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OFFICE OF THE AUDITOR GENERAL

THE REPUBLIC OF UGANDA

REPORT OF THE AUDITOR GENERAL

ON THE FINANCIAL STATEMENTS OF MANAFWA DISTRICT LOCAL GOVERNMENT

FOR THE YEAR ENDED 30TH JUNE 2017

OFFICE OF THE AUDITOR GENERAL

UGANDA

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Table of Contents

List of acronyms ....................................................................................................................... 3

Opinion ...................................................................................................................................... 4

Basis for Opinion ...................................................................................................................... 4

Key Audit Matters .................................................................................................................... 5

Utilization of Medicines and Health Supplies ................................................................ 5

Unaccounted for Medicines and supplies ..................................................................... 6

Drug Stock outs ................................................................................................................ 6

Human Resources ............................................................................................................ 7

Inadequate Controls Surrounding Management of Domestic Arrears ..................... 7

Other matter ............................................................................................................................. 8

Low Recovery of Youth Livelihood program funds ..................................................... 8

Funds not accounted for ................................................................................................. 9

Unaccounted for funds Received from TASO ............................................................... 9

Failure to meet the Minimum Education Standards .................................................. 10

Management’s Responsibility for the Financial Statements ............................................ 10

Auditor’s Responsibilities for the Audit of the Financial Statements ............................. 11

Appendix 1: Unaccounted for Drug Issues ........................................................................ 14

Appendix 2: Drug Stock Outs .............................................................................................. 15

Appendix 3: Understaffing at Bugobero HC IV ................................................................. 16

APPENDIX 4: Unaccounted for funds ................................................................................. 17

APPENDIX 5: Incompletely vouched .................................................................................. 18

Appendix 5: Failure to meet Minimum Educational Standards ....................................... 18

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List of acronyms

BOQ Bills of Quantities

C/U Church of Uganda

CAO Chief Administrative Officer

DEO District Education Officer

DLG District Local Government

EMHS Essential Medicines and Health Supplies

FY Financial Year

GOU Government of Uganda

HC Health Centre

IFMS Integrated Financial Management System

ISSAI International Standards of Supreme Audit Institution

KCCA Kampala Capital City Authority

KMs Kilometers

LGFAM Local Governments Financial and Accounting Manual 2007

LGFAR Local Governments Financial and Accounting Regulations 2007

LGMSD Local Government Management and Service Delivery

MMHS Management of Medicines and Heath Supplies

MoFPED Ministry of Finance Planning and Economic Development

MoH Ministry of Health

NFA National Forestry Authority

NMS National Medical Stores

P/S Primary School

PFMA Public Finance Management Act 2015

PPDA Public Procurement and Disposal of Assets

TASO The Aids Support Organisation

UGX Uganda Shillings

URF Uganda Road Fund

UWEP Uganda Women Enterprise Project

YLP Youth Livelihood Programme

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REPORT OF THE AUDITOR GENERAL

ON THE FINANCIAL STATEMENTS OF MANAFWA DISTRICT LOCAL GOVERNMENT

FOR THE YEAR ENDED 30TH JUNE2017

THE RT. HON. SPEAKER OF PARLIAMENT

Opinion

I have audited the financial statements of Manafwa District Local Government which

comprise the Statement of Financial Position as at 30th June, 2017, and the Statement of

Financial Performance, Statement of Changes in Equity and statement of Cash flows

together with other accompanying statements for the year then ended, and notes to the

financial statements, including a summary of significant accounting policies.

In my opinion, the financial statements of Manafwa District Local Government for the year

ended 30th June, 2017, are prepared, in all material respects in accordance with section 51

of the Public Finance Management Act, 2015, and the Local Government Financial and

Accounting Manual, 2007.

