OFFICE OF THE AUDITOR GENERAL THE REPUBLIC OF UGANDA REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF LIRA MUNICIPAL COUNCIL FOR THE YEAR ENDED 30 TH JUNE 2016
Table of Contents LIST OF ACRO YNMS... 2 1.0 INTRODUCTION... 5 2.0 ENTITY FINANCING... 5 3.0 AUDIT SCOPE... 5 4.0 AUDIT PROCEDURES PERFORMED... 6 5.0 FINDINGS... 7 5.1 Categorization of findings... 7 5.2 Summary of Findings... 7 6.0 DETAILED AUDIT FINDINGS... 8 6.1 USMID Project... 8 6.1.1 Contract Price Variation... 8 6.1.2 Diversion of Funds... 8 6.2 Failure to meet Minimum National Standards of Service Delivery in the Education Sector 9 6.3 Low recovery of Youth Revolving Funds... 9 6.4 Failure to meet the national minimum standards of service delivery at Health Centres 10 6.5 Unaccounted for funds... 11 APPENDICES... 12 Appendix I: Failure to meet the national minimum standards of service delivery in the Education Sector... 12 Appendix II: Low-recovery of Youth Revolving Fund... 13 Appendix III: Unaccounted for funds... 13 1
LIST OF ACRO YNMS Acronym Meaning UGX Uganda Shillings RT. HON. Right Honourable ISA International Standards on Auditing LGFAR Local Governments Financial and Accounting Regulations FYR Financial Year PPDA Public Procurement and Disposal of Public Assets LGFAM Local Governments Financial and Accounting Manual MOLG Ministry of Local Government MGLSD Ministry of Gender, Labour and Social Development HC Health Centre PHC Primary Health Care MOH Ministry of Health OWC Operation Wealth Creation MAAIF Ministry of Agriculture, Animal Industry and Fisheries NAADS National Agricultural Advisory Services ICT Information Communication Technology YLP Youth Livelihood Program MOU Memorandum of Understanding NMS National Medical Stores LGMSD Local Governments Management and Service Delivery P/S Primary Schools SOP Standing orders of Procedure URA Uganda Revenue Authority USMID Uganda Support to Municipal Infrastructure Development VAT Value Added Tax KMs Kilometres 2
REPORT THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF LIRA MUNICIPAL COUNCIL FOR THE YEAR ENDED 30 TH JUNE 2016 THE RT. HON. SPEAKER OF PARLIAMENT Introduction I have audited the accompanying financial statements of Lira Municipal Council for the year ended 30 th June 2016. These financial statements comprise the Statement of Financial Position as at 30 th June 2016, 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 Lira 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 1995 (as amended), 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. 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 risks of material misstatement of the financial statements 3
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 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 Lira Municipal Council as at 30 th June, 2016 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 24 th December, 2016 4
PART B DETAILED REPORT ON THE FINANCIAL STATEMENTS OF LIRA MUNICIPAL COUNCIL FOR THE YEAR ENDED 30TH JUNE 2016 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 and of 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 Lira Municipal Council to enable me report to Parliament. 2.0 ENTITY FINANCING Lira Municipal Council is financed by grants (Conditional and Unconditional) from the Central Government, donations, transfers from other Government Units and locally generated revenues from taxes, fees, licenses and charges. During the year, the district received grants totaling to UGX.12,389,722,225 from Central Government, UGX.491,531,644 from locally generated revenues, UGX.1,033,488,924 from other Government Units and Donor funds of UGX.327,367,578. The total revenue of UGX.14,242,110,371 constituting 107.9% of its approved budget estimates of UGX.13,199,610,000 was realized. 3.0 AUDIT SCOPE 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. 5
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, 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 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. 4.0 AUDIT PROCEDURES PERFORMED The following audit procedures were undertaken:- a. Revenue Obtained 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. 6
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. 5.0 FINDINGS 5.1 Categorization of findings The following system of profiling of the audit findings has been adopted to better prioritize 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. 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. 5.2 Summary of Findings No Finding Significance 6.1 USMID Project High 6.2 Failure to meet Minimum National Standards of service High delivery in the Education Sector 6.3 Low-recovery of Youth Revolving Fund High 6.4 Failure to meet national minimum Standards of service Moderate delivery at the Health Centres 6.5 Unaccounted for funds Low 7
