OFFICE OF THE AUDITOR GENERAL

OFFICE OF THE AUDITOR GENERAL THE REPUBLIC OF UGANDA REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF BUSIA DISTRICT LOCAL GOVERNMENT FOR THE YEAR ENDED 30 TH JUNE 2015

REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF BUSIA DISTRICT LOCALGOVERNMENT FOR THE YEAR ENDED 30TH JUNE, 2015 THE RT. HON. SPEAKER OF PARLIAMENT Introduction I have audited the accompanying financial statements of Busia District Local Government for the year ended 30th June 2015. These financial statements comprise of the Statement of Financial Position as at 30th 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 Busia District Local Government. 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, 1995 (as amended), section 87 of the Local Governments Act, 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. 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 2

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 presentation of the financial statements. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my unqualified 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 Unqualified Opinion In my opinion, the financial statements of Busia District 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 cap 243 (as amended), of the Laws of Uganda. John F. S. Muwanga AUDITOR GENERAL 30 th November, 2015 3

PART "B" BUSIA DISTRICT DETAILED REPORT OF THE AUDITOR GENERAL FOR THE FINANCIAL YEAR ENDED 30 TH JUNE 2015 1.0 INTRODUCTION In accordance with Article 163(3) of the Constitution of the Republic of Uganda, 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 Busia District 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 have 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 have been procured in accordance with the PPDA Act. 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 e. To verify whether the management of the funds of the entity was in compliance with the Government of Uganda financial regulations. 4

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, 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 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 estimates made by management; as well as evaluated the overall financial statement presentation. 5

4.0 ENTITY FINANCING Busia District is financed by grants (Conditional and Unconditional) from the Central Government, donations and locally generated revenues from taxes, fees, licenses and charges. During the year, the district received grants totaling to UGX 21,766,106,953 from the Central Government; UGX.95, 798,894 from donors and UGX.166, 948,549 from locally generated revenues realising total revenue of UGX.22,028,854,396 constituting 81% of its approved budget estimates of UGX.27,286,952,053. 5.0 DETAILED AUDIT FINDINGS This Section outlines the detailed audit findings, management responses and my recommendations in respect thereof. 5.1 REVENUE 5.1.1 Under Collection of Local Revenue Regulation 32 of the Local Governments Financial and Accounting Regulations, 2007 requires councils to ensure collection of all budgeted revenue in an approved manner and the revenue banked intact in Council accounts. It was however observed that out of the budgeted Local Revenue of UGX. 438, 671,200 only UGX.164,498,335 (37%) was realized leading to a shortfall of UGX.247, 172,865 (62.5%). Failure to collect all the budgeted local revenue negatively affects the implementation of the planned activities. The Accounting Officer attributed the shortfall to lack of a follow up mechanism and explained that management has since initiated a number of strategies for improvement. I advised the Accounting Officer to institute measures to ensure that all budgeted revenue is collected. 6

5.1.2 Lack of Proper Assessment of Council Revenue Section 4.3 of Local Government Financial and Accounting Manual, 2007 requires the Chief Executive to carry out proper assessment of the council s revenue regularly and that in order for proper assessment to be carried out, the process should start with the enumeration exercise conducted by a team of enumerators who should record all the sources of income for each individual tax payer in the Lower Local Government. However, it was observed that local revenue assessment was not conducted for the year under review contrary to the regulations. The Accounting Officer attributed the shortcoming to lack of funds to facilitate the assessment committee. The Accounting Officer was advised to prioritize the revenue assessment and allocate funds for the exercise. 5.1.3 Delayed Implementation of the Property Rates Valuation Section 3 of the Local Governments Rating Act empowers local authorities to levy property rates. The process involves; obtaining a valuer, who in turn carries out the valuations, drafting of valuation list; constituting a valuation court to scrutinize the valuation list, publicizing the valuation list and consideration of appeals. It was observed that a valuation list/report was received by the district on 11/02/2014, but no further activity has taken place to date (1 year and 5 months down the road) despite the fact that the district had budgeted UGX 29,500,000 for the activity. The delayed completion of the process directly translates to loss of revenue to the district. The Accounting Officer explained that the contractor who had been hired to facilitate the process did not perform as expected and as such consultation had been made with the PPDA with a view of having the contract terminated. I advised the Accounting Officer to make a follow up with PPDA so that the process of securing another contractor is expedited to avoid further loss of revenue. 7

