OFFICE OF THE AUDITOR GENERAL THE REPUBLIC OF UGANDA

OFFICE OF THE AUDITOR GENERAL THE REPUBLIC OF UGANDA REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF GULU MUNICIPAL COUNCIL FOR THE YEAR ENDED 30 TH JUNE 2015

REPORT AND OPINION OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF GULU MUNICIPAL COUNCIL FOR THE YEAR ENDED 30 TH JUNE 2015 THE RT. HON. SPEAKER OF PARLIAMENT Introduction I have audited the accompanying financial statements of Gulu Municipal Council for the year ended 30 th June, 2015. These financial statements comprise the statement of financial position as at 30 th June, 2015, 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 Under Article 164 of the constitution of the Republic of Uganda, 1995, (as amended) and section 45 of the Public Finance Management Act, 2015, the Accounting Officer is accountable to Parliament for the funds and resources of Gulu Municipal Council. The Accounting Officer is also responsible for the preparation of financial statements in accordance with the requirements of the Local Governments Financial and Accounting Manual, 2007 and for such internal control as management determines 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, Section 87 of the Local Governments Act, 1997 and Sections 13, 16 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 (ISA). Those standards require that I comply with the ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing audit procedures to obtain 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 the risks of material misstatement of the financial statements 1

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 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 unqualified 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 Unqualified Opinion In my opinion, the financial statements of Gulu Municipal Council as at 30 th June, 2015 are prepared, in all material respects, in accordance with the Local Governments Financial and Accounting Manual, 2007, Section 51(3) of the Public Finance Management Act, 2015, the Local Governments Financial and Accounting Regulations, 2007 and the Local Governments Act, 1997 Cap 243 (as amended), of the Laws of Uganda. Emphasis of Matter Without qualifying my opinion, I draw attention to the following matter which is also presented in the financial statements. Unutilised USMID Project Funds 2

An amount of UGX.27,183,833,018 was recieved under the project for the past two financial years comprising of capacity building (UGX.911,117,034) and infrastructure developement (UGX.26,272,715,984). However, out of this amount UGX.427,418,612 was utilised leaving a balance of UGX.14,505,711,262 representing 42% of the amount released at the end of the financial year. Failure to utilise the funds in a timely maner delays implementation of planned activities and hence service delivery. John F. S. Muwanga AUDITOR GENERAL 15 th December, 2015 3

PART "B" GULU MUNICIPAL COUNCIL DETAILED REPORT OF THE AUDITOR GENERAL FOR THE FINANCIAL YEAR ENDED 30TH JUNE 2015 1.0 INTRODUCTION In accordance with Article 163(3), of the Constitution of the Republic of Uganda 1995, 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 the Gulu Municipal Council to enable me report to Parliament. 2.0 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. The audit was carried out with regard to the following objectives:- a. To verify whether the financial statements had been prepared in accordance with the requirements of the Local Governments Financial and Accounting Manual, 2007 and the Local Governments Financial and Accounting Regulations, 2007; and fairly present the income and expenditures for the year and of the financial position as at the end of the year. b. To verify whether all the funds of the entity were utilized with due attention to economy and efficiency and only for the purposes for which the funds were provided. c. To verify whether goods and services financed had been procured in accordance with the PPDA Act, 2003 (as amended) d. To evaluate and obtain sufficient understanding of the internal control structure of the entity, assess control risk and identify reportable conditions, including material internal control weaknesses. 4

e. To verify whether the management of the funds of the entity was in compliance with the Government of Uganda Financial Regulations. f. To verify whether all the necessary supporting documents, records and accounts have been kept in respect of all activities, and are in agreement with the financial statements presented. 3.0 Audit Methodology The following audit procedures were undertaken:- a. Revenue Obtained all schedules of all revenues collected and reconciled the amounts to the cashbooks and bank statements of the entity. b. Expenditure The payment vouchers of the entity were examined for proper authorization, eligibility and budgetary provision, 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. d. Procurement Reviewed the procurement of goods and services under the various departments 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 entity during the Period under review. f. Financial Statements Examined, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessed the accounting principles used and significant 5

