THE REPUBLIC OF UGANDA MINISTRY OF LANDS, HOUSING & URBAN DEVELOPMENT REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF THE TRANSFORMING SETTLEMENTS OF THE URBAN POOR IN UGANDA PROJECT FOR THE YEAR ENDED 30 TH JUNE 2015 OFFICE OF THE AUDITOR GENERAL UGANDA
TABLE OF CONTENTS ACRONYMS... iii REPORT OF THE AUDITOR GENERAL TO ON THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 TH JUNE 2015... iv REPORT OF THE AUDITOR GENERAL ON THE SPECIAL ACCOUNT OPERATIONS... vi FOR THE FINANCIAL YEAR ENDED 30 TH JUNE 2015... vi REPORT ON THE INTERNAL CONTROL STRUCTURE FOR THE YEAR ENDED... vii 30 TH JUNE 2015... vii 1.0 INTRODUCTION... 1 2.0 BACKGROUND INFORMATION... 1 3.0 OBJECTIVES OF THE PROJECT... 1 4.0 DESCRIPTION OF THE PROJECT... 2 5.0 AUDIT SCOPE... 2 6.0 PROCEDURES PERFORMED... 3 7.0 CATEGORIZATION AND SUMMARY OF FINDINGS... 4 7.1 Categorization of findings... 4 7.2 Summary of findings... 4 8.0 DETAILED FINDINGS... 5 8.1 Compliance with the Financing Agreement and Government of Uganda Provisions... 5 8.2 Follow-up of Prior Year Audit Issues/Recommendations... 7 ii
ACRONYMS Acronym NUP IDA GOU PPDA US $ MDS SDI TSUPU UGX WB NUP USMID IEC Meaning National Urban Policy International Development Association (World Bank) Government of Uganda Public Procurement and Disposal of Public Assets. United States Dollar Municipal Development Strategies Slum Dwellers International Transforming Settlement of the Urban Poor in Uganda Uganda Shillings World Bank National Urban Policy Uganda Support to Municipal Infrastructure Development Program Information, Education and Communication iii
TRANSFO RMING SETTLEMENT OF THE URBAN POOR IN UGANDA PROJECT PROJECT ID: P122475 AND P121015 REPORT OF THE AUDITOR GENERAL TO ON THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 TH JUNE 2015 THE RT. HON. SPEAKER OF PARLIAMENT I have audited the financial statements of the Transforming Settlement of the Urban Poor in Uganda (TSUPU) project of Ministry of Lands, Housing and Urban Development for the year ended 30 th June, 2015. The financial statements set out on pages 12 to 22 comprise of; Statement of receipts and expenditure Statement of funds balance Designated account activity statement Statement of cash flows Notes to the financial statements including a summary of accounting policies used. Management Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of the Financial Statements in accordance with Section 45 of the Public Finance Management Act, 2015, and in compliance with the donor regulations and guidelines and for maintenance of such internal controls that are necessary for the fair presentation 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, plan and perform the audit to obtain reasonable assurance about 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. The procedures selected depend on the Auditor s judgment, including the assessment of the risks of material misstatement of the financial iv
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 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 audit 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" Opinion In my opinion, the financial statements present fairly, in all material respects, the financial position of the Transforming Settlement of the Urban Poor in Uganda Project as at 30 th June, 2015 and the income and expenditure for the year then ended in accordance with the accounting policy described in the notes to the financial statements. John F.S. Muwanga AUDITOR GENERAL 20 th December, 2015 v
TRANSFORMING SETTLEMENT OF THE URBAN POOR IN UGANDA PROJECT REPORT OF THE AUDITOR GENERAL ON THE SPECIAL ACCOUNT OPERATIONS FOR THE FINANCIAL YEAR ENDED 30 TH JUNE 2015 I have audited the Special Account Statement of the Transforming Settlement of the Urban Poor in Uganda (TSUPU) project for the year ended 30 th June 2015, which is set out on page 14 of the financial statements. 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 and donor regulations. 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, whether 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 the audit in accordance with International Standards on Auditing and donor regulations and guidelines. Those standards and the donor guidelines require that I plan and perform the audit to obtain reasonable assurance about whether the Special Account statement is free from material misstatements. I believe that the audit provides a reasonable basis for my opinion. Opinion In my opinion, the receipts were properly accounted for and withdrawals were made for the purposes of the project in accordance with the financing agreement. The special account statement and notes thereon fairly present in all material respects the account operations for the year ended 30 th June 2015 in accordance with the basis of accounting described in the accounts. John F. S. Muwanga AUDITOR GENERAL 20 th December, 2015 vi
TRANSFORMING SETTLEMENT OF THE URBAN POOR IN UGANDA PROJECT PROJECT ID: P122475 AND P121015 REPORT ON THE INTERNAL CONTROL STRUCTURE FOR THE YEAR ENDED 30 TH JUNE 2015 I have audited the financial statements of the Transforming Settlements of the Urban Poor in Uganda Project for the year ended 30 th June 2015 and reviewed the internal control procedures relevant to the generation of accounting information presented in the financial statements, and those relevant to control over finances and the safeguard of its assets. I obtained all the information and explanations I considered necessary for the audit. Management Responsibility for the Internal Control System Project management is responsible for designing, establishing and maintaining a control structure that provides management with reasonable assurance that adequate procedures are followed for generation of accounting information for reliable financial statements, and control over finances and safeguarding assets against loss and unauthorized use or disposal. Management is also responsible for ensuring that conditions provided for in the development partners funding agreements and other legal requirements are observed. Auditor s Responsibility My responsibility is to express an opinion on the internal control system based on my audit. I conducted my audit in accordance with International Standards on Auditing and the donor guidelines on auditing. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the internal control mechanisms for the generation of accounting information and for the safeguard of assets are adequate. I assessed the control risk in order to confirm that my audit procedures are adequate to express an independent opinion on the control system. I believe that my audit provides a reasonable basis for my opinion. For the purpose of this report, I have classified the significant internal control structure policies and procedures in the following categories:- Control over preparation of requisitions for funds from the TRUST; Management and control of both bank and cash accounts. Purchases and payments. Monitoring, evaluation and reporting. vii
For all the internal control structure categories listed above, I obtained an understanding of the design of the relevant policies and procedures, and whether they have been placed in operation and assessed the related control risk. Reportable conditions No material reportable conditions were observed as management had put in place a satisfactory internal control system and measures to ensure proper accountability for all project funds. John F. S. Muwanga AUDITOR GENERAL 21 st December, 2015 viii
REPORT OF THE AUDITOR GENERAL AND SUPPLEMENTARY INFORMATION
PART B DETAILED REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF TRANSFORMING SETTLEMENTS OF THE URBAN POOR IN UGANDA PROJECT FOR THE YEAR ENDED 30 TH JUNE 2015 This section outlines the detailed audit findings, management responses and my recommendations in respect thereof. 1.0 INTRODUCTION I am mandated by Article 163 (3) of the Constitution of the Republic of Uganda, 1995 (as amended), to audit and report on the public accounts of Uganda and of 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 above project to enable me report to Parliament and the development partners. 2.0 BACKGROUND INFORMATION The TSUPU project is funded by Cities Alliance through the World Bank and also by the Government of Uganda. The overall project budget was US$.2,297,000. The project was funded through the Ministry of Lands, Housing and Urban Development and implemented by five Municipal Councils of Mbale, Jinja, Mbarara, Kabale and Arua. Other stakeholders include the Slum Dwellers International (SDI), Makerere University and the Urban Authorities of Uganda. During the year under review, the project was funded by the balance brought forward from the previous year of UGX.194,369,551. The project has since then closed. 3.0 OBJECTIVES OF THE PROJECT The objectives of the project include:- To support the formulation of relevant urban development policies and strategies; To improve access of slum dwellers to basic municipal social and infrastructural services; To promote community empowerment through municipal wide forums and awareness and skills training programs; To increase public awareness on appropriate urban development and management information. 1
4.0 DESCRIPTION OF THE PROJECT The project is implemented under the following drivers:- Establish Municipal Wide Development Forums; Participatory action research that promotes improved legal access to land and increased security of the tenure through the establishment of systems that clearly define and protect rights and responsibilities attached to urban land usage, occupation and ownership and landlord relations; The design and capitalization of municipality-specific community upgrading funds that are jointly managed by settlement level Urban Poor Organizations and local authorities; The promotion of ongoing national urban policy dialogue that links communities, local authorities and national government as well as other non-government actors; The commissioning of research into defined urban problems; The development of sustainable urbanizations campaign; Support the capacity of public universities to train future and existing urban planners and young professionals from other relevant fields; and Development of the National Urban Policy and Strategic Urban Development Plan for Uganda. 5.0 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:- a. Whether the Project managers are managing the Project in accordance with the financing agreement; b. Whether all funds have been used in accordance with conditions of the financing agreements, with due attention to economy and efficiency and only for the purposes for which the financing was provided; c. Whether counterpart funds have been provided and used in accordance with the conditions of the financing agreements, with due attention to economy and efficiency and only for the purpose for which they were provided; d. Whether goods and services financed have been procured in accordance with the financing agreements and in accordance with the donor rules and procedures; 2
