OFFICE OF THE AUDITOR GENERAL THE REPUBLIC OF UGANDA REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF THE KILEMBE MINES LIMITED FOR THE YEAR ENDED 30 TH JUNE, 2014 OFFICE OF THE AUDITOR GENERAL KAMPALA, UGANDA
TABLE OF CONTENTS PAGE Acronyms... ii Report of the Auditor General on the Financial Statements of the Kilembe Mines Limited for the Year ended 30th June 2014... 1 Detailed Report of the Auditor General on the Financial Statements of the Kilembe Mines Limited for the Year ended 30 th June 2014... 4 1.0 Introduction... 4 2.0 Background Information... 4 3.0 Objectives... 5 4.0 Audit Scope... 5 5.0 Audit Procedures Performed... 6 6.0 Detailed Findings... 7 i
ACRONYMS GoU IAS KML Tibet UGX Government of Uganda International Accounting Standard Kilembe Mines Ltd Tibet Hima Automobile Industry Limited Uganda Shillings ii
REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF THE KILEMBE MINES LIMITED FOR THE YEAR ENDED 30TH JUNE 2014 THE RT. HON. SPEAKER OF PARLIAMENT I have audited the financial statements of Kilembe Mines Limited for the year ended 30 th June 2014. These financial statements comprise of a Statement of Financial Position as at 30 th June 2014, Statement of Comprehensive Income, Statement of Cash Flows and Statement of Changes in Equity together with other accompanying schedules, notes and accounting policies. Directors Responsibility for the Financial Statements The Directors are responsible for the preparation of the financial statements which give a true and fair view of the Company s state of affairs and its operating results. This responsibility includes designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error, selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances. Auditor s responsibility My responsibility as required by Article 163 of the Constitution of the Republic of Uganda, 1995 (as amended) and Section 13 and 19 of the National Audit Act, 2008 is to audit and express an opinion on the financial statements based on the audit. I conducted the audit in accordance with International Standards on Auditing. These standards require that I comply with ethical requirements, plan and perform the audit to obtain reasonable assurance as to whether the financial statements are free from material misstatement. An audit involves performing 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 the risks of material misstatement on the financial statements, whether due to fraud or error. In making those risks assessments, the Auditor considers the internal controls relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purposes of expressing an opinion on the effectiveness of the entity s internal controls. An audit also includes evaluating 1
the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Company s shareholders, 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 qualified 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 Basis for Qualified Opinion Biological Assets The Company owns biological assets in the form of eucalyptus trees in various plantation forests approximated at 126 acres. However, contrary to IAS 41, the assets had not yet been valued by an independent valuer to determine their fair values. In the circumstances, the financial statements are misrepresented. Qualified Opinion In my opinion, except for the possible effects of the matter described in the Basis for Qualified Opinion paragraph; The financial statements present fairly in all material respects, the financial position of Kilembe Mines Limited as at 30 th June 2014 and of its operating results and cash flows for the year then ended, and comply with International Financial Reporting Standards and the Uganda Companies Act, Cap 110 of the Laws of Uganda, 2000. The expenditure and receipts have been applied in all material respects for the intended purpose. Emphasis of Matter Without qualifying my opinion further, I draw your attention to Note 6 to the financial statements detailing the creditors: Trade Payables Payables stood at UGX.562,149,600 during the year under review compared to UGX.237,561,931 in the previous year. This increment was mainly from Sundry creditors and trade creditors which increased by 122% and 170% respectively. I explained to 2
management that, there is a risk of litigation from creditors which may lead to negative publicity and further escalation of costs. Report on other legal requirements As required by the Ugandan Companies Act, I report to you, based on my audit, that: i. I have obtained all the information and explanations, which to the best of my knowledge and belief were necessary for the purpose of my audit. ii. In my opinion, proper books of account have been kept by the company, so far as appears from my examination of those books; and iii. The statement of financial position and statement of comprehensive income are in agreement with the books of account. John F.S. Muwanga AUDITOR GENERAL 2 nd March, 2015 3
