THE REPUBLIC OF UGANDA REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF THE KAMPALA INSTITUTIONAL AND INFRASTRACTURE DEVELOPMENT PROJECT (KIIDP 2) IDA CREDIT NO. 53840 UG FOR THE FOURTEEN (14) MONTH PERIOD ENDED 30 TH JUNE 2016 OFFICE OF THE AUDITOR GENERAL UGANDA
TABLE OF CONTENTS ACRONYMS... iii 1.0 INTRODUCTION... 0 2.0 PROJECT BACKGROUND... 0 3.0 OBJECTIVES AND COMPONENTS OF THE PROJECT... 1 4.0 COMPONENTS... 1 5.0 AUDIT OBJECTIVES... 2 6.0 CATEGORIZATION AND SUMMARY OF FINDINGS... 3 6.1 Categorization of findings... 3 6.2 Summary of Findings... 3 7.0 DETAILED FINDINGS... 4 7.1 Compliance with Financing Agreement and GOU Financial Regulations... 4 7.1.1 Budget Performance Low absorption of funds... 4 7.1.2 Government Co-funding contribution... 4 7.2 General Standards of Accounting and Internal Control Systems... 4 7.2.1 Implementing Resettlement Action Plans... 5 7.3 Status of Project Implementation... 5 7.3.1 Delayed completion of Works at Key Road Junctions and Links under Batch-1... 5 ii
ACRONYMS Acronym GOU KIIDP-2 IDA UG IPSAS KCCA APL GAAP WHT PAYE PAP GRM RAP UGX PDO SMS GKMA OSR ICT Meaning Government Of Uganda Kampala Institutional and Infrastructural Development Project -Two International Development Agency Uganda International Public Sector Accounting Standards Kampala Capital City Authority Adaptable Program Loan Generally Accepted Accounting Practice Withholding Tax Pay As You Earn Project Affected Persons Grievance Management Mechanism Resettlement Action Plan Uganda Shillings Project Development Objectives Short Message Services Greater Kampala Metropolitan Area Own Source Revenue Information Communication Technology iii
REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF THE KAMPALA INSTITUTIONAL AND INFRASTRUCTURE DEVELOPMENT PROJECT (KIIDP 2) IDA CREDIT NO 53840- UG FOR THE FOURTEEN (14) MONTH PERIOD ENDED 30 TH JUNE 2016 THE RT. HON. SPEAKER OF PARLIAMENT I have audited the accompanying financial statements of Kampala Institutional and Infrastructure Development (KIIDP 2) IDA CREDIT NO.53840- UG together with the notes thereon for the fourteen (14) month period ended 30 th June, 2016.The financial statements comprise of; statement of source and uses of funds, statement of financial position, statement of cash flow and notes to the financial statements including a summary of significant accounting policies used. Management s responsibility for the financial statements The Project Management is responsible for the preparation and fair presentation of the project financial statements in accordance with International Public Sector Accounting Standards (IPSAS), IDA/World Bank guidelines, and the requirement of the credit agreement, and for such internal controls as management determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility My responsibility is to express an opinion on the financial statements, based on my audit. I conducted my 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 about whether the financial statements are free of material misstatement. An audit involves performing audit procedures to obtain audit evidence about the amounts and disclosures in the financial statements. 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 the financial statements 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 entity s internal control. An audit also includes evaluating the appropriateness of accounting iv
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 opinion. Part A of this report sets out my opinion on the financial statements and Special Account 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. Opinion In my opinion, the financial statements of the Kampala Institutional and Infrastructure Development Project (KIIDP 2) IDA CREDIT NO.53840- UG together with the notes thereon present fairly, in all material respects, the financial position of the Project as at 30 th June, 2016 and the results of its operations for the fourteen (14) month period then ended in accordance with the basis of accounting described under Note 2 to the financial statements. John F. S. Muwanga AUDITOR GENERAL KAMPALA 23 rd December, 2016 v
REPORT OF THE AUDITOR GENERAL ON THE SPECIAL ACCOUNT STATEMENT OF THE KAMPALA INSTITUTIONAL AND INFRASTRUCTURE DEVELOPMENT PROJECT (KIIDP 2) IDA CREDIT NO 53840- UG FOR THE FOURTEEN (14) MONTH PERIOD ENDED 30 TH JUNE 2016 I have audited the Special Account Statement of Kampala Institutional and Infrastructure Development Project (KIIDP 2) IDA CREDIT NO.53840- UG for the Fourteen (14) month period ended 30 th June 2016, which is set out on page 4 of Annex 1. Management responsibility for the Special Account Statement Project Management is responsible for preparation of the special account statement and its fair presentation in accordance with the Government of Uganda regulations and donor (IDA/World Bank) guidelines. Management is also responsible for designing and implementing internal controls relevant to the preparation of the Special Account Statement that is free from material misrepresentation, either due to fraud or error and selecting and applying appropriate accounting policies, and making accounting estimates that are reasonable in the circumstances. Auditor s Responsibility My responsibility is to express an opinion on the special account statement based on my audit. I conducted my audit in accordance with International Standards on Auditing and the donor guidelines on auditing. Those standards and the loan guidelines require that I plan and perform the audit to obtain reasonable assurance about whether the Special Account Statement is free from material misstatement. I believe that my audit provides a reasonable basis for my opinion. Opinion In my opinion, the project management have maintained adequate records regarding the operation of the Special Account and that the receipts and payments through the account were adequately supported and the special account statement presents a true and fair view of the financial position of the account as of 30 th June 2016 and of its receivables (Disbursements) as of the same date and was operated in compliance with the IDA Credit Number 53840 funding agreement and the Project Implementation Guidelines. John F.S. Muwanga AUDITOR GENERAL 23 rd December, 2016 vi
