OFFICE OF THE AUDITOR GENERAL THE REPUBLIC OF UGANDA REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF THE NAKIVUBO WAR MEMORIAL STADIUM TRUST FOR THE YEAR ENDED 31 ST DECEMBER 2013 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 Nakivubo War Memorial Stadium Trust for the Year ended 31 st December 2013... 1 Detailed Report of the Auditor General on the Financial Statements of the Nakivubo War Memorial Stadium Trust for the Financial Year ended 31 st December 2013... 4 1.0 Introduction... 4 2.0 Background Information... 4 3.0 Financing of the Trust... 4 4.0 Audit Scope... 4 5.0 Audit Procedures Performed... 5 6.0 Audit Findings... 6 i
LIST OF ACRONYMS Cap CoA GoU KCCA MoFPED PDU PFAA PPDA PPDAR UGX URA VAT Chapter Chart of Accounts Government of Uganda Kampala Capital City Authority Ministry of Finance Planning and Economic Development Procurement and Disposal Unit Public Finance and Accountability Act Public Procurement and Disposal of Public Assets Public Procurement and Disposal of Public Assets Regulations Uganda Shillings Uganda Revenue Authority Value Added Tax ii
REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF THE NAKIVUBO WAR MEMORIAL STADIUM TRUST FOR THE YEAR ENDED 31 ST DECEMBER 2013 THE RT. HON. SPEAKER OF PARLIAMENT I have audited the accompanying financial statements of the Nakivubo War Memorial Stadium for the year ended 31 st December 2013. These financial statements comprise of the Statement of Financial Position as at 31 st December 2013, 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 Stadium. The Accounting Officer is also responsible for the preparation of financial statements in accordance with Nakivubo War Memorial Stadium Trust Act, Cap 47 of the Laws of Uganda, and for such internal controls as management determines is 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. Those 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 1
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 control. 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 qualified 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" Basis of Qualified Opinion Unsupported Rental Income The rental income of UGX.468,841,917 reported in the Income and Expenditure statement was not supported with underlying records in the form of tenancy agreements and a list of all tenants. In the circumstances, the correctness of the figure could not be ascertained. Unsupported Interest Saving The VAT obligation of UGX.455,239,018 reported in the Statement of Financial Position was arrived at after offsetting a sum of UGX.96,511,281 as interest saved. However, this deduction was not supported with a waiver from URA. In the circumstances, the obligation could be misrepresented. Unsupported Expenditure UGX.20,000,000 paid to Uganda Revenue Authority lacked the necessary supporting documents thereby rendering the authenticity of the expenditure doubtful. Qualified Opinion In my opinion, except for the possible effects of the matters described in the Basis for Qualified Opinion paragraph, the financial statements present fairly in all material respects, the financial position of Nakivubo War Memorial Stadium Trust as at 31 st December 2013, and of its 2
operating results and cashflows for the year then ended, and comply with the accrual basis of accounting and Nakivubo War Memorial Stadium Trust Act, Cap 47 of the Laws of Uganda. Emphasis of Matter Without qualifying my opinion further, I draw your attention to the matter disclosed under Note 8 to the financial statements: Sundry Creditors Management reported a sundry creditors balance of UGX.134,443,590, up from UGX.130,851,711 in the previous year. Minimal efforts were made to settle the obligation. In the circumstances, the Trust is exposed to a risk of litigation and attendant costs. 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: Construction of Perimeter Wall and Lockups The Board of Trustees (Public Party) entered into a Public Private Partnership with a local firm to erect, construct, renovate and refurbish the perimeter wall of Nakivubo Stadium, and construct lock-up shops around it. However, the project development processes leading to the PPP award, and the actual contract implementation process were not adequately supported with the necessary documents and records. In the circumstances, I could not ascertain whether the procurement was conducted in a manner that maximizes competition and achieves value for money. Unauthorized Excess Expenditure Good financial management practice requires prudent execution of the approved budget. However, it was noted that the Trust incurred expenditure of UGX.357,213,119 over and above the appropriated amounts without the necessary approval. John F. S. Muwanga AUDITOR GENERAL 9 th March 2015 3
PART B DETAILED REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF THE NAKIVUBO WAR MEMORIAL STADIUM TRUST FOR THE FINANCIAL YEAR ENDED 31st DECEMBER 2013 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 llocal ggovernment 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 Trust to enable me report to Parliament. 2.0 BACKGROUND INFORMATION Nakivubo War Memorial Stadium is a Trust that was registered on 20 th August 1953 by the Nakivubo War Memorial Stadium Trust Act, Cap 47 of the Laws of Uganda. It is a body corporate charged with the purpose of administering, controlling and managing all trust property, in such a manner as to encourage the participation in athlectic sports and games of organised bodies on the inhabitants of Uganda. 3.0 FINANCING OF THE TRUST The Trust is wholly financed by non-tax revenue. During the year under review, a total of UGX.960,145,243 was earned during the year under review. 4.0 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 Stadium have been prepared in accordance with Nakivubo War Memorial Stadium Trust Act, Cap 47 of the Laws of Uganda, and the 4