PART "B" DETAILED REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF THE KILEMBE MINES LIMITED FOR THE YEAR ENDED 30TH JUNE 2014 This section outlines the detailed audit findings, management responses, and my recommendations 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 Company to enable me report to Parliament. 2.0 BACKGROUND INFORMATION Kilembe Mines Limited (KML) was incorporated in 1950 under the Companies Ordinance as a private company. In 1975, the Government of Uganda (GoU) bought majority shares from the previous owners and it became wholly owned by GoU. Following decline in the world market of copper prices the business became unviable, the mining operations deteriorated substantially. Kilembe Mines limited stopped mining as a main activity in 1982 and has since then been placed under care and maintenance. The principal activity of the Company was the mining and the marketing of copper and allied minerals; however after the drastic fall in prices in the late 70s and early 80s, mining operations ceased and the company diversified into various activities such as generation and sale of hydroelectric power, sale of lime, foundry products, rental of its buildings and sub-lease of its land, sale of transmission and fencing poles. The Government of Uganda (Principal shareholder in Kilembe Mines Ltd) has leased its assets inform of a concession to Tibet Hima Automobile Industry Limited (Tibet) that won the bid for the conceded assets of Kilembe Mines Limited (KML) and subsequently entered into a Concession Agreement with the Government of Uganda (GOU) which among other things requires the revival of mining activities at Kilembe to the point of processing copper and manufacture of finished copper products. Under the agreement, the core assets of KML, which include the mine, the mine works, the hydro-power 4
station and attendant land and buildings, were conceded to Tibet for a period of 25- years effective April 2014. Therefore, KML s new role as an asset-holding company is to track the investment program of the concessionaire and (in so doing) to monitor the implementation of the concession on behalf of GOU (by reporting on the key outputs). 3.0 OBJECTIVES Following the KML s new role as mentioned above, management derived the following objectives for the Company: Carrying out monitoring and evaluation roles according to the Concession Agreement between Government of Uganda and Concessionaire; Provide consultancy services in the areas of geology, exploration, mineral processing, construction and hydropower generation; Undertake construction works for estates on Company lands according to plans developed; Refurbish the Jinja estate within the first 2 years of receipt of annual concession fees; Build capacity of the human resource within a year of receipt of annual concession fees to cope with a revitalized business; Be the best landlord in regard to rental estates; Be the best suppliers of high quality engineering product. 4.0 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. In conducting my reviews, special attention was paid to establish whether: a. The financial statements have been prepared in accordance with consistently applied Accounting Policies and fairly present the revenues and expenditures for the period and of the financial position as at the end of the period. b. All funds were utilized with due attention to economy and efficiency and only for the purposes for which the funds were provided. 5
c. 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. The management was in compliance with the Government of Uganda financial regulations. f. All necessary supporting documents, records and accounts have been kept in respect of all activities, and are in agreement with the financial statements presented. 5.0 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. b. Expenditure The Company payments vouchers were examined for proper authorization, eligibility and budgetary provision, accountability and supporting 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 Company during the period under review and reconciled with the approved procurement plan. e. Fixed Assets Management Reviewed the use and management of the Company assets during the period audited. 6
f. Company 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 evaluating the overall financial statements presentation. 6.0 DETAILED FINDINGS 6.1 Biological Assets IAS 41 Agriculture; defines agricultural activity as the management by an entity of the biological transformation and harvest of biological assets for sale or for conversion into agricultural produce or into additional biological assets. It further defines a biological asset as a living animal or plant and prescribes the recognition criteria. It was observed that the company owns biological assets in the form of eucalyptus trees in various plantation forests approximated at 126 acres. However, the assets had not yet been valued by an independent valuer to determine their fair values and inclusion in the Financial Statements. In the circumstances, the financial statements are misrepresented. Whereas management explained that the Concessionaire claims the assets were part of the improvements on the leased land, leased biological assets are not a subject of IAS 17 Leases; the basis of which management accounts for the conceded assets. I have advised management to conduct a valuation exercise for the biological assets and adjust the financial statements accordingly. 6.2 Trade Payables Payables stood at UGX.562,149,600 during the year under review compared to UGX.237,561,931 in the previous year (representing a 137% increment). This increment was mainly from Sundry creditors and trade creditors which increased by 122% and 170% respectively. I informed management that there is a risk of litigation by creditors with their attendant costs which may lead to negative publicity and further escalation of costs. Management attributed the increment to effects of the devastations suffered during flooding, which necessitated among other things, contracting UMEME Ltd to rebuild the transmission line to resume power supplies to Kilembe Hospital and the underground 7
mine to forestall flooding. I have advised Management to settle the obligations to avoid litigation. 8
FINANCIAL STATEMENTS 9