OFFICE OF THE AUDITOR GENERAL THE REPUBLIC OF UGANDA REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF KOTIDO MUNICIPAL COUNCIL FOR THE YEAR ENDED 30 TH JUNE 20 OFFICE OF THE AUDITOR GENERAL KAMPALA i
TABLE OF CONTENTS List of Acronyms... iii Unsupported Cash and Cash Equivalents... 1 Funds not Accounted for... 1 Key Audit Matters... 2 Inadequate Controls Surrounding Management of Domestic Arrears... 2 Other Matter... 3 Failure to Implement the Budget as approved by Parliament... 3 Understaffing... 4 Lack of Land Titles... 4 Stalled Tarmacking of 1 KM road.... 5 Appendix i; Un accounted for Funds... 9 Appendix ii. Outstanding commitments... 12 Appendix iii; Un Implemented Projects due to budget cuts... 13 Appendix iv; staffing shortage... 14 Appendix v; Lack of Land titles... 15 ii
LIST OF ACRONYMS DLG District Local Government ISSAI International Standards of Supreme Audit Institution LGFAM Local Government Financial and Accounting Manual 2007 LGFAR Local Government Financial and Accounting Regulations 2007 MoFPED Ministry of Finance Planning and Economic Development NMS National Medical Stores PFMA Public Finance Management Act 2015 PPDA UGX URA VAT WHT GOU UWEP YLP PDU Public Procurement and Disposal of Assets Uganda Shillings Uganda Revenue Authority Value Added Tax Withholding Tax Government of Uganda Uganda Women Entrepreneurship Programme Youth Livelihood Programme Procurement and Disposal Unit iii
REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF KOTIDO MUNICIPAL COUNCIL FOR THE YEAR ENDED 30 TH JUNE, 20 THE RT. HON. SPEAKER OF PARLIAMENT Qualified Opinion I have audited the financial statements of Kotido Municipal Council 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, except for the effects of the matters described in the Basis for Qualified Opinion section of my report, the financial statements of Kotido Municipal Council 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 Qualified Opinion Unsupported Cash and Cash Equivalents Included in the statements of financial position is UGX.367,768,508 reflected as cash and cash equivalent and yet the reconciled figure in note is UGX.104,783,143. This resulted into unexplained material difference of UGX.263,015,365. Failure to present correct Financial Statement misleads the users and may result in losses of public funds. Funds not Accounted for Expenditure amounting to UGX. 60,645,500 remained unaccounted for as shown in appendix i. Consequently, I could not confirm that the funds were utilized for the intended purposes. I conducted my audit in accordance with International Standards for 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 1
Financial Statements section of my report. I am independent of the Municipal Council 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 qualified opinion. 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: 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, 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 30th 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 2
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 48,530,667 was irregularly incurred as domestic arrears outside the approved estimates appropriated by Parliament. This may be as a result of existence of a weak and ineffective internal control system over the control and management of domestic arrears. Management explained that modalities for mobilizing local revenue had been worked out. I advised the Accounting Officer to always adhere to the provisions of the PFMA when committing the entity to future obligations. Domestic arrears budget provisions should also be sought from Treasury to enable full settlement of the accumulated obligations. Other Matter I consider it necessary to communicate the following matters other than those presented or disclosed in the financial statements: Failure to Implement the Budget as approved by Parliament Section 45 (3) of the Public Finance Management Act, 2015 states that An Accounting Officer shall enter into an annual budget performance contract with the Secretary to the Treasury which shall bind the Accounting Officer to deliver on the activities in the work plan of the vote for a Financial year, submitted under section 13 (15) of the said Act. Consequently, I developed specific audit procedures which included the evaluation of the financial and annual physical performance by analysing government releases, testing consistency of planned outputs with the approved budget and verifying the accuracy and completeness of the reported actual outputs. I observed that out of the budgeted revenue of UGX 3,657,715,405 the entity received UGX 3,251,419,389 (89%) resulting into a shortfall of UGX 406,296,0 (11%). However, I noted that a number of planned outputs for an amount of UGX. 362,912,481 were not implemented as shown in appendix iii. The 3