6.0 DETAILED AUDIT FINDINGS This section outlines the detailed audit findings, management responses and my recommendations. 6.1 USMID Project 6.1.1 Contract Price Variation Regulation 75(1c) of the Local Governments PPDA Regulations, 2006 defines a material deviation or omission as one that if corrected would unfairly affect the competitive position of other tenderers presenting substantially responsive and compliant tenders. Regulation 120 (12) states that no individual contract amendment shall increase the total contract price by more than 15% of the original contract price without the prior approval of PPDA. Contract was awarded to M/s Chonqoing International Corporation (CICO) at a contract price of UGX.5,345,786,843 to rehabilitate Oyam road, Rwot-Aler road and Aroma Lane (0.985 Kms). The contract which was signed on 16 th March 2016, clearly indicated that it was VAT inclusive. It was however noted that the Contracts Committee sat on 14 th September 2016 (six months after signing of the contract agreement) and approved a contract variation of UGX.962,241,631, which increased the contract price to UGX.6,308,028,474 to purportedly take into account the VAT element which was erroneously omitted during evaluation. This increase represents a variation of 18% of the initial contract price, which necessitated authority from PPDA and the Solicitor General s clearance. I advised the Accounting Officer to ensure that contracts entered into are properly scrutinised before being signed. 6.1.2 Diversion of Funds Paragraph 3.6 of the USMID Operational Manual states that courses must be undertaken in Uganda. It was observed that UGX.7,722,000 was paid to Council staff as night allowance and 20 days out of pocket to attend a course on Capacity Building Program on Local Administration for Uganda held from 3 rd to 23 rd April, 2016 in Seongnam and Wanju - Republic of Korea contrary to the USMID operational manual rendering the expenditure ineligible and tantamount to diversion of funds. 8
The Accounting Officer should institute recovery measures from the concerned officer. 6.2 Failure to meet Minimum National Standards of Service Delivery in the Education Sector Paragraph 2.1.2 (a) of the Local Governments Management and Service Delivery (LGMSD) Program operational manual states that Local Governments will deliver services in conformity to the standards as dictated by minimum national standards of service delivery. However, inspections carried out in Universal Primary Education schools revealed that the current infrastructural status in the municipal schools fall below the minimum standards in terms of classroom: Classroom: pupil ration, stance: pupil ratio and house: teacher ratio as shown in Appendix I. The Accounting Officer explained that the Municipality has tried with the available resources to improve the infrastructure in schools as they await for the Government interventions. I advised Accounting Officer to engage the relevant stake holders to mobilize adequate resources for infrastructural development in the school. 6.3 Low recovery of Youth Revolving Funds Chapter 6 (i) of the Youth Livelihood Programme, 2013 states that all the project grants disbursed to each Youth Interest group will be treated as a revolving fund to be repaid in accordance with the Project Financing Agreement between the local Government and the beneficiary youth interest group, witnessed by the area Resident State Attorney. A surcharge of 5% on any group that fails to make repayment within the stipulated time frame. However, it was observed that out of UGX.107,562,000 disbursed to the groups, only UGX.5,150,000 representing 5% was recovered leaving UGX.102,412,000 unrecovered as shown in Appendix II. This may lead to unsustainability of the project. The Accounting Officer explained that efforts are being made to recover the funds. I advised the Accounting Officer to ensure that the funds are recovered promptly. 9
6.4 Failure to meet the national minimum standards of service delivery at Health Centres Paragraph 2.1.2 (D) of the Local Governments Management and Service Delivery (LGMSD) Program Operational Manual for Local Governments sets minimum standards for proper functioning of Health centers. An inspection of selected health centers revealed the following short comings:- Name of health facility/required standard AYAGO HCIII One OPD block with community shed Minimum standards Current status Audit remarks 1 1 One OPD with no shed One maternity ward 1 1 8 beds available Two general ward 2 0 None, apportioned maternity ward to act as a general ward, also has art clinic and injection room Two staff houses type 1 2 1 I block for the in charge One staff house type 2 1 2 2 Blocks of twin house-prdp and NUSAF Two staff houses type 3 2 0 None. Eight two stance pit latrines 8 4 2 stance, water flash nunfunctional and another stances 2 doors.ie.4 functional stance One medical waste pit 1 1 One placenta pit 1 1 One water source 1 1 Medical equipment Adequate 2 Microscope, fridge Furniture Adequate Appropriate level however some they need replacement Adyel HCIII One OPD block with community shed 1 1 No operational funds One maternity ward 1 1 No operational funds Two general ward 2 0 None Two staff houses type 1 2 1 Insufficient One staff house type 2 1 0 None Two staff houses type 3 2 0 None Eight two stance pit latrines 8 2 Insufficient One medical waste pit 1 0 None One placenta pit 1 1 No operational funds One water source 1 0 None 10
