OFFICE OF THE AUDITOR GENERAL

OFFICE OF THE AUDITOR GENERAL THE REPUBLIC OF UGANDA REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF MBALE DISTRICT LOCAL GOVERNMENT FOR THE YEAR ENDED 30 TH JUNE 20 OFFICE OF THE AUDITOR GENERAL UGANDA i

TABLE OF CONTENTS List of Acronyms... iii Opinion... 4 Basis for Opinion... 4 Key Audit Matters... 5 Utilization of Medicines and Health Supplies... 5 Drug Stock outs... 6 Expired Drugs... 6 Inadequate Controls Surrounding Management of Domestic Arrears... 6 Emphasis of matter... 8 Receivables... 8 Other Matter... 8 Funds not accounted for... 8 Failure to implement the Board of Survey recommendation... 8 Management s Responsibility for the Financial Statements... 9 Auditor s Responsibilities for the Audit of the Financial Statements... 9 APPENDICES... 12 Appendix 1: Drug Stock Outs... 12 Appendix 2: Expired Medicines... 13 Appendix 3: Funds Unaccounted for... 14 Appendix 4: Incompletely vouched expenditure... ii

LIST OF ACRONYMS BOQ Bills of Quantities C/U Church of Uganda CAO Chief Administrative Officer DEO District Education Officer DLG District Local Government ECG Electrocardiogram EMHS Essential Medicines and Health Supplies FY Financial Year GOU Government of Uganda HC Health Centre IESBA International Ethics Standards Board for Accountants IFMS Integrated Financial Management System ISSAI International Standards of Supreme Audit Institution KCCA Kampala Capital City Authority KMs Kilometers LGFAM Local Governments Financial and Accounting Manual 2007 LGFAR Local Governments Financial and Accounting Regulations 2007 LGMSD Local Government Management and Service Delivery MMHS Management of Medicines and Heath Supplies MoFPED Ministry of Finance Planning and Economic Development MoH Ministry of Health NFA National Forestry Authority NMS National Medical Stores OPD Out Patients Department P/S Primary School PFMA Public Finance Management Act 2015 PPDA Public Procurement and Disposal of Assets UGX Uganda Shillings URF Uganda Road Fund UWEP Uganda Women Enterprise Project YLP Youth Livelihood Programme iii

REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF MBALE DITRICT LOCAL GOVERNMENT FOR THE YEAR ENDED 30 TH JUNE 20 THE RT. HON. SPEAKER OF PARLIAMENT Opinion I have audited the financial statements of District Local Government which comprise the Statement of Financial Position as at 30 th June 20, and the Statement of Financial Performance, Statement of Changes in Equity and statement of Cash flows together with other accompanying statements for the year then ended, and notes to the financial statements, including a summary of significant accounting policies. In my opinion, the financial statements of District Local Government for the year ended 30 th June 20 are prepared, in all material respects in accordance with section 51 of the Public Finance Management Act, 2015 and the Local Government Financial and Accounting Manual, 2007. Basis for Opinion I conducted my audit in accordance with International Standards of Supreme Audit Institutions (ISSAIs), the National Audit Act 2008. My responsibilities under those standards are further described in the Auditor s Responsibilities for the Audit of the Financial Statements section of my report. I am independent of the District Local Government in accordance with the Constitution of the Republic of Uganda (1995) as amended, the National Audit Act, 2008, the International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants (IESBA Code) together with the ethical requirements that are relevant to my audit of the financial statements in Uganda. I have fulfilled my other ethical responsibilities in accordance with these requirements and the IESBA Code. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my opinion. 4