most greatly affected outputs included construction of the office block, supply of furniture and computers and funding of YLP and UWEP projects. Failure to implement activities denies service to the beneficiary communities and defeats the purpose for which budgeting and budgetary controls are instituted. The failure to implement all the planned activities may have been a result of lack of capacity and inadequate releases or may be an indication of inefficiency. According to the Accounting Officer, the Municipal Council could not deliver on the activities in the work plan of the Vote for the Financial Year due to budget cuts. The Accounting Officer should engage the relevant authorities and ensure that budget deficiencies are addressed so that all the allocated funds are released and all activities are implemented according to the budget as approved by parliament. Understaffing The Municipality has an approved staff structure of 88 positions. Out of the approved staff structure of 88 posts only 22 (24%) were filled leaving a staffing gap of 66 (76%) positions as shown in appendix iv. Understaffing overstretches the available staff beyond their capacity, creates jobrelated stress to the fewer staff and negatively affects the level of public service delivery to the community. The Accounting Officer explained that a request was submitted to the Public Service Ministry for clearance to fill key positions. The Accounting Officer is advised to continue engaging the Ministry of Public Service, the Ministry of Local Government and the Ministry of Finance Planning and Economic Development to address the challenge. Lack of Land Titles Regulation 58(4) of Local Governments Financial and Accounting Regulations 2007 (LGFARs) requires that in order to comply with the required accounting systems, the properties, and assets of a Local Government, shall be properly registered, titles issued, and valued and that requirement shall apply to both movable and immovable 4
properties and assets and it shall constitute a fixed asset register. It was observed that some of the District s Land does not have Land Titles as shown in appendix v. There is a risk that the District land is exposed to encroachment and disputes which later may lead to litigation in courts of law arising from Land disputes between the Councils and the Communities. The Accounting Officer explained that management had made efforts to ensure that its land is valued and titles of ownership obtained by making necessary financial provision in the budget estimates for FY 20/2018. I advised the Accounting Officer to ensure that the land titles are secured. Stalled Tarmacking of 1KM Road. The Municipal Council received a total of UGX.342,000,000 from the Uganda Road Fund in the financial year 2015/ for tarmacking of 1KM road of which UGX 112,500,000 was spent on materials, UGX. 129,395,076 diverted to operations and the balance of UGX. 100,104,924 remained on council account for use in the financial year 20/. The following shortcomings were observed; The entity failed to utilise UGX.100,104,924 and returned the money to Treasury To date the diverted funds have not been refunded. The tarmacking project was abandoned. Construction materials that had been procured are now deteriorating at council yard implying a wastage of funds spent on them According to the Accounting Officer, the tarmac project could not be implemented due to delayed procurement process by the PDU and failure to secure a provider of road equipment. I advised the Accounting Officer to seek Council authority to dispose off the construction materials before they deteriorate further. 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 Kotido Municipal Council. 5
