OFFICE OF THE AUDITOR GENERAL THE REPUBLIC OF UGANDA REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF THE UGANDA NATIONAL EXAMINATIONS BOARD FOR THE YEAR ENDED 30 TH JUNE 2014 OFFICE OF THE AUDITOR GENERAL UGANDA
TABLE OF CONTENTS PAGE List of Acronyms... ii Report of the Auditor General on the Financial Statements of the Uganda National Examinations Board for the Year ended 30 th June 2014... 1 Detailed Report of the Auditor General on the Financial Statements of the Uganda National Examinations Board for the Financial Year ended 30 th June 2014... 3 1.0 Introduction... 3 2.0 Background Information... 3 3.0 Financing of the Board... 3 4.0 Functions of the Board... 4 5.0 Audit Scope... 4 6.0 Audit Procedures Performed... 5 7.0 Audit Findings... 6 i
LIST OF ACRONYMS BTVET GoU ICT IFMS IT MoES MoFPED MTN PFAA PLE PPDA PSST SMS UACE UCE UGX UNEB Business, Technical, Vocational Education and Training Government of Uganda Information and Communications Technology Integrated Financial Management System Information Technology Ministry of Education and Sports Ministry of Finance, Planning & Economic Development Mobile Telephone Networks Public Finance and Accountability Act Primary leaving Examination Public Procurement and Disposal of Public Assets Permanent Secretary/Secretary to Treasury Short Messaging Service Uganda Advanced Certificate of Education Uganda Certificate of Education Uganda Shillings Uganda National Examinations Board ii
REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF THE UGANDA NATIONAL EXAMINATIONS BOARD FOR THE YEAR ENDED 30 TH JUNE 2014 THE RT. HON. SPEAKER OF PARLIAMENT I have audited the accompanying financial statements of Uganda National Examinations Board for the year ended 30 th June 2014. These financial statements comprise of the Statement of Financial Position as at 30 th June 2014, Statement of Financial Performance, Statement of Changes in Equity, Cash flow Statement together with other accompanying statements, notes and accounting policies. Management Responsibility for the Financial Statements Under Article 164 of the Constitution of the Republic of Uganda, 1995 (as amended) and Section 8 of the Public Finance and Accountability Act (PFAA), 2003, the Accounting Officer is accountable to Parliament for the funds and resources of the Board. The Accounting Officer is also responsible for the preparation of financial statements in accordance with Section 16 of the UNEB Act, Cap 137 of the Laws of Uganda and for such internal controls as management determines necessary to enable the preparation of financial statements that are free from material misstatements, 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 the financial statements based on my audit. I conducted my audit in accordance with the International Standards on Auditing. These standards require that I comply with 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 and fair presentation of financial statements in order to design audit procedures that are appropriate in the circumstances, but not for purpose of expressing an opinion on the effectiveness of the entity s internal 1
controls. 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 my 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 present fairly in all material respects, the financial position of Uganda National Examinations Board as at 30 th June 2014 and of its operating results and cash flows for the year then ended and comply with the accrual basis of accounting and the UNEB Act, Cap 137 of the Laws of Uganda. Emphasis of Matter Without qualifying my opinion, I draw your attention to the following matter disclosed under Note 10 of the financial statements. Borrowing of funds The Board disclosed in Note 10 of the financial statements borrowings of UGX.11,068,529,487 as at 30 th June 2014 comprising of a loan of UGX.5,437,956,164 and an overdraft of UGX.5,630,573,323. As a result interest expenses of UGX.707,559,660 were incurred and this has the effect of escalating operational costs of the Board. John F. S. Muwanga AUDITOR GENERAL 13 th March 2015 2
PART B DETAILED REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF THE UGANDA NATIONAL EXAMINATIONS BOARD FOR THE FINANCIAL YEAR ENDED 30 TH JUNE 2014 This section outlines in detail the audit scope, audit findings, my recommendations and management responses in respect thereof. 1.0 INTRODUCTION Article 163 (3) of the Constitution of the Republic of Uganda, 1995 (as amended) requires me to audit and report on the public accounts of Uganda and all public offices including the courts, the central and 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 Board to enable me report to Parliament. 