REPORT OF THE AUDITOR GENERAL AND SUPPLEMENTARY INFORMATION
PART B DETAILED REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF THE KAMPALA INSTITUTIONAL AND INFRASTRUCTURE DEVELOPMENT PROJECT (KIIDP 2) IDA CREDIT NO.53840-UG FOR THE FOURTEEN (14) MONTH PERIOD ENDED 30 TH JUNE 2016 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 Kampala Institutional and Infrastructural Development Project (KIIDP2) to enable me report to Parliament. 2.0 PROJECT BACKGROUND Kampala Institutional and Infrastructure Development Project Two (KIIDP-2) is the second phase of KIIDP after conclusion of KIIDP-1 in April 2014. It was designed to operationalize the Kampala City Strategic plan 2014/2015-2018/2019 and the National Development Plan (NDP) and Vision 2040. The coming into being in March 2011 of KCCA created a new dispensation in the management and status of the city and under this arrangement, KCCA management presented to IDA a draft new corporate strategy for the Authority which strategy was a successor to SFR II. The total project financing is US$183.75 million over a five year period and is financed through an Investment Project Financing (IPF) of US$175 million (equivalent) IDA Credit and GoU/KCCA counterpart funding of US$8.75 million equivalent. The credit became effective on 16 th May 2015 and it is envisaged that the completion date will be 31 st December 2019.
Financing of the current phase (KIIDP 2) is as per the table below; Project Components Project cost (US$ million) IDA Financing GoU Financing Percent Financing 1. Component 1 - City Wide 173.75 165.00 8.75 95% Road Infrastructure and associated investments 2. Institutional and Systems 10.00 10.00 0.00 5% Development Support Total Costs 183.75 175.00 8.75 100% Total Financing Required. 183.75 175.00 8.75 100% 3.0 OBJECTIVES AND COMPONENTS OF THE PROJECT The project development objective (PDO) is: enhanced infrastructure and institutional capacity of KCCA to improve urban mobility in Kampala. The project will also assist in strengthening the capacity of the newly created KCCA by focusing on the three core Directorates of Engineering and Technical Services, Physical Planning, and Revenue which are each directly relevant for project implementation. 4.0 COMPONENTS The Project is to be implemented under two components noted below; i) Component 1 City Wide Road Infrastructure and associated investments (US$173.75 million: IDA - US$165 million; KCCA US$8.75 million). This component will enhance the quality of roads infrastructure and associated investments in Kampala City for improved city mobility and will focus mainly on construction and rehabilitation of the existing roads network and associated infrastructure such as drainage, street lights, walkways, street furniture, landscaping in the five KCCA divisions. The component will be implemented in phases with each phase comprised of batches or lots for contracting civil works. ii) Component 2 Institutional and Systems Development Support (US$10 million). This component is intended to strengthen the capacity of KCCA as an autonomous corporate body to deliver on its statutory mandates. This will be achieved by strengthening the capacity of KCCA for investment planning and prioritization, design, supervision, coordination, implementation and operation and maintenance (O&M) of existing and new 1
infrastructure. It will also be supported by improvements in revenue collection capacity to support future investments and ensure maintenance of infrastructure and services. The intended results to be achieved by this components are: (i) Improved KCCA capacity to implement sub-projects on time and within budget; (ii) At least 15 percent annual increase in own source revenue (OSR) from FY2012/13 base year; (iii) Adequate budget and timely maintenance of existing infrastructure so as to prolong asset life time, and (iv) Introduction of Information and Communication Technology (ICT) through the use of SMS mobile phone platform for payment of bills and clients feedback. Component 2 will focus mainly on three core directorates: Engineering and Technical Services, Physical Planning, and Revenue. These Directorates are integral to the implementation of Component 1 and their outputs are directly linked to the achievement of the project development objective. 5.0 AUDIT OBJECTIVES The audit was conducted in accordance with International Standards on Auditing and included a review of the accounting records, accounting policies used and agreed procedures as was considered necessary. The Audit was carried out with regard to the following objectives; a. To express an opinion on whether the financial statements for the fourteen months period ended 30 th June 2016 present fairly in all material respect the receipts and payments of the project and are in conformity with generally accepted accounting principles (GAAP). b. To evaluate and obtain a sufficient understanding of the Internal control structure of the project, assess control risk and identify reportable conditions, including material internal control weaknesses. c. To establish whether project managers are managing the project in compliance with the covenants contained in the credit agreement as well as Government of Uganda financial regulations. d. To establish whether project funds have been used in accordance with the credit agreement with due attention to economy and efficiency and only for purposes for which they were provided. e. To establish whether all procurements of goods and services under the project have been undertaken in accordance with GOU procurement guidelines and 2
