REVOLUTIONARY GOVERNMENT OF

ZANZIBAR

COUNTRY FINANCIAL ACCOUNTABILITY ASSESSMENT

FINAL CFAA TEAM REPORT – SUBMITTED TO GOVERNMENT OF ZANZIBAR FOR

CONSULTATIVE WORKSHOP, 29 JANUARY 2003

28th January 2003

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TABLE OF CONTENTS

EXECUTIVE SUMMARY................................................................................................I

1 INTRODUCTION...................................................................................................1

2 UNION ARRANGEMENTS..................................................................................3

2.1 INTRODUCTION...................................................................................................32.2 REVIEW OF THE CURRENT SITUATION...............................................................32.3 THE UNION ARRANGEMENT IN PRACTICE: ASSESSMENT OF THE CURRENT SITUATION......................................................................................................................72.4 CONCLUSION AND RECOMMENDATIONS..........................................................10

3 FINANCIAL PLANNING, BUDGETING AND BUDGET EXECUTION.....12

3.1 PLANNING AND RESOURCE ALLOCATION........................................................123.2 BUDGET EXECUTION........................................................................................193.3 AID COORDINATION AND EXTERNAL RESOURCE MANAGEMENT...................21

4 GOVERNMENT ACCOUNTING, FINANCIAL REPORTING & THE USE OF INFORMATION TECHNOLOGY.......................................................................26

4.1 GOVERNMENT ACCOUNTING, RECORD AND ASSET MANAGEMENT................264.2 ASSESSMENT OF THE CURRENT SITUATION......................................................334.3 USE OF INFORMATION TECHNOLOGY IN GOVERNMENT AND ITS AGENCIES.....37

5 PUBLIC SECTOR AUDITING...........................................................................42

5.1 EXTERNAL AUDIT............................................................................................425.2 INTERNAL AUDIT.............................................................................................45

6 LEGISLATIVE SCRUTINY, ETHICS AND INTEGRITY.............................48

6.1 LEGISLATIVE SCRUTINY...................................................................................486.2 ETHICS AND INTEGRITY...................................................................................50

7 LOCAL GOVERNMENT ACCOUNTING........................................................54

7.1 REVIEW OF THE CURRENT SITUATION..............................................................547.2 ASSESSMENT OF CURRENT SITUATION.............................................................577.3 CONCLUSIONS AND RECOMMENDATIONS.........................................................58

8 PUBLIC ENTERPRISES.....................................................................................60

8.1 REVIEW OF THE CURRENT SITUATION..............................................................608.2 ASSESSMENT OF THE CURRENT SITUATION......................................................638.3 CONCLUSION AND RECOMMENDATIONS..........................................................64

9 ORGANISATIONAL AND HUMAN RESOURCE CAPACITY ISSUES.....65

9.1 REVIEW OF CURRENT SITUATION....................................................................659.2 ASSESSMENT OF THE CURRENT SITUATION......................................................669.3 CONCLUSION AND RECOMMENDATIONS..........................................................67

10 ACCOUNTING AND AUDITING PROFESSION........................................68

10.1 REVIEW OF THE CURRENT SITUATION..............................................................6810.2 ASSESSMENT OF CURRENT SITUATION.............................................................6910.3 CONCLUSION AND RECOMMENDATIONS..........................................................70

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11 REGISTRATION OF COMPANIES AND NON GOVERNMENTAL ORGANISATIONS (NGOS)........................................................................................72

11.1 REVIEW OF THE CURRENT SITUATION..............................................................7211.2 ASSESSMENT OF THE CURRENT SITUATION......................................................7411.3 CONCLUSIONS AND RECOMMENDATIONS.........................................................74

12 PUBLIC ACCESS TO INFORMATION ON PUBLIC SECTOR FINANCIAL MANAGEMENT...................................................................................76

12.1 REVIEW OF THE CURRENT SITUATION..............................................................7612.2 ASSESSMENT OF THE CURRENT SITUATION......................................................7612.3 CONCLUSIONS AND RECOMMENDATIONS.........................................................77

13 ACTION PLAN.................................................................................................78

ANNEX A RECURRENT ESTIMATES FOR EXPENDITURE.............................79

APPENDIX B BIBLIOGRAPHY................................................................................80

Appendix C List of People Interviewed.......................................................................82

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LIST OF ABBREVIATIONS AND ACRONYMS

AG Attorney General

AccGen Accountant General

AfDB African Development Bank

BoT Bank of Tanzania

CAG Controller and Auditor General

CFAA Country Financial Accountability Assessment

CMO Chief Ministers Office

CPA Certified Public Accountant

CPAR Country Procurement Assessment Review

CSC Civil Service Commission

CSD Civil Service Department

CTB Central Tender Board

DPP Director of Public Prosecutions

EPZ Export Promotion Zone

FA Financial Administration

GAAP Generally Accepted Accounting Principles

GFS Government Financial Statistics

GoT Government of the United Republic of Tanzania

IASC International Accounting Standards Committee

ICT Information, Communication and Technology

IFAC International Federation of Accountants

IFMS Integrated Financial Management System

IMF International Monetary Fund

INTOSAI International Organisation of Supreme Audit Institutions

IT Information Technology

ITC Information Technology Centre

LAN Local Area Network

LART Loans & Advances Realisation Trust

LGA Local Government Authority

MDAs Ministries, Departments, Agencies

MPs Members of Parliament

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MTEF Medium Term Expenditure Framework

MANREC Ministry of Agriculture, Natural Resources, Environment and Cooperatives

MCT Ministry of Communication and Transport

MECS Ministry of Education, Culture and Sports

MoF Ministry of Finance (URT)

MoFEA Ministry of Finance and Economic Affairs (Zanzibar)

MCAGG Ministry of State Constitutional Affairs and Good Governance

MHSW Ministry of Health and Social Welfare

MSFRA Ministry of State Special Forces, Regional Administration and Local Government

MTITM Ministry of Trade, Industries, Marketing and Tourism

MYEWC Ministry of Youth Employment, Women and Children

MWCEL Ministry of Water, Construction, Energy and Land

NBAA National Board of Accountants and Auditors

OCAG Office of the Controller and Auditor General

OCGS Office of the Chief Government Statistician

OCs Other Charges

OIC Officer in Charge

PAC Public Accounts Committee

PBZ Peoples Bank of Zanzibar

PC Personal computer

PER Public Expenditure Review

PEs Personnel Emoluments

PMG Paymaster General

PS Principal Secretary

RGZ Revolutionary Government of Zanzibar

SADC Southern African Development Community

SBT Software Business Technology

SVU Stock Verification Unit

TRA Tanzania Revenue Authority

TSAG Tanzania Statement of Accounting Guidance

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UNCDF United Nations Capital Development Fund

UNDP United Nations Development Programme

URT United Republic of Tanzania

WB World Bank

ZIC Zanzibar Insurance Corporation

ZIFA Zanzibar Institute of Financial Administration

ZIPA Zanzibar Investment Promotion Authority

ZPRP Zanzibar Poverty Reduction Plan

ZPC Zanzibar Ports Corporation

ZRB Zanzibar Revenue Board

ZSC Zanzibar Shipping Corporation

ZSTC Zanzibar State Trading Corporation

ZSF&PC Zanzibar State Fuel and Power Corporation

ZSSF Zanzibar Social Security Fund

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Executive Summary

Since the commencement of the Sixth Phase of Government in 2000, Zanzibar has embarked on a number of political, economic and social changes, which are intended to contribute to a more peaceful and stable environment. These changes are seen as essential for the establishment of a strong economy and the consequent improvement of the well being of the people. General relations between the Revolutionary Government of Zanzibar (RGZ) and the Union of the Republic of Tanzania (URT) have improved and in May 2002, the Zanzibar Poverty Reduction Plan (ZPRP) was launched.

A Country Financial Accountability Assessment (CFAA) is concerned with fiduciary risk, the risk that public funds might not be spent on authorized or intended purposes, as expressed in the budget. Therefore CFAAs review the strengths of financial accountability processes in the public and to a limited extent in the private sectors. In Zanzibar, the CFAA has concentrated on the public sector, at both the national and sub- national level. It should be emphasised that a CFAA is an assessment and not an audit; its findings cannot therefore provide complete assurance on the status of financial accountability processes, procedures or systems.

In the past eighteen months, the RGZ has introduced a number of legislative reforms to improve the financial management of public funds and to improve financial accountability and external oversight. In addition, RGZ plans to introduce some elements of a Medium Term Expenditure Framework (MTEF) into the 2003/04 budget process and to establish its own Public Expenditure Review (PER) exercise. It is also currently drafting legislation to establish its own anti corruption and ethics body and to facilitate the application of the Human Rights and Good Governance Act in Zanzibar.

Inevitably, the impact of these legislative changes has not yet been felt, associated regulations have either not been drafted or are at a consultative stage. Consequently there are a number of issues which require urgent attention if the current high level of fiduciary risk to public funds is to be mitigated and financial management and accountability systems, procedures and processes are to become effective.

Union arrangements: The improvement of relations between URT and the RGZ is to be welcomed, however there are now a number of pressing issues which need to be addressed in order to improve financial accountability. These include: i) the establishment of the Joint Finance Commission which is seen to be crucial for ensuring increased transparency and a greater level of certainty in financial relationships between the two governments; ii) improved awareness amongst RGZ and URT officials of the findings of the Shellukindo report and the overall workings of the Union; iii) the development of the capacity of the Union Secretariat to carry out its activities, to support the establishment of the Joint Finance Secretariat and to clarify the roles of other bodies involved in union matters and; iv) the convening of regular Ministry of Finance (MoF)/Ministry of Finance and Economic Affairs (MoFEA) high-level and technical meetings, particularly on budgetary and external finance issues.

Financial planning, budgeting, budget execution and aid management. As noted above, RGZ has recently launched its Poverty Reduction Plan and is intending to introduce both its own PER exercise and to start and implement key components of an MTEF. It is generally recognised however that there are significant challenges ahead not least in improving

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revenue forecasting and improving the co-ordination of aid and external resources. High priority issues identified by this report are:

Planning and resource allocation. The need for: i) comprehensive and costed plans at sector and thematic level, consistent with the ZPRP, these should consider capacity building needs, alternative approaches to improving service delivery and the establishment of monitoring systems; ii) a systematic service delivery and budget performance review exercise, based on the PER to be established in FY 2003/04, iii) internal communications and coordination in the MoFEA, in particular between the Budget, External Finance and Social Sector Departments to be redefined and restructured; iv) a review of the macroeconomic forecasting processes, its timing and the skills required to carry out modelling; v) the preparation of more realistic revenue projections for 2003/04 as until the revenue side of the budget is addressed, the introduction of the MTEF at sector level will bring only continued frustration to the Ministries, Departments and Agencies (MDAs); vi) the establishment of a tax policy unit in the Budget Department, MoFEA and; vii) closer monitoring of retention schemes.

Budget execution. The need for: i) MoFEA to broaden its definition of first charge items to include debt repayment and other statutory expenditures and for MDAs to implement a first charge system of payment on utilities and other regular charges to avoid the further accrual of arrears; ii) the introduction of a stricter commitment control system to prevent the accrual of arrears; iii) the development of clear and transparent rules by the Ceilings committee so that MDAs can understand, and predict, how cuts are to be administered.

Aid co-ordination and external resource management The need for: i) the MoFEA to establish and maintain a Government-wide aid coordination system; ii) the ongoing database exercise to be completed as soon as possible; iii) the establishment of a committee to appraise project proposals and for assessing their consistency with ZPRP priorities; and iv) the establishment of a debt strategy for both domestic and external debt.

Government accounting, financial reporting and use of Information Technology: Public sector accounting and financial reporting has been significantly strengthened by the recent enactment of the Financial Administration Act. This Act attempts to establish a regulatory framework that will improve the transparency and accountability of public sector financial accounting and reporting through: strengthening the management of Government finances; by making Government’s monthly financial reports and individual ministries reports readily available to the general public; and by clearly defining the format of public accounts. Significant steps have also been made in improving asset management. However, lack of financial regulations, inconsistencies and contradictions in the legislation and general lack of awareness of the requirements of the new legislation are currently seriously undermining financial accountability. There also appears to be a serious problem with the accounting for and budgeting of payroll costs, payroll procedures are lax and “ghost workers” are known to exist, there is no unique payroll number and only limited computerisation of payroll records. These issues, have partly contributed to the Government’s loss of control over the civil service wage bill, and have, contributed to the well-known problem of ghost workers in the Government wage bill.

Since payroll costs constitute a large percentage of government expenditure, the current situation represents a situation of high fiduciary risk. The general situation is also exacerbated by the lack of any policy or procedures for records management and the ad hoc

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and limited use of IT systems for accounting and budgeting. High priority issues identified by this report include:

Government Accounting and Financial Reporting: The need for: i) the harmonisation of legislation and the publication and implementation of a comprehensive set of financial regulations including issues such as records/asset management; ii) the implementation of sanctions for non compliance with the new Act; iii) the drafting and publishing of accounting instructions/procedures manual; iv) the adoption of appropriate accounting standards from those promulgated by the International Federation of Accountants and National Board of Accountants and Auditors (NBAA); v) an investigation of current bank accounts and the introduction of improved controls over opening and closing of bank accounts; vi) the transfer of the government’s foreign exchange account to Bank of Tanzania (BoT); vii) a review of current payroll procedures; viii) all bank reconciliations to be brought up to date, including the correction of reconciling differences; ix) the introduction of regular physical verification of assets and adoption of sound stores procedures; x) an actuarial valuation of pre-1998 pension and gratuity and the establishment of appropriate provisions for all pension liabilities in Government and; xi) the improvement of the financial statement preparation process to ensure that accounts are finalized within the statutory time frame.

Use of information technology (IT): The RGZ recognises that modern financial management software packages can significantly improve financial accountability. Indeed it is commendable that the Government has given thought to the implementation of an Integrated Financial Management System (IFMS) to improve the availability of basic financial information, enable the enforcement of greater control on payment procedures and, in particular, compliance with cash limits. It is understood that the vision of the Government is to introduce IFM and Payroll Systems in the MoFEA, 38 Operational Units in Zanzibar and 15 operational units in Pemba and that it envisages that the Platinum ERA software that has been implemented by the URT can be customised to meet RGZ’s requirements. However this approach implies that the RGZ has selected a software solution without setting systems development priorities, in particular a full evaluation of users' needs and for users to be involved in setting the priorities of which applications areas should be implemented first. In order to ensure that the maximum benefit is obtained from the use of IT, it is strongly recommended that there is a need for: i) the establishment of an organized information systems strategic planning process to formulate and maintain a plan that addresses the IT requirements of the Government; ii) the establishment of an executive steering committee with membership drawn from key Ministries; iii) the setting up of an inter-ministerial task force led by the MoFEA to develop detailed functional and technical requirements for the introduction of an IFMS and a human resource system(s) Government-wide and; iv) donor support for the introduction of appropriate financial management and human resource, primarily payroll, systems.

Public sector auditing: Effective and efficient external and internal audit can play a significant role in minimising fiduciary risk. In Zanzibar, both areas require considerable strengthening.

External audit: Recent efforts by Government to improve the legislative framework for external audit and to separate it from the MoFEA clearly show that it recognises the importance of an effective oversight body in mitigating fiduciary risk. However, whilst the proposed introduction of an Audit Services Board with responsibility for pay and personnel

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matters should improve human resource issues, the Office of the Controller and Auditor General (OCAG)’s ability to undertake quality audits is likely to be constrained for some time by relatively low pay levels, lack of qualified staff and general lack of expertise in modern audit techniques. The situation is made more difficult by the lack of financial regulations and the Controller and Auditor General (CAG)’s role in authorising payments from the Consolidated Fund, potentially undermining his independence. These constraints combined with inadequate funds to undertake effective audits means that potentially, public funds could be at significant fiduciary risk. There is therefore an urgent need to: i) review the current draft audit legislation, ensure that it is subject to widespread consultation with key stakeholders and the level of detail contained in the primary legislation reassessed; ii) develop audit manuals; iii) review the organisation structure and resource and staffing requirements of OCAG; iv) improve the quality and timeliness of CAG reports; v) provide on the job training and; vi) ensure independence of CAG from day to day financial activities

Internal audit: Generally Internal Audit is not functioning adequately across the ministries. Internal audit is not clearly established throughout the government ministries and departments and where it is established there are clearly concerns about the effectiveness of its operations. It has failed to establish itself as an important management tool for the Accounting Officers, and at a distance, the Accountant General. Indeed, in most cases the internal audit situation is so weak in itself that it would not be effective with the most responsive of Accounting Officers. There is therefore a need to: i) review the current internal audit arrangements and develop an internal audit strategy to enhance the internal auditing function; ii) revisit the current law and regulations, adopting effective public sector auditing standards, such as INTOSAI, IFAC, IIA iii) recruit qualified staff to meet capacity requirements and; iv) develop an internal audit manual

Legislative scrutiny, ethics and integrity: Participatory democracy is still a relatively new concept in Zanzibar. The adequacy of legislative scrutiny bodies must therefore be seen in this context and the fact that currently there is no effective Opposition.

Legislative scrutiny: Currently parliamentary oversight in the budget process begins at a late stage. The ability of the House of Representatives or the relevant committees to question or influence inter sectoral allocations and ensure that they follow sectoral policy is therefore very limited. The effective scrutiny of actual expenditure is also constrained by inadequate funding, limited technical capacity, late and non user-friendly reports and the current lack of an effective opposition. There is therefore a need to: i) provide independent training in budget and financial matters to Committee members and Committee clerks; ii) improve fund availability to enable Committees to plan and carry out their duties, and; iii) to allow the public access to the workings of some (if not all) Parliamentary Committees.