e. Whether all necessary supporting documents, records and accounts have been kept in respect of all project activities and whether linkages exist between the books of account and the financial statements; f. Whether the special accounts have been maintained in accordance with the provisions of the financing agreements and in accordance with the donor regulations and procedures; and g. Whether the financial statements present a true and fair view of project financial position as at 30 th June 2015, and its receipts and expenditure incurred for the period, in conformity with the requirements of the Public Finance Management Act, 2015 and the donor guidelines. h. The project assets were well managed in the period under review. 6.0 PROCEDURES PERFORMED a) Revenue Obtained all schedules of funds provided by IDA, and Government of Uganda and reconciled the amounts to the project s cashbooks and bank statements. b) Expenditure Vouched transactions including statements of expenditure and financial monitoring reports used for submission of withdrawal applications during the period to establish whether documentation in support of expenditure agreed with the amount and description on the vouchers and/or applications and bank statements, and was properly controlled and accounted for. c) Internal Control System Reviewed the internal control system and its operations to establish whether sound controls were applied throughout the period d) Procurement Reviewed the procurement of goods and services under the project during the period under review and reconciled with the approved procurement plan. e) Periodic Reports about the project Activities Reviewed the Agreement provisions, operational manual and reports and reconciled it with the project activities during the period under review. 3
f) Project 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. 7.0 CATEGORIZATION AND SUMMARY OF FINDINGS 7.1 Categorization of findings The following system of profiling of the audit findings has been adopted to better prioritise the implementation of audit recommendations: 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. 7.2 Summary of findings No Finding Significance 8.1 Compliance with the Financing Agreement and Government of Uganda Provisions 8.1.1 Irregular Borrowings and Refunds Moderate 8.2 General Standard of Accounting and Internal Controls 8.2.1 Uncertainty in refunding the outstanding payables UGX.49,576,444 Moderate 8.2.2 Un utilized Project Funds UGX.161,973,004 Moderate 8.3 Follow-up of Prior Year Audit Issues/Recommendations Low 4
8.0 DETAILED FINDINGS 8.1 Compliance with the Financing Agreement and Government of Uganda Provisions A review was carried out on the project compliance with the grant agreement provisions and GOU financial regulations and it was noted that the project complied in all material respects with the provisions in the agreement and applied GOU regulations except in the following matter. 8.1.1 Irregular Borrowings and Refunds During the financial year under review, the project borrowed US$.25,055 from the Uganda Support to Municipal Infrastructure Development Programme (USMID project) however; the authority to borrow and the reasons for the borrowing were not availed for review. I further noted that TSUPU project closed on the 30 th November 2014 without clearing the outstanding debt of US$.19,338 to USMID. I explained to management that irregular borrowing of project funds affects project performance. Management explained that funds that were borrowed from USMID have been paid in tranches and this balance will be settled in the 3 rd quarter. I advised the Accounting Officer to always adhere to project funding guidelines. In the meantime, refund is awaited. 8.1.2 Outstanding payables UGX.49,576,444 I noted that there were outstanding payables of UGX.49,576,444 despite the return of unutilized funds to the World Bank as a result of the closure of the Project. Management did not indicate any plans to settle the outstanding debt. Similarly; I noted that the project end and evaluation study was not carried out. I explained to management that failure to absorb all the available funds translates into underperformance and could limit future funding proposals and support for other Ministry projects. In response, management explained that the Ministry made a commitment to settle the debt in tranches in relation to the available budget for the sub-sector. I advised the Accounting Officer to settle the outstanding payables to avoid any litigation consequences. 5
8.1.3 Un utilized Project Funds UGX.161,973,004 During the review of the Project performance, I noted that funds totaling to UGX.161,973,004 was returned to the World Bank yet some activities had not been concluded and or started on as summarized below; I explained to management that failure to absorb all the available funds affects performance and denies stake holders benefits. It further translates into failure to achieve the main objectives of the project. Planned activities of the project. To support the formulation of relevant urban development policies and strategies. To improve access of slum dwellers to basic municipal social and infrastructural services. To increase public awareness on appropriate urban development and management information. Set targets for the Project/ Scheduled activities to be achieved by the project. -Set up phase of project activities and Components With budget US$.195,500 -Establishment of municipal wide development forums US $ 81,000 -The development of a sustainable Urbanization campaign to be covered by National Urban policy grant. US$.150,000 -Participatory action Research into issues that affect access to land and increase security of tenure for the urban poor with budgeted figure of US$.90,000 -The development of detailed municipal slum upgrading Action plans, including prioritized costed projects US$.250,000. -Establishment of the National Urban forum (NUF) with budgeted US$.60,300 -Development of a sustainable Urbanization campaign to be covered by National Urban policy grant. US$.150,000 -Development of the national Urban policy and strategic urban development plan for Activities not implemented by the closure of the project 30 th November 2014. -The improvement of municipal management and planning systems -The improvement of Municipal management and planning systems was not done. to be handled under USMID/CBP at US$.180,000 The development of a detailed municipal slum upgrading Action plans, including prioritized costed projects US$.250,000 The development of a sustainable Urbanization Campaign not covered by National Urban Policy proposal US$.150,000. Management responses US$.180,000 that was originally earmarked for the improvement of management and planning systems in the five (5) Municipalities was not released. The Ministry therefore sought clearance from the World Bank to utilize the funds for other activities. US$.250,000 for Municipal Slum Upgrading Action Plans were not released due to inadequate time for execution of the activity. The USD.150,000 for the Urban Campaign was also not accessed after the realization that the activity of developing the National Urban Policy (NUP) and the Urban Campaign were closely related and the production of the NUP and the 6