Basis for Opinion

I conducted my audit in accordance with International Standards for Supreme Audit

Institutions (ISSAIs) and the National Audit Act 2008. My responsibilities under those

standards are further described in the Auditor’s Responsibilities for the Audit of the Financial

Statements section of my report. I am independent of the District Local Government in

accordance with the Constitution of the Republic of Uganda (1995) as amended, the

National Audit Act 2008, and the International Ethics Standards Board for Accountants’ Code

of Ethics for Professional Accountants (IESBA Code) together with the ethical requirements

that are relevant to my audit of the financial statements in Uganda. I have fulfilled my other

ethical responsibilities in accordance with these requirements and the IESBA Code. I believe

that the audit evidence I have obtained is sufficient and appropriate to provide a basis for

my opinion.

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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 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 matters to be communicated in

my report;

Utilization of Medicines and Health Supplies

The Management of Medicines and health Supplies Manual indicates that Medicines and

medical supplies form the second biggest expenditure in the health sector after human

resources. The security of medicines must be ensured at all levels to prevent theft,

abuse, misuse and wastage.

Consequently in the course of auditing the District’s financial statements, I considered

the utilization of medicines and medical supplies as an area of focus.

The audit focused on the procedures, processes, tools and documentation used to

manage medicines and medical supplies which included;

Involving external expertise in identifying the sample of tracer medicines and

medical supplies, and developing data collection tools.

Selecting medicines and medical supplies to trace their utilization in the hospital.

Analysing the delivery cycles, balances on stock cards and order levels to ascertain

stock outs.

Obtaining and checking the records relating to the expired medicines and also

inspecting the storage practices.

Establishing the availability of key human resource personnel to ensure that

medicines and medical supplies are not wasted as explained in the Management of

Medicines and medical Supplies Manual.

I obtained the approved structure and compared it with the list of existing staff.

I considered a preselected sample involving Bugobero Health Centre IV and made the

following observations at the health facility;

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Unaccounted for Medicines and supplies

Based on the procedures performed, a variance of 200 items of oxytocin was identified

between issues from the Store to the Maternity ward as the stock cards and dispensing

logs did not capture the entries. In addition, 12 mama kits issued were not captured in

the stock cards. The total variance being UGX.4,361,556 as shown in appendix 1.

The shortcoming may be as a result of mismanagement and/or poor record keeping.

This may lead to rampant medicine stock outs which hamper service delivery and

occasioned widespread public outcry.

Management admitted the shortcoming and attributed it to lack of a Store’s Manager.

The Accounting Officer further explained that the district was going to advertise the

post of pharmacist and dispenser and payment of a top up as an incentive for attracting

qualified staff.

The Accounting Officer was advised to ensure that all the necessary records for the

items are properly maintained monitored and any variances investigated to ensure that

optimum amount of medicines and supplies are available at the health facilities at all

times.

Drug Stock outs

I observed that one (1) item out of 11 (eleven) selected tracer1 Essential Medicines and

Health Supplies experienced stock outs within the audit period noticeably, Coartem (12)

was out of stock for 32 days as shown in appendix 2.

The stock out may be a result of failure by NMS to supply drugs in the quantities

ordered by Health Centre and lack of reliable information on drugs usage and stocking

positions.

The stock outs erode patient confidence in the health sector which leads patients to

explore inappropriate and expensive alternatives of health care.

Management explained that not all the medicines ordered were supplied by NMS.

The Accounting Officer was advised to liaise with NMS to ensure continuous optimum

stock of medicines and supplies.

1 The Tracer medicines include; Artemether/Lumefantrine,HIV determine Test strips,Malaria

RDTs,Oxygen,Blood,Surgical gloves,Oxytocin,Safedelivery kits/mamakits, PGA 2 sutures

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Human Resources

I obtained the approved structure and compared it with the list of existing staff. It was

observed that out of 48 approved positions; only 32 (67%) posts were filled, leaving 26

(33%) positions vacant at Bugobero HC IV as shown in appendix 3.

Among the vacant positions was the Dispenser which is a critical position relating to

medicines management.