Ethics and integrity: Worldwide there is a growing recognition of the impact that corrupt activities have on an economy and particularly the poor and the weak. Practically, until the potential cost of participating in corrupt activities is greater than the benefit gained from participation, the mitigation of risk will remain an uphill battle. RGZ is attempting to mitigate the risks from corrupt and unethical behaviour by introducing its own legislation and also enabling the good governance and human rights commission from mainland Tanzania to operate in Zanzibar. In designing this new legislation and other anti corruption activities, it is strongly recommended that i) consultations take place with a wide forum of stakeholders including representatives from relevant bodies in the Union government; ii) that the government orders setting out the conduct of government officials are reviewed,

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strengthened and implemented as inappropriate and outdated disciplinary procedures can seriously undermine public confidence in government and; iii) a public and media awareness campaign is introduced.

Local government financial accountability: There is general agreement that the current institutional and legal arrangements for local government and the delivery of services at a local level are in need of review. There are overlapping and unclear responsibilities between local authorities themselves and with other institutions for example in tax collection and also in relation to planning issues. UNDP/UNCDF support to Government in assessing local government structure and role is expected to begin in early 2003. The CFAA concurs with earlier findings that the structure of local government and its relations to regions, sector ministries and Ministry of State, Special Forces, Regional Administration and Local Government (MSF&RALG) is cumbersome and inappropriate. For decentralisation to be effective in improving service delivery at the local level, it is essential that fiscal, administrative and legislative issues are addressed simultaneously. In addition there is limited understanding of the roles and responsibilities of local government which can lead to abuse of power and potential misappropriation of funds.

The financial management system at the local government level suffers from all the weaknesses witnessed in the central government, like poor record keeping, lack of financial data, weak internal controls, poor revenue management and expenditure control, inaccurate and untimely financial reporting and general under funding. Briefly, therefore it is considered essential in order to improve both service delivery and financial accountability to: i) undertake an overall review of local government and service provision at the local level; ii) review the schedule of local taxes, together with capacity in tax administration in association with any changes implemented by the new Business Trade Licensing legislation; iii) carry out a public budget review process which should, at the end of each year, detail where resources have been directed and what the net result has been; iv) develop Local Government Financial Memorandum at the same time as the overall local government legislative framework is assessed and; v) review the role of internal audit in local government and develop a sustainable and effective means of conducting internal audits.

Public enterprises: As stated in the 2002/3 budget speech the RGZ has been gradually withdrawing from the participation in direct production activities so that it remains with the responsibility of creating an environment conducive to private sector involvement as well as developing the economic infrastructure. The new Public Investment Act and proposals to review investment related legislation including the roles and responsibilities of Zanzibar Investment Promotion Agency (ZIPA) and trade licensing regulations clearly indicate the Government’s intention.

However, the legacy of the past has left many Public Corporations in difficult financial circumstances. Non commercial tariffs, inappropriate staffing levels and unsound business decisions means that a number of Corporations represent a major strain on government resources. After many years of enjoying a monopoly, several others are now facing stiff competition from the private sector. Their ability to survive and provide quality products will depend on their separation from the constraints and bureaucracy of government ownership.

In order to improve both the financial position of the RGZ and overall financial accountability as well as mitigate potentially high levels of fiduciary risk, there is a need to:

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i) hold a Public Investment Act Workshop; ii) develop procedures, rules and regulations for restructuring and the transparent recording, deposit and future disbursement of sale proceeds; iii) review the position of guaranteeing Public Corporation loans in the context of the Government’s wider debt management policy; iv) finalise the situation with respect to the debt restructuring requirements of Zanzibar State Fuel & Power Corporation (ZSF&PC) as well as the longer term restructuring requirements of both Peoples Bank of Zanzibar (PBZ) and ZSF&PC; v) improve capacity of the Public Investment Department (PID) to undertake their role of overseeing the government’s restructuring process; vi) carry out an audit of contingent liabilities, including inter corporation debt and; vii) review all relevant legislation to ensure that there are no obvious contradictions.

Organisational and human resource capacity issues: The successful implementation of public finance management reforms requires that institutions be adequately staffed with appropriately qualified and motivated personnel and organised in an efficient and effective manner in which potential conflicts of interest are mitigated. Currently, low levels of pay and poor working conditions do undermine motivation, can contribute to high levels of staff turnover and reduce the sustainability of training interventions. At the same time, overstaffing/inappropriate staffing and insufficient supervision reduces the efficient delivery of service. The lack of a culture of accountability and enforcement is a serious risk to financial accountability and the successful implementation of any of the financial management reforms. In view of the new ways of working and new legislation, it is considered an opportune time to carry out: i) a review of the roles and responsibilities of the various departments in the MoFEA, ensuring that conflicts of interest are avoided and limited manpower resources are utilised effectively and efficiently; ii) a training needs assessment which reflects the needs of the required posts, not those of the existing positions, whose role may have changed or even become redundant; iii) training of Accounting Officers in their roles and responsibilities and: iv) a clarification of the roles, responsibilities, lines of reporting and accountability for all accountants/budget officers and other finance related staff in line ministries and their training needs identified.

Accountancy and auditing profession: The accountancy profession and in particular its regulatory body, has an important role to play in enhancing accountability, transparency and integrity. A rigorous legal and regulatory framework for the profession provides protection to the public and helps to build business confidence. The absence of a regulator or other enforcement agent who can ensure the observance by its members of the highest standards of professional and ethical conduct potentially exposes the public to high fiduciary risk of non-protection. While it was noted that the Accountant General is currently reviewing the registration and licensing process a number of weaknesses need to be addressed. In the short term, there is an urgent need to review the process of registration and licensing of practitioners and in particular to establish a committee to undertake this process, rather than leave the responsibility with an individual.

Registrar of Companies and Non Governmental Organisations (NGOs): It is widely accepted that NGOs and the private sector are important partners in national development, the promotion of democracy and actual service provision. There is also general agreement that the public should be entitled to know both the sources and utilisation of their funds. The existence of “briefcase” NGOs as well as the failure of a number of high profile companies has raised concerns about the transparency of their operations in the House of Representatives, in the media and amongst the general public. The preparation and presentation of annual reports on activities and audited financial statements is one way of

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ensuring the accountability of NGOs and Companies to their members, shareholders and to the general public. The current lack of up to date information on companies and NGOs and companies operating in Zanzibar coupled with old or non existent legislation means that potentially the publics’ funds are at risk. There is therefore a high priority need to: i) complete consultative process and agree with key stakeholders policy and associated legislation for NGOs; ii) continue developing the database of Companies and update company legislation; iii): establish a committee with representatives from Zanzibar Revenue Board (ZRB), Tanzania Revenue Authority (TRA) and the Office of the Registrar General to facilitate the co-ordination and collection of information on Companies operating in Zanzibar.

Public access to information: The ability of citizens to have the right to receive information and indeed the right to seek and impart information is a crucial component of good governance. Greater dissemination of information on funds and goods received at all levels but particularly the local level and how they are spent and /or distributed could help mitigate misappropriation or misuse of funds. The main constraint is however the public’s awareness of the role that they can play in mitigating fiduciary risk and demanding access to information on public financial management. There is therefore a need for RGZ to i) update some of the current legislation with respect to freedom of information, widespread consultations should take place as soon as possible on this issue; ii) open up to the public and the media the meetings of the Finance and Public Accounts Committee (PAC) unless matters are being dealt with where particular evidence needs to be heard in camera; iii) raise the awareness of the public about their basic right of freedom to access public information and the impact of government activities on their daily lives and: iv) increase access to and availability of information on transfer and use of funds or goods to local authorities, district offices, ministries, departments and agencies.

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1 Introduction

Since the commencement of the Sixth Phase of Government in 2000, Zanzibar has embarked on a number of political, economic and social changes, which are intended to contribute to a more peaceful and stable environment. These changes are seen as essential for the establishment of a strong economy and the consequent improvement of the well being of the people. In May 2002, the Zanzibar Poverty Reduction Plan (ZPRP) was launched, the three key objectives of the accompanying conference were to: i) inform development partners about the political, economic and social situation; ii) advise them of the Government’s plans for reducing poverty and; iii) restore development partner confidence to facilitate their participation in the Plans implementation.

In support of the third objective, the Revolutionary Government of Zanzibar (RGZ) is carrying out jointly with development partners the following: i) a Country Economic Memorandum; ii) a Country Financial Accountability Assessment (CFAA); iii) Public Expenditure Review (PER) diagnostic work and; (iv) Medium Term Expenditure Framework (MTEF) training. The RGZ plans to introduce some elements of the MTEF into the 2003/04 budget process while it also intends to establish its own PER exercise.

A CFAA is concerned with fiduciary risk, the risk that public funds might not be spent on authorized or intended purposes, as expressed in the budget. Therefore CFAAs review the strengths of financial accountability processes in the public and to a limited extent in the private sectors. In Zanzibar, the CFAA has concentrated on the public sector, at both the national and sub- national level. It should be emphasised that a CFAA is an assessment and not an audit; its findings cannot therefore provide complete assurance on the status of financial accountability processes, procedures or systems.

The CFAA in Zanzibar has two key objectives, firstly to facilitate a common understanding by the RGZ and development partners of the country’s financial management arrangements, identifying areas for improvement and reaching agreement amongst key stakeholders on how to take this forward. Secondly, to identify areas where accountability arrangements need to be strengthened and the risks that these may pose in relation to the use of public funds.

RGZ, principally the Ministry of Finance and Economic Affairs (MoFEA) supported by United Nations Development Programme (UNDP), African Development Bank (AfDB) and World Bank (WB) staff and a team of consultants led the CFAA. Consultants engaged by the WB were simultaneously working on procurement issues as part of a Country Procurement Assessment Review (CPAR) in mainland Tanzania and Zanzibar. Reference is therefore made to the outcome of this study where appropriate. However, whilst plans for the commencement of the PER processes were well under way, the CFAA looked briefly at financial planning and resource allocation processes as these issues were considered important to enable the team to have as wide a view of key finance related issues as possible. In order to ensure synergy between the PER and CFAA processes, PER personnel participated in the CFAA. The PER work itself commenced in early December and complemented the work carried out in the CFAA, particularly in terms of quantifying some of the CFAA issues.

The first part of the CFAA study took place in November 2002 and consisted of questionnaires, desk reviews and interviews with key personnel. A workshop is scheduled to take place in mid January to enable key stakeholders to discuss the issues arising from this draft report and develop an action plan based on the recommendations developed by the team. The team would like to express their sincere gratitude to those individuals that participated in the review and in particular to members of the RGZ’s quality assurance country team and its secretariat who facilitated interviews and data collection.

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The remainder of the report is set out below, Section 2 deals with Union matters and Sections 3 – 12 are concerned primarily with the financial systems and procedures of the RGZ. Each Section includes the following; i) a review of the legal and regulatory environment; ii) a description of the actual financial management and accountability arrangements; iii) an assessment of the strengths and weaknesses of the financial management and accountability arrangements and; iv) an assessment of the risks that the financial accountability arrangements may pose to public funds. Although the human resource policies (training, recruitment, promotion, transfer and dismissal) of RGZ are not the core concern of a CFAA, inevitably these policies do affect the adequacy of financial management systems and financial accountability processes. Consequently an assessment of their impact is also included in Section 9.

In developing recommendations due cognisance is given to the relevant international standards and regional initiatives. At this draft report stage, the team’s recommendations have only been prioritised, as noted in an earlier paragraph, it is proposed that at the January workshop these recommendations are discussed and a time bound action plan developed and agreed.

The focus of each of the Sections is given in the table below:

Section Content

2 Union matters with particular emphasis on those, which affect financial and economic relations between Zanzibar and the Union.

3 Budget development its comprehensiveness, realism, classification, and procedures and processes and actual budget execution and monitoring including cash management.

4 Government accounting and financial reporting including internal controls, record management and information systems

5 The scope and adequacy of internal and external auditing processes.

6 The framework for effective legislative oversight and scrutiny and the legal and institutional arrangements for ensuring ethical integrity.

7 The legislative and regulatory framework of local government in Zanzibar and its budgeting, accounting and auditing systems.

8 The financial, reporting and auditing relationships of public corporations and other government institutions with their parent ministries and the MoFEA.

9 An overview of some key human resource and organisational issues as they affect financial accountability and fiduciary risk

10 The role of the accounting and auditing profession in improving financial accountability in the public sector.

11 The procedures for the registration of Companies and Non Governmental Organisations

12 The accessibility of financial management information to the Public.

13 Action Plan

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2 Union arrangements

2.1 Introduction

While Zanzibar retains some fiscal autonomy within the Union, for example raising much of its own revenue and preparing/executing its own budget, there are a range of Union financial and economic issues that are also relevant when conducting a CFAA. As noted in the introduction, this section considers these Union issues, whilst the following sections are Zanzibar-specific. Principally, the issues related to the management of the Union arrangements are:

a) the legislative framework that establishes the fiscal relationship between Zanzibar and the Tanzania mainland;

b) the institutional relationship between the Union and Zanzibar on financial matters, including the status of consultation mechanisms, particularly on budget preparation, legislation and the implementation of matters addressed under the Union Constitution; and

c) operational issues on resource matters. On revenue issues these include: i) tax harmonisation; ii) authority to contract and guarantee both domestic and external indebtedness and; iii) ability to negotiate/mobilise grant funding. On expenditure matters, these include defining responsibility for meeting domestic and external liabilities and status of Zanzibar arrears, e.g. for utilities, and modalities for settlement. On transfers these include the status of cash or in kind transfers for services provided under the Union arrangement.

2.2 Review of the Current Situation

2.2.1 The Legislative Framework

The Act of Union, signed in April 1964 established a Union between the formerly separate states of Tanganyika and Zanzibar. The Act of Union sets out the administrative responsibilities devolved to the RGZ and those that are attended to under the provisions of the United Republic of Tanzania (URT).

Section Five of the Act of Union identifies areas reserved for the Parliament and Executive of the United Republic and these are elaborated in the 1977 Constitution of the URT. Article Four of Chapter One of the Constitution designates two organs, one for the URT and one for the RGZ, in each area of the judiciary, the legislature and the executive.

Zanzibar retains autonomy over all functions, which are not designated as ‘Union Matters’. These Union Matters are set out in Schedule 1 of the Constitution as follows: i) The Constitution of Tanzania and the Government of the United Republic; ii) Foreign Affairs; iii) Defence and Security; iv) Police; v) Emergency Powers; vi) Citizenship; vii) Immigration; viii) External borrowing and trade; ix) Service in the Government of the United Republic; x) Income tax payable by individuals and by corporations, customs duty and excise duty on goods manufactured in Tanzania collected by the Customs Department; xi) Harbours, matters relating to air transport, posts and telecommunications; xii) All matters concerning coinage, currency for the purposes of legal tender (including notes), banks (including savings banks) and all banking business; foreign exchange and exchange control; xiii) Industrial licensing and statistics; xiv) Higher education; xv) Mineral oil resources, including crude oil and natural gas; xvi) The National Examinations Council of Tanzania and all matters connected with the functions of that Council; xvii) Civil aviation; xviii) Research; xix) Meteorology; xx) Statistics; xxi) The Court of Appeal of the United Republic; and xxii) Registration of political parties and other matters related to political parties.

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Zanzibar has its own Constitution, drafted in 1984. This document contains reference to the basic freedoms and is a complete document in its own right, and not a supplement to the 1977 Union Constitution. Indeed, the Union Constitution refers to the 1984 Zanzibar Constitution on matters such as the election of the President of the RGZ and the functioning of the House of Representatives, (see for example, Chapter Four of the 1977 Union Constitution, 1998 version).

Zanzibar does not routinely adopt Union/mainland legislation on non-Union matters. All mainland legislation bears the mark of the URT but this does not mean that it applies to Zanzibar unless it relates to Union Matters as detailed in Schedule 1 of the 1977 Constitution. Although the RGZ may therefore refer to mainland legislation when preparing its own legal documents, Zanzibar produces its own legislation on all non-Union matters.

As such, Zanzibar has its own legislation relating to public finance, procurement, local government and the registration of companies, which are relevant to the CFAA. Some of the pertinent pieces of legislation include:

a) The Constitution of Zanzibar 1984

b) Financial Administration Act No. 8 of 1996;

c) Zanzibar Revenue Board Act No. 7 of 1996;

d) The Regional Administration Authority Act 1998;

e) The Zanzibar Municipal Council Act No’ 3 of 1995;

f) The Town and District Councils Act No’ 4 of 1995;

g) The Companies Decree, 1952; and

h) The Central Tender Board Act No. 5 of 2002

It should also be noted that Union legislation pertaining to Union Matters does not automatically become applicable in Zanzibar, even though Zanzibar is represented in the Union Parliament. Section 132(2) of the 1984 Constitution states that the House of Representatives must first endorse the Act passed by Parliament.

2.2.2 The institutional relationship

Day-to-day management of Union Matters is, under Section 47 of the 1977 Constitution, the responsibility of the Vice President’s Office. On the recommendation of the 1998 Shellukindo Commission, the Union Secretariat was established and tasked with managing relations of mutual interest between the mainland and Zanzibar. The Secretariat, with staff including lawyers, economists, sociologists and a political analyst, is still located within the Vice President’s Office, providing consultative and advisory services to Union and non-Union institutions alike.