Key Audit Matters Key audit matters are those matters that, in my professional judgment, were of most significance in my audit of the financial statements of the current period. These matters were addressed in the context of my audit of the financial statements taken as a whole, and in forming my opinion thereon, and I do not provide a separate opinion on these matters; I have determined the matters described below as key audit matter to be communicated in my report: Utilization of Medicines and Health Supplies The Management of Medicines and medical Supplies Manual indicate that Medicines and medical supplies form the second biggest expenditure in the health sector after human resources. The security of medicines must be ensured at all levels to prevent theft, abuse, misuse and wastage. Consequently in the course of auditing the District s financial statements, I considered the utilization of medicines and medical supplies as an area of focus. The audit focused on the procedures, processes, tools and documentation used to manage medicines and medical supplies which included; Involving external expertise in identifying the sample of tracer medicines and medical supplies, and developing data collection tools. Selecting medicines and medical supplies to trace their utilization in the hospital. Analyzing the delivery cycles, balances on stock cards and order levels to ascertain stock outs. Obtaining and checking the records relating to the expired medicines and also inspecting the storage practices. Establishing the availability of key human resource personnel to ensure that medicines and medical supplies are not wasted as explained in the Management of Medicines and medical Supplies Manual. I obtained the approved structure and compared it with the list of existing staff. I considered a preselected sample of Busiu HC IV and observed the following shortcomings; 5

Drug Stock outs 8 (eight) items out of the 11 (eleven) selected tracer 1 EMHS experienced stock outs ranging between 4 and 196 days as shown in Appendix 1. The stock out may be a result of failure by NMS to supply drugs in the quantities ordered by health centres and lack of reliable information on drugs usage and stocking positions. Stock outs erode patients confidence in the health sector which leads them to resort to inappropriate and expensive alternatives of health care. The Accounting Officer was advised to liaise with NMS to ensure continuous optimum stock of medicines and supplies. Expired Drugs Part 9 of the Management of Medicines and Health Supplies (MMHS) manual requires that expired items should be properly recorded, placed in a designated area and destroyed in accordance with the local regulations. I obtained and checked the records relating to the expired medicines and inspected how they are stored. I observed that units of assorted expired essential medicines and health supplies had expired and had not been destroyed as shown in appendix 2. The expiry of the drugs may be a result of excess stocking of slow moving drugs. The Cost of destruction of expired drugs is high and there is a risk of them getting redistributed back to the market. The Accounting Officer attributed expiry of medicines to delivery of medicines not ordered for, short expiry dates and low consumption of the medicines. The Accounting Officer was advised to liaise with NMS and have expired drugs disposed of. Inadequate Controls Surrounding Management of Domestic Arrears Domestic arrears refer to the total value of unpaid bills for goods and services rendered to a government entity, including wages and pension that remain outstanding at the closure of a financial year. There has been persistent accumulation of domestic arrears to unmanageable levels which has led to settlement of arrears that are not authorized, unbudgeted for, 1 The Tracer medicines include; Artemether/Lumefantrine,HIV determine Test strips,malaria 6

inadequately supported and in some instances there has been inadequate recognition and disclosure of the domestic arrears. The variances between the reported figures in the financial statements and the amounts verified by Internal Auditor General formed a basis of my qualification of consolidated GOU financial statements for the year ended 30 th June 20. Consequently, domestic arrears were considered a key audit matter which needed to be examined to assess: the appropriateness of recording, recognition and disclosure of domestic arrears; the trend and the underlying factors; and the adequacy of the internal controls surrounding management of domestic arrears. During audit planning, I focused on examination of domestic arrears in regard to goods and services, salaries and wages, and pension and gratuity. I undertook the following procedures in relation to domestic arrears: a trend analysis over a period of three years to ascertain the underlying causes of accumulation; reviewed budget and commitment control procedures to assess their effectiveness; ascertained the authenticity of the supporting documentation and assessed the appropriateness of the accounting treatment. I also engaged the Accounting Officer to enable me arrive at the audit conclusions. Based on the procedure performed, I observed that an amount of UGX.520,513,012 was irregularly incurred as domestic arrears outside the approved estimates appropriated by Parliament. I further observed that there were undisclosed domestic arrears totaling to UGX.70,282,540 posing a risk of diversion of funds for settling the obligations. This may be as a result of existence of a weak and ineffective internal control system over the control and management of domestic arrears. For example, the Government Commitment Control System was not adhered to. The Accounting Officer explained that the budget for domestic arrears was insufficient to meet the obligation. The Accounting Officer was advised to adhere to the provisions of the commitment control system to eliminate arrears and ensure financial discipline. 7