estimates made by management; as well as evaluated the overall financial statement presentation. 4.0 ENTITY FINANCING Gulu Municipal Council is financed by grants (Conditional and Unconditional) from Central Government, and locally generated revenues from taxes, fees, licenses and charges. During the year, the Council received grants totalling to UGX.10,463,951,408 from Central Government and UGX.10,427,500,140 from locally generated revenues realising total revenue of UGX.22,275,580,897 constituting 98% of its approved budget estimates of UGX.35,304,630,928. 5.0 DETAILED AUDIT FINDINGS This section outlines the detailed audit findings, management responses thereof and my recommendations. 5.1 Receivables Paragraph 2.3.2.3 of the Local Governments Financial and Accounting Manual (LGFAM), 2007 requires Council to minimise debtors by following up the collection of debts in a timely, systematic and vigorous manner. However, it was observed that receivables amounting to UGX.6,365,144,394 remained outstanding at year end as shown in below; Item Amount 2014/2015 (UGX) Amount 2013/2014 (UGX) Property rates from buildings 611,953,333 562,560,058 House Sale debts 13,598,200 13,598,200 Property rates from Uganda Land 901,720,489 901,720,489 commission Land Sale 3,000,000 3,000,000 Karac ci Rac (Pece Division) 120,000,000 120,000,000 Local Revenue arrears 4,714,842,372 4,469,558,382 TOTAL 6,365,114,394 6,250,437,129 6

Money owed to Council represents an asset that is idle as it denies the Council the opportunity of using the money to provide services promptly. Long outstanding receivables may become bad debts and cause a financial loss to the Council. I advised the Accounting Officer to institute measures to ensure receivables are collected promptly. 5.2 Unaccounted for Funds 5.2.1 Unaccounted for Advances Section 43(2) and (3) of the Local Government Financial and Accounting Regulations, 2007 requires Administrative advances to council employees be acounted for within a month. However, it was observed that advances amounting to UGX.18,867,000 remained unaccounted for as shown in Appendix I. Consequently, it was difficult to confirm that the funds were utilized for the intended purposes. I advised the Accounting Officer to ensure the funds are properly accounted for or else enforce recovery from the responsible officers. 5.2.2 Unacknowledged Withholding Tax Remittances Section 123(1) of the Income Tax Act, 2011 provides that a Withholding Agent shall pay to the Commissioner any tax that has been withheld within 15 days after the end of the month. However, it was observed that 6% withholding tax and Pay As You Earn (PAYE) totaling UGX.8,756,409 was allegedly remitted to Uganda Revenue Authority (URA) lacked acknowledgement receipts from the tax body as shown in Appendix II. Unremitted taxes attract fines and penalties from the tax authority. I advised the Accounting Officer to obtain the acknowledgement receipts from Uganda Revenue Authority and present them for audit verification. 7

5.3 Understaffing The Municipal Council has an approved structure of 107 staff. However, only 60 posts were filled leaving 47 posts representing 44% of the approved staff structure. The shortage of staff leads to underperformance and poor service delivery. The Accounting Officer attributed the staff shortage to a ban on recruitment of staff by the Ministry of Public Service and that some positions like that of the Municipal Engineer which did not attract applicants. I advised management to liaise with the Ministry of Public Service and Ministry of Finance, Planning and Economic Development to ensure that vacant posts are filled. 5.4 Status of Uganda Support to Municipal Infrastructure Development Program (USMID) Project Implementation Under the agreement International Development Agency (IDA) agreed to provide SDR.97,400,000 (Ninety Seven million four hundred thousand) Special Drawing Rights (SDR approximately US$150,000,000) to finance the program activities. The program is co-funded by GOU to the tune of US $10 million. It became effective on 4 th September, 2013, and is implemented by the Ministry of Lands, Housing and Urban Development (MLHUD) in 14 municipal councils namely; Arua, Gulu, Lira, Soroti, Moroto, Mbale, Jinja, Entebbe, Masaka, Mbarara, Kabale, Fort-portal, Hoima and Tororo. It is expected to run for 5 years (FYR: 2013/2014 to 2017/2018). The main objective is to improve urban service delivery. During the financial year 2014/2015, I undertook an audit of the project and the following shortcomings were identified; 5.4.1 Un-utilized capacity building funds A review of the project records revealed that an amount of UGX.911,117,034 had been disbursed to Council comprising of UGX.472,563,420) for the financial year 2014/2015 and (UGX.438,553,614) for the financial year 2013/2014 for capacity building. 8