The Union Secretariat arranges a programme of twice-yearly meetings on a range of issues of mutual interest between Union and non-Union ministries alike. In the absence of the Joint Finance Commission (discussed below), one such consultation mechanism is a biannual meeting, chaired by the Vice President’s Office, on financial issues. This meeting is thought to have its origins in the Joint Finance Act No. 14 of 1996 (Paragraph 13), which provides for regular meetings between the Ministries of Finance to secure the effective discharge of Union-related matters. The meetings bring together the Ministry of Finance (MoF - URT), the (MoFEA - RGZ), Presidents Office (Planning and Privatisation), Bank of Tanzania (BoT) and the Peoples Bank of Zanzibar (PBZ).

The Union Secretariat also maintains a small sub-office in Zanzibar but financial constraints mean that its operational activities are extremely limited. The Zanzibar office has consulted the RGZ on institutional relations but nothing has so far come of this work. The Zanzibar authorities have established their own Department for Union Matters in the Chief Minister’s Office, which also maintains a Liaison Office in Dar es Salaam. The role of this office is to support and advise RGZ

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ministries in matters relating to the Union, particularly in the relations between RGZ institutions and the Union institutions that are represented in Zanzibar. These include the Ministries of Foreign Affairs and Home Affairs, the Vice President’s office; the Departments of Immigration and Customs, the BoT and the Tanzania Civil Aviation Authority.

The RGZ maintains a number of sector ministries and agencies that have responsibilities that appear to be Union matters. These include the Ministry of Communications and Transport (MCT), which oversees the Zanzibar port. This is managed as a non-Union matter even though Schedule One of the 1977 Constitution implies otherwise. It is understood that because Zanzibar Ports did not come under the jurisdiction of the former East African Ports Authority, they were not taken over by the Union when the East African Community dissolved in the late 1970s. A further example relates to statistics, which are a Union Matter. The Office of the Chief Government Statistician (OCGS) is established under the RGZ but there is uncertainty as to which data they are properly mandated to collect and which should be under the jurisdiction of the Union. In practice, the OCGS appears to be the main collator and collector of statistical data.

2.2.3 Financial Matters

Chapter Seven (Sections 133 and 134) of the Union Constitution provides for a Joint Finance Account and a Joint Finance Commission. According to the Constitution, up to seven members are to be appointed by the President to:

a) analyse revenues/expenditures related to Union matters and to make recommendations concerning the net contribution of each Government to the Joint Finance Account in the Union Consolidated Fund;

b) scrutinize fiscal relations between the two Governments; and

c) discharge other functions assigned by the President.

The Joint Finance Commission Act No. 14 of 1996 elaborates the functioning of the Commission and states that it shall be ‘the principal advisory organ to the Governments on the fiscal system of the United Republic in respect of revenues, expenditure, other moneys payable to the [Joint Finance] Account by each government’. A Secretariat will be appointed to serve as the executive organ of the Commission and this will consist of the following members:

a) a secretary appointed by the President;

b) the Governor of the Central Bank or his representative;

c) the Commissioner General of the TRA or his representative;

d) the Commissioner of the ZRB or his representative; and

e) such other members as the Commission may deem fit.

To date, the Commission has not been established but both Governments have indicated that their nominees to the Commission have been presented to the President and both sides have acknowledged that there is a range of important issues to be discussed. Perhaps the most important amongst these is the status of Zanzibar’s contribution to the Joint Finance Account. Section 115 of the 1984 Zanzibar Constitution states that no funds shall be made available to the Joint Finance Account until the Commission has made recommendations and the RGZ has approved the allocation of revenues and expenditures. Other issues will include arrangements for Zanzibar meeting some share of the Union’s debt service, contributions to Union administered public services (e.g. police, defence, higher education) and the settlement of arrears to utilities (e.g. TANESCO).

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2.2.4 Revenues

Taxes and domestic financing

Revenues collected in Zanzibar, by either ZRB or TRA, are remitted to the Zanzibar Consolidated Fund. This account is now maintained by the BoT, consistent with the Financial Administration Act, (Para 8(1)) but was held with the PBZ until July 2002. The foreign exchange account is still held at PBZ but is in the process of being transferred to the BoT. The Zanzibar Constitution (Section 133) acknowledges the mandate of the Union Parliament to impose any tax related to Union matters provided there is a consultative process involving Zanzibar. Responsibility for the collection of tax revenues is outlined in Table 2.1 below.

Table 2.1. Tax Revenue Collections in Zanzibar

Tanzania Revenue Authority Zanzibar Revenue Board

Customs Department VAT local

Import Duty Excise Duty - Local

Sales Tax (VAT) Hotel Levy

Excise Duty Imports Restaurant Levy

Miscellaneous Customs Tour Operation Levy

Trade Levy Sea Transport Tax

Import Duty Petroleum Revenue Stamps

Excise Duty Petroleum Airport Service Charge

Seaport Service Charge

Income Tax Department Road Dev. Fund

Income Tax Price Deference

PAYE Petroleum Levy

Withholding Tax Price Stabilisation Fund

Other Income Taxes Fuel Sector Dev. Fund

Although the National Assembly, in which Zanzibar is represented, approves tax rates, TRA Zanzibar report that the RGZ has its own mandate to set rates on Union taxes collected in Zanzibar. The RGZ also maintains its regime of tax and investment exemption and incentives. The autonomy of the RGZ authorities to set their own tax rates and exemptions provides them with a degree of flexibility to set rates according to local conditions. Income tax, for example, is covered by the same legislation but different rates are applied. Similarly, petroleum taxes are applied at different rates. Other taxes have been harmonised, however, for example Corporation Tax. With regard to local VAT, although different legislation covers these taxes, the rates have been harmonised. The most significant achievement in tax harmonisation relates to the closure of the ‘Zanzibar route’ in 2001 when import duties, which previously promoted the re-export of goods from Zanzibar, were harmonised. The RGZ has reported a significant loss of revenue resulting from this harmonisation exercise (estimates range between 50 and 60% reductions in revenues) but acknowledges that it is a necessary process. This is indicative of the improved financial relations between the mainland and Zanzibar achieved in recent years.

The RGZ previously had access to an overdraft facility at the PBZ. As part of its commitment to fiscal prudence, this has not been used in recent years. Although as at October 2002 the overdraft of

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TZS 7.2 billion remained with PBZ. The issuance of Treasury Bills is now a domestic financing option for the RGZ and two sales of Bills have so far been conducted in FY 2002/03 for an amount of TZS 2.55 billion.

Fiscal Transfers

The only transfer from the URT to the RGZ that is mandated is the BoT dividend. This is recorded in the Zanzibar budget as revenue from the URT and in 2001/02 was valued at TZS 400 million. Additional to the dividend is a 4.5% subvention of programme grant assistance received by the URT. The basis for the 4.5% subvention is not documented but it has its origin in an agreement between the two governments in the mid-1990s. Eligible grants are non-programme specific and this is thought, at present, to include only the assistance provided through the Poverty Reduction Budget Support (PRBS) instrument. In 2001/02 this amount was set at TZS 6.2 billion and the 2002/03 budgeted figure is TZS 8 billion.

The amount of the transfer is estimated during the mainland budget process based on a strict formula (i.e. 4.5% of programme grants) and is paid gross to the RGZ. To provide some degree of predictability the subvention, once budgeted, is not adjusted by the mainland MoF in light of actual receipts of programme grants, although the Union’s Ceiling Committee maintains the right to do so if disbursements of programme grants fall significantly below projected levels. The subvention is made on the Vote of the Vice Presidents Office but the transfer is made by the mainland Accountant General direct to the RGZ account at the BoT.

External Resource Mobilisation

Authority to contract external debt, as a Union Matter, lies solely with the Minister of Finance of the URT, as provided for in the 1974 Loans and Grants Act. This arrangement will remain unchanged with the new Union legislation that is currently being reviewed. The RGZ had contracted some external debt in the years up to 1993. Since that time, the URT has contracted all debt to the Union and meets all debt service obligations. External debt contracted by Zanzibar directly without a Union guarantee remains the responsibility of the RGZ.

Zanzibar’s MoFEA is able to directly mobilise grant funding although the authority of the URT is required before the signing of a grant agreement. RGZ has made use of this facility to fund approximately one-third of its development budget (the remainder being foreign loans contracted on RGZ’s behalf by the URT, and a small domestic counterpart contribution component). Many development partners include a Zanzibar component in their assistance to the United Republic and this is often not explicitly identified in the Union’s MoF database of external assistance. Similarly, the MoFEA finds it very difficult to record flows of this type of assistance, which are typically channelled direct to the project account.

2.2.5 Expenditure

The Zanzibar budgeting process is covered in Section 3. Zanzibar is responsible for meeting repayments on all domestic liabilities, including utilities and domestic debt service. As stated above, the Zanzibar Constitution precludes any transfer from Zanzibar to the Joint Finance Account until the Joint Finance Commission has been established and deliberated on the matter. Union ministries present in Zanzibar are funded directly by the Union’s MoF, as is the Union Secretariat. The only expenditure item aside from Union matters that is made by the MoF is the 4.5% transfer of programme grants.

2.3 The Union Arrangement in Practice: Assessment of the Current Situation

2.3.1 Legislative Processes

With a few notable exceptions, in both the mainland and Zanzibar, officials who were interviewed readily admitted to the Union relationship being something of a ‘grey area’. In most, but not all,

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cases officials understood the procedures as they directly related to their own work but acknowledged shortcomings with regard to their wider understanding of the Union relationship and the legislative provisions within which they operated.

There has been considerable uncertainty as to the precise coverage and application of a number of Union Matters and other related issues. In an attempt to address these ambiguities and uncertainties, the Shellukindo Commission was established in 1996 to consider major issues of difference between the Union and Zanzibar, including the use of consultative mechanisms to address areas of disagreement. The Shellukindo Report was finalised in 1998 and made recommendations on a number of issues including the establishment of a Union Secretariat. Two other Commissions of Enquiry deliberated on various aspects of Union relations during their reflection on other issues. The Nyalali Commission in 1992 identified legislative ambiguities in the context of making priorities for a shift to multiparty politics while the Kisanga Commission, which completed its work in 2000, considered options for reforming Union relations, leading to an agreement that the current set-up should be preserved.

Many recommendations of the Shellukindo Commission have not been implemented, for example the proposal to discontinue the practice in Zanzibar of passing Union legislation through the House of Representatives for approval/endorsement. The Commission had recommended that improved consultation mechanisms should be institutionalised, including through a Joint Commission on legislative issues, to ensure that Zanzibar’s interests were incorporated at a much earlier stage of the legislative process but this has not been adopted. The RGZ’s Attorney General’s Office, for example, reports that there are a number of Union laws which the Attorney General has been unable to implement in full due to uncertainty on application and coverage. They note that improved coordination would assist in the enforcement of Union legislation as well allowing for earlier consultation on the legal process.

2.3.2 The Institutional Relationship

In interviews with officials from both the RGZ and the Union Government, it was clear that regular meetings and consultations were considered to be of great value but were currently under-utilised. Many officials from both the RGZ and URT, stated that more structured relations would be welcomed, particularly with regard to the planning and preparation of legislation. This view is echoed at a senior level, for example in the Budget Speech delivered in June 2002 by Zanzibar’s Minister of State for Finance in the President’s Office. The Union Secretariat has organised a programme of twice-yearly meetings but, in spite of their acknowledged usefulness, many of these fail to take place, for example between the Ministries of Justice on legislation. The reasons are unclear with officials of each Government claiming their counterpart’s lack of response or a failure to consult on the arrangements for these meetings. The Union Secretariat is of the view that the programmes of meetings arranged by them is not implemented simply because the costs to the ministries involved are too prohibitive. Recurrent resources for these meetings are indeed scarce and competing priorities mean that consultations on Union-related issues are foregone in favour of other activities.

Currently the Union Secretariat is seeking to build its capacity to facilitate consultations between the RGZ and the URT. Areas in which the Secretariat is currently engaged mainly relate to the establishment of the Joint Finance Commission. It expects to support the Joint Finance Secretariat once it is established. Other new areas for their attention include the oil exploration work currently underway in Zanzibar and Pemba and the routine oversight of key Union Matter issues related to defence and foreign affairs. They also facilitate discussion on other matters such as the status and operation of the Zanzibar port, which is operated under the RGZ, and a range of other maritime issues. Even though these are constitutionally Union Matters, this arrangement appears to work to the satisfaction of all parties.

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The institutional arrangements for the Union Secretariat appear to be well established. Their requirements, as articulated in their Capacity Building Proposal, address their ability to organise and finance regular consultations. Beyond these routine tasks, the Secretariat also must move forward with analysis of Constitutional issues and the potential ambiguities identified in the Shellukindo Report. Once fully staffed and equipped, the leadership of the Union Secretariat is confident that it can resolve many of the issues identified or facilitate a solution.

2.3.3 Financial Matters

Both Governments report a marked improvement in information sharing, consultation and cooperation in recent years. This is most evident in the negotiations that lead to the closure of the ‘Zanzibar route’. The programme of meetings between the URT and RGZ on financial matters appears to work very well but both sides appear as noted above to value the prospect of more meetings on technical matters, especially during budget preparation. The current format is wide ranging but does not appear to provide a sufficiently technical forum at which the budget and related issues of revenue, taxation and investment policy can be discussed in any great detail. Pre-budget meetings appear to have become more regular but have not yet become formalised and structured. Longer-term strategic thinking, for example on investment policy, is also an important area for increased cooperation in the future.

The Union Government currently meets the costs of providing all services identified as Union Matters in the 1977 Constitution. This includes, for example, the provision of policing and higher education services. All transfers are made direct to the Union institution or they are channelled through a Zanzibar-based sub-office of the responsible Union Ministry. Chapter Seven of the Union Constitution stipulates that it is the role of the Joint Finance Commission to determine the contribution of each Government to the Joint Finance Account to meet the cost of services provided by the Union, including a contribution to debt service. This will be an important function once it is established. The transfer of the Zanzibar Consolidated Fund to the BoT will also bring greater transparency and efficiency to the management of URT-RGZ financial relations.

The MoFEA have, as of October 2002, identified a debt of TZS 13.6 billion to the URT (equivalent to 40% of domestic debt identified at that time). Recording of the debt guaranteed by RGZ appears to be weak, even though the Commonwealth Secretariat Debt Management System has been installed at the Accountant General’s Department with assistance from the BoT. Although the RGZ no longer directly contracts external debt, there remains some uncertainty over the external debt of public corporations, for which it is understood that the RGZ still provides a guarantee. There is clearly a risk to RGZ and, potentially, to the URT in having neither a comprehensive understanding of the stock of external debt including penalty interest and interest arrears and its amortisation profile, nor of the outstanding debt to public corporations which carries a Government guarantee. The issue of non-Union guaranteed external debt is dealt with further in Sections Three and Four.

Aid coordination and the improved recording of external flows to Zanzibar via the Union Treasury are areas identified as problematic on two counts. First, by development partners releasing funds to the URT (as signatory) and then direct to project accounts. Second, by in-kind provision of development assistance which altogether by-passes the MoFEA. This issue is of importance to both RGZ and the URT: for RGZ, the resolution of this problem would improve planning and budgeting as well as the accounting for development assistance while, for the URT Treasury, it is likely that they currently overestimate the magnitude of external flows by failing to identify the Zanzibar component of Union projects and programmes.

It seems likely that uncertainties regarding responsibility for statistical data collection contribute to, but are not solely responsible for, apparent weaknesses in economic data reporting and analysis. Clarifying the responsibilities of the OCGS would bring some certainty and allow improved systems to be established. Although this is an issue that affects financial management in Zanzibar it will also manifest itself as a problem once the Joint Finance Commission meets to consider the net

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contributions of Zanzibar to the Joint Finance Account as well as assessing the potential liability of the URT for RGZ-guaranteed parastatal debt.

A range of expenditure issues were reported in interviews with officials from both Governments. Perhaps the most significant issue arose in 2001/02 when a revenue shortfall created significant fiscal stress in Zanzibar. This resulted in there being insufficient resources to meet the wage bill and the RGZ approached the mainland Ministry of Finance for assistance. A one-off transfer was made to Zanzibar even though there was no legal or constitutional obligation to do so. Clearly, this presents a risk to the URT in the future and improved communications between both Governments should be established to minimise these issues arising in the future.

The settlement of arrears is also an issue that must be addressed both in the context of utility reform as well as maintaining good relations between the two governments. These include amounts owed by the Zanzibar State Fuel and Power Corporation ZSF&PC to TANESCO, estimated at TZS 34 billion. Currently, ZSFPC pays all current charges but arrangements are yet to be finalised for paying or otherwise settling the outstanding amount. This is discussed further in Section 8 on Public Corporations.

2.4 Conclusion and Recommendations

Whilst it is recognised that there have been significant improvements in the relationship between the URT and Zanzibar, there is still a need to implement many of the institutional arrangements and to improve the capacity of the relevant bodies to carry out their responsibilities. The following recommendations are designed to address some of these key issues.

High priority

The immediate establishment of the Joint Finance Commission is required to bring transparency and clarity to the Union financial relationship. The Commission should focus on clarifying the relationship and the transfers between Governments; debt issues; the potential for parastatal debt to become a liability of the URT; and the settling of arrears. In the longer term the Commission may play a useful strategic role, considering issues of tax harmonisation and the rationalisation of investment incentives.

It is recommended that, parallel to the work of the JFC, more regular and structured technical meetings are held between URT MoF, RGZ MoFEA and BoT. These should address issues relating to transfers, budget preparation, aid coordination and taxation (harmonisation, incentives, exemptions).

Medium priority

Despite the work of the Shellukindo Commission, there is a wide disparity in the level of understanding of Union matters, particularly pertaining to financial issues. It is recommended that the findings of the Commission be made more widely known amongst both Governments and revisited with a view to their implementation.