accrual basis of accounting and that they present fairly the financial performance and position of the Trust as at 31 st December 2013; b. Sufficient internal controls have been applied consistently throughout the year to safeguard the assets of the Trust 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 Trust assets were well managed in the period under review. 5.0 AUDIT PROCEDURES PERFORMED 1) Revenue/Receipts Obtained schedules of receipts and reconciled the amounts to the Trust cashbooks and bank statements. 2) 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. 3) 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. 4) Procurement Reviewed the procurement of goods and services during the period under review and reconciled with the procurement plan. 5) Fixed Asset Management Reviewed the use and the management of the Trust assets during the period under review. 5
6) 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 statement presentation. 6.0 AUDIT FINDINGS 6.1 Unsupported Rental Income The Trust rents out space within the facility to various business operators. However, the tenancy agreements and a list of all the tenants were not availed for review. In this regard, it was not possible to ascertain the correctness of the revenue of UGX.468,841,917 reported as rental income in the Income and Expenditure Statement. Whereas in response management indicated that tenancy agreements were available, they were not provided during the verification exercise. I advised management to streamline renting of space and maintain all the required documentation and records including tenancy agreements. 6.2 Interest Saving The Trust signed a memorandum of understanding with URA to settle a Statutory obligation of UGX.865,936,279 (Interest inclusive) in 24 installments running up to May 2015 with a provision for receivership if there was default. During the year under review, management reported a saving in interest of UGX.96,511,281 on top of a part settlement of UGX.330,626,148. However, it was noted that the purported saving was not supported with a waiver from the Authority. In the circumstances, the reported outstanding obligation of UGX.455,239,048 may not be fairly stated. Whereas management in response indicated that the supporting documents were available, the waiver was not provided for verification. I advised management to obtain a waiver from URA or restate the obligation in the subsequent year. 6
6.3 Doubtful Expenditure A sum of UGX.20,000,000 paid to Uganda Revenue Authority purportedly in settlement of tax obligations lacked necessary acknowledgement receipts rendering the authenticity of the expenditure doubtful. Whereas management in response indicated that the documents were available, they were not provided at the time of verification. I have advised management to account for the funds. In the alternative, the funds are recoverable. 6.4 Sundry Creditors Management reported a sundry creditors balance of UGX.134,443,590, up from UGX.130,851,711 in the previous year. Included in the creditors is a sum of UGX.98,492,717 payable to KCCA. However, mimimal effort was made to settle the creditors during the year which exposes the Trust to a risk of litigations and their attendant costs. In response, management explained that a proposal made to KCCA to swap property rates due to the City Authority with the 30% rental rebates due to the Trust had not been responded to. I advised Management to endeavor and settle the obligations of the Trust as and when they fall due. 6.5 Construction of Perimeter Wall and Lockups The Board of Trustees (Public Party) entered into a Public Private Partnership with a local firm to erect, construct, renovate, refurbish the perimeter wall of Nakivubo Stadium and construct lock-up shops around it. However, the following records were not availed for verification: Evidence of Involvement of Ministry of Finance, Planning and Economic PPP Unit in assessing the project, choosing the best possible partner, negotiating and monitoring the agreement as required under the PPP Framework Policy, 2010. Feasibility Study Report approved by Ministry of Finance and Economic Development 7
Appointment of Project Team (Project Officer, Experts and Steering Committee) to support project development and processes leading to the PPP award Legal Due Diligence review of the Project Cabinet approval of the PPP Project Approval of the Design Plan by KCCA and the Board as required under Article 8 (1) of the PPP Agreement Basis and justification for the Consideration under Article 3(2) of the PPP Agreement(UGX 200m per annum for 5 years and UGX 240m for last 2 years). Procurement File Contract management File Project Construction Schedule as required under Article 9 of the PPP Agreement No evidence to show that the Trust management was monitoring the construction works, as required by the Public Private Partnership Agreement articles 2 (2.1) (c) and 9. Monitoring and Evaluation of the PPP Programme by the MoFPED PPP Unit. In the circumstances, I could not ascertain whether the procurement was conducted in a manner that maximizes competition and achieve value for money. In the absence of a contract management file, there is risk that the works were not executed in accordance with the Terms and Conditions of the Agreement. Whereas management in response indicated that the the documents and records were available, they were not provided during the verification exercise. I have advised management to provide the records and documents outlined above. 6.6 Unauthorized Excess Expenditure Best financial management practice requires prudent execution of the approved budget. However, it was noted that the Trust incurred expenditure of UGX.357,213,119 over and above the appropriated amounts on a number of budget lines as outlined in the table below: Expenditure Item Administration expenses Budget (UGX) Actual Expenditure (UGX) Excess expenditure (UGX) 20,169,122 177,559,563 157,390,441 8