However, by 30 th June 2015, only UGX.427,418,612 had been utilised for the purpose leaving a balance of UGX.483,698,422 representing 53.1% of the amount released. Failure to utilize all the released funds reflects lack of readiness and commitment to the fulfilment of project objectives. There is a possibility that planned activities may not be completed in the scheduled time which could lead to costly project extension. Management attributed the low absorption of funds to the fact that the Councils had not procured key retooling equipment for surveying, engineering and environment among others, partly due to lack of technical capacity to procure such specialized equipment. In order to increase on absorption rate, the procurement process is being coordinated by MLHUD and the bids for equipment in all the 14 Municipal Councils have been received and evaluated. I advised the Accounting Officer to follow up the matter with the Ministry of Lands, Housing and Urban Development to ensure that the funds are utilised accordingly. 5.4.2 Un-utilized Municipal Infrastructure Development Funds A review of the project records revealed that UGX.18,109,822,852 for the financial year 2014/15 (UGX.9,946,929,720) and financial year 2013/2014 (UGX.8,162,893,132) was released to the Municipal council for infrastructure development. However, to date UGX.4,087,810,012 has been utilised for the purpose leaving a balance of UGX.14,022,012,840 representing 77.4% of the amount released. Failure to utilize funds delays the development of the planned Municipal infrastructures and disadvantages the community who are intended to benefit from these activities. Management explained that the contractor is now on site and works have commenced. Funds for the initial 3 years shall be substantially absorbed by the end of 2015/16 financial year. I await the outcome of management s commitment. 9

5.5 Value For Money Findings on Infrastructure Projects The value for money audit carried out on infrastructure projects in the Municipality revealed the following findings in the table below; Sn Project General findings 1 Rehabilitation to Bitumen standard of five roads in Gulu Municipality The variance between the Planned estimates and contracted price is 34.8% The review of Alokulum road by ILISO was cheaper by 166,392,050/=. The cost saving not reflected in any documentation The asphalt concrete core samples tested failed to meet the specification on the air voids and indirect tensile strength requirements. Alokulum road Core thicknesses were less than specified Labour lane road The road terminates abruptly limiting full utilization of the road. No cross culverts despite evidence of need. The levels of the Labour Lane are lower than the levels of adjoining roads Ring road The longitudinal joints are noticeable on the surface the road edges are irregular At CH0+015 the ARMCO culvert of 600mm is inadequate for the catchment 2 Construction of 2 Unit Teacher s House And 2 Stances Drainage Latrine at Kasubi Central Primary School Securities were not required in this contract though works were more than Shs 50million No work programme on file There were no materials test data on 10

3 Construction of 5 Stance Flash Water Toilet at Gulu Primary School 4 Construction of A Chain Link Perimeter Fence at Layibi Health Centre 5 Renovation of One Block of 4 Classrooms And An Office Room at St. Kizito Aywee Primary School the file As-built drawings were not required in the contract despite their significance in aiding future maintenance The staff house had not been occupied No evidence of site meeting on file There were no material quality test data on the file Defects observed included water ponding at the entrance of the latrine urinal drain was poorly constructed As-built drawings were not required in the contract despite their use in future maintenance operations There were no material quality test data on the file As-built drawings were not required in the contract yet they help in maintenance operations No evidence of site meeting on file Performance Securities were not in place. Delay of a day in payment of IPC No.2 There were no material quality test data on the file As-built drawings were not required in the contract despite their significance The classroom block had not been handed over to the school management though it was ready for use No evidence of site meeting on file 6 Construction of Oitino Bridge Delayed payment for cement supplies There were no material quality test data on the file 11

Exposed reinforcement bars were seen in the beams and slab. Honey combing was observed in concrete on the slab and beam. Irregular Finishes were observed. As-built drawings were not prepared despite their significance No evidence of site meeting on file No progress report on file 7 Rehabilitation of Eden Road The variance between the planned cost and the final cost was 79% No work program on file Chippings procured were more than required for the project Delayed payment for 40 drums of bitumen supplies Materials testing data such as compaction results on file siltation of the cross culvert and scouring of drain observed As-built drawings were not prepared in the project No evidence management meetings No evidence of progress reports Recommendations USMID An addendum should be made to Works Contract document defining the role of the supervising consultant and MLHUD PST in the execution of the project. Payments to contractors should be promptly paid within the contractually stipulated times to avoid interest on delayed payments. The design review s proposed cost reductions should be considered where possible to reduce the cost of works 12

A proper drainage design should be done from which the sizes of drains and culverts are determined. Identified defects on the roads should be corrected The consultant and municipality should ensure that the Asphalt Concrete meets the minimum requirements for air voids. Recommendations Non- USMID Proper assessment of the works should be carried out in order to provide accurate planning figures. The Municipality should ensure that a Programme of works is maintained and updated Contracted Projects above UGX50 million should have performance security to safeguard against risks of default by contractor The Municipality should monitor physical and financial progress of the projects The Municipality should ensure that materials tests are carried out to assure compliance to specifications and test results kept on file for ease of reference. The Municipality should come up with drawings before and after construction to inform future projects and maintenance interventions. The Municipality should ensure that the contract supervisor prepares regular reports during the construction period and cover the key aspects of contract management which include but are not limited to time, cost and quality. Identified defects should be corrected 13