It is recommended that the Union Secretariat capacity building programme be finalised and then taken forward without delay. The Secretariat must play an important role in providing a clearer perspective on the Union relationship amongst relevant stakeholders. The Secretariat must also oversee the implementation of relevant Shellukindo recommendations, including supporting the JFC Secretariat and identifying ambiguities between the 1977 and 1984 Constitutions, e.g. on the routine application of legislation passed by Parliament.

It is recommended that financial resources be made available in the Union Secretariat budget to allow them to facilitate high-level and technical meetings between URT and RGZ

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MDAs that are identified as priority Union issues of cooperation (e.g. financial, legislative and maritime issues).

Low priority

The relationship between the Union Secretariat and the Department for Union Matters in the Chief Minister’s Office of the RGZ must be clarified and structured, including managing the relationship between institutions with an overlapping mandate and facilitating dialogue on the Zanzibar port and other maritime issues.

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3 Financial Planning, Budgeting and Budget Execution

3.1 Planning and Resource Allocation

3.1.1 Review of the Current Situation

Policy and Planning Instruments

The planning framework is based on the Vision 2020 and, since June 2002, the Zanzibar Poverty Reduction Plan (ZPRP). The two documents are complementary in that the Vision sets out longer term goals while the ZPRP sets priorities and targets towards the implementation and attainment of the Vision. The legislative framework for budgeting and accounting is provided in the Public Financial Administration Act 1996.

The preparation of the ZPRP, which was coordinated by MoFEA, involved a relatively broad based consultation process based on the UN System’s Common Country Assessment, which was conducted in 2000. The ZPRP begins with an assessment of the underlying causes of poverty, both income and non-income based, and its manifestation in terms of social indicators. Notable factors identified in the ZPRP include the poor delivery of public services and concerns about the absence of good governance. The ZPRP then identifies priority areas of action to promote broad based growth and accelerated poverty reduction based on sectors of perceived comparative advantage such as agriculture, trade and tourism. Also highlighted is the need to improve the delivery of social services and to increase transparency and accountability in Government.

The ZPRP’s goals are set out under three broad headings: (i) income and consumption related goals; (ii) quality of life indicators; and (iii) progress on governance. Sectoral growth targets, embodying access to services, are established together with progress required on a range of social indicators. Aggregate targets are to attain a real economic growth rate of 6% by 2005 and, in line with the Millennium Development Goals, to reduce the percentage of people living below the poverty line to 25% by 2015. Priority sectors and activities are identified as: (i) education; (ii) health; (iii) agriculture and natural resources; (iv) infrastructure (roads, water, energy); (v) trade, industry and tourism; (vi) increased community participation in development activities; (vii) democratic governance. The budgets in each of the years 2001/02 and 2002/03 have made reference to these priorities and formed the basis for resource allocation.

Performance Review and Planning

The review of past performance, at both the level of budget execution and sector delivery of services, has not been formalized through a process such as a Public Expenditure Review (PER). The planning process is therefore very much forward-looking in the manner of the Rolling Plan and Forward Budget from which it has evolved. Sector ministries do report on their activities, abstracts of which are presented to the House of Representatives in May/June prior to the approval of the Budget but many sectors do not conduct extensive reviews, which consider performance in any great detail. The MoFEA’s Sectoral Policy and Research Department receives these abstracts and also conducts its own review process, although staffing and capacity constraints preclude this from being comprehensive. Sectors report that, with releases from the MoFEA being so unpredictable and significantly below the level budgeted, they have difficulty in managing even day-to-day operations. The level to which they can implement agreed activities is severely undermined while resources to conduct a proper review are simply not available.

Planning begins each year in mid-November and is coordinated by the National Budget and Planning Committee (NBPC). The NBPC consists of the PS MoFEA; DPS (E) MoFEA; DPS (EA) MoFEA; the Accountant General; the Auditor General; Commissioner, Sectoral Policy; and the Commissioner, Economic Management and Budget. Their responsibilities include: coordination of

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MDA budgeting; review of sector policy papers; review of budget performance; preparation of Budget Guidelines.

The starting point is the estimation of the resource envelope and the establishment of ceilings for the year ahead. The MoFEA develops its own provisional estimate of resource availability based on revenue performance in the previous year (particularly the last six months) together with other components of the resource envelope. Based on this projection and taking account of payroll estimates and the reports received from sector ministries and the MoFEA’s own review process, a process of incremental budgeting then establishes broad sector ceilings.

Plans are well advanced to establish a Medium Term Expenditure Framework (MTEF) exercise but up to now the Rolling Plan and Forward Budget has been produced. MoFEA officials recognized that this was a largely uncosted set of activities that were insufficiently prioritised. A means of linking inputs to outputs was absent while monitoring of the impact of activities was not undertaken in a thorough and comprehensive manner. The MTEF is expected to bring a more rigorous aspect to both macro planning as well as sectoral programming. Priority sectors have received some MTEF training and are expected to reassess their activities in the context of the ZPRP starting 2003/04.

With regard to the mainstreaming of cross-cutting issues (particularly HIV/AIDS and the environment), there is little evidence of this at either the sector or macro level. In consultations, the MoFEA and sector ministries acknowledged that their ability to conceive of issues as ‘cross-cutting’ was limited and that no planning or budgeting for these issues was undertaken. Resources for HIV/AIDS, for example, were directed to the Ministry of Health and the Zanzibar AIDS Commission (ZAC).

The Resource Envelope and Expenditure Programming

There is no formal modelling of macro aggregates such as that done on the mainland where MACMOD and other models are employed. Resources available consist mainly of tax revenues, parastatal contributions, the transfer from the Union government, development assistance and a small component of non-tax revenue. Revenues are subject to wide variation across years and this is considered in the complementary PER work. The largest tax revenue items are import duty, VAT and fuel taxes. There is currently no established practice for determining a target for the fiscal deficit and no analysis has been undertaken regarding fiscal sustainability.

Resources and the size of the expenditure programme are estimated based on past revenue performance, external financing and the ability to domestically finance any deficit. Both the Tanzania Revenue Authority (TRA) and the Zanzibar Revenue Board (ZRB) have revenue raising responsibilities. The Zanzibar Revenue Board Act 1996 sets out the responsibilities of the ZRB while it also provides for the funding of the Board to be met by the retention of a ‘certain percentage’ of the revenue collected by the Board; currently this is set at 5% but ZRB reported that this is arrangement is not adhered to. TRA is a Union institution with its administration funded by the Union.

When MoFEA estimates revenues, they do not appear to consider the likely impact of changes in tax policy or the revenue impact of changes to sector policy and resource allocations, i.e. they are purely backward looking. The main guide employed by MoFEA to forecast the likely availability of resources is the performance of the last six months. This takes no account of seasonality in revenue collection. Revenue collection targets are provided to both the TRA and the ZRB in March and this provides the basis for some discussion. The fact that the Budget Guidelines are by then already at an advanced stage of preparation, however, means that there is little negotiation over the aggregate numbers. On the preparation of the development budget, the External Finance Department produces its own estimates using the information it has to hand from project agreements and correspondence with development partners. This information is often incomplete as communications with donors is irregular and contact with executing agents is not routinely maintained.

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Until the enactment of the Public Investment Act No’ 4 of 2002, parastatals were expected to contribute to the revenue effort through contributions and dividends. . This process caused some concern amongst the Parastatals as they had little negotiating power in establishing the size of the contribution and did not encourage the setting of commercial targets. Contributions were based on budget estimates and therefore did not reflect actual performance, the recent Public Investment Act has changed the contribution so that in the future it is to be based on net profits. The key change is that the funds will be received based on the preceding years performance and not on forecasts of current year. The previous approach caused operational difficulties for even profitable corporations, when faced with a downturn in market conditions.

MoFEA reports that retention schemes for internally generated funds continue to operate despite attempts to control them by insisting that any revenues raised by line ministries be remitted to the Consolidated Fund with an agreed portion, sometimes representing the full amount, returned following the issue of a warrant. In 2002/03, retained funds were identified and budgeted for with releases under the sector ceilings netting out retained earnings. Expenditure of retained earnings still requires a warrant from MoFEA. A widespread practice used to occur with regard to special deposit accounts held by revenue collecting ministries. A receiving account was maintained at ZRB for all Ministry revenues but receipts were felt by MoFEA to be underreported and the use of special deposit accounts, although now against regulations, is thought to continue.

Once ceilings are defined, the NBPC, prepares the Budget Guidelines. Personnel Emoluments typically comprise at least half of total expenditures and are provided by the Civil Service Department. This leaves relatively little to be programmed for Other Charges and domestic development expenditure. The broad allocation of resources by PE, OC and development is summarised in the Table below. It should be noted that Personnel Emoluments includes a number of allowances, some of which will be salary related and some of which may be non salary related, for example attendance at workshops. It could therefore be argued that the figures below overstate the actual size of the wage bill.

Table 3. 1. Actual Budget Allocations 1999/00 – 2001/02 TZS million

Description 1999/00 2000/01 2001/02

TZS Million % TZS Million % TZS Million %

Personnel Emoluments 22,656.5 38% 36,583.5 65% 74,568.4 80%

Other Charges 36,897.2 61% 18,520.2 33% 17,591.8 19%

Domestic Development 843.3 1% 953.4 2% 1,286.2 1%

Total 60,397.0 100% 56,057.1 100% 93,446.4 100%

Source: MoFEA

A contingency item is maintained under the MoFEA’s Economic Management and Budget Department, Vote 19-05-15062 as ‘Government Unspecified Expenditure’. TZS 5.355 billion was budgeted in 2001/02 and this is reported have been made available for national emergencies, such as floods, cholera and food poisoning following the consumption of turtles in Pemba. These funds can only be utilised following approval from either the President or the Chief Minister. They are issued on an imprest basis and are included in the Appropriation Accounts. Their actual use is considered in the complementary PER work.

On resource allocation, the Budget Department of the MoFEA makes a token assessment of previous expenditures, mainly for informing a process of incremental budgeting in the next year. The Budget Guidelines are then issued to spending ministries and Departments in January. In the next month they prepare their budgets and, during this time, limited negotiations with MoFEA may

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take place. Sectors base their annual expenditure plans on ‘sector guidelines’, which are, uncosted 3-5 year plans with no explicit link between years and no requirement to demonstrate consistency with any longer-term objectives. As with the work on ceilings and resource allocations, the MTEF is expected to bring clarity and structure to a medium-term planning process at sector level. Sector budgeting is the responsibility of Sectoral Budget and Planning Committees which consist of the Principal Secretary; the Deputy Principal Secretary, all Department heads; the Chief Accountant; and the Director of Planning and Administration. These are supported by technical drafting teams who prepare sectoral policy papers.

Once submissions are incorporated into the Budget Guidelines, a Directors Committee, comprising MoFEA and sector Ministry Directors of Administration and Planning, review the Guidelines and present them to a committee of Principal Secretaries. This Committee then approves the Guidelines and submits them to the National Planning Commission. This Commission comprises nine members and is Chaired by the President. Other members include the Chief Minister, the Minister of State for Finance and two representatives from Pemba. The role of the Commission is to ensure consistency with the national policy framework, i.e. the ZPRP, before submitting the Guidelines to the Cabinet. Then the House of Representatives Economic and Finance Committee is consulted prior to finalisation of the budget by MoFEA. Other Committees review more closely the proposals of individual sector ministries. The final budget is then delivered to the House of Representatives in June, normally a week before the URT budget is presented to Parliament in Dodoma.

One notable feature of the Zanzibar budget is the provision in the MoFEA Vote (development) for Community-based projects. The Community Development Programme has been operational since 1989 and are administered and monitored by the Sector Policy and Research Department. In 2002/03, TZS 200 million was set aside for these activities, which are used to support local community initiatives in a range of sectors including water, health and education (e.g. classroom construction). Projects typically have a ceiling of TZS 5 million and proposals can be submitted by any community member, usually a representative such as the Sheha, a district official (via the District Development Committee) or a member of the House of Representatives. The Sector Policy and Research Department evaluates applications and approves proposals based on its own criteria as demand far outstrips supply. These projects are monitored during field visits, which typically account for two weeks work every quarter.

3.1.2 Assessment of the Current Situation

Policy and Planning Instruments

The ZPRP provides a firmer basis for programming resources than is provided in the Vision 2020. However clear strategies are not well articulated and the use of indicators is relatively underdeveloped, both in establishing a baseline and in terms of setting targets for medium term activities. Coherent sector and thematic plans have not yet been developed and the costing of activities is still at a very formative stage. The development of comprehensive and coherent sector and thematic plans, including the reform of institutions and for strengthening capacity is required as a basis for further prioritisation and more effective budgeting.

Linked to this is the requirement to develop the ZPRP as a Government-wide programme rather than as a MoFEA project which appears to be the case at present. The ZPRP was only launched in 2002 but there is still a need to disseminate its main objectives more widely to secure increased civil society awareness and participation. Both these measures would broaden the ownership base and increase the likelihood that resources were directed to their agreed use by heightening awareness and expectations. The development of a poverty monitoring system is at an early stage but this can be expected to increase the potential for developing evidence-based sector programmes and a framework for assessing the most desirable set of interventions and activities.

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The ZPRP currently has no resource framework attached to it. The emerging PER and MTEF exercises are expected to address this requirement, identifying resources over the medium-term and providing a mechanism for assessing the performance of priority sectors.

Performance Review and Planning

The planning process is very much forward looking without taking full account of past lessons and experience, both in financial and operational terms. From a medium-term perspective, there is no consideration of fiscal sustainability issues and the Economic management and Budget Department acknowledges that it does not currently have capacity for this type of analysis. In the shorter-term, there is an insufficient mechanism to ensure an objective and thorough review of budget performance and the consistency between budget allocations and priority activity expenditure. Similarly there is insufficient review of service delivery. The extent to which activities are carried out efficiently, or indeed carried out at all, cannot be verified with any certainty. The approach to planning is expected to be reviewed and strengthened over the medium term with the introduction of the MTEF and the first steps are to be taken in the preparations for the 2003/04 fiscal year. This will effectively be the first round of ZPRP implementation although some increased priority sector allocations were made in the 2002/03 budget.

The MTEF process will bring, amongst other things, the opportunity to increase the qualitative aspects of budgeting, particularly in the forecasting of resources and the establishment of the macroeconomic framework. The advantages in both the PER and the MTEF will be in the technical competence that they promote as well as in founding a process of consultation and dialogue. This dialogue can relate to both reviewing the experience of the previous year, based on a PER, and on agreeing the priorities for the year ahead. The unilateral establishment of ceilings, for example, can be replaced by a more consultative process which outlines the aggregate resource envelope but also considers the competing claims of spending ministries, identifying which have the capacity to take forward the ZPRP objectives in the most effective manner.

When budgeting, the absence of a link between review and planning means that sector ministries do not apply any lessons from previous years while the MoFEA, chiefly the Sector Policy and Project Development Department, plays no role in scrutinising budgets for efficiency or effectiveness. Given the cuts experienced by most MDAs and their consequent disenchantment with the budgeting exercise, budgeting has become largely incremental which undermines willingness to review allocations and switch resources, within and across Votes, to ZPRP activities. Furthermore, the capacity to gauge the extent to which expenditure on priority activities is translated into service delivery is weak and will require strengthening. From a ZPRP perspective, this will ensure progress toward the indicators but, from an accountability perspective, it will also ensure that resources are being directed to their intended use. The absence of any review process, combined with weak accountability mechanisms, means that, unless sector ministries support the ZPRP priorities, then there is a risk of funds being diverted to less productive uses.

There is currently no mechanism to consult with elected representatives in the House of Representatives about strategic objectives for poverty reduction and this is an additional area where increased consultation might promote awareness and the accountability of resources. A lack of consultation hinders the ability of MoFEA to objectively assess not only what the appropriate priorities should be but also to identify which institutions are well placed to use resources effectively and efficiently. The ability to ensure maximum impact of the marginal shilling is therefore compromised by a highly centralised planning process, which the MTEF/PER should improve.

Given the gender, environment and HIV-related issues identified in the ZPRP and its underlying analytical work, the current inability to conceive of issues as cross-cutting, or to then translate this into costed programmes which can be budgeted for is a cause for concern. MoFEA, and other MDAs, acknowledge that they have little grasp of effective strategies to mainstream these issues. Although these are issues that other Governments have also grappled with, there is some emerging

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good practice and Zanzibar may need to reflect on this in the context of its own analytical work on HIV/AIDS and the environment. Civil society groups may also have experience in addressing these issues and they may be a useful source of inspiration to Government as it seeks to incorporate cross-cutting issues into sector programmes.

The Resource Envelope and Expenditure Programming

There is clearly a sequencing issue to be addressed in identifying resources and programming expenditures. ZRB feels that the MoFEA modelling process does not take a detailed ‘line by line’ approach, which considers the likely performance of individual revenue items. The performance of the sectors through which most resources are mobilized (agriculture, trade and tourism) are also not assessed with a view to accurately projecting their likely tax yield in the year ahead. It also appears likely that past performance constraints are not adequately considered as revenues are routinely estimated in excess of actual performance regardless of failure to perform to anywhere near target in the previous year (e.g. Hotel and Tour Operation levies collected by ZRB).