5.1.4 Failure to Collect Shared Local Revenue from Sub Counties The Local Governments Act 1997 sec 85(2) states that revenue shall be collected by the sub county councils, and a sub county council shall retain 65 percent, or any other higher percentage as the district council may approve, of the revenue collected by it and pass the remaining percentage(35%) over to the district. It was observed that an amount of UGX.10,227,000 had not been remitted to the district. The failure to collect the shared revenue undermines service delivery to the community. The Accounting Office attributed the shortcoming to the district failure to make regular follow ups. The Accounting Officer further explained that Council was devising quarterly monitoring for the revenues due and also strengthening the internal audit to undertake revenue audits. I advised the Accounting Officer to ensure that all local revenue collections are collected from the sub-counties to enhance local revenue. 5.2 EXPENDITURE 5.2.1 Un-accounted for Funds Regulation 43 (2) of the LGFAR, 2007 requires all administrative advances to council employees to be accounted for within a month. However, it was noted that UGX 4,965,500 paid out for various activities during the year under review remained unaccounted for by the time of audit as shown in Appendix I Consequently, I could not confirm that the funds were utilized for the intended purposes. The Accounting Officer explained that accountabilities were available but the accountabilities were not presented for audit verification. I advised the Accounting Officer to obtain the accountabilities or else recover the funds from the responsible officers. 8

5.2.2 Incompletely Vouched Expenditure Section 5.4.6 (1) of the LGFAM, 2007, requires the head of finance to ensure that payment vouchers and any supporting documents are correct before being passed for payment. It was observed that a sum of UGX. 6,387,080 lacked the necessary supporting documents as shown in Appendix II. Consequently, I could not confrim that the funds were utilised for the intended purposes. The Accounting Officer explained that the missing documents were available but were not presented for audit verification. I advised the Accounting Officer to ensure that funds are properly accounted for or else be recovered from the responsible officers. 5.2.3 Doubtful Tax Remittances Regulation 123 of the Income Tax Act, 1997, requires a withholding agent to pay to URA any tax that has or should have been withheld within fifteen days after the end of the month in which the payment subject to withholding tax was made. However, it was observed that payments amounting to UGX 5,923,000 purportedly paid to URA lacked acknowledgment receipts as shown in Appendix III. In the absence of the acknowledgement receipts, I could not confirm that the funds were received by Uganda Revenue Authority. Non-compliance with the tax law may attract fine and penalties. The Accounting Officer explained that all receipts had been secured but they were not presented for audit verification. I advised the Accounting Officer to obtain the receipts from URA. 5.3 Procurement 5.3.1 Irregular Constitution of the Evaluation Committee Regulation 79 (3a) of the LG PPDA Regulations, 2006 prohibits a member of the Contracts Committee from being a member of the Evaluation Committee. Evidence provided in Minute 3 of the 1st DCC meeting of 15/07/2014, revealed that the secretary 9

District Contracts Committee, Mr. Olowo Appollo was appointed to the Evaluation Committee for the rehabilitation of community access roads. This is a conflict of interest. The Accounting Officer (AO) explained that her decision was based on Regulation 15 requiring the AO to nominate persons to the Contracts Committee for the approval of the Secretary to the Treasury. The matter requires urgent attention. 5.3.2 Unsupported Evaluation reports Section 27 (8) of the Local Governments (Public Procurement and Disposal of Assets) Regulations 2006 provides that the evaluation committee shall undertake the assessment of tenders Submitted, rank them and submit an evaluation report and assessment scores to the procurement and disposal unit for submission to the contracts committee. However, Audit of Twenty one (21) procurement files worth 1.6bn revealed that whereas evaluation reports had been prepared, there were no individual score sheets to support the results as required by the regulations. Consequently, I was not able to confirm that evaluation of contracts was undertaken in a transparent manner. I advised the Accounting Officer to enforce procurement regulations to enhance transparency in procurement evaluation. 5.4 SERVICE DELIVERY 5.4.1 Health Services Section 2.1.1 D of the Local Government Management and Service Delivery (LGMSD) Program Operational Manual provides for minimum standards of health service delivery. However, inspection of health centers revealed a number of matters that are outlined below; 10

a) Status of Majanji HC II Inspection of Majanji HC II revealed that the centre lacked a number of essential items as shown below; S/No. Deficiency Identified 01 The Health Center is currently understaffed with only 4 of 9 staff required as per its establishment. 02 Maternity lacks resuscitation equipment set. 03 The Centre also lacks means of sterilization as the paraffin stove that was being used was not operational as it had broken down. 04 Drugs like panadol, septrine and amoxylin commonly used at the Centre were out of stock at the time of inspection in August yet the next batch of drugs was expected at the end of September (as per NMS calendar) Accounting Officer s Response The district is still facing challenges of under staffing mainly due inadequate wage bill. However, efforts are being made to lobby for more funds to mitigate this from MoFPED. Authority has also been sought for recruitment from MoPS. No response provided No response provided The Chief Administrative Officer communicated the challenges and requested for the ministry s intervention to help avert the stock out crisis. The above shortcomings lead to constrained service delivery. I advised the Accounting Officer and District Health Officer (DHO) to engage National Medical Stores for an immediate solution to avert the possible loss of lives. 11