Appendix I: Unaccounted for advances Voucher No. Date Payee Details Amount Remarks Works and Technical Services PPJV-00816 08/08/14 Ocaya Saverio PPJV-00849 10/31/14 Ouma Conny PPV-00190 04/01/15 Odonga Terence PPV-00254 04/27/15 Odonga Terence PPV-00576 06/26/15 Ojok Christophe r SUB TOTAL ADMINISTRATION PPV-00231 04/21/15 Okot Richard COUNCIL PPJV-01708 09/30/14 Hon. Okello Robert PPJV-01709 09/30/14 Hon. Okello Robert Routine vehicle maintenance Pegging Of Alokolum road in Layibi division Travel to pick Tata lorry from kampala Allowance to operators for road works and emergency repair of Garbage truck UAY 016Y Payment to roller operators Verification of pension documents in Kampala Facilitation for members of the education committee to travel to Kitgum Facilitation for members of the education committee to travel to Kitgum 555,000 No accountabilities availed 591,000 No accountabilities availed 690,000 No accountabilities availed 1,785,000 No accountabilities availed 840,000 No accountabilities availed 4,461,000 650,000 No availed 660,000 No attached 200,000 No attached 14

PPJV-01710 09/30/14 Hon. Pauline Lukwayi PPJV-01711 09/30/14 Hon. Pauline Lukwayi PPJV-01733 09/30/14 Ojok Komakech PPV-00057 02/17/15 Oola Pogaba Facilitation to Kitgum to attend sports Gala Facilitation to Kitgum to attend sports Gala Facilitation to Mbale for study visits Facilitation for verification of lockups in Gulu main market SUB TOTAL FINANCE PPJV-00284 08/07/14 Apio Sarah Computer and I.T Services PPJV-00290 08/14/14 Luwa John Charles Being facilitation for data collection and update of development plan PPJV-00290 08/14/14 Being facilitation for data collection and update of development plan PPJV-00290 08/14/14 Being facilitation for data collection and update of development plan PPV-00393 06/03/15 Kidega George PPV-00446 06/11/15 Kidega George Being facilitation for data collection on enrolment of grant aided schools Being facilitation for revenue operation 585,000 No attached 200,000 No attached 840,000 No attached 1,580,000 No attached 4,065,000 350,000 No 1,100,000 No 300,000 No 100,000 No 1,125,000 No 1,152,000 No 15

SUB TOTAL 4,127,000 LGMSD PPV-00116 03/27/15 Capacity building Training for Speakers in Lira PRODUCT ION PV-0002 09/04/14 Omona John PV-0002 09/04/14 Omona John PV-0002 09/04/14 Omona John PV-0002 09/04/14 Omona John Facilitation for documenting all illegal markets Facilitation for documenting all illegal markets Facilitation for documenting all illegal markets Facilitation for documenting all illegal markets SUB 824,000 TOTAL TOTAL 18,687,000 4,560,000 No 400,000 No attached 140,000 No attached 134,000 No attached 150,000 No attached Appendix II: Unacknowledged Withholding Tax (WHT) Remittances Voucher No Date Payee Details Amount Remarks EDUCATION & SPORTS PPJV- 00729 PPV- 00589 WHTPPV -00586 08/07/14 URA 6% WHT from M/s Jealousy Never Pays Ltd 06/26/15 URA WHT Payment Aswa Technical Service & General 1,705,419 1,247,748 URA receipt to acknowledge payments not availed URA receipt to acknowledge payments not availed Supply 06/30/15 URA WHT 1,558,876 No acknowledgement of receipt URA 0 16

WHTPPV -00201 WHTPPV -00135 WHTPPV -00586 06/18/15 URA WHT 1,449,955 No acknowledgement of receipt 06/18/15 URA WHT 1,235,535 No acknowledgement of receipt 06/30/15 URA WHT 1,558,876 No acknowledgement of receipt TOTAL 8,756,409 Appendix III: Understaffing S/No. Post Title Salary Scale No. of Approve d Posts No. of Filled Posts No. of Vacant Posts Town Clerk 1 Town Clerk U1SE 1 1 0 2 Personal Secretary U4 Lower 1 0 1 3 Driver U8 Upper 1 1 0 3 2 1 Administration 1 Deputy Town Clerk U1E Lower 1 1 0 2 Senior Human Resource Officer U3 Lower 1 1 0 3 Assistant Town Clerk U4 Lower 1 0 1 4 Human Resource Officer U4 Lower 1 0 1 5 Librarian U4 Lower 1 1 0 6 Information Officer U4 Lower 1 0 1 7 Records Officer U4 Lower 1 1 0 8 Senior Office Supervisor U5 Upper 1 1 0 9 Stenographer Secretary U5 Upper 1 1 0 10 Senior Enforcement Officer U5 Upper 1 1 0 12 Information Assistant U7 Upper 1 0 1 17