Settlement of 150,000,000 330,626,148 180,626,148 Creditors Property costs 100,711,700 102,348,369 1,636,669 Utilities 18,390,000 24,449,861 6,059,861 Professional fees 2,000,000 13,500,000 11,500,000 TOTAL 291,270,822 648,483,941 357,213,119 In the circumstances, the intentions of the appropriating authority are undermined. Management in response acknowledged the anomaly and indicated that measures would be taken to avoid excess expenditure. I advised the accounting officer to always seek the necessary approvals prior to spending in excess of the approved estimates. 6.7 Lack of a Strategic Plan, Key Policies and Separation of Powers As reported in my previous reports to Parliament, the Trust still lacks a strategic plan and key policies (credit policy, fraud control policy, Asset Management Policy), while the Board Chairperson and two other members of the Trust continue to be signatories to the Trust bank accounts. Also noted was that the Chairperson Finance Committee approves payments on a day to day basis. This is an indication of fusion of responsibilities leaving the Trust without a clear strategic direction. In response, management indicated that the Trust Act confers power to the Board of Trustees. However, the Board had contacted the line minister to come up with a proposal to make amendments in the Trust Act to suit the requirements of corporate governance. I advised management to ensure that the Board s functions are divorced from the routine operations of the Trust and perform their rightful obligation of providing strategic direction. 6.8 Absence of Internal Audit Function Good governance practices require that an entity puts in place structures to oversee the implementation of strategic decisions. However, it was noted that the stadium did not have an internal audit function. There is a risk that control weaknesses may go undetected thereby undermining the strategic objectives of the Stadium. 9
In response, the Accounting Officer undertook to take all the necessary efforts to ensure that an internal auditor is recruited. I advised the Accounting Officer to establish an internal audit function to evaluate the effectiveness and adequacy of the Internal Control System. 6.9 Lack of a Chart of Accounts A Chart of Accounts (CoA) is a financial organizational tool that provides a complete listing of every account in an accounting system and serves as the foundation for a company s financial record keeping system. It contains the accounts names, brief descriptions and identification codes. A well-designed CoA not only meets the financial information needs of management, it also helps an entity to comply with the applicable financial reporting framework. In my previous report to parliament, I indicated that the Stadium did not have a CoA and the status quo remained during the year under review. In the absence of a Chart of Accounts, there is a risk that the reported financial information is not properly classified, summarized and recorded which may compromise the quality of the Trust s financial statements. Management in response indicated that the Stadium had an accounting manual that had been used to record transactions but needed to be improved to suit the current situation. I advised management to put it place a chart of accounts to guide the reporting of financial information. 6.10 Manual Accounting System The Trust operates a manual accounting system to process its accounting transactions. The cash book is manually prepared and some entries not properly posted. I exlained to management that the Manual System not only makes the preparation of financial statements tedious and time consuming but also renders financial statements susceptible to inaccuracies. Management in response undertook to present this issue to the Board for appropriate action. I advised management to consider the acquisiton of an accounting software to ensure efficient financial reporting. 10
6.11 Lack of a Procurement plan Regulation 96(2) of PPDAR 2003 requires a Procuring and Disposing Entity to prepare a consolidated procurement plan. On the contrary, the Trust did not have a consolidated procurement plan in place. In the circumstances, there is a risk of conducting procurements in a haphazard manner without due regard to the needs of the Entity. Management explained that originally, the stadium did not have a procurement officer but the Board had recruited one. I await the outcome of management s intervention in this regard. 6.12 Procurement records During audit, a number of weaknesses were noted in the Procurement and Disposal Unit. These included among others: No monthly procurement reports were prepared and submitted to PPDA as required by the law Members of contract committee were not approved by the Secretary to the Treasury In the circumstances, the oversight role of the PPDA is compromised. In addition the decisions of the contracts committee could be challenged. I advised the Accounting Officer to ensure that the identified weaknesses are addressed to enable the PDU function properly. 11
FINANCIAL STATEMENTS 12