Emphasis of matter Without qualifying my opinion, I draw attention to the following matter presented in the financial statements. Receivables I observed that the District failed to collect outstanding revenue from different sources amounting to UGX.449,619,390 as shown in Note. Outstanding receivables represent an asset that is idle, as it denies the district an opportunity of using the money to provide services promptly. The Accounting Officer explained that the bulk of the money is owed by other Government Agencies and that they had engaged the District Lawyer to enforce recovery. The Accounting Officer was advised to develop debt recovery strategies to ensure that all outstanding debts are collected. Other Matter In addition to the matter raised above, I consider it necessary to communicate the following matters other than those presented or disclosed in the financial statements: Funds not accounted for Regulation 43(2) of the Local Governments Financial and Accounting Regulations 2007 requires that administrative advances to be accounted for within one month. However, expenditure amounting to UGX.78,061,875 remained unaccounted for as shown in Appendices 3 & 4. Consequently, I could not confirm that the funds were utilized for the intended purposes. The Accounting Officer was advised to obtain the accountability or else recover the funds from the responsible officers. Failure to implement the Board of Survey recommendation The Board of Survey Report for the Financial Year 20/20 recommended for disposal of a number of assets. However, no disposal had been undertaken by the time of audit. The delayed disposal of the items can lead to further deterioration in condition /value. 8

I further observed that vehicle No. LG 0143/30 was involved in an accident and there was no police report. The matter requires urgent attention. Management s Responsibility for the Financial Statements Under Article 4 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 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 the Public Finance Management Act, 2015 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. In preparing the financial statements, the Accounting Officer is responsible for assessing the District Local Government s ability to continue delivering its mandate, disclosing, as applicable, matters related to affecting the delivery of the mandate of the District Local Government, and using the Local Governments Financial and Accounting Manual, 2007 and Public Finance Management Act 2015 unless the Accounting Officer has a realistic alternative to the contrary. The Accounting Officer is responsible for overseeing the District Local Government s financial reporting process. Auditor s Responsibilities for the Audit of the Financial Statements My objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor s report that includes my opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISSAIs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with ISSAIs, I exercise professional judgment and maintain professional scepticism throughout the audit. I also: 9

Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the District Local Government s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. Conclude on the appropriateness of management s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the District Local Government s ability to deliver its mandate. If I conclude that a material uncertainty exists, I am required to draw attention in my auditor s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify my opinion. My conclusions are based on the audit evidence obtained up to the date of my auditor s report. However, future events or conditions may cause the District Local Government s to fail to deliver its mandate. Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. I communicate with the Accounting Officer regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that I identify during my audit. I also provide the Accounting Officer with a statement that I have complied with relevant ethical requirements regarding independence, and to communicate with him/her all relationships and 10

other matters that may reasonably be thought to bear on my independence, and where applicable, related safeguards. From the matters communicated with the Accounting Officer, I determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. I describe these matters in my auditor s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, I determine that a matter should not be communicated in my report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. John F.S. Muwanga AUDITOR GENERAL KAMPALA 12 th December, 20 11

APPENDICES Appendix 1: Drug Stock Outs EHMS (TRACER) Stock Out Period Quantity Stock out Duration (days) Starting (date when Ending Quantity the stock balance is NIL) (Stock being replenished) Oxytocin 9/9/ 20/9/ 11 100 Oxytocin 30/9/ 14/10/ 14 200 Oxytocin 22/12/ 24/1/ 33 200 Oxytocin /2/ 22/3/ 33 100 Oxytocin 22/3/ 27/3/ 4 200 Sutures (PGA2) 1/9/ 20/9/ 19 2 Sutures (PGA2) 26/9/ 4/11/ 39 2 Sutures (PGA2) 9/11/ 24/5/ 196 1 Mama kits 1/9/ 14/9/ 13 30 Mama kits 21/9/ 26/9/ 5 24 Mama kits 30/9/ 4/10/ 4 24 Mama kits 7/10/ 10/10/ 3 12 Mama kits /10/ 24/10/ 7 42 Mama kits 19/12/ 24/1/ 36 100 Mama kits 22/2/ 1/3/ 7 12 Mama kits 15/3/ 21/3/ 6 8 Mama kits 21/4/ /5/ 25 24 Mama kits /5/ 24/5/ 8 300 Gloves 18/7/ 20/7/ 2 4 Gloves 22/2/ 9/3/ 15 3 Gloves 28/4/ 8/5/ 10 2 Gloves 12/5/ /5/ 4 4 Gloves 22/5/ 24/5/ 2 15 12