Understaffing overstretches the available staff beyond their capacity, creates job-related

stress to the fewer staff and negatively affects the level of public service delivery to the

community.

The Accounting Officer was advised to engage the Ministry of Public Service, the

Ministry of Local Government and the Ministry of Finance Planning and Economic

Development to address the challenge.

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

2016.

Consequently, domestic arrears were considered a key audit matter which needed to be

examined to assess: the appropriateness of recording, recognition and disclosure of

domestic arrears; the trend and the underlying factors; and the adequacy of the internal

controls surrounding management of domestic arrears.

During audit planning, I focused on examination of domestic arrears in regard to goods and

services, salaries and wages, and pension and gratuity. I undertook the following procedures

in relation to domestic arrears: a trend analysis over a period of three years to ascertain the

underlying causes of accumulation; reviewed budget and commitment control procedures to

assess their effectiveness; ascertained the authenticity of the supporting documentation and

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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.3,520,899,366 was

irregularly incurred as domestic arrears outside the approved estimates appropriated by

Parliament. Despite the decrease in domestic arrears over the period of 2 years from

UGX.3,827,325,225 In 2015/16, to UGX.3,535,499,466 in 2016/17. This remains

unsustainable

This may be as a result of existence of a weak and ineffective internal control system over

the control and management of domestic arrears. For example, the government

commitment control system was not adhered to.

The accounting officer attributed this to the delays of Ministry of public service and Ministry

of finance to verify and provide funds for clearance, however noted that funds have been

availed in the financial year 2017/2018 for clearance

The Accounting Officer was advised to ensure all outstanding arrears are cleared without any

further delay.

Other matter

I consider it necessary to communicate the following matters other than those presented or

disclosed in the financial statements:

Low Recovery of Youth Livelihood program funds

Section 6(1) of the Youth Livelihood Program (YLP) document 2013, requires all Project

Funds disbursed to each Youth Interest Group to be treated as a Revolving Fund to be

repaid in accordance with the Project Financing Agreement between the District Local

Government and the beneficiary Youth Interest Group witnessed by the Area Resident

State Attorney. During the year under review, the district was to recover

UGX.362,125,114 from these groups, However, it was observed that only

UGX.63,087,900 (17%) was recovered leaving an outstanding balance of

UGX.299,037,214 (83%).

Low recovery of funds affects the targeted performance of the program as it limits the

available funds to revolve to other potential beneficiaries.

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The Accounting Officer explained that various initiatives are being undertaken to

address these challenges including regular group meetings, coercion and enhanced

monitoring and supervision.

The Accounting Officer was advised to ensure that all the outstanding monies are

collected.

Funds not accounted for

Paragraph 5.4.6 (1) of the Local Governments Financial and Accounting Manual, 2007

requires that before any voucher is passed for payment, the Head of Finance shall

ensure that the payment vouchers are properly supported

An amount of UGX.10,193,500 lacked supporting documents as shown in appendices

4 & 5.

Consequently I could not confirm that funds were utilised for the intended purposes

The Accounting Officer was advised to obtain the accountabilities or else recover the

funds from the responsible officers.

Unaccounted for funds Received from TASO

Section 38(4) of the Local Governments Financial and Accounting Manual (LGFAM) 2007

requires local governments to prepare progress report on how donor funds are utilised

and regular financial statements submitted either on monthly or quarterly basis in

accordance with the agreement entered into with the donor.

The utilization of UGX.67,790,200 released for the implementation of TASO planned

activities could not be verified in the absence of; specific plans, budgets, quarterly or

annual financial and progress reports, payment vouchers and supporting

accountabilities.

In the absence of the relevant documentation, I could not confirm that funds were used

for the intended purpose.

The Accounting Officer explained that the documents which included; payment

vouchers, cash books and vote books for both DHO’s and Lower health units for the

expenditure of the above funds were picked by TASO for verification. Management

communicated to TASO to avail the documents for verification and no response had

been received to date.