The setting of aggregate targets therefore does not take sufficient account of the likely revenue raising potential of ZRB or TRA. The delay in holding these discussions with ZRB until March also means that the Budget Guidelines are at an advanced stage before revenue estimates are finalized and this presents difficulties in adjusting the resources indicated as available to spending ministries and other Votes. The whole modelling process is acknowledged by Government to be unsatisfactory, particularly the way in which it uses only 6 months as the basis for projections of a whole year ahead while each revenue item is not subjected to close scrutiny on both performance and future prospects. The Government is concerned that revenue administration is weak but neither the ZRB nor the TRA appears to have identified specific actions that can address this situation and ZRB has not produced a coherent plan for how revenue performance can be improved over the medium term. Projecting and recording external inflows appears similarly problematic and this is addressed in the Aid Coordination section.

The MoFEA unilaterally establishes sector ceilings and does not prepare a pre-budget report or solicit views from other stakeholders on budget priorities in the forthcoming year. This precludes their ability to consult with elected representatives in the House of Representatives and other Government stakeholders to build a consensus around the ZPRP in light of the necessity to prioritise within the areas already identified as strategic objectives for poverty reduction. The lack of consultation also hinders the ability of MoFEA to objectively assess not only what the appropriate priorities should be but also to identify which institutions are well placed to use resources effectively and efficiently. The ability to ensure maximum impact of the marginal shilling is therefore compromised by a highly centralised planning process.

By creating a parallel fund for community-based projects within the MoFEA there is a risk of distorting the efficient allocation of funds and the effort to ensure consistency with ZPRP priorities. While this is initiative is laudable in its aims, the criteria for identifying projects lacks transparency and no record or analysis of their regional/sector distribution appears to be available. Given the capacity constraints that exist within the MoFEA, it is also unclear as to whether it is the role of this institution to be involved in the management of micro-projects. It may be, for example, that the MoFEA would be more productively employed in high-level planning and monitoring activities while the line ministries should be given full autonomy over a consolidated resource base directed to priority activities in their sectors.

Retention schemes clearly still pose a problem, particularly with respect to special deposit accounts, and there appears to be no effective control mechanism in place. The current arrangement of issuing warrants or netting out retained earnings leaves MDAs with an incentive to underreport their revenue effort, particularly as there appears to be no means of verifying or accounting for the funds received. There is a clear fiduciary risk here and MoFEA should take action, for example to consider closing all unauthorised accounts, a task that should be made easier now that these are mainly with BoT. Monitoring and auditing of remaining authorised accounts should also be

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strengthened. All banks should be advised that they are not to open accounts unless authorised by the Accountant General or the Paymaster General.

Policy and Planning Instruments

High priority

It is recommended that the senior-level Government-wide institutional framework for the ZPRP should be strengthened,

Comprehensive and costed plans at sector and thematic level, consistent with the ZPRP, must be developed, particularly if external resources are to be mobilised These should consider capacity building needs, approaches to improving service delivery, the establishment of monitoring systems and a strategy for improving transparency of the use of resources.

Medium priority

A coherent link between the ZPRP and sector Ministry programmes must be established and strengthened through the emerging MTEF and PER exercises.

Performance Review and Planning

High priority

It is recommended that a systematic service delivery and budget performance review exercise, based on the PER, be established beginning FY 2003/04. This exercise should simultaneously address issues of improved planning, budgeting and financial accountability as well as institutional and organisational capacity.

It is recommended that, as part of the introduction of PER work, line ministries receive training and resources for monitoring and review work.

Internal communications and coordination in the MoFEA, in particular between the Budget, External Finance and Social Sector Departments, should be redefined and restructured. This would ensure that budget planning and preparation can be more effectively undertaken by identifying the external resource envelope and incorporating sector priorities at an earlier stage.

Medium priority

The development of performance indicators, linked to the poverty monitoring system and the work of the OCGS, is required but this will likely be a medium-term activity. Consideration may be given, through the MTEF, to the introduction of performance budgeting elements, linking targets to activities.

It is recommended that the planning process become more consultative. This will overcome line Ministry disenchantment with the budget process (often seen as a spurious exercise given the subsequent cuts that are experienced) and lock in their participation in the ZPRP. These consultations should be embedded from the outset in the PER and MTEF.

The National Budget and Planning Committee should evolve under the auspices of the PER to lead an improved budgeting exercise. This is particularly important given the clear need to bring further prioritisation.

The HoR should be consulted about budget priorities at an early stage in the process (i.e. not just at the approval stage). A pre-budget report would strengthen support for the ZPRP and would increase the ability of the HoR to undertake Committee monitoring work.

The Government at all levels should develop greater awareness of cross-cutting issues and modalities to integrate them into MDA plans. It would be unwise to recommend that these issues be planned and budgeted for until a greater understanding of how this can best be done is attained. The immediate requirement is to think through these issues and to consider how cross-cutting issues can be mainstreamed into sector work.

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The Resource Envelope and Expenditure Programming

High priority

It is recommended that Government redesign the macroeconomic framework and the timing of its preparation. Key MoFEA staff must be provided with the requisite skills in modelling and forecasting.

Government must acknowledge previous failures in revenue performance and prepare more realistic projections for 2003/04; until the revenue side of the budget is addressed, the introduction of the MTEF at sector level will bring only continued frustration to the MDAs.

ZRB and TRA must be consulted at the earliest stage of the budget process to agree revenue projections. MoFEA targets must be realizable and established through a consultative process as per the ZRB Act 1996, Para 8, section c.

Retention schemes must be more closely monitored. There should be clearer guidelines, stiffer penalties and more enforcement to ensure their proper use. Government should close all unauthorized accounts and advise banks that they are not to open accounts unless authorised by the Accountant General or the Paymaster General. Increased public awareness of fees to be charged should be promoted by placing a schedule of fees at all points of service.

A tax policy unit should be established in the Budget Department, MoFEA. This unit should take responsibility for modelling revenues and consulting with the ZRB/TRA as the first step in the budget exercise. Over time, this unit should develop proficiency in tax policy and administration to complement their work in forecasting revenues.

Medium priority

It is recommended that ZRB develop a strategic plan to address their acknowledged capacity constraints. This should address their targets, capacity and organisational issues as well as establish a strategy for widening and deepening the tax base.

MTEF training at the sector level must be consolidated through practical training and provision of the necessary tools, including computers).

Low priority

The Community Development Programme should be reviewed. This instrument is useful for mobilising communities but may be better consolidated at the MDA level. This would bring coherency to planning and bring greater transparency through unified funding and monitoring arrangements. This would also free the Sector Policy and Research Department of the MoFEA from the considerable task of managing and monitoring a series of micro-projects, allowing it to then focus on more strategic activities related to the overall strengthening of the planning and review process.

3.2 Budget Execution

3.2.1 Review of Current Situation

Since approximately 1995/96 the Government has operated a cash budgeting system and this has contributed to narrower deficits and a slower accumulation of domestic debt. Cash flow budgeting is based on revenue performance and revenues have routinely under performed by a considerable margin. Some sectors report, for example, that cuts in releases have become so severe, and have been so prolonged, that budgeting is given little thought (an incremental approach appears to be favoured) as it is an essentially meaningless exercise as regards the planning of development activities and the use to which Other Charges should be directed. OC releases have been severely cut while domestic development expenditure has been almost reduced to zero in recent years. This often includes the release of counterpart contributions that are necessary to trigger the release of donor funds.

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First charge items are Personal Emoluments, some allowances and pensions. No debt (domestic or external) is serviced with the exception of domestic interest on the PBZ overdraft. Local Government subventions, loosely linked to their PE, are also afforded a priority but are not first charges.

Beginning in 2002/03 a Ceiling Committee was established (see Section Four for further details). This monthly meeting comprises MoFEA personnel, ZRB, TRA and BoT. Prior to this, releases were left to the discretion of the Budget Dept and the PS MoFEA. Monthly releases of PE, OC, and development expenditure are made in the first week of each month by effecting warrants and transfers between BoT accounts (see section on Government Accounting in Section 4). The MoFEA receives quarterly cash flow plans from the MDAs and ceilings are then allocated. MDAs are asked to indicate how their ceiling is to be allocated, up to the ceiling of each item before MoFEA issues warrants.

There are no formal rules on how, in the event of revenue shortfalls, cuts are to be made while no OC expenditure item is afforded any protection. Beginning 2002/03, however, particular attention has been paid to offering some prioritisation to priority expenditures (there is no GFS-based classification of priority expenditure items). Reallocations between line items can only be done with consent of MoFEA and this procedure is undertaken routinely under the direction of the MoFEA Budget Department.

There is currently no effective means of controlling MDA commitments, other than to warn MDAS that commitments will be met from their own budgets. This lack of effective control mechanism, combined with the often severe cuts experienced by MDAs, has resulted in a number of MDAs reporting the accrual of arrears to domestic suppliers and utilities. No effective exercise has been implemented to quantify these arrears meaning that the liability of Government is unknown. MDA expenditure reports are sent to AccGen on monthly basis. These are summaries of receipts and expenditures but they are not reconciled with MoFEA flash reports.

3.2.2 Assessment of Current Situation

The severe cuts in Other Charges and development expenditures experienced by practically all sector ministries has not only resulted in the budgeting exercise being spurious, it has also meant that they are able to undertake very few of their intended activities.

The Ceilings Committee is a welcome introduction that has brought greater clarity and transparency to the allocation of funds. The Ceilings Committee does not have full information, however, particularly with regard to retained funds and disbursements of external development assistance (no foreign disbursements were recorded in the first four months of FY 2002/03). MDAs have welcomed the new mechanism and have noted increased funding of OC and domestic development but they have noted that variability in their cash requirements across the year are not adequately taken into account e.g. the payment of examination fees by the Ministry of Education, Culture and Sports.

The limited definition of first charge items undermines fiscal sustainability as it is likely that significant, but unquantified, domestic arrears have been accumulated. The level of budget monitoring, for example in reconciling MDA reports to the AccGen with MoFEA flash reports, has made it difficult to ensure that unauthorized reallocations are not made by MDAs (see Section Four). There is currently no analysis undertaken of budget outcomes, either at the MDA or MoFEA level.

3.2.3 Recommendations

High priority

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The MoFEA must broaden its definition of first charge items to include debt repayment and other statutory expenditures. Similarly, MDAs must be instructed to implement a first charge system of payment on utilities and other regular charges to avoid the further accrual of arrears.

A stricter commitment control system should be introduced to prevent the accrual of arrears and the unauthorized reallocation of funds. Punitive actions should be applied where compliance is not forthcoming.

It is recommended that expenditures for ZPRP-related activities be assigned some form of priority status and protection. Clear rules should be developed by the Ceilings committee so that MDAs may more clearly understand, and predict, how cuts are to be administered.

Medium priority

It is recommended that capacity to implement and utilize a computerised financial management system be developed and consideration given to the establishment of automatic commitments control mechanisms within the system .

The cash flow committee should take greater note of MDA cash flow plans. These plans should be prepared annually and updated on a quarterly basis.

It is recommended that the External Finance Department’s efforts to capture disbursements of external resources be systematically linked to the Budget Department’s information system.

An improved system of identifying an external financing pipeline system should be developed to anticipate shortfalls in development assistance.

Low priority

Priority expenditures should be identified using the RGZ GFS-equivalent system In the longer term, RGZ should adopt the GFS classification system and develop capacity for

budgetary analysis.3.3 Aid Coordination and External Resource Management

3.3.1 Review of Current Situation

Many development partners, mostly from the OECD countries, suspended their provision of assistance to the RGZ after the 1995 elections, either withdrawing from the Isles completely or providing assistance through the United Nations (UN) or Non Governmental Organisations (NGOs). Aggregate flows of assistance to the Government have remained relatively high. Excluding the 4.5% of programme grants to the Union, which are provided to Zanzibar, budgeted external flows, are estimated at TZS 31.6 billion in 2002/03. This represents an increase of two-thirds compared to the 2001/02 figure, and, at approximately USD 30 per capita is equivalent to receipts on the mainland.

Table 3.2 Total Budgeted External Development Assistance to RGZ, TZS billion

1999/00 2000/01 2001/02 2002/03

Grants 5.37 7.46 6.0 10.26

Loans 6.56 8.29 12.98 21.34

Total 11.93 15.75 18.98 31.60

Source: External Finance Dept, MoFEA

There are 37 projects/programmes recognized by the MoFEA in Zanzibar, as recorded in the 2002/03 budget. Although the precise number is subject to verification as part of the ongoing database exercise. Based on known projects, infrastructure accounts for over 40% of all recorded development assistance to Zanzibar, mainly roads but also power and the airport runway. Education (25%) and health (12.5%) are the next largest recipients.

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Government has no strategy, similar to the Tanzania Assistance Strategy (TAS)on the mainland explicitly guiding the use of external assistance. Instead it makes reference to the ZPRP to indicate areas, if not modalities, of desired assistance. This is particularly true for those partners who are considering returning to Zanzibar. They have been encouraged to use the ZPRP as their main point of engagement. The Vision 2020 is thought to be too broad and with insufficient prioritisation to serve as a basis for external assistance.

Loans and External Debt

Zanzibar has no authority to contract external debt as this is a matter prescribed to the Union under the 1977 Union Constitution. Many of the loans negotiated by the Union Government, however, have a programme of activities to be implemented in Zanzibar and, where this is the case, the RGZ is involved in these negotiations. This function is primarily performed by the External Finance Department of the MoFEA. There are also cases of loans contracted exclusively for Zanzibar and, once again, the RGZ is represented throughout these negotiations. All loans contracted by the URT on behalf of RGZ are formalised in a Subsidiary Loan Agreement.

All external debt contracted since 1993 has been guaranteed, and serviced, by the Union Government. The RGZ had contracted some external debt in the years up to 1993 and is responsible for servicing this component of the debt stock. Of the total USD 58.7 million debt outstanding in October 2002 with USD 46.1 million (78%) guaranteed by the Union Government. The main creditors are AfDF (47%), IFAD (10%), IDA (9%) and OPEC Fund (7%). Of the remaining debt not guaranteed by the Union, nearly all is contracted with the Government of China and other Chinese parastatals (the RGZ had cleared USD 24.5 million in early 2002 through the writing off of a Chinese loan under HIPC). MoFEA has considered a World Bank-supported buyback arrangement but this is yet to be finalised.

Since 1995/96, the Government has not serviced its external debt obligations and has not fully recorded interest arrears or penalty interest. The debt stock may therefore be somewhat higher than that recorded by the RGZ Accountant General’s office. There is no debt strategy for repaying or negotiating rescheduling/cancellation while a Debt Sustainability Analysis has not been conducted. Preliminary analysis undertaken in complementary PER work indicates that the debt stock is not unsustainable in terms of conventional ratios.

Grants

Zanzibar’s MoFEA, through its External Finance Department is able to mobilise grant funding, although the URT must be consulted and informed. The RGZ has made use of this facility to fund approximately one-third of its development budget. The remainder is foreign loans contracted by the URT and a small domestic counterpart contribution component.

Resources are secured by a number of means. First, sectors may approach donors directly or ask the External Finance Department to negotiate on their behalf. Second, the External Finance Department initiates the negotiations with donors based on identified ZPRP priorities. Finally, the External Finance Department receives a number of donor missions in which funding opportunities are presented and negotiated.

The appraisal of grant-funded projects is not undertaken in any structured manner; donors may undertake their own appraisals but Government has no equivalent independent mechanism. Sector ministries are encouraged to appraise programmes but have noted that they are not technically equipped to do so. , The Commissioner, External Finance Department of the MoFEA therefore makes the final recommendation on all external projects as no development committee exists at which project proposals can be objectively appraised and discussed.

Recording and Monitoring of External Flows

Recording external flows is the responsibility of the External Finance Department, MoFEA. A database is maintained but it is felt to be incomplete with respect to coverage of all projects as well

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as to the data on individual projects. Agreements are also kept in the External Finance Department although in many cases, particularly for grant-financed projects, disbursement applications and notices are sent direct to the implementing agent and are not always copied to MoFEA. Direct payments by donors to the providers of goods and services are particularly difficult to capture. Where donor reporting is practised there is no common format and, aside from a short section in the Budget Speech, the MoFEA produces no regular summary report on the use of development assistance. The External Finance Department also participates in some project procurement exercises. In the absence of a Central Tender Board, ministries form their own procurement committees, which are supposed to include External Finance representation. Due to staffing and capacity constraints, however, this is often not the case.

Physical monitoring of project activities is the responsibility of the Sector Policy and Research Department of the MoFEA. Quarterly monitoring visits are made to projects to assess progress in implementation and a report is then presented to the National Planning Commission. There is no financial reporting conducted during these monitoring missions while the expertise and staffing of the Department restricts the scope and degree of monitoring activities.

The External Finance Department provides data to the Budget Section for the preparation of the budget. The External Finance Department bases its projections on agreements and other correspondence rather than direct communication with donors and/or MDAs. Grants received from URT projects, for example, are often excluded from the estimates. There are currently very weak links between line ministries and the MoFEA on reporting on receipt and expenditure of project assistance, meaning that the Development Budget estimates are incomplete while disbursements are not recorded by MoFEA.

3.3.2 Assessment of Current Situation

The most serious issue to address with regard to the use of external assistance relates to the by-passing of the MoFEA in projecting and recording the disbursement of project funds. This problem has its source in a number of factors: (i) URT MoF does not routinely share information with RGZ on external finance; (ii) MDAs in Zanzibar do not share fully the information at their disposal; (iii) RGZ does not maintain active contact will all of its development partners; (iv) MoFEA does not yet maintain a database of all external assistance that would enable them to proactively acquire improved data. Information sharing in the RGZ is therefore in need of significant strengthening. This is evidenced by the fact that MoFEA do not have a centralised record of all projects under implementation even though the Paymaster General and the AccGen must sanction the opening of project accounts. Furthermore, there is no operational system for capturing funds, which are paid by donors direct to suppliers of project goods and services.