13 Records Assistant U7 Upper 3 0 3 14 Stores Assistant U7 Upper 4 0 4 16 Library Assistant U7 Upper 1 1 0 17 Office Typist U7 Upper 2 2 0 19 Library Attendant U8 Upper 1 0 1 20 Office Attendant U8 Upper 4 2 2 21 Driver U8 Upper 2 2 0 Sub Total 28 14 14 Finance And Planning 1 Principal Treasurer U2 Upper 1 1 0 2 Senior Accountant U3 Upper 2 2 0 3 Senior Planner U3 Upper 1 1 0 4 Statistician U4 Upper 1 1 0 5 Accountant U4 Upper 1 1 0 6 Senior Accounts Assistant U5 Upper 3 1 2 7 Assistant Tax Officer U6 Upper 1 0 1 8 Accounts Assistant U7 Upper 2 4 0 9 Office Typist U7 Upper 1 1 0 10 Driver U8 Upper 2 0 2 11 Officer Attendant U8 Upper 1 0 1 Sub Total 16 12 6 Works 1 Municipal Engineer (Principal Executive Engineer) U2 Upper 1 0 1 2 Superintendent Of Works (Civil) U4 Upper 1 0 1 3 Senior Assistant Engineering Officer U4 Upper 2 1 1 4 Physical Planner U4 Upper 1 1 0 18

5 Environment Officer U4 Upper 1 1 0 6 Assistant Engineering Officer U5 Lower 4 2 2 7 Surveyor U5 Lower 1 1 0 8 Land Supervisor U6 Upper 1 1 0 9 Office Typist U7 Upper 1 1 0 10 Office Attendant U8 Upper 1 0 1 11 Plumber U8 Upper 1 0 1 12 Surveying Attendant U8 Upper 1 0 1 13 Driver U8 Upper 4 4 0 14 Plant Operator U8 Upper 1 0 1 15 Vehicle Attendant U8 Upper 3 2 1 16 Plant Attendant U8 Upper 1 0 1 17 Porter U8 Upper 2 0 2 Sub Total 27 14 13 Production and Marketing 1 Principal Commercial Officer U2 Lower 1 1 0 2 Veterinary Officer U4 Upper 1 0 1 3 Assistant Commercial Officer U5 Lower 1 0 1 4 Assistant Veterinary Officer U5 Lower 1 0 1 Sub Total 4 1 3 Education and Sports 1 Principal Education Officer U2 Lower 1 1 0 2 Inspector Of Schools U4 Lower 1 1 0 3 Education Officer U4 Lower 1 1 0 4 Assistant Sports Officer U5 lower 1 0 1 5 Assistant Education Officer U5 lower 1 0 1 19

6 Assistant Inspector of Schools U6 Upper 2 0 2 7 Office Typist U7 Upper 1 1 0 8 Driver U8 Upper 1 1 0 9 Office Attendant U8 Upper 1 1 0 Sub Total 10 6 4 Community Based Services 1 Principal Community Development Officer U2 Lower 1 1 0 2 Community Development Officer U4 lower 1 1 0 3 Assistant Labour Officer U6 Upper 1 0 1 4 Assistant Community Development Officer U6 Upper 4 4 0 5 Office Typist U7 Upper 1 0 1 6 Driver U8 Upper 1 0 1 Sub Total 9 6 3 Internal Audit 1 Senior Internal Auditor U3 Upper 1 1 0 2 Internal Auditor U4 Upper 1 0 1 3 Examiner of Accounts U5 Lower 1 1 0 Sub Total 3 2 1 Public Health 1 Medical Officer of Health Service (Principal Medical Officer) U2 Upper 1 0 1 2 Principal Health Inspector U3 Upper 1 1 0 3 Health Educator U4 Upper 1 1 0 4 Office Typist U5 Upper 1 1 0 5 Officer Attendant U7 Upper 1 0 1 20

6 Driver U8 Upper 1 0 1 7 Vehicle Attendant U8 Upper 1 0 1 Sub Total 107 60 47 21