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The Accounting Officer was advised to engage TASO and ensure that the

accountabilities are presented for audit verification.

Failure to meet the Minimum Education Standards

Paragraph 2.2.1 of the revised Local Government Management and Service Delivery

(LGMSD) Program Operational Manual provides a minimum service delivery package for

a primary school. A review on statistical data provided by the District Education Officer

and the physical inspections carried out revealed that the level of service delivery at the

schools significantly fell short of the Ministry of Education Minimum National Standards

as indicated below;

S/No Facilities Ratio to Pupil National Ratio

1 Teachers 1:60 1:55

2 Classroom 1:60 1:55

3 Latrine Stances 1:80 1:50

A further Inspection carried out in a Sample of two Schools revealed a need for urgent

intervention as shown in Appendix 6.

Lack of adequate school infrastructure undermines effective learning and hence poor

academic performance.

The Accounting Officer acknowledged the shortcoming but attributed it to the reduced

funding for school facilities grant (SFG). However, the district council is to engage the

Ministry of Education and Sports to ensure that the conditions of the facilities are

improved for better service delivery.

The Accounting Officer was advised to continuously engage the Ministry of Education

and Sports to ensure that conditions of the facilities are improved for better service

delivery.

Management’s Responsibility for the Financial Statements

Under Article 164 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 Manafwa District Local

Government.

The Accounting Officer is also responsible for the preparation of financial statements in

accordance with the requirements of the Local Governments Financial and Accounting

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Manual, 2007 and the Public Finance Management Act, 2015 and for such internal control as

management determines necessary to enable the preparation of financial statements that

are free from material misstatement whether due to fraud or error.

In preparing the financial statements, the Accounting Officer is responsible for assessing the

District Local Government’s ability to continue delivering its mandate, disclosing, as

applicable, matters related to affecting the delivery of the mandate of the District Local

Government, and using the Local Governments Financial and Accounting Manual, 2007 and

Public Finance Management Act 2015 unless the Accounting Officer has a realistic alternative

to the contrary.

The Accounting Officer is responsible for overseeing the District Local Government’s financial

reporting process.

Auditor’s Responsibilities for the Audit of the Financial Statements

My objectives are to obtain reasonable assurance about whether the financial statements as

a whole are free from material misstatement, whether due to fraud or error, and to issue an

auditor’s report that includes my opinion. Reasonable assurance is a high level of assurance,

but is not a guarantee that an audit conducted in accordance with ISSAIs will always detect

a material misstatement when it exists. Misstatements can arise from fraud or error and are

considered material if, individually or in the aggregate, they could reasonably be expected to

influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with ISSAIs, I exercise professional judgment and maintain

professional scepticism throughout the audit. I also:

Identify and assess the risks of material misstatement of the financial statements,

whether due to fraud or error, design and perform audit procedures responsive to

those risks, and obtain audit evidence that is sufficient and appropriate to provide a

basis for our opinion. The risk of not detecting a material misstatement resulting from

fraud is higher than for one resulting from error, as fraud may involve collusion,

forgery, intentional omissions, misrepresentations, or the override of internal control.

Obtain an understanding of internal control relevant to the audit in order to design

audit procedures that are appropriate in the circumstances, but not for the purpose of

expressing an opinion on the effectiveness of the District’s internal control.

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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

District Local Government 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.