There is effectively no pipeline through which external resources can be projected although sector ministries are requested to file returns on disbursements for retrospective recording, a practice which sector ministries, by their own admission, comply with only loosely. This undermines the ability of the MoFEA to plan comprehensively based on the use of all resources available, thereby jeopardising the consistency of domestic expenditures with external assistance e.g. in ensuring recurrent resources are set aside to safeguard the sustainability of aid-financed projects.

This by-passing of the central budgeting system also means that the External Finance Department and, more importantly, the Accountant General, are often unable to ensure compliance on reporting and accounting for use of funds. This also creates inefficiencies in budget execution, as resources available to the Government are not brought to the attention of the MoFEA. In situations where counterpart contributions are required this can affect the smooth implementation of project activities. With regard to the ZPRP priorities, the ability of line ministries to source and negotiate their own grant funding before presenting the proposals to MoFEA for endorsement and without due reference to the ZPRP, could lead to the undermining of the overall prioritisation in resource

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mobilisation that the ZPRP requires. As such, there is no guarantee that the project portfolio will reflect ZPRP priorities.

There is a clear fiduciary risk in the current arrangements when neither the MoFEA nor the Auditor General are informed of external resources. . It is understood that there are serious concerns about the procurement arrangements and until the Central Tender Board is established, ministries will undertake these activities themselves with few external checks and balances other than those imposed by the donor. Since Zanzibar has been included in the Country Procurement Assessment Review (CPAR) for Tanzania, any recommendations on Procurement will be included in that Review.

The new Access-based database, which is currently being designed, should provide a basis for addressing many of these problems. It is intended that it will provide full information on the funding of projects and will be accessible to a wide range of Government institutions. More important, however, is the need to ensure an improved flow of information, based on an improved institutional structure, so that data can be made available for recording, accounting and monitoring purposes.

The exchange of information between the MoFEA and executing ministries is not effectively organized or coordinated meaning that the complementarities between Government and foreign resources cannot be assured. Given that line ministries may face a reduced allocation of domestic support if the full extent of external assistance to them was known, there are added incentives for project executing agencies to delay or avoid reporting to the MoFEA. The result is that counterpart funding is often not budgeted for, resulting in delays in implementation. Similarly, NGO executed projects, which have become increasingly important in Zanzibar over the last decade, are not recorded meaning that these activities cannot be taken into account to promote an optimal allocation of Government resources both within and across sectors.

Many development partners include a Zanzibar component in their assistance to the URT and this is often not explicitly identified in the Union’s database of external assistance. Similarly, the RGZ MoFEA finds it very difficult to record flows of this type of assistance, which are typically channelled direct to the project account by the donor. In the case of loans, disbursements by the donor to the project are notified to the URT, as signatory, but not to the RGZ. This presents problems to the MoFEA who are unaware of funds provided direct to project accounts but also to the Union Treasury, who may overestimate resources available to them, by failing to net out funds intended for RGZ. Increased consultation between the URT Treasury and MoFEA has been established but no systematic exchange of information has been implemented.

At the project appraisal stage, there appears to be little capacity to assess relative priorities and to gauge the extent to which a proposal offers the most desirable option for effectively attaining the targets identified in the ZPRP. The efficient and transparent use of external resources, within and between sectors, cannot be assured in the absence of a higher-level mechanism for reviewing and appraising all project proposals. Resource starved Government institutions may also accept without question the offer of project assistance as this allows them to ‘projectise’ their recurrent expenditures. The result is that externally supported projects will not have their desired impact on poverty as funds may be used to fund the day-to-day operations of Government. This is particularly significant for loan-financed projects which result in a future cost on RGZ and are expected to have a positive rate of return. Debt management is mainly the responsibility of the Accountant General’s Department but the External Finance Department should play a role in developing a debt strategy and in establishing criteria for accepting new loans contracted through URT, perhaps as a component of a more general strategy which defines the role of external finance in the implementation of the ZPRP.

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3.3.3 Recommendations

High priority

The MoFEA should establish and institutionalise a Government-wide aid coordination system. This will ensure full recording and accounting of external resources. The system should operate on at least five levels: between RGZ and URT; between RGZ and donors; within RGZ (ministries, MoFEA, Accountant General, Auditor General); within MoFEA (External Finance, Budget, Planning); and, between RGZ and NGOs.

It is recommended that the ongoing database work become operational as soon as possible. This must be viewed in the context of a wider system for aid coordination which institutionalises links between MoFEA, the AccGen, MDAs, the URT and NGOs. Regular consultations between MoFEA and the URT and development partners will ensure funds channelled direct to project accounts as well as in-kind support are routinely recorded by MoFEA.

A central and consultative committee for appraising project proposals and for assessing their consistency with ZPRP priorities should be established to ensure efficient and appropriate mobilisation of external support.

Capacity to record external assistance must also be strengthened at MDA level. Where MDAs anticipate adopting some form of sector approach, they must take the lead in coordinating donor support and in establishing effective communication links between donors and MoFEA.

A debt strategy should be devised to ensure the proper management of public debt and the pursuit of potential options for settling/rescheduling/cancelling. This should apply equally to domestic debt

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4 Government Accounting, Financial Reporting & the Use of Information Technology

4.1 Government Accounting, Record and Asset Management

4.1.1 Review of the current situation

Legislative And Regulatory Background

Chapter Seven of the Constitution of Zanzibar 1984 sets out the financial provisions relating to RGZ. In particular Section 104 provides for a Consolidated Fund and requires all revenues to be paid in to this fund. Section 104, also, allows revenues received by RGZ to be kept in a special fund or retained in local or foreign banks under provisions made by or under an Act of the House of Representatives and permits withdrawal of money from these public funds under authority of the Government or by a law enacted by the House of Representatives.

The Constitution establishes an audit oversight of Government finances through appointment of the Controller and Auditor General (CAG).

The first comprehensive law on financial accounting and reporting, The Financial Administration Act1 (FA Act), was passed by the House of Representatives in 1996 but only received Presidential assent in September 2001. The FA Act repealed the Treasury Instructions2, Audit Decree No 3 of 1965, Budget Decree No 2 of 1965, Principal Accountant Order, Cash Budget Instructions and all other Financial Acts3 that were applicable to the RGZ (Section 84).

Section 3 of the FA Act, require that all revenues be paid to the Consolidated Fund with the same exceptions as the Constitution. Section 4 of the FA Act provides for appointment of a Paymaster General (PMG)4. Section 6 of the FA Act provides that the PMG ‘shall receive all public and trust moneys payable into the Consolidated Fund, provide secure custody for these moneys, and make disbursements on government behalf’ in accordance with or under the FA Act or any other legislation. The Act prohibits opening of any account in any bank without the authority of the PMG. All disbursements have to be made from the Consolidated Fund in accordance with Appropriation Act and all unspent balances of an appropriation lapse at the end of the financial year (Section 24). Classification of accounts is to be the same as in the budget and no business can be transacted without an account number being assigned to that classification by the PMG (Section 40). The FA Act provides for drawing up annual accounts within 4 months of the close of the financial year, i.e. 30th June, on the basis of annual reports sent by the heads of all ministries/departments.

The FA Act is only an enabling legislation. Draft regulations, The Financial Administration Regulations, 2002 (FA Regulations), have recently been developed for discussion. Once the consultative process has been completed, the FA Regulations will require approval of the Minister in charge of Finance ( Section 85). The FA Regulations will provide a framework for the implementation of the FA Act, carrying forward the emphasis on the authority of the House of Representatives and limiting the ability to vire5 funds.

The proposed FA Regulations provide for tighter control and management of public finances by introducing the concept of responsibility and accountability, defining public accounts and setting out procedures for receipts as well as expenditure. Currently, however, in the absence of any other

1 Financial Administration Act, 1996 (Act No. 8 of 1996)2 Treasury Instructions, Store Rules and Audit Instructions came into force on 1st January 1965.3 Although the Financial Administration Act mentions repealing of other Financial Acts, no such laws specifically dealing with financial accounting and reporting were brought to the notice of the team.4 Principal Secretary within the Ministry responsible for Finance as stipulated under the constitution.5 Virement is the right of spending agencies to use money on underspent budget heads for purposes other than those originally intended.

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regulations, Government accounting procedures continue to follow the old Treasury Instructions despite their repeal.

Virement within the overall appropriation of a Ministry will be permitted with the prior approval of the PMG6. Virement beyond savings can only occur through a Supplementary Appropriation Bill. An Accounting Officer of a Ministry will not be authorized to spend beyond the warrant, general or special, and will be personally responsible for any excess expenditure.

Until the passing of the FA Act, only budgets and the CAG’s report were laid before the House of Representative, and thus came into the public domain. Section 41 of the FA Act now requires a monthly statement of public accounts to be prepared, signed and published in the Government Gazette. In practice, this provision has not been implemented and the draft FA Regulations do not contain any specific reference about ensuring that the public have access to the Government’s financial reports.

There is no manual on accounting procedures and it will be possible to produce one only after the draft FA Regulations are approved.

Accounting Policies and Standards

The Government accounts are maintained on a cash basis, i.e. revenue and expense are brought to account when received and paid respectively. However, Rule 56 of the FA Regulations now requires non-cash based items like hidden costs (subsidies in services offered by the Government) and depreciation to be reported in addition to cash transactions. In addition, the draft Regulations require the reporting of contingent liabilities and arrears of revenue.

There are no authoritative national financial reporting and accounting guidelines and/or standards for the public sector that have been issued by RGZ or a professional accounting body. However, the draft FA Regulations (Rule 55[4]) require financial accounts to be prepared in accordance with Generally Accepted Accounting Practices as well as instructions issued by the AccGen and significant departures thereon be reported.

Accounting Classifications

Accounting classifications lack consistency over time. For example, the Recurrent Revenue Estimates highlight that the Ministry of State Planning and Investment collected TZS 0, TZS 128 million and TZS 0 in 1998/99, 1999/00 and 2000/01, respectively. Similar inconsistent patterns of revenue receipts are apparent in many line ministries. The Recurrent Expenditure Estimates in Annex A highlight similar trends.

The extent to which these inconsistencies are caused by either unreliable accounting systems and procedures or the existence of a number of Ministries/departments with similar portfolios and mergers/closures of some is unclear. There is, for example, a Land and Environment Commission whose activities appear to be related to two different Ministries, namely, the Ministry of Agriculture, Natural Resources, Environment and Cooperatives (MANREC), and the Ministry of Water, Construction, Energy and Land (MWCEL). Tourism and youth are, also, each mentioned in the name of two separate Ministries/departments.

Treasury And Bank Accounts

Each Ministry/department has a treasury function that is headed by an Accounts Officer and that manages payments made through its bank accounts. The Treasury Instructions of 1965 (repealed, but still under use) authorizes Accounts Officer to execute and record all financial transactions, keep custody of the supporting financial voucher/records, and prepare financial reports for the Accountant General. The Accounts Officers have a functional reporting responsibility to the Accountant General but administratively, report to the head of the line ministry. Currently,

6 Rule 49 (1) does not specifically mention the authority whose prior approval is necessary. It can be inferred that such authority vests in the Paymaster General.

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treasuries make centralized payments for the entire Ministry/departments unlike in the past where sub-entities, like in Pemba, had sub-treasuries that received funds from line Ministries/departments and made direct payment. In the absence of approved financial regulations, the Treasury Instructions, also, inform the manner under which Ministerial/departmental imprest accounts are managed. The RGZ has 127 bank accounts of four main types, namely, Recurrent Expenditure, Recurrent Revenue, Development Expenditure and the Miscellaneous Deposit account. All payments to and from the Consolidated Fund are made through these accounts. Banks are prohibited from opening accounts for the Government without the authority of the PMG [Section 8(2) of the FA Act].

The proposed FA Regulations seek to control of treasury operations more effectively. The FA Regulations propose to permit opening of deposit accounts with the approval of the AccGen (Rule 129) while the FA Act requires approval of the PMG for opening any bank account. Some ministries hold accounts outside the exchequer system for funds received directly from donors. Rule 162 of the proposed FA Regulations provides for reconciliation of every bank account at least monthly and copies of the reconciliation statements to be sent to the AccGen. Currently the bank reconciliations are neither prepared timely nor are unusual items on such reconciliations reported to the AccGen for follow up.

All accounts with PBZ, with the exception of foreign exchange account, were transferred to BoT by September 2002. Foreign exchange account of RGZ remains with PBZ and, therefore, does not come under BoT’s direct control. As discussed in Section 8 on Public Corporations, PBZ is due to receive assistance to enable it to restructure under a World Bank funded project.

Because of the recognition that control over treasuries are weak, the FA Regulations seek to improve controls over revenue receipts, payments and imprest accounts by, for example: i) the prompt banking of receipts; ii) clear designation of responsibilities and accountability; iii) improved reporting requirements; iv) proper maintenance of receipt registers, licences and other financial documents and; v) ad hoc checking by senior officers.

Ceiling Committee

In view of severe cash shortages, a Ceiling Committee, chaired by the PS, MoFEA was set up in July 2001. The other members of this committee are: Deputy PS, Economic Affairs; Deputy PS, Expenditure; AccGen; Assistant Accountant General; Commissioner, Budget Department; Assistant Commissioner, Budget Department; TRA; BoT; Commissioner, External Finance; Commissioner, Sectoral Policy; Director, Small Scale Projects and ZRB.

A financial statement is prepared every month on the basis of inputs from the ZRB, TRA and BoT. The Ceiling Committee then arrives at a forecast of cash receipts available for disbursement. Based on this information, the Committee fixes ceilings of expenditure for each Ministry giving first priority to payment of salary and allowances7 to Government employees. The BoT only honours cheques that are within the set cash limits of each Ministry. However, the Committee is not provided with sufficient information to enable it to verify whether each ministries’ expenditures are within the approved Appropriations before setting the cash limits.

Payroll

On recruitment of a Government employee by Ministries/departments, a personal file is opened and the employee issued with an employee number from a series of numbers allocated to the Ministry/department by the Department of Civil Services. The personnel file is sent to subsequent Ministries/departments on employee transfers along with Last Pay Certificate to ensure that personnel records of the employee are kept up-to-date and that salary is drawn only from the transferee Ministry/department. A major shortcoming of the employee personnel number allocation

7 According to ZPRP, personnel emoluments and allowances comprise approximately 60% of the RGZ’s recurrent budget.

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process is that personnel numbers do not remain unique throughout an employee’s employment period in the public sector. This is because on transfer to a different Ministry/department the employee is issued with another personnel number. Also, a centralized database of Government employees does not exist. These issues, have considerably undermined controls over the Government’s civil service wage bill, and have, contributed to the well-known problem of ‘ghost workers’ in the civil service wage bill.

The Government has a fully decentralized, mainly manual, payroll preparation and payments processing. As a short-term measure, ZIFA has developed a software package for payrolls, which is currently being used by the Ministry of Education (for all its 7000 employees) and is, partly, also used by the MoFEA. There is general awareness in the Ministries/departments for need to acquire a computerised payroll package and eliminate the problem of ‘ghost workers’. The use of “clusters” to make payments to teachers, which relies heavily on the integrity of headteachers is open to abuse and misappropriation of funds. This is particularly true given the lack of effective internal and external audit.

Loans to Employees

Loans to Government employees are made directly by the MoFEA irrespective of the place of work. The loans granted are then recovered from employee salary by the Ministries/departments on written advice from the MoFEA. There are instances of some ministries not making recoveries in spite of such requests. It is anticipated that the follow up of recoveries by the MoFEA should improve once the exercise of creating a computerized loans database by the AccGen’s office is completed.

Government Debt

According to the Constitution, the interest on public debt, sinking fund payments, redemption moneys and the costs, charges and expenses incidental to the management of the public debt is a statutory expenditure and, therefore, a charge on the Consolidated Fund. In practice, interest on Government debt is accounted in an ad hoc manner, neither on an accrual basis nor on a cash basis. The RGZ has borrowed TZS 2.5 billion from the Zanzibar State Trading Corporation (ZSTC). The debt was not serviced until FY 2001-02, when it was converted into Treasury Stocks with a coupon rate of 14%. Interest has not been paid on these stocks but has been provided for in the budget on ad hoc8 basis. BoT issued a Treasury Bills for TZS 1.2 billion with a tenure of 12 months through open tenders published in newspapers. A sinking fund account for the redemption of the Treasury Bills is yet to be opened although the funds required have been provided for in the budget.

Government Guarantees

Government guarantees were not required by law to be approved by the House of Representative until the FA Act was enacted. To date, despite this statutory requirement, no Government guarantee has been presented to the House of Representatives for approval. Additionally, MoFEA does not maintain adequate records of Government guarantees and neither does it disclose guarantees in Government financial statements. For example, the Ministry of Health & Social Welfare (MHS&W) confirmed that guarantees worth TZS 1509 million were issued to contractors but have not been reported to MoFEA. Other guarantees that have not been reported to MoFEA are those relating to loans granted directly to projects by donor agencies. However, the AccGen’s office is aware of one guarantee of 160,000 USD that has been issued, by the Government, on behalf of Zanzibar Shipping Corporation (ZSC).

8 Interest on the Treasury Stocks is calculated on the basis of the coupon rate, however the amount provided in the budget is not related to this calculation.9 Ministry of Health has given the following guarantees: TZS 60 million for social homes, TZS 34 million for College of Health Sciences, TZS 4 million for repair of the Referral Hospital, TZS 52 million for Preventive Department – West District Project

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Pension

The Department of Administration and Planning within the MoFEA deals with maintenance of the Main Register of Pensions and Gratuity, and monthly pension payments and performs coordinating role on social security matters. The employees and employers contribute 5% and 10% of employee’s basic salary, respectively. There has been no actuarial valuation of the pension payable to Government employees up to 1998 and the extent of this liability is not known.