Appendix 2: Expired Medicines Item description Expiry date Quantity Abc + 3TC 600/300mg 12/20 Tabs Dapson 12/20 ¼ tin Immersion oil (100mls) 12/20 2 bottles Tbs. Chlorpromazine 02/20 1 tin Insulin mixtard 12/20 1 vail Hydrochloric acid 1000mls solution 10/20 3 litres Vacutainer tubes (purple) 09/20 100 pcs Tbs. AZT/3TC 150/300mg 04/20 57 tins Tbs. Aluxia 100/25mg 02/20 2 tins Caps. Vitamin A 01/20 ¼ tin Abe/3TC 60/30mg 03/20 44 tins Inj. Ephendrine 01/20 10 ampules Stat. Pack (Hw test kits) 01/20 5 packs Tabs. RH 150/75mg 03/20 50 strips Hep. B tests 03/20 100 tests IV. Hydralazine 02/20 5 ampules IM streptomycin 03/20 66 vails Tbs. Quinine sulphate 04/20 1 tin Inj. Magnesium sulphate 05/20 3 ampules Tbs. Diazepam 5mg 06/20 1tin 13

Appendix 3: Funds Unaccounted for Invoice Number OCT/N USAF3/ 12A SEP/N UIRE/0 01 NOV/C BS/LR/ 082A FEB/W RKS/D DEG/0 1 MAR/W RKS/R F/08 MAR/W RKS Vouc her No. 9769 1 9762 9 1020 08 1127 12 17 08 17 10 EFT Numbe r 10974 615 10934 582 11331 328 12232 970 12584 154 12584 3 Date Payee Particulars Amount Remarks 19- Oct- 04- Oct- 24- Nov- 08- Feb- - Mar- - Mar- Nabwire Jolly Kiboma Michael Shell Elgon Service Station Shell Elgon Being facilitation for travel to k la for facilitating the screening of school children and supply of spectacles to community in district. to facilitate the DCDO to ministry of Gender, Social Services and Community Development in Kampala. Being labour costs for works on Nabumali- Buwalula road of fuel for works on Busiu- Namawanga road of fuel for works 830,000 doubtful fuel consumption; dates fuel was consumed do not correspond with the months within which submissions were made, vehicle number not indicated 1,400,000 no proof of activity, no report 670,000 no accountability attached 9,605,400 no accountability attached, similar payment vide voucher number 93989-works 5,195,000 Only shs. 1,305,000 was consumed out of 6.5M by road equipment and plant, Unsupported consumption of shs. 3,968,620 brought forward on the consumption statement, Payment was in March but receipt was dated /12/ 6,001,000 Only shs. 2,987,000 was consumed by 14