b) Status of Masafu Hospital Masafu General Hospital is the only district hospital serving Busia, Namayingo and parts of Kenya as a District Referral Hospital. According to management, this Hospital has generally improved provision of curative, preventive and promoted health services. However, inspection of the hospital revealed a number of challenges as outlined below; Staffing Gap The hospital currently has only 86 out of the required 185 staff establishment. This in turn has outstretched the current staffs that have to pick up extra hours and shifts. Quality of health services is also undermined in such circumstances. Transport Challenges The hospital has an old ambulance Reg. UG 3699M as the only vehicle which serves patients on referral, routine movements and as an administrative vehicle for consultative purposes. The cost of maintenance has become too high because of the vehicle being too old and being over stretched. Shortage Infrastructure Shortage of Drug of The hospital lacks an Administrative block, an appropriate store for safe keeping of medicines and other items, a laundry room, modern mortuary, kitchen, Askari house, staff quarters fence, computers for records office, shelves for patient files and borehole to combat water shortages. Disposal of medical waste is also a challenge as the hospital does not have an incinerator. There is an acute shortage of drugs. It was noted that at the time of inspection, the credit line was exhausted due to a discrepancies in the planned allocation and actual release. Administrative Officer communicated the challenges and requested for the ministry s intervention to help avert the staffing gap. 12

The Accounting Officer explained that she had communicated the challenges to the responsible Ministry of Health and also requested the Ministry s intervention on the issue of staff shortage. I advised the Accounting Officer to continue following up the matter with the Ministry of Health and the challenges addressed. c) Non Functioning Health Centers in the District Three health Centre IIs in Butangasi, Buyengo and Kubo Sub counties constructed in 2012/2013 to a tune of UGX. 193,012,422 were to-date not functional. These health centers have all the necessary facilities including OPDs and latrines and a 2 in 1 staff house. It was also noted that the centers have one staff (enrolled nurse) each, posted there in January 2014 using SDS funds. These 3 nurses are in the meantime helping out at Masafu hospital waiting for the centers to be operationalized. Further noted was that the ministry was yet to provide fund allocation to the new centers. The Accounting Officer attributed the delay in operationalizing these centers to failure by Ministry of Health to Code the centers to enable them receive drugs from NMS. Evidence to confirm this was however not readily provided. The continued existence of facilities that are not being used denies the intended users timely and easy accessibility to health services. 13

APPENDICES Appendix I: Unaccounted for Funds Dept Date Particul Vouc EFT No. Amount Remarks ars her No. (UGX) YLP 06/29/ 15 Fuel for Sub. of 0902 5070000 0049 648,000 no fuel receipts or details of activity undertaken Work plans& reports 8 NUSA 01/16/ Training 5070125 1,600,000 No receipts for meals F Ops 15 of CPMC,CP C,EPRA on NUSAF II 0732 6 0031 NUSA F Ops 10/06/ 14 OGOLLA PAJAPIA N 0641 0 5070125 0015 717,500 No supervision report, No fuel receipt 0.48m, No payment sheet for SDA Com munit y 06/18/ 15 Habaleke Bahasiim e Savings 0866 6 5070205 0110 2,000,000 No acknowledgement of receipt as required in the workplan Group Total 4,965,500 14

APPENDIX II: Incompletely Vouched Expenditure Dept Date Particular Vouche EFT No. Amount Remarks s r No. (UGX) YLP 06/04/15 Payment for meals during training Youth Gps 08527 50700000041 760,000 no details of persons being bought for meals YLP 06/30/15 Monitoring of YLP projects 09027 50700000048 830,000 no monitoring report seen Works 10/01/14 supervision of routine RD maintenanc e qtr 2 06296 50701021461 2,112,200 no details of supervised works and period when undertaken given, or report attached Admin 08/27/14 SDS 1st qtr release- Samia Bugwe county 05903 50702040027 1,994,880 No acknowledgem ent of receipt Admin 06/10/15 Routine Consultatio 08559 50702040219 690,000 No consultation report n Total 6,387,080 15

APPENDIX III: Doubtful Tax Remittances Date Particulars Voucher EFT No. Amount Remarks Dept No. (UGX) WHT Payment - Educa tion 06/29/ 15 Vendor: VEN- 06107PV:08961 Constrn of 2 Educa 02/06/ classroon block at tion 15 Bulobips 12/22/ WHT Payment- Health 14 Humrej Services 06/24/ Uganda Revenue Health 15 Authority NUSA 02/06/ WHT From Partsland F Ops 15 International LTD 02/06/ WHT from nambuya Prod 15 investments Prod 06/30/ WHT Payment - 15 Vendor: VEN- 06133PV:09013 PV- WHT0217 50701030329 1,173,669 NO TAX RECEIPTS NO TAX 07298 50701030259 829,818 RECEIPTS No URA 50701050563 2,584,295 07068 receipt No URA 50701050694 413,810 08786 receipt No URA 50701250026 210,914 07252 receipt No URA 50701040360 351,000 07250 receipt PV- 50700000032 360,000 No URA WHT018 receipt Total 5,923,506 16