Zanzibar Social Security Fund (ZSSF), a trust, was created by an Act of the House of Representatives in 1998. The trust inherited all the employees of the Government but did not inherit the funds. Employees who joined the Government prior to 1998 will receive pension from two sources: for the period up to 1998 from the MoFEA and, for the period after 1998, from ZSSF. Actuarial valuation of the pension liability of ZSSF for the post-1998 period has recently been completed.

While employees’ contribution to the ZSSF is remitted promptly, there are long delays in remittance of Government’s contribution because of shortage of funds. Consequently, RGZ has been issued 12 penalty notices10 under the ZSSF Act. ZSSF receives subsidies from the RGZ to the extent of 50% of its employee’s wage bill. The present Chairman is a retired politician while the Managing Director is a serving civil servant in the MoFEA. There is a vacant position of a representative of employees on the Board of Trustees. Also the Director of Pensions is not represented on the Board. Consequently, ZSSF does not appear to be independent from the Government.

There are no guidelines on investment of funds of the ZSSF. Its current funds are invested in Treasury Bills, Fixed Deposits with banks and in real estate. The main source of income has been investment in fixed deposit of the Peoples Bank of Zanzibar (PBZ) that is currently experiencing financial difficulties.

ZSSF allots a Social Security Number (SSN) to all its members. The structure of the SSN 11 is simple and captures name of the employee, date of birth, sex, religion and Post Office Box number.

Public Investment

The Accountant General keeps record of sale of public investment. The Zanzibar Dairies Corporation was divested for 200 million TZS of which 100 million TZS has been received. This money that was initially kept in a deposit account and then transferred to the Consolidated Fund has been spent on a housing project. There are currently no instructions on the accounting of sale proceeds of public corporation. The section dealing with Public Corporations also highlights the lack of adequate procedures for accounting for sale proceeds and other divestiture issues.

Development Expenditure

Internally funded development expenditure is accounted for in the same manner as recurrent expenditures. Projects with special bank accounts are normally included in the Appropriation Accounts at the end of the year on the basis of reports from the ministries concerned. Projects that are funded directly by donors are rarely reported to the MoFEA12. Sometimes, the lack of reporting is due to the absence of vote classification and at other times due to the difficulty in completing the reporting form that is prescribed by the MoFEA. Also, the prescribed form, does not take into account the reporting for in kind external aid.

10 Source: ZSSF Annual Report 2001/2002, page 1411 It is a running serial number and has no relation with the employee ID number allotted by the Ministry.12 There is no information with MoFEA for 5 developmental projects of the Ministry of Health.

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Procurement Procedures

A review of the procurement procedures in RGZ, is taking place as part of the Country Procurement Assessment Review (CPAR) for both URT and Zanzibar. The recently enacted Central Tender Board Act13 is reportedly not very different from the Procurement Act of the URT. However, there are no regulations to support implementation of the Act or any procedural guidelines. A consultant has been appointed to draft regulations. His report is expected in the coming 3-4 weeks.

Records Management

There are no written policies or regulations or instructions on the management of financial records except the repealed Treasury Instructions of 1965, which only deal with procedures for destruction of records. Also, no person or organization is responsible for management of financial records. In addition, there are no instructions on safeguarding paper and electronic records from natural disasters. Inspection of records sections at Ministries visited indicates that records are poorly stored with little regard to protection from potential hazards such as fire and flooding.

Asset Management-Stock Verification

The Department of Stock Verification was set up in May 1994 in the MoFEA to maintain records of Government assets. This department, while updating records, found that while assets are recorded in ledgers maintained by the line ministries, fixed asset registers recording the asset number, location, depreciation and net values are not maintained. Shortcomings in recording of assets have arisen because there are no guidelines on maintaining record of Government assets. A committee has been set up to draft relevant rules and guidelines as a separate exercise from the draft financial regulations.

The Department has reviewed and revised 24 of the original 32 forms for recording Government assets to make stock taking more effective and accurate. The inventory of Government fleet is not accurate due to inadequate physical inspection and improper records with the user ministries. Whilst, updating of records of school buildings, hospital buildings and Government office buildings has been completed that of Government owned residential buildings remains to be done.

4.1.2 Financial Reporting

Abstracts

The AccGen is responsible for preparing monthly as well as annual financial statements. These statements are compiled on the basis of abstracts14 sent by the Accounting Officers in Ministries/departments. Although the following 4 columns are required to be completed: particulars, voucher number, amount for the month, cumulative total up to the month, a typical abstract sent to the MoFEA contains only voucher numbers and amounts for the month highlighting deficiencies in financial reporting to MoFEA. In Annex A to this report the approved vote for 2000-01 has been highlighted that illustrates a general lack of control over Government expenditure.

Revenue is accounted by the AccGen on the basis of abstract sent by the line ministries/departments, ZRB and TRA. The abstracts cover both tax as well as non-tax revenue. There is no account receivable system to manage issuance of tax assessments. Therefore, arrears of tax revenues are not reported.

Another weakness is that the results of operations, as reported in abstracts, are not compared to budget to facilitate identification and follow up of over/under expenditures.13 An Act to Establish The Central Tender Board in Zanzibar and Other Related Matters, Act No 5 of 200214 An abstract is a summary of revenue and expenditure prepared in accordance with instruction no. 256 of the 1965 Treasury Instructions and is required to be sent to the Accountant General within 10 days of the end of the month (instruction no. 260). It has separate sections for receipts and expenditure. The summary gives details of the Ministry, bank account number, month of reporting, vote and sub vote.

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Monthly reports

In the absence of the new regulations, the Accountant General is still preparing monthly as well as annual financial report on expenditure and revenue. These statements are compiled on the basis of abstracts sent by the Accounts Officers in line Ministries. For revenue, statements are also received from TRA and ZRB.

According to FA Act , the Paymaster General has to prepare monthly report and publish them in the Gazette. The new FA Act [Section 41(2)], also, requires the financial statements to include : a statement of the financial assets and liabilities (including contingent liabilities) and a statement of receipts into and payments from the Consolidated Fund at the month end with comparative figures for the previous financial reporting period. Financial assets have been defined, in the FA Act, to include cash on hand or in the bank, special funds, securities, advances, loans, equity investment while liabilities include trust moneys held and public debt (internal as well as external). Consequently, Government assets like buildings, furniture and equipment and motor vehicles are excluded.Monthly abstracts for July and August 2002 were received in the office of the AccGen from some ministries after a lag of 2 months. However, a few Ministries/departments had not sent their abstracts by the third week of November 2002. Monthly abstracts from Pemba take longer to reach AccGen’s offices. The effect of these delays is that monthly financial accounts are delayed by approximately 5 months.

Annual report

The PMG is required to submit un-audited annual statement of Government accounts to the House of Representatives not later than 4 months after the close of the financial year (Section 43 [2] of the FA Act). Simultaneously, he has to submit the un-audited financial statement to the CAG and the Public Accounts Committee (PAC).

It is a requirement that the annual financial statements contain details of actuals and budgeted figures, contingent liabilities, market value of securities, subscriptions to international organizations, revenue due but uncollected, commitments not discharged, bills unpaid and stocks held (Section 44 of the FA Act). The draft FA Regulations enlarges the scope of the accounts beyond the statutory requirement by including in the annual financial statements losses of public moneys and stores, written off or not, and claims abandoned [Rule 55(4)]. However, currently such items are not reported as required.

The reporting deadline of 4 months as per the FA Act is in conflict with Rule 55(1) of the draft FA Regulations that permits 6 months from the end of the financial year. CAG is required to complete the audit within 3 months of the receipt of accounts after which the accounts are to be published together with the audit report (Section 45 of the FA Act). The requirement that accounts preparation and audit be finalized and the audit report be submitted to the House of Representatives within 9 months from the end of the financial year is not currently met. Currently, it takes 12 months for the annual accounts to be finalized.

Ministry Annual Report

Section 48 of the FA Act requires every Head of Ministry/department to submit to the MoFEA a report on the work done by his/her Ministry/department during the year and a copy to the House of Representatives within 3 months of the end of the year. This annual report should have details of revenue, expenditure, remissions, deletions, reallocations, undischarged commitments, contingent liabilities and other necessary financial information having bearing on public accounts. Although in law, the annual report of the Ministry is to be published by the Minister, in practice it is not done.

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4.2 Assessment of the current situation

4.2.1 Major Strengths

The RGZ, particularly the MoFEA, has taken important steps in the reform of public sector accounting and reporting. Major successes are included below.

Public sector accounting and financial reporting has been significantly strengthened by the enactment of the FA Act. This Act attempts to establish a regulatory framework that will improve transparency and accountability in the public sector financial accounting and reporting through strengthening fiscal management of Government finances, by making Government’s monthly financial reports and individual ministries reports readily available to the general public and by clearly defining the form that public accounts should take as well as improving audit oversight. Also, the FA Act attempts to modify the current cash basis financial statements by including some accrual information. These strengths of the FA Act will become operational once the supporting draft financial regulations are finalized and implemented.

There is a realization, government-wide, of the need to improve transparency through better financial systems and accurate, complete and timely data. Already the Government has initiated steps to computerize individual ministries payroll systems. An exercise to develop a physical inventory of Government assets and the development of an asset management system are on going. Other initiatives that are being considered include the development of a computerized database of loans to Government employees. These initiatives are expected to considerably enhance the usefulness of financial reports as well as improve controls over public expenditures, particularly, the controls over the civil service wage bill.

The Government has reformed employee retirement benefits through setting up a trust to manage employee pensions, throughout Zanzibar.

4.2.2 Major weaknesses

While some progress has been made to reform Government accounting and reporting, many challenges remain that undermine transparency and accountability. Broadly these challenges include inappropriate financial systems that are archaic and poorly documented, financial reports that are untimely and unreliable and that do not satisfy user’s needs, and untimely audit opinion on the financial statements that reduces their reliability. The main causes of these problems are weak financial accountability arrangements, few qualified accountants to make informed judgment of effects of financial transactions, accounting equipment and systems that have outlived their usefulness and little appreciation for the need for better financial systems among top Government officials. The following paragraphs provide details of major weaknesses and their attendant risks.

The Constitution as well as the FA Act permits receipts to be kept in special accounts that are outside the Consolidated Fund. Consequently, certain receipts, e.g. receipts from sale of public corporations and externally funded projects are held outside the exchequer system. Although there may be valid reasons for setting up some funds outside the budget, excessive use of such arrangements can both diminish transparency and reduce fiscal policy control and flexibility.

There is a general concern as to the lack of comprehensiveness of the data entered into the Government accounting system. With key information missing, like Government indebtness, Government Guarantees, losses and amounts written off, arrears of revenues, fixed assets and depreciation, etc., the financial statements are materially misstated and of low value to management. Also, the RGZ’s financial statements are mainly control oriented, being driven by regulations rather than user needs. From the Government’s perspective, the fiduciary risk is potentially high until externally funded projects are integrated in the budget completely and all receipts and payments take place through the Consolidated Fund.

Currently, lack of strict fiscal discipline has resulted in Government overspends and diversion of funds from poverty reduction priority activities. This situation may have arisen because the

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Government is permitted, both by the Constitution as well as the FA Act, to spend on its own authority without having to obtain legislative approval. Even in the draft FA Regulations, virement from savings is permitted with prior approval of the PMG (and not the legislature). This is against one of the basic principles of public finance that Government funds cannot be used without legislative authority. The fiduciary risk is very high given the fact that the Government is cash starved and will have tendency to take recourse to the exceptions provided in the FA Act.

There will be too much concentration of authority in the PMG if the draft FA Regulations are approved in the current form since the PMG will be responsible both for revenue receipts as well as disbursements. Budgetary control can be undermined without a system of check and balance that require two separate authorities, one controlling receipts and the other payments.

The issuance of new employee ID’s as Government employees are transferred to new ministries/departments results in loss of uniqueness of civil servants personnel numbers, and weakens controls over payroll. In addition, resources are wasted in the duplication of effort in providing two IDs to the same employee. Generally procedures for payment of salaries appear lax and open to abuse, a situation that is made worse by lack of a centralized civil service personnel database.

Failure to make available to the general public the Government monthly and annual financial information undermines the effectiveness and efficiency of fiscal management of public funds leading to poor fiscal policies.

The absence of financial regulations has resulted in the continued application of repealed Treasury Instructions thus raising concerns on the legality of the underlying transactions.

Lack of following accounting standards introduces subjectivity in accounting and reporting and casts doubt on the credibility of financial reports. If the Government were to adopt accounting standards prescribed by the NBAA and/or those produced by the International Federation of Accountants, fiscal transparency could improve and financial statements made more useable to interested groups.

Account classification of budget and financial reporting has not remained consistent across reporting periods. This undermines expenditure control and statistical analysis and, consequently, deprives decision makers of critical information.

The absence of reliable financial information systems means that the Government reporting is based on figures manually gathered from a number of sources, many of which are not subject to inbuilt system controls. This is likely to be a major risk as the robustness of Government accounts is open to doubt and reliable information for use in resource allocation, budgeting and financial management becomes unavailable or is received late.

Control of spending through the Ceiling Committee has been introduced to enforce tight spending control. Unfortunately, the cash ceiling control mechanism has not been entirely successful, as it does not have any support systems in place to reinforce its principles. Some Ministries are bypassing it and still spending by going direct to suppliers, creating a build up of creditors and substantial arrears. Also, while the Ceiling Committee controls expenditure against releases it does not control it against the budget. The Accounting Officers can, therefore, receive warrants in excess of the budgeted expenditures thus informally viring funds, and diverting them from the priority areas for which they were originally intended.

Recovery of loans to Government employees has not been satisfactory in terms of timeliness and completeness leading to increased risk of unrecoverable loans.

Government accounts are not complete in the absence of proper records of Government debts. Consequently, the Government does not have important information required in the formulation of fiscal policy such as forecasts of draw down and debt servicing.

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Weak regulatory arrangements and unreliable recording of Government guarantees leaves the Government unaware of the extent of contingent liabilities and reduces fiscal transparency through omission of such information in Government financial statements.

Lack of actuarial valuation of the pre-1998 pension liability imply that the Government does not know the extent of the liability and has consequently not made appropriate provisions in it’s financial statements. This has significantly undermined fiscal transparency.

Failure by the Government to promptly remit to ZSSF its pension contributions undermines the ability of ZSSF to have timely funds to invest so that a reasonable return can be earned for the benefit of pensioners. If this situation persists, ZSSF may be unable to meet its obligations to pensioners, as they fall due, leading to the public loosing confidence in the institution. In addition, lack of remitting its share of pension contribution increases the build up of Government domestic arrears.

Since ZSSF is not managed autonomously from the Government, its funds may be diverted, by the Government, to investments that do not provide a reasonable return to pensioners. This may result in the fund not being able to honour its obligations to pensioners as they fall due.

Lack of regulations or policy on accounting of divestments of public corporations leads to inaccuracies in treatment of sale of such investments in public accounts. Transparency and accountability is undermined where such funds are deposited into special funds outside the Consolidated Fund and used directly on special projects.

Lack of controls over opening and closing of back accounts provide ministries with non-accountable “slush” funds, and open the way for fraudulent activities especially where accounts remain dormant for long periods of time.

Lack of timely preparation of bank reconciliations and follow up of reconciling items weakens the relationship between the accounting records and the financial statements thus undermining fiscal transparency.

Leaving foreign exchange accounts with PBZ after transferring all other bank accounts to BoT increases fiduciary risk especially if foreign exchange controls are loose and beyond the domain of the Central Bank.

Inconsistencies between the FA Act and the draft FA Regulations may lead to different interpretations, thus increasing uncertainty in the preparation of financial statement.

Since there are currently no procurement regulations, the anticipated improvements arising from the enactment of the Central Tender Board Act are likely to take some considerable time.

Lack of a regulatory framework and policy on record management, both computerized and manual, has resulted in serious problems in this area. There is lack of a generic disposal schedule of financial records that can be applied across ministries. The current archival procedures display a bias towards preserving records at all costs irrespective of demonstrated continued value. As organization structures for record management are weak, responsibility for record management is left with individual ministries. Even within individual ministries, no individual is responsible for ensuring records are kept in good order and are destroyed at appropriate times. Consequently, excessive volumes of paper records have clogged the system and are a real fire hazard. Lastly, at policy level, assignment of responsibility for record management is lacking. Consequently, nobody in the MoFEA has the responsibility for setting policy for the management of financial records across Government ministries/departments.

Lack of adequately trained manpower impairs compliance and thus increases fiduciary risk. The situation will most likely get worse if the RGZ implements accrual accounting requirements that were introduced by the FA Act.

Due to generally lower remuneration in the public sector compared with the private sector and a hiring policy that is, far from transparent, the morale in the sector is low. Turnover is high for both accountants and IT personnel, leaving a vacuum which will be difficult to fill in the short term.

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4.2.3 Conclusion and recommendations

The RGZ has taken an important step in improving financial management through the implementation of the FA Act. The next step of having financial regulations to support the implementation of the FA Act has also been initiated. There are however, a number of gaps, which unless filled, will negate the benefits of the achievements of the recent past. These gaps are illustrated in the weaknesses set out above.