Medical equipment Adequate 0 None Furniture Adequate 0 None 6.4.1 Other issues at the health centers Adyel Health Center III, is not yet accredited though functional and as a result, the staffs and drugs at the facility are re-allocated from other health centers. Operational funds are borrowed from the neighboring health centers. In Ayago the following were also noted There are no toilets for patients There is only one mid-wife The Enrolled nurse is acting as the in-charge No land tittles for both health facilities The Accounting Officer attributed lack of patients toilet to failure to release PHC development funds, but explained that the Council is in the process of acquiring land titles for the health facilities. I advised the Accounting Officer to liaise with the relevant authorities to ensure that the outstanding gaps are urgently filled. 6.5 Unaccounted for funds Regulation 43(2) of the LGFAR of 2007, requires that administrative advances to Council employees to be accounted for within one month. However, it was observed that UGX.25,013,600 remained unaccounted for at the time of audit as shown in Appendix III. Consequently, I was unable to confirm that the funds were utilized for the intended purposes. Accounting Officer attributed the anomaly to the practice of filing of accountability separately from the payment vouchers. I advised the Accounting Officer to ensure that the funds are accounted for or else effect recovery from the responsible Officers. 11
APPENDICES Appendix I: Failure to meet the national minimum standards of service delivery in the Education Sector Schools Class room pupil ratio Teachers houses 12 Latrine stance pupil ratio Minimum ratios 1:55 1:1 1:40 1 Library Audit Remarks Lira Army PS 1:90 1:3 1:75 0 Has only 10 classrooms and 12 stance VIP latrines for 901 pupils, no library Elia Olet PS 1:99 1:27 1:59 Has only (1) one permanent staff house for 27 teachers Nancy School for the Deaf 1:16 0 Has only (1) one permanent staff house for 16 teachers, no library VH PS 1:106 1:64 0 Has only 18 classrooms and 30 stances VIP latrines for 1916 pupils Lira Primary school 1:10 1:74 Has only (3) three permanent staff house for 29 teachers, and 20 stances VIP latrines for 1477 pupils Ober PS 1:188 1:9 1:100 0 Has only 8 classrooms and 15 stances VIP latrines for 1502 pupils, has only 3 permanent staff houses for 27 teachers Adyel Ps 1:3 1:213 The school possesses only 6 VIP stances for total of 1279 pupils Starch Factory PS 1:66 1:9 1:71 has only 2 permanent staff houses for 17 teachers Lira Police PS 1:139 1:3 1:131 0 Has only 16 classrooms and 17 stances VIP
latrines for 2219 pupils, no library at the school Ambalal PS 1:8 1:67 0 has only 3 permanent staff houses for 23 teachers Appendix II: Low-recovery of Youth Revolving Fund Name of group Amount Amount to be Amount Amount not received recovered recovered recovered Kirombe west youth alive ICT 9,350,000 9,350,000 350,000 9,000,000 project Cuk-ebang go global 10,870,000 10,870,000 400,000 10,470,000 Starch factory B youth group 10,622,000 10,622,000 1,600,000 9,022,000 Par Pii Anyim Hair dressing 12,500,000 12,500,000 200,000 12,300,000 focused youth catering 10,650,000 10,650,000 0 10,650,000 services Agali B Youth farmers 9,280,000 9,280,000 600,000 8,680,000 Baronger godown 10,110,000 10,110,000 0 10,110,000 brickmaking project Railways quarter B youth 10,530,000 10,530,000 200,000 10,330,000 auto parts Senior quarters B youth 11,650,000 11,650,000 500,000 11,150,000 produce buying and selling Central park youth produce 12,000,000 12,000,000 1,300,000 10,700,000 buying and selling Total 107,562,000 107,562,000 5,150,000 102,412,000 Appendix III: Unaccounted for funds Date Particulars Details Amount Audit Remarks 6/2/2016 Order ADV- 01599 3/22/2016 Order ADV- 01390 5/16/2016 GEOSAVANA COMPANY LTD 5/16/2016 GEOSAVANA COMPANY LTD 11/3/2015 Order ADV- 00829 12/10/2015 Order ADV- 00972 11/9/2015 TWESIGYE, OYUKO & CO schools health 1,095,000 not accounted for education Inspection visit 1,050,000 not accounted for Supply of Toner cartridges to health department Supply of Toner cartridges to audit department 1,000,000 Doubtful payment since the dates on the delivery note and the GRN differ, no receipts attached 1,000,000 Doubtful payment since the dates on the delivery note and the GRN differ, no receipts attached Monitoring of PLE 1,108,000 Payment sheet and activity report not attached Preparation of 1,102,000 not accounted for tenancy agreement for main market vendors advocates Nugatory expenditure, not 1,880,000 accounted for 13
ADVOCATES 12/1/2015 Order ADV- 00941 9/9/2015 Order ADV- 00656 11/9/2015 Order ADV- 00853 6/28/2016 Gudul Enterprises Ltd 6/28/2016 Gudul Enterprises Ltd Fuel refund 1,200,000 no accountability apart from receipts Kirombe road BOQ 2,103,600 Double payment, this was preparation again paid in order ADV- 00819, 5days attendance not attached Environmental screening for 10days Supply of 198m2 of gravel on Alai road Supply of marram 227m2 on starch factory road Total 25,013,600 2,000,000 10 days daily attendance not attached, cash purchase of fuel of UGX. 768,000 regardless of running deposits, cash purchase of stationery UGX. 422,000 regardless of have prequalified firms 5,346,000 Deliveries on site overlapped with deliveries on Obote Avenue Soroti road on 23rd/06/2016 both being tallied at the same time by Otim Peter, no contractors representative i.e. not signed, Actual consumption schedule of gravels, BOQ, daily muster-roll for spreading gravel not attached, GRN on 28/06/2016 contradicting actual deliveries on site on 23rd /06/2016 which is not witnessed by internal auditor therefore casting doubt 6,129,000 No Actual consumption schedule of gravels, BOQ, daily muster-roll for spreading gravel not attached, actual deliveries on on22/06/2016 on site was not witnessed by internal auditor and was contradicting with GRN on 28th/06/2016 14