2.0 BACKGROUND INFORMATION The Uganda National Examinations Board (UNEB) is located at Plots 31, 33, and 35 Kakungulu Road - Ntinda. It was established by an Act of Parliament No.2 of 1983 as a body corporate with perpetual succession and a common seal and may sue and be sued in its corporate name. The Board was established with the major aim of conducting primary, secondary, technical, business and such other examinations within Uganda as it may consider desirable in the public interest, awarding certificates or diplomas to successful candidates in such examinations and making rules regulating the conduct of examinations. 3.0 FINANCING OF THE BOARD The Board was financed by grants from Central Government, Examination fees, bank interest, miscellaneous income and proceeds from sale of publications. Grants totalling to UGX.4,519,974,280 from Central Government were received, while a total of UGX.39,358,373,213 was received as examination fees. Another UGX.6,943,536,938 was received from locally generated revenue. The total revenue of UGX.50,821,884,431 constituted 95% of its approved budget estimates of 3
UGX.53,774,029,237. To fully finance its operations, the Board obtained a short term loan and an overdraft facility from Stanbic Bank amounting to UGX.11,068,529,487. 4.0 FUNCTIONS OF THE BOARD The Board has the following functions: a. To conduct primary, secondary, technical, business and such other examinations within Uganda as it may consider desirable in the public interest. b. To publish past examination papers. c. To award certificates or diplomas to succesful candidates in such examinations. d. To invite anybody or bodies outside Uganda, as it may think fit, and to conduct jointly academic, technical and other examinations. e. To award acceptable certificates or diplomas to successful candidates jointly with the invited bodies. f. To invite other bodies as it may think fit, to conduct examinations and award acceptable certificates or diplomas. g. To advise any body or bodies so invited under paragraph (e) upon the adaptation of examinations necessary for the requirements of Uganda and to assist any such body or bodies to conduct such examinations. h. To make arrangements for the conduct of research and development of the examination system. i. To make rules regulating the conduct of examinations and for all purposes incidental there to. 5.0 AUDIT SCOPE The audit was carried out in accordance with the International Standards on Auditing and accordingly included a review of the accounting records, agreed procedures as was considered necessary. In conducting my reviews, special attention was paid to establish whether: a. The Financial Statements for the Board have been prepared in accordance with Section 16 of the UNEB Act, Cap 137 of the Laws of Uganda and the accrual basis of accounting and that they present fairly the financial performance and position of the Board as at 30 th June 2014; 4
b. Sufficient internal controls have been applied consistently throughout the year to safeguard the assets of the Board and mitigate the risk of misstatement of the financial statements; c. All necessary supporting documents and records have been maintained and are in agreement with the financial statements presented; d. Goods and services have been procured in accordance with the Government of Uganda (GoU) procurement regulations; and e. The Board s assets were well managed in the period under review. 6.0 AUDIT PROCEDURES PERFORMED a. Revenue/Receipts Obtained schedules of receipts and reconciled the amounts to the Board s cashbooks and bank statements. b. Expenditure Vouched transactions to establish whether documentation in support of the expenditures agreed with the amounts and descriptions on the vouchers; reviewed and reconciled the bank statement transactions to test for occurrence and whether they were properly controlled and accounted for. c. Internal Control System Reviewed the internal control system and its operations to establish whether the controls were sound and were applied throughout the period under review. d. Procurement Reviewed the procurement of goods and services during the period under review and reconciled with the procurement plan. e. Fixed Asset Management Reviewed the use and the management of the Board s assets 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 evaluating the overall financial statement presentation. 7.0 AUDIT FINDINGS 7.1 Borrowing of funds The Board disclosed in Note 10 of the financial statements borrowings of UGX.11,068,529,487 as at 30 th June 2014 comprising of a loan of UGX.5,437,956,164 and an overdraft of UGX.5,630,573,323. During the year the interest expenses amounted to UGX.707,559,660. Borrowing of funds by the major Examinations Board has got reputational risks. Besides, the Board is exposed to the risk of litigation in the event of defaulting on payments. The interest expenditure is an extra cost that translates into higher operations for the Board and may subsequently result into higher examination fees for the students. In response, management explained that whereas the Board submitted to the MoES the actual unit costs of conducting each level of examination in 2013/14, the costs were approved and this resulted into the borrowing. The table below refer; Analysis of examination fees receivable as against the Management's Unit cost Approved Rate @ candidate Management's Computed rate per candidate Variance in rates No. of Registered Candidates Total variance PLE 14,000 17,750-3,750 582,085-2,182,818,750 UCE 80,000 89,650-9,650 295,434-2,850,938,100 UACE 80,500 92,750-12,250 116,011-1,421,134,750 TOTAL 6,454,891,600 I advised the Board to continuously engage MoES and MoFPED to ensure adequate funding is provided for conducting National examinations. 6