MAR/P AF/IO/ 01B MAY/G LOBAL/ FUND/ 01 JUN/W RKS/R F/21 APR/N USAF/0 5 JUN/W RKS/R F/29 APR/C BS/YT H/01B SEP/W RKS/R F/7 SEP/U NICEF/ 012A 17 44 12639 573 13650 858 13827 159 13395 243 14227 0 13465 703 10590 941 10638 640 Service Station 20- Mar- - May- 13- Being Allowances for road works on Bunawuzi- Madenge road of Hall Hire during CPMCs and CPCs Training Being part payment for repair of LG 0007-076 26- Apr- 22-11- May- 05- Sep- 20- Sep- Musungu Thomas Wana Investme nt Limited Gizebert Auto Span Limited PONT Uganda Limited Wana Investme nt Limited on Dokokabwangasi road to cater for PAF monitoring for stationary for District level micro planning exercise. to cater for repair and maintenance of motor cycle no. UDA 0U Being facilitation for road works to Kiboma Michael. for stationary during training of LCs/VHT and parish chiefs under UNICEF activities. road equipment and plant, Payment was in March but receipt was dated /12/ 1,033,150 no accountability attached 688,785 no contract documents, doubtful procurement; the training was carried out between November and January but the stationary was received in May 3,228,000 No payment sheet, no muster roll, no report 600,000 no receipts for hall hire 9,107,934 Doubtful; on inspection, truck was abandoned in the garage for over a year 752,000 unreported micro procurement, no receipt, no invoice, no post inspection report, motorcycle not in use(abandoned in stores for years) 1,1,000 No accountability attached 1,428,800 No accountability attached 15

DEC/W RKS/W ATER/1 7 JUN/W RKS/R F/24 NUSAF 2 0 466 13827 159 - Dec- 13- DFCU 20/0 2/20 Being sector specific monitoring for November 20. Being facilitation for District road committee meeting. Payment from NUSAF 2 account-dfcu 586,500 No accountability attached 962,000 No accountability attached 1,130,000 No accountability attached 44,389,569

Appendix 4: Incompletely vouched expenditure Invoice Number OCT/N R/PAF/ 050 MAY/W RKS/R F/03 MAY/W RKS/R F/02 JUN/W RKS/R F/22A JUN/W RKS/R F/62 DEC/N USAF/0 3 DEC/N USAF/0 6 SEP/ED UC/010 SEP/ED UC/004 Vouch er No. EFT Num ber 97833 1099 2839 10812 2 10812 4 1347 6906 1347 6907 1422 7359 1431 3680 15 8978 15 9946 1062 7510 1062 7510 Date Payee Particulars Amount Remarks 21- Oct- 12- May- 12- May- Being fuel for works on Nyondo- Bunywaka road Being fuel for Qter4 for works Department 22-23- - Dec- - Dec- - Sep- - Sep- Shell Elgon Service Station Shell Elgon Service Station Shell Elgon Service Station PPP Engineeri ng & Credit Services Ltd Aumo Duca Aumo Duca to facilitate carrying out a technical environmental meeting. Being third quarter fuel for office operations for repair of LG 0106-30 Being facilitation for data collection from households Being facilitation for District Enhanced Appraisal development business Plans. for facilitation of school inspection quarter one to Musungu Lydia. for facilitating the DEO to attend the executive meeting 1,333,000 no wetland action plan, reason for travel to Kampala not known and no proof of travel 1,900,000 no consumption statement and order forms 2,484,000 no consumption statement and order forms 1,900,000 no consumption statement 6,750,986 no receipt, no contract documents, doubtful repairs(abandoned vehicle) 960,000 no activity program and report 944,000 No activity program and report, shs. 288,000 not accounted for 2,530,000 No activity report, repairs Sh. 564,000 not supported by inspection and assessment report before and after repair 610,000 No invitation letter and activity report

JUNE/E DUC/0 7 JUNE/E DUC/1 0 JUN/ed uc/37 JUN/ed uc/39 JUN/ed uc/40 MAY/H EALTH/ PHC/3 6 1373 4347 19-19- 26-26- 26-26- May- Shell Elgon Service Station Kiinars Co Ltd Kiinars Co Ltd Jojoma Holdings (U) Ltd for school monitoringquarter 4 2,926,000 No activity reports 2,926,000 No activity reports for school inspectionquarter 4 For fuel 1,232,000 No fuel receipts and consumption schedule For supply of meals and refreshments For supply of meals and refreshments for catering services. 1,980,000 No attendance, no report, no receipt, no contract documents 2,188,320 No attendance, no report, no receipt, no contract documents 3,008,000 Purpose not known, no attendance 33,672,30 6 18