specifically released by the Ministry of Finance, Planning and Economic Development for the land purchase, it is likely that the procurement was not planned for hence, its omission from the procurement plan. There is a risk of breach of procedures since the board authority supporting the land procurement was also not provided for review. Although management explained that procurement plan was subsequently revised, the revision was not provided for review. I advised the Accounting Officer to always ensure that proper procedures for adjusting and approval of procurement plans are followed. 8.4 Shortfall in NTR Collections The Authority had budgeted to collect NTR of UGX.7,220,000,000 as per the statement of appropriation account on page (12) to the financial statements. However, only UGX.6,343,339,517 (87.85%) was realized leading to a shortfall of UGX.876,660,483. This was attributed to un-realistic budgeting on the part of management. There is a risk that the activities for which the NTR was budgeted to finance were not implemented. Management explained that the shortfall was due to companies which declined to pay service fees of 0.5% as stipulated in the lease agreement. I advised the Accounting Officer to enforce the collection of such fees in accordance with the Authority s debt procedures. 10
8.5 Failure to recover outstanding rent and issue current bills According to the schedule of outstanding rent arrears provided by the Mbarara Park Manager, it was reflected that a sum of UGX.194,770,000 remained un-collected by the end of June 2015. Besides, the outstanding amount provided by the SME park manager varied from the ledger amount maintained by the finance division. The tenants were not invoiced on time and the response from them was equally poor. It appears management is not following up the debtors promptly which may result into the debtors not paying rent in time. Management explained that a private law firm was engaged to recover the outstanding rent and utility bills from the park Manager and the contracted law firm who are following up the matter closely. I await the Accounting Officer s action. 8.6 Un-authorized inter-account borrowing Review of payments from the industrial parks development account revealed that a sum of UGX.250,000,000 was transferred to the operations account as a borrowing to cater for staff salaries and payment to service providers. Un-authorised borrowings affect activities of the Industrial Park. Management explained that The Ministry of Finance, Planning and Economic Development released 80% of the quarterly releases and since salaries take the first call on all institution resources, management approved the borrowing to pay the salaries from the available resources. I explained to management that this is a diversion that requires necessary approval. I advised the Accounting Officer to avoid such borrowings without authority from PS/ST and the Board. 8.7 Irregular procurements Section 56 of the PPDA Act requires all procuring and disposing entity to maintain detailed records of all proceedings and preserve, maintain and safeguard all relevant documents it issues and receives. It was observed that a contract for re-shaping and 11
sectional improvement of Kasese Industrial and Business Park roads that involved grading, reshaping, opening of longitudinal drains, provision of cross drains, sectional improvement and gravelling of roads had the following irregularities; There was no evidence of call of quotations from the firms. There was no closure of the receipt of the issued bid documents to confirm that the companies which were issued bids are the actual companies from which the bids were actually received at the stated time. There was no Code of Ethics form signed by the evaluation committee members and there was no contract completion report on file and certificate of completion. Management may not have followed the PPDA procedures while undertaking this procurement. I advised the Accounting Officer to ensure the call of quotation, receipt of bid opening documents and code of ethics forms are in place before payments are made. 8.8 Occupancy of available space The Park has got five (5) complete buildings with 42 work spaces of which only 19 work spaces are actively occupied. The 14 are reportedly occupied but dormant and the 9 are not occupied at all, one of which requires urgent repair and is currently out of bounds to any users. Vacant work spaces attract fixed costs such as security, maintenance and provision of security lights with no return. Therefore, to reasonably support the said cost elements, the occupancy should not fall below average. The DLDD and the Park Manager should advertise the park space to obtain occupancy of vacant work space. Management has contacted the RDC and RPC on the matter and plans to advertise vacant places for new tenants. I advised the Accounting Officer to ensure that part work space is advertised for use by clients. 12
8.9 Status of previous years audit recommendations Audit Observations Recommendation Status 1 Un-collected Outstanding Revenues- UGX.7,431,253,446 UGX.7,431,253,446 remained un-collected by the year end. This debt relates to the investors who were reluctant to settle their obligations because Government had not provided fully serviced land as agreed. 2 Procurements Lacking Contract Committee Approval - UGX.24,246,017 It was noted that contracts worth Shs.24,246,017 were performed without the approval of contracts committee. There is a risk that the entity may not have obtained value for money from the procurements due to lack of competition in the process. 3 High staff turnover Best practice requires an organization to endeavor to attract, engage and retain high quality staff and optimally use their services. This can be achieved by putting in place attractive staff benefit schemes like, retirement benefits, bonus payments, innovations (Trainings), medical scheme, employee of the year and long service award to encourage retention of staff. 4 Staff establishment gaps As reported in my prior year report, the Authority s approved staff structure provides for 78 approved posts. However, only 52 (67%) were filled leaving 26 (33%) vacant. 5 Bweyogerere Industrial Park This park has a total of nine (9) plots and all had been allocated. The planned activities for the year included settlement of investors, maintenance of the road, installation of boarder makers, deployment of security and provision of water and electricity. The progress of these activities by the year end is explained below: Failure to fully settle the Investors Although all the nine (9) plots were successfully allocated, only seven (7) were being developed as of 25 th July, 2014. Management explained that there was a contest over the boundaries of one of the plots which is yet to be resolved but the investor was ready to 13 I advised the Accounting Officer to institute measures to ensure compliance with PPDA regulations. I advised management to explore ways of improving the current staff retention and motivation. I advised management to continue liaising with the responsible authorities with a view of filling the most vital vacant posts to improve service delivery I advised the Accounting Officer to continue encouraging development and facilitate dispute resolution to avoid delays. Not implemented Partially implemented Partially implemented Work in progress Not implemented
develop the plot excluding the contested part. The other beneficiary has been formally encouraged to commence development. 6 Vandalization of Boarder Markers and Deployment of Security The boarder markers were installed in the financial year 2012; however, it was noted that these makers had been tampered with. 7 Non-provision of utilities to the Park UIA had planned to service the allocated plots with electricity and water. It was noted that UIA had not extended utility facilities to the park by the year end. Instead, some investors had utilized their own funds to extend water and electricity to their respective plots. It should be noted that UIA had promised these services as an incentive to investors to stimulate investments. 8 Development of a Master Plan and Compensation of Squatters in Mbale Industrial Park This 619 acre industrial park is located in Mutoto, Mbale Municipality along Tirinyi road. The planned outputs for the year under review were compensation of squatters, development of a master plan and conducting of an Environmental Impact Assessment (EIA). It was noted that these activities had not been achieved by the year end reportedly due to inadequate funding. The compensation had been agreed at UGX.4.5 billion however, management had only budgeted for UGX.2.6 billion for the year. Compensations appear to remain an unfunded priority of UIA and this may result into loss of land and high legal costs. I urge management to step up physical security in the park to avoid any distortions on the planned areas. I advised the Accounting Officer to continue sourcing for funds to provide the utilities to the remaining plots as mandated. I advised the Accounting Officer to continue liaising with MoFPED for funding and have the planned activities undertaken. There has been an increase in physical presence of security and vandalism has reduced Still sourcing for funds Work in progress 14
APPENDIX I FINANCIAL STATEMENTS 15