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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

11th December, 2017

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APPENDICES

Appendix 1: Unaccounted for Drug Issues

Date Item Recipients Qty Remarks

13.09.17 oxytocin

mukhe suzan -

maternity

ward

47 reflected on issue voucher , but not on the

stock card

25.08.17 oxytocin

maternity

ward 20

reflected in the stock card but not in the

dispensing log book

29.08.17 oxytocin

maternity

ward 30

-do-

04.09.201

7 oxytocin

maternity

ward 20

-do-

02.10.17 oxytocin

maternity

ward 30

-do-

Total 147

08.09.17 mama kits

maternity

ward 12

reflected on issue voucher , but not on the

stock card

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Appendix 2: Drug Stock Outs

EHMS (Tracer

Medicines)

Stock Out Period

Quantity

Stock out

Duration

(days)

Starting (date when the

stock balance is NIL)

Ending (Stock

being

replenished)

Quantity

Coartem- 18 28.06.2017 27.07.2017 29 60

08.09.2017 11.10.2017 32

Coartem- 24 25.09.2017 11.10.2017 16

Coartem- 12 28.06.2017 27.07.2017 29 80

26.09.2017 11.10.2017 15 -

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Appendix 3: Understaffing at Bugobero HC IV

Category Approved Filled Vacant % Vacancy Rate

Technical &

Administrative staff 41 27 14 34%

Support staff 7 5 2 71%

Total 48 32 17 35%

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APPENDIX 4: Unaccounted for funds

DATE VCHR NO DEPARTMENT PAYEE DETAILS AMOUNT REMARKS

15.03.2017 36/03/2017 ADMINISTRATION khakasa milly stationery for printing audit reports

600,000

NO GRNs, delivery notes, receipts and LPO

23/01/2017 26/01/2017 Stat bodies Wabweni Andrew

Travel to Kampala on issue of road gangs

660,000 No activity report

01/07/2017 01/05/2017 N. Resources Bisikwa Sarah Staff monitoring of EPFOSE activities

2,540,000 No monitoring report

TOTAL 3,800,000

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APPENDIX 5: Incompletely vouched

DATE VCHR NO DEPARTMENT PAYEE DETAILS AMOUNT REMARKS

13.04.2017 12-Apr ADMINISTRATION watulo david facilitation to MOPS on clearance to recruit

650,500 no report

05.05.2017 04-May FINANCE nekesa sylivia collecting data on Q3 funds 988,000 data report not attached

30.11.2016 79/11/2016 ADMINISTRATION watulo david facilitation for handover to 5 sub counties

545,000 no report and fuel receipts

23.02.2017 45/02/2017 FINANCE wamburu willy

travel to pick cash releases 630,000 copy of releases not attached

28.04.2017 40/40/2017 ADMINISTRATION mike yoga submit annual performance report

670,000 copy of submissions not attached

02.03.2017 47/03/2017 ADMINISTRATION kasozi sulaiman

contribution to the archdiocese

600,000 no receipt

27.02.2017 32/02/2017 ADMINISTRATION wabweni andrew

facilitation to travel to Kampala

610,000 no report

21.12.2016 65/12/2016 ADMINISTRATION watulo david facilitation for training of pensioners

1,700,000 no report

03.03.2017 /03/2017 FINANCE wamburu willy

follow up on non- release of Q3 funds

630,000 no report

TOTAL 6,393,500

Appendix 5: Failure to meet Minimum Educational Standards

NABINI Primary School

Ratio Recommen

ded ratio

Current

status

Remarks

Classroom:

Pupil ratio

1: 55 1:64 Below the required standard for efficient learning.

Structure housing p.3

P1 –P3 are housed in semi permanent structures as

above.

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The mud wall that demarcates the P.1 and P.2 class

rooms.

Toilet: Pupil

ratio

1:40 1:64 Below the required standard for efficient learning

Teacher:

Pupil ratio

1: 55 1:38 Below the required standard for efficient learning

BUTSEBANGWE PRIMARY SCHOOL

Classroom:

Pupils ratio

1: 55 1:47 Below the required standard for efficient learning. Has 3

class rooms with 5 classes.

The 2 new class rooms used by 4 classes. P1 and p4 ,

then p2 and p5.

P.3 that is incomplete

Toilet: Pupils

ratio

1:40 1:60 Below the required standard for efficient learning.

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Teacher:

Pupil ratio

1: 55 1:47 Below the required standard for efficient learning