7.2 Doubtful Declaration of SMS Revenue On the 18th January 2012, UNEB entered into an agreement with a local firm, SMS Media to provide SMS services on examination results in which sharing of revenue was in the ratio of 50:50. During the year under review, a total of UGX.106,250,856 was declared by the ICT department of UNEB as total revenue realized from this source. However the following anomalies were observed: i) It was noted that while the Board Revenue budget from the service was UGX.500,000,000, only UGX.123,124,576 was realised resulting into a shortfall of UGX.376,875,424. No explanation was provided for the underperformance. ii) In the previous year s report to Parliament, management undertook to have this service managed in-house. However, there was no evidence of action taken in this regard. iii) The data was only accessed through SMS Media implying that UNEB could not verify completeness of the data. Besides the data related to only PLE leaving out UCE, UACE and BTVET and Data from only three Telecommunication Companies namely; Airtel, Orange and MTN was availed leaving out Uganda Telcom and K2. In the circumstances the usefulness of the system is limited. In their response management indicated that it is in the process of strengthening the controls over the SMS revenue by installing and managing SMS platform inhouse. I advised management to seek explanations for the under performance of the revenue and consider managing the service directly. There should also be provision for data on other academic levels and telecommunation companies. 7
7.3 Revenue Shortfall Out of the Revenue budget of UGX.350,000,000 from the sale of Publications only UGX.232,630,425 was realized, resulting into a short fall of UGX.117,369,575. Failure to collect budgeted revenue undermines the implementation of planned activities. In response management attributed the decrease in publications revenue collection to piracy of the UNEB publication materials especially past papers. In the meantime the Board was partnering with the Copyrights enforcing bodies to apprehend and prosecute the culprits in line with the Copyrights and Patents Law. I await the results of management action. 7.4 Absence of a Succession Plan Good governance principles require the Board of Directors to formulate a Succession plan for key positions in order to enable smooth continuity of service delivery in the event that a post falls vacant. However, review of the UNEB Human Resources Manual 2005 revealed that the succession plan policy was non-existent. Absence of succession planning may demotivate the existing staff which in turn affects the achievement of the Board s strategic objectives. In response, management indicated that the board had made a resolution on the matter and development of the succession plan was on-going. Management was advised to expedite the process of formulating the succession plan to ease replacement of key staff when they retire. 7.5 Lack of a Disaster Recovery Plan It was noted that despite the heavy investment and dependence on IT Processes, the board lacked a disaster recovery plan for its IT data and information contrary to best practice. The absence of a disaster recovery plan and its implementation thereof, could lead to loss of vital information in the event that the established IT equipment fails, which could result into organizational challenges. 8
In response, management explained that the process of developing and implementing a disaster recovery plan is on-going. I advised management to expedite the process. 7.6 Failure to capture relevant details by the Examination receipting system Best practice requires the details of receipted revenue to be recorded in an entity s books of accounts with reference to the source documents. A review of the management of examination fees revealed that the Board records the revenue in manual receipt books. However, audit noted that particulars of the payee and the receipt numbers were neither captured into the system nor reflected on the bank statements. Failure to capture relevant details renders reconciliation of the funds received with the registration list difficult. In response, management indicated that it had written to the bank to ensure recording of relevant details of deposits and payments. I advised management to ensure that all relevant details in the examination receipt are captured for appropriate tracking of funds received. 9
FINANCIAL STATEMENTS 10