procedures as specified in the World Bank procurement guidelines, tax laws and the IDA credit agreement. f. To establish whether all necessary supporting documents, accounting records as well as books of account have been kept in respect of all project activities. g. Whether project activities have been implemented as stated in the work plans and budgets. h. Whether taxes such as Withholding Tax (WHT), Pay As You Earn (PAYE) and National Social Security Fund contribution payable by Project staff (Non exempted) duly deducted and remitted to the relevant authorities. 6.0 CATEGORIZATION AND SUMMARY OF FINDINGS 6.1 Categorization of findings The following system of profiling of the audit findings is used to better prioritize the implementation of audit recommendations: No 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. 6.2 Summary of Findings No Finding Significance 7.1.1 Budget Performance Low absorption of funds High 7.1.2 Government Co-funding contribution High 7.2.1 Implementing Resettlement Action Plans High 7.3.1 Delayed completion of Works at Key Road Junctions and Links under Batch-1 High 3
7.0 DETAILED FINDINGS 7.1 Compliance with Financing Agreement and GOU Financial Regulations It was noted that project management had complied materially with the credit agreement provisions and GoU financial regulations, except for the following matters: 7.1.1 Budget Performance Low absorption of funds The approved Project expenditure estimates for the period under review amounted to US$26.662m and US$.36.739m was received. However, only US$.11.961m was spent during the year, representing an absorption capacity of only 33% of the available funds. Low absorption is likely to attract commitment fees charged on undrawn amounts and also negatively affects implementation of planned activities. The Accounting Officer explained that low absorption of funds was mainly due to delays in compensation for Project Affected Persons (PAPs) which hampered the progress of civil works. I advised the Accounting Officer to expedite the implementation of the project activities to avoid extra administrative costs associated with project extensions. 7.1.2 Government Co-funding contribution A review of the KIIDP 2 budget revealed that the Project budgeted US$.5,915,896 as Government contribution to cater for the compensation of Project Affected Persons (PAPS). However, only US$.3,993,455 (68%) released as at 30 th June 2016. As a result, the project lacked sufficient funding to compensate PAPS on time and this is likely to affect the progress of the project. The Accounting Officer explained that they will continue to engage the Ministry of Finance, Planning and Economic Development to ensure that the Government meets its co-funding obligation. I await the outcome of management s efforts on this matter. 7.2 General Standards of Accounting and Internal Control Systems A review of the project system of financial management was carried out which revealed the following issue; 4
7.2.1 Implementing Resettlement Action Plans The Project Appraisal Document (PAD) requires the recipient through the Project implementing entity to open a Project escrow account into which all counterpart funds required for the Project shall be deposited and maintained until required to pay for PAP compensation costs. KIIDP-2 Project implementation involved compensations to the tune of UGX.17,481,357,773 to 190 persons who were to be affected by road works. During the year under review, the project paid UGX.2,397,677,671 as compensations to 24 PAPs. A review of the official grievance management register revealed that a number of grievances had been lodged, however, some cases had not been resolved for a period of about one year. Unresolved compensation problems are likely to delay the completion of the project and could cause legal complications if not resolved. The Accounting Officer explained that KCCA will strengthen the grievance management mechanisms to ensure that grievances are resolved within the shortest time possible. I await the Accounting Officers implementation on the matter. 7.3 Status of Project Implementation A review of project activities was undertaken and the following were noted; 7.3.1 Delayed completion of Works at Key Road Junctions and Links under Batch-1 According to the contract agreement for civil works, the contractor may request for a variation in unit costs (rates) in the Bill of Quantities to cater for changes in costs of material 18 months after contract signing. A review of the monthly progress report by the consultant firm M/s Korea Engineering Consultants Corporation on the construction of roads and Junctions under Batch 1 of KIIDP-2 for the month of November 2016, was undertaken. It was noted that the contractor had delayed to complete the works at six sites despite having requested for extension. Out of the total contracted works of UGX.88,585,529,217 for various sites, only works to the tune of UGX.37,037,443,056 had been certified as completed averaging 42% completion level. All the works except one, had performed below expected timelines. 5
Delays in completing the works may result into contract cost variations by contractors due to rising costs of materials and labour, and extra administrative costs to monitor the projects. Furthermore, the community is denied services which would improve their livelihood. The Accounting Officer explained that the delays were a result of factors beyond the contractors control such as relocation of utility lines, unresolved claims for compensation and weather conditions. The project is anticipated to be completed within the extended period. I advised the Accounting Officer to ensure that efforts are made to coordinate and plan for project activities in a timely manner in order to avoid delayed project implementation, under-absorption of budgeted funds and cost overruns. 6
APPENDIX 1 FINANCIAL STATEMENTS 7