Uganda US$.50,000 Urban Campaign were fused into one. This therefore led to the donors not releasing the said US$.150,000. Development of Municipal development strategies of US$.450,000 The WB did not release the US$.450,000 for MDS, because the time available for this activity as per the project work plan and in relation to the time required to develop the Municipal Development Strategies was inadequate. I advised management to always plan adequately and where necessary adjust the work-plans in time through regular monitoring for effective implementation of project activities. 8.2 Follow-up of Prior Year Audit Issues/Recommendations A review of prior year audit issues showed that some of the recommendations given last year had not been implemented as at the time of reporting as summarised below: Observations/Issue 2013/2014 8.2.1 Delayed adoption of National Urban policy (NUP) A contract for provision of consultancy services to finalize the development of National Urban Policy was awarded to a consulting firm in October 2012 at a contract price of USD.442,633. The consultant was required to specifically come up with:- 15 year strategic Urban Development Plan Creation of an Urban Indicators Data base and Preparation of the Information, Education and Communications (IEC) strategy). Auditor General`s recommendations I advised management to expedite the process to ensure the policy is submitted to Cabinet for approval. Status of Implementation Approved copy not seen. At the time of reporting, the consultant 7
had received all the contract amount. According to the National Consultant Workshop held in May 2014, the stakeholders were satisfied with the consultant deliverables. However, it was noted that the policy had not yet been submitted to cabinet for approval and adoption. Implementation of the Policy is delayed. Management explained that the NUP draft policy is currently before an editor to remove the editorial mistakes before submitting to cabinet. 8.2.2 Inspections of Project activities in Municipal Councils During the year, TSUPU project was implemented in five Municipal Councils of Kabale, Mbarara, Jinja, Arua and Mbale where funds worth Shs.2,162,487,369 were remitted. As part of the audit, inspection was carried in all the five Municipal Councils to establish the extent of implementation of project activities. The following were observed: KABALE MUNICIPAL COUNCIL a) Unutilized funds- Shs.413,159,381 During the financial year, the Council received Shs.413,159,381 from the Ministry for TSUPU activities. The funds were disbursed in two instalment of UGX.234,787,170 and UGX.178,372,211 on 23/09/2013 and 20/06/2014 respectively. At the time of inspection (September 2014) all the funds were still held on the Municipal account. These funds had therefore not been put to use in implementing planned activities. Management explained that the delay to utilise the funds arose from late disbursement of funds from the development partners. JINJA MUNICIPAL COUNCIL a) Unutilized funds - UGX.4,481,863 Jinja Municipal Council received UGX.491,511,798 for implementation of TSUPU activities. As at 30th June 2014 UGX.4,481,863 was still held on the Municipal account. Non utilization of all funds received implies that the intended project activities were not fully I advised management to always liaise with the financiers for timely release of funds. I advised management to avoid comingling of TSUPU project funds with other project funds as this is likely to cause diversions. Implemented. No evidence of Implementation seen. 8
implemented. Management explained that these funds still on the account were retention for the CUF projects to cater for the defect period. MBARARA MUNICIPAL COUNCIL a) Unutilized funds UGX.15,553,957 During inspection, it was discovered that the Municipal Council had UGX.15,553,957 unutilized at the close of the financial year on TSUPU Bank Account in Crane Bank. Management explained that the Ministry had formally written to the Town Clerk to respond to the issue. ARUA MUNICIPAL COUNCIL a) Delayed release of TSUPU funds from General Fund Bank A/C The Ministry remitted UGX.423,162,659 to Arua Municipal Council for TSUPU activities for the financial Year 2013/2014. The funds were remitted in two instalments of UGX.234,787,170 and UGX.188,375,489. However, I noted that the last instalment of UGX.188,375,489 was not transferred from the General Funds Account until 19/07/2014. Delayed release of project funds affected the project performance during the financial year. I advised management to ensure adequate follow up on the matter to enable proper accountability. I advised management to ensure that project funds are remitted in time to allow project implementation of planned activities. Funds were utilized. Balance unspent as at 30/6/2015 was UGX.245,781. Implemented Implemented. I advised the Accounting Officer to implement all the recommendations. 9
APPENDIX 1 FINANCIAL STATEMENTS 10