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 Council s ability to continue delivering its mandate, disclosing, as applicable, matters related to affecting the delivery of the mandate of the Council, 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 Municipal Council 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; 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 6
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 Municipal 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 Municipal 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 Municipal council 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 other matters that may reasonably be thought to bear on my independence, and where applicable, related safeguards. 7
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 7 th December 20 8
Appendix i; Un accounted for Funds Vr No Date Details Payee Amount Remarks 2/5 1/5 3/2 6/1 5/1 3/1 1/1 2/12 5/11 1/11 54/1 15/1 24/1 2 44/1 1 5/2 51/8 50/8 10/05/20 10/05/20 10/05/20 23/02/20 31/01/20 30/01/20 30/01/20 30/01/20 14/12/20 07/11/20 04/11/20 18/01/20 04/01/20 14/12/20 08/11/20 08/02/20 19/8/201 6 19/8/201 6 Installation of culverts Allowances for road maintenance Installation of culverts Allowances for road maintenance monitoring of road works manual routine road maintenance stationnery Submission of progress reports to URF monitoring of road works Allowances for road maintenance submission of 1st qrtre report procurement advert procurement advert Collecting statistical data sensitising divisions Submission of UWEP project files Facilitation for revenue collectors Facilitation for revenue collectors at west division Gasper 4,511,000 Gasper 2,245,000 Gasper 4,511,000 Gasper 2,577,000 Gasper 952,000 Gasper 1,904,000 Gasper 250,000 Gasper 1,215,000 Gasper 952,000 Gasper 1,959,000 Gasper 1,115,000 new vision 940,000 new vision 1,692,000 Anewa Robert 5,760,000 Ekemem Patrick 900,000 Lemukol Lilly 1,355,000 Akello Deo Nyanga Akello Deo Nyanga 582,000 602,000 9 Un Accounted for lacks; receipts, payment sheets and 4,511,000 work sheets lacks payment sheets and work 2,245,000 sheets lacks; receipts, payment sheets and 4,511,000 work sheets lacks; receipts, payment sheets and 2,577,000 work sheets lacks; receipts, payment sheets and 952,000 work sheets lacks; receipts, payment sheets and 1,904,000 work sheets no receipts, confirm store records 250,000 lacks fuel receipt lacks; receipts, payment sheets and work sheets lacks; receipts, payment sheets and work sheets lacks fuel receipt no receipts no receipts receipts and payment sheets lacking attendance sheets, payment sheets lacking no receipts 620,000 952,000 1,959,000 620,000 940,000 1,692,000 5,760,000 900,000 1,355,000 Amount on payment sheet not agreeing by 326000 326,000 Amount on payment sheet not agreeing by340000 340,000
99/9 29/9/201 6 Revenue collection Akello Deo Nyanga 672,000 Amount on payment sheet not agreeing by 402,000 402000 96/9 23/9/201 6 Purchase of law books Partrick 1,020,000 No requistion 1,020,000 90/9 23/9/201 6 Revenue collection Akello Deo Nyanga 672,000 Amount on payment sheet not agreeing by 422000 422000 87/9 23/9/201 6 Revenue collection at west division Akello Deo Nyanga 562,000 Amount on payment sheet not agreeing by 312,000 312000 86/9 23/9/201 6 Revenue collection at west division Akello Deo Nyanga 672,000 Amount on payment sheet not agreeing by 427,000 427000 58/9 22/9/201 6 Preparation for a five year development plan Anewa Robert 1,680,000 1,477,500 not receipted. 1477500 87/1 0 20/10/20 Collection of local revenue arears for business license Akello Deo Nyanga 711,000 231,000 not accounted for/receipted 231000 46/1 0 10/06/20 Statistical data collection baseline data for /18 Anewa Robert 2,625,000 No receipt 2,625,000 32 10/06/20 Revenue collection from west division Akello Deo Nyanga 562,000 Payment sheet not agreeing by 2000 2000 31 10/06/20 Revenue collection at west division Akello Deo Nyanga 562,000 Payment voucher not agreeing by 277000 277000 11/2/ 02/08/20 Payment as fuel deposit Holig petroleu m ltd 2,400,000 No consumption sheet 2,400,000 10/2/ 02/08/20 Fuel deposit for planning unit Holig petroleu m ltd 2,100,000 No consumption sheet 2,100,000 3/2/1 7 02/07/20 Information collection and management from divisions Talamoi Wilfred 967,500 No receipts 967,500 33/4 04/05/20 Vacinnation against FMD,CBPP and PPR Dr Longoli Joseph 1,990,000 No activity report and receipt 1,990,000 37/3 /3/201 7 Refuse crew wages Ongodia Gilbert 1,280,000 No payment sheet 1,280,000 /3 03/03/20 Payment for office imprest for the month of March Ekemem Patrick 800,000 No recipt 800,000 51/5 /5/201 7 Enforcement of property rate collection Ajwang Margret 834,500 No payment sheet and recipts 834,500 10
18/5 1/10 05/03/20 06/10/20 Fuel Fuel Ongodia Gilbert 264,000 Gasper 10,230,000 No receipts Not supported by Consumption statement, fuel orders, receipts and work sheets 264,000 10,230,000 60,645,500 11
Appendix ii. Outstanding commitments S/N Creditor Item Amount 1 Santdernco Roads 1,727,000 2 Map Image Roads 222,495 3 Ura-Giemajor WHT 871,146 4 Adeke Laite Enter Supplier 154,860 5 Richard Ivan Mungati Survey 1,741,379 6 Molg-B/F Vehicle Loan 28,055,776 7 Nakicolongo Ent Revenue Collector 1,550,131 8 Oryeotyene Ent Furn Supply 11,652,880 9 Ulga 1,250,000 10 Crosslink Holdings Ltd Stationery 4,000 11 Did Gen Ent Ltd Water Contractor 1,301,000 Total 48,530,667 12
Appendix iii; Un Implemented Projects due to budget cuts Depart ment Item Description Planned Output/Qua ntity Actual Ouput/Qu antity Amount Budgeted Amount Released Variance Effect Of Short Fall ADMIN Construction of Administration offices Supply of computers and accessories Supply of office Furniture s to Town clerk s office Servicing and maintenance of computers and accessories Servicing and maintenance of solar systems Completion of phase one Not complete 4,791,845 0 4,791,845 5 computers, 5 UPSs Nil 20,000,000 0 20,000,000 Executive furniture Nil 10,000,000 0 10,000,000 5 computers, 5 UPSs Nil 20,000,000 0 20,000,000 4 Solar Pannels, Batteries, Wiring to be maintained Nil 30,000,000 0 30,000,000 incomplete construction of Office Block( structures) Not supplied due to lack of funding Not supplied due to lack of funding Not supplied due to lack of funding Not supplied due to lack of funding WORKS Road maintenance works 127,691,493 99,559,967 28,131,526 Murram for Municipal Roads not supplied. COM BASED SERVIC ES Disbursement of Youth Livelihood Program funds Disbursement of UWEP funds 36 groups to benefit 31 groups to benefit - 27 Youth Groups benefited 365,842,773 227,353,663 138,489,110 26 Women Groups benefited 143,814,463 112,314,463 31,500,000 9 youth groups did not receive funding 5 Women groups did not receive funding TOTAL 952,140,57 4 589,228,093 362,912,481 13
Appendix iv; staffing shortage Departments Establishment Filled Vacant Office of the Municipal clerk 3 1 2 Administration 25 8 Finance and planning 12 5 7 Human Resource Management unit 2 1 1 Procurement and Disposal unit 2 0 2 Community based services 7 2 5 Public health 5 2 3 Works 10 1 9 Production and marketing 5 0 5 Internal audit unit 2 1 1 Environmental management unit 2 0 2 Education 6 0 6 Physical planning unit 4 1 3 Trade industry and local economics 3 0 3 Total 88 22 66 14
Appendix v; Lack of Land titles S/N Purpose Location Acreage in Meters Land Status 1 Land for generator house Narengemoru village Kotido west cell division 20m x 20m Not registered Not surveyed 2 Lodipidip market shade Losogot village, Kotido rural central division 332.8m Not registered Surveyed with deed plan. 3 Land for roads opening Entebbe area, central division 20m x 30m Not registered Surveyed with deed plan. 4 Land for slaughter house (Abattoir) Narengemoru village, Kotido west cell central division 603.7m Not registered Surveyed with deed plan. 5 Land for office space ACholi Inn village central division 6 Land for dump field Kapuyon in panyangara south division 7 Technical school Lochedimeu village Kotido south rural central division 8 Lorry park Acholi quarters Kotido west central division 105m x 130m 270m x 234m 206m x 250m 112.5+102.5+112.5m Not registered Surveyed with deed plan. Not registered Surveyed with deed plan. Not registered Not surveyed Not registered Not surveyed 9 Taxi / Bus park ACholi inn central division 107m x 98m Not registered Not surveyed 15
10 Main market Acholi inn central division 205m x 110m Not registered Not surveyed 11 Mayors garden Kotido seed scheme, Kotido west central division Not registered Not surveyed 12 Kanawat market West division Surveyed Titled but documents not handed over to council. 13 Kapadakook market Panyangara South division Not surveyed With encroachment and compensated.