The recommendations below reflect the primary need to establish a financial accounting and reporting system that meets the basic need to capture all Government financial transactions within a legislative and regulatory framework that facilitates the operation of best practices in financial control. A gradual move towards accrual accounting is emphasised. The strategy should be to master modified cash basis of reporting and only introduce full accrual basis once adequate capacity has been developed from both an operational and a user perspective. The recommendations, also, emphasize the need for improved compliance with the laid down regulations and procedures through the development of instructions and manuals, and the training of staff on the requirements thereof. These will however be ineffective without the development of a strong internal audit function and the commitment and will of the Government to enforce the regulations and procedures, taking disciplinary action against Accounting Officers who do not ensure compliance. All the recommendations cannot be implemented overnight. These need to be prioritized by the Government and taken up for implementation step by step so as to achieve the ultimate objective of having an efficient financial management system, one in which everyone will have confidence in and the Government will possess the necessary tools for implementation of its poverty alleviation efforts.

It is recognized that a number of issues are already ongoing, but are included for the sake of presenting a complete picture. Our recommendations have been prioritised to the best of our understanding of the situation at the ground and are as follows.

High priority

Complete and publish FA Regulations that are harmonized with the FA Act. Train appropriate staff on those regulations. Include in the FA Regulations records management policy.

Develop accounting instructions/procedures manual and train appropriate staff on such procedures.

Ensure complete adherence to the FA Act Government-wide by putting in place appropriate sanctions against non-compliance.

Review payroll procedures and determine the best method for assuring that only bona fide employees are in receipt of government salaries. Issue unique ID’s automatically that remain the same throughout the employee’s lifetime. As noted in the section on the use of IT review the requirements for a payroll system (s) and implement. Prepare a payroll procedures manual. Train staff on payroll procedures.

Adopt appropriate accounting standards from those promulgated by the International Federation of Accountants and NBAA.

Draft and publish guidelines on procurement. Train relevant staff on the guidelines.

Introduce better controls over opening and closing of bank accounts. Close all dormant accounts.

Transfer foreign exchange account to BoT to improve Central Bank oversight.

Bring all bank reconciliations up to date, including correction of reconciling differences.

Develop a strategy for bringing to Government financial systems and accounts all external donor funds flows.

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Introduce physical verification of assets and stores.

Complete an actuarial valuation of pre-1998 pension and gratuity and make appropriate provisions for all pension liabilities in Government accounts.

Improve the cash basis financial statements preparation process to ensure that accounts are finalized within the statutory time frame. Also, the following supplementary information, to the cash basis financial statements should be provided: Government indebtness, Government Guarantees, losses and amounts written off, and arrears of revenues.

Medium priority

Review the necessity of having provisions in the Constitution as well as the FA Act to keep receipts outside the Consolidated Fund and allow spending without legislative authority.

Bring consistency in classification in the budget and financial reporting so that data can be easily consolidated, reported and compared.

Introduce treasury and sub treasury system with adequate controls to check unwarranted expenditure.

Complete inventory and valuation of Government assets. Report all Government assets on the balance sheet to show a true and fair picture of public finances.

Prepare a guideline for investment by the ZSSF and make it’s operations autonomous from Government interference. Appoint an employees’ representative on the Board of Trustees of ZSSF to improve transparency.

Create a complete database of loans to Government employees and enforce recovery.

Low priority

Progressively move to accrual basis of accounting after creating adequate capacity in terms of systems and appropriately qualified accounting staff.

4.3 Use of information technology in government and its agencies

4.3.1 Review of the current situation

The Government of Zanzibar (RGZ) does not have a formalized information systems strategic planning process. Consequently, RGZ has neither developed an Information Technology (IT) strategy nor has it established an executive steering committee to oversee the information technology initiatives that are currently ongoing in various Ministries and other Government agencies. The initiatives that the RGZ has undertaken to date are summarized below:

Information Technology Centre

Information Technology Centre (ITC) is a unit of the Department of Coordination in the Office of the Chief Minister. It was established in 1996 to coordinator IT initiatives in the public sector. Being guided by the communications and information strategy utilized in the Mainland Tanzania, ITC’s main task is to create IT awareness among decision and policy-makers through workshops and seminars and to advise ministries on better systems/equipments.

There are 3 computer professionals in the ITC. Each Ministry has at least one IT professional. Less than 5% of the Government employees have requisite computing skills.

A survey conducted recently by ITC revealed that there are 300 PCs in 13 ministries the majority of the PCs being in the Ministry of Finance and Economic Affairs (MoFEA). The nature of PCs found Government-wide and their usage is illustrated below. There is no networking except in the Ministries of Agriculture and MoFEA where localized intranets are found.

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Ministry of Finance and Economic Affairs

The PCs found in the MoFEA are a mixture of the old Pentium I and II’s with a memory capacity of 16-64 MB and newer Pentium III and IV’s with memory of 64-256MB. Most of these PCs have modems and/or network cards installed and of varies brands such as DELL, COMPAQ, ASPIRE, TOSHIBA, and CLONES (unbranded) as there are no guidelines on preferred computer hardware suppliers or makes and configuration of computers hardware that is purchased.

Most printers are HP Laser Jet printers. These are found in all offices where PCs are located. Due to unreliable power supply, nearly every PC is connected to an Uninterrupted Power Supply (UPS). UPS’s vary in size from small ones of 500VA to bigger ones of 2200VA

PCs run on various versions of Microsoft operating systems. Older computers run on either WIN 3.1, WIN 95, or WIN 98 while new computers run on either WIN-Millennium, WIN NT or WIN-XP. The main application installed in most computers is Microsoft Office 97 or 2000 (MS-Word, MS-Excel, MS-PowerPoint, MS-Access, MS-Publisher etc). This is because most PCs are used mainly for secretarial duties, and for browsing the Internet. Exceptions to this are the PCs in the Accountant General's office and in the Budget and Control Department.

The Budget and Control Department utilizes two applications that have been developed in-house on Visual FoxPro. These are a budget preparation application and an application for reallocation of funds and issuance of warrants.

In the Final Accounts section of the Accountant General's Department, an accounting software package known as Software Business Technology (SBT) is utilized for posting transactions contained in abstracts submitted by Ministries. The software produces limited final reports such as a summary of transactions, a trial balance, a balance sheet, and reports of current and capital revenues and expenditures. SBT is an American package that comprises of two modules, a System Manager and a General Ledger. The software uses FoxPro Database tables and was customised for use by the Government, by a foreign consultant, in 1994/95. In 1996, the software crashed for nearly two years. At the end of 1997, a local programmer from Manumbu Investment Co. Ltd revived it and to date, provides all its technical support under a maintenance contract.

The SBT software runs on Novell Netware operating system and is installed in four PCs connected to a Local Area Network (LAN). The computers are connected point-to-point through UTP wire and HUB directly to a proxy server (Firewall) that was provided to the Ministry by ZANZINET, an internet Provider. Through this proxy server the PCs that are connected to the LAN can both access Internet services and share resources with each other. Currently, MoFEA does not own a central server for data storage. Also, there is no control over data stored in various PCs as each department owns its data and determines the form in which it is stored and retrieved.

Also, in the Accountant General’s Department, there are three MS-Access database applications that have been developed in house. These include: (i) a salary voucher database that is used for preparing and printing salary vouchers and other salary related reports. This application is also used in certain other line Ministries; (ii) a loan system database that is used by the Loans Section to record payroll deductions relating to advances made to Government employees; and (iii) a pension database that facilitates the preparation of payment voucher for pensioners.

An IT Office, with limited technical and human resources, is in place in the Accountant General's office. This office is responsible for providing ongoing support to computer operators within MoFEA on installation of computer hardware and software as well as operational and maintenance related issues and problems. At times, the office also provides technical advice to the senior Management of MoFEA on the type and nature of software and hardware to be purchased by the Ministry.

The majority of the IT staff in MoFEA are computer operators. Within MoFEA there are the following more qualified IT staff: (i) one programmer with a BSc Honours in Computer Science

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Software Engineering; (ii) one staff with an Advanced Diploma in Computer Hardware and Networking; (iii) one staff with an Advanced Diploma in IT; and (iv) another two are currently undertaking IT related studies.

The Stock Verification Department has one PC but plans to acquire four more. Software packages for maintaining records of vehicles, furniture and buildings have been developed by ZIFA.

Ministries and Departments

Apart from the MECS’s payroll system, all accounting in line Ministries is manual. However , the MHS&W is considering the computerisation of its payroll as well as its monthly and annual financial reports preparation processes. The Civil Service department has one PC and all personal files of Civil Servants are maintained manually.

Future Plans

The vision of the Government is to introduce an Integrated Financial Management System (IFMS) and Payroll Systems in the MoFEA, 38 Operational Units in Zanzibar and 15 operational units in Pemba. In line with this objective, the RGZ, envisages that the Platinum ERA software that has been implemented by the URT will be customized to run the following applications: General Ledger; Supplier Management; Payments; Record Budgets; Cash & Bank Account Management; Revenue Accounting; Procurement; Inventory Management; Fixed Asset Management. Also, the proposed payroll is a locally developed Payroll System that has been custom developed for URT.

The above approach implies that the RGZ has selected a software solution without setting systems development priorities, in particular a full evaluation of users' needs and without users being involved in setting the priorities on the applications areas that should be implemented first.

4.3.2 Assessment of the current situation

The adverse effect of inadequate information systems has become increasingly evident in RGZ. The symptoms include internal data inconsistencies, delays in providing useful information for decision-making purposes, as well as significant ongoing investment of staff time and other resources to maintain the current systems. Without effective coordinated systems planning, there is an increased risk of ineffective and inefficient use of computer equipment, as well as human, financial and other resources.

Lack of a computerized personnel administration systems as well as poor communication between and within ministries that manage human resources processes has contributed to the weak internal control framework over payroll payments. The RGZ has lost control over the huge civil service wage bill, and, there are concerns that salary and wages payments are being made to ‘ghost workers’.

The lack of an IT strategy has meant that sharing of information and scarce resources has been minimal, and information systems have been developed in a relatively ad hoc and uncoordinated manner. This “island” approach to system development and implementation is expensive in terms of both human and financial resources, both of which are in scarce supply in Zanzibar.

Lack of a Government-wide committee that has oversight responsibilities over the review and approval of IT plans and ensuring that individual IT initiatives are not in conflict with Government strategy has resulted in IT operating independently without supporting the Government’s business. This situation is untenable and may lead to top Government officials lacking confidence in the ability of IT to add value.

It is commendable, therefore, that the Government has given thought to the implementation of an IFMS to improve the availability of basic financial information, enable the enforcement of greater control on payment procedures and, in particular, compliance with cash limits. Availability of complete, accurate and timely information provides the basis for improved financial accountability

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and the enhancement of decision-making capabilities. Absence of such information hinders the implementation of other initiatives in public sector management such as results oriented management and performance related pay as these rely heavily on fairly sophisticated financial information for their success.

4.3.3 Conclusion and recommendations

The RGZ has made little progress in the use of IT systems to support its business objectives and help ensure longer-term sustainability of the financial systems. The following recommendations that are classified in terms of priority from the perspective of financial accountability takes into consideration the fact that the RGZ will need to build its capacity in this area gradually given the scarcity of resources at its disposal.

High priority

Establish an organized information systems strategic planning process to formulate and maintain a plan that addresses the IT requirements of the Government. The RGZ should define responsibilities and methods to ensure that business changes are reflected in the information systems strategy. Control, security and continuity issues should be addressed within information systems strategic plan. Individual projects should be undertaken by the RGZ to realize the strategic plan. Sufficient controls and procedures should exist to ensure that these projects are prioritized, planned, budgeted, monitored and completed in a satisfactory and timely manner.

Set up an executive steering committee with membership drawn from key Ministries. The executive steering committee should ensure that an information systems strategy is prepared and is kept up-to-date, is communicated to the appropriate persons, is implemented and periodically evaluated. Proposals and cost benefits analysis relating to individual IT initiatives should be reviewed and approved by the executive steering committee.

Set up an inter-ministerial task force led by the MoFEA to develop detailed functional and technical requirements for the introduction of an IFMS and a human resource system(s) Government-wide. The task force should make proposals to the executive steering committee (to be formed) on all aspects of an IFMS and human resources systems implementation including priorities, planning, budgets and institutional frameworks.

Seek donor support for the introduction of appropriate financial management and human resource systems. Successful implementation, as opposed to installation is constrained not only by financial resources but also by capacity constraints. It is preferable that: (i) the IFMS implementation be phased over at least a 3 year period and initially, considers only MoFEA and a few critical operating units. Modules that may require prioritization are: general ledger, accounts receivables and payables, revenues, purchases, budgeting and cash ceilings management; (ii) human resources systems implementation only considers those applications that are absolutely necessary for proper functioning of a payroll system.

Medium priority

Extend the scope of IFMS to include all financial transactions and where feasible donor funded activities.

Develop interfaces with payroll and debt systems.Low priority

Computerize inventory and fixed asset management

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5 Public Sector Auditing

5.1 External Audit

5.1.1 Review of the current situation

Sections 112 and 113 of the Zanzibar Constitution 1984 set out the provisions for the existence and removal of the Controller and Auditor General (CAG). The CAG is a Presidential appointee with specified qualifications in economics or finance. Ultimate removal powers reside with the President, although he is required to appoint a special commission to conduct an investigation if the need for the removal of the CAG is raised. According to the Constitution, the CAG is responsible for auditing the public accounts of all offices and departments of the RGZ, the accounts of all commissions or organs established by the Constitution and the accounts of the House of Representatives.

The Constitution states that the CAG must present his report to the President who must then submit the report not later than seven days after the next sitting of the House of Representatives following the receipt of the report. If the President does not submit the report within the specified period, it is then the responsibility of the CAG to present the report directly to the House of Representatives. It is understood that the CAG generally provides his report to the House after the specified period.

Additional legislative powers are contained in section VI of the Financial Administration Act (No’8 of 1996). The CAG then assumed the responsibility for the audit of all government organisations including local authorities and public corporations. Currently staffing of the Office of the Controller and Auditor General (OCAG) is determined by the President. This function is carried out through the Civil Service Commission. The CAG is required to submit his report to the House within nine months of the financial year-end. However section 43 of the Act requires the Paymaster General to submit his annual report and unaudited public accounts to the House of Representatives at the same time as the CAG and the chairman of the Public Accounts Committee (PAC) and within 4 months of financial year end.

In section 53 (c) of the Act, the CAG has the power to authorise any person carrying on the profession of accountant to conduct an audit on his behalf. In order to improve compliance with the findings of the CAG, the Act also allows the CAG to disallow any illegal expenditure and recommend to the House of Representatives the imposition of surcharges and/or disciplinary proceedings. The CAG is also authorised to authorise the withholding of salary for failure to respond to audit queries, until such time as a response is received.

In addition to his specific auditing responsibilities, section 18 of the Financial Administration Act also gives the responsibility of authorising payments from the Consolidated Fund to the CAG. Although this Act only received Presidential Assent in June 2001, there is a general recognition that there are some shortcomings and anomalies contained in this legislation and a new draft Audit Act entitled The Establishment of the Office of the Controller and Auditor General Act, 2003 is currently being drafted. It should be emphasised that this draft Act has not yet been widely circulated.

The enactment of this Act would result in the repealing of section VI of the Financial Administration Act. The new draft Act proposes the establishment of the OCAG as an autonomous body corporate. It also proposes the establishment of an Audit Services Board who would be responsible for the recruitment, promotion, discipline, pay and other personnel matters related to the OCAG. However, section 4 (6) states that the number of officers required would be determined by the Minister. It is proposed that the Board would include a Chairman appointed by the President and five other members.

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An important development in 2001 was the separation of the OCAG from the MoFEA, the OCAG now being operationally under the Minister of State, Constitutional Affairs and Good Governance (MCAGG). Currently the OCAG has 121 staff, headed by the CAG and supported by three Principal Auditors. Sixteen auditors are stationed in Pemba. In accordance with legislation the OCAG has an office/desk in all ministries. Individuals are however rotated once every two to three years to minimise the risk of auditors becoming institutionalised. However some sector ministries noted the involvement of external auditors in day-to-day activities. Although basic audit programmes do exist, insufficient supervision and quality control was also noted as an area of concern as well as their ability to adequately audit revenue-generating operations. The last audit report for 1998/9 and 1999/2000 was presented to the House of Representatives in June 2002. It is understood that these and earlier audit reports contain a number of outstanding queries and to date follow up has been very limited. The number of qualified reports is not clear, as Zanzibar Ports Corporation (ZPC) stated that their accounts were qualified, but other organisations with similar discrepancies received clean audit reports.

A number of auditors have received some general financial training at ZIFA or the Institute of Financial Management (IFM) in Dar es Salaam. However, no member of the OCAG is a Certified Public Accountant (CPA). At the moment OCAG is not a member of the International Organisation of Supreme Audit Institutions (INTOSAI)

The cash rationing system has significantly reduced OCAG’s ability to undertake its legal requirements, as currently it has no priority over funds. In many cases audits of local authorities have not been undertaken due to lack of funds and work particularly in Pemba has been minimal. Overseas offices of Public Corporations, for example the Dubai office of the Zanzibar State Trading Corporation (ZSTC) have not been audited for some time. Although audits of a number of Public Corporations are being undertaken by the Tanzanian Audit Corporation (TAC) on behalf of the CAG, the CAG is still auditing a number of the key Public Corporations including ZSTC and Zanzibar Shipping Corporation (ZSC).

Access to computers is limited and restricted predominantly to the use of word processing software for the production of reports. Technical support has been limited although currently there is one UN Volunteer who is involved in improving technical capacity in the Office.

5.1.2 Assessment of the current situation

Although OCAG is not a member of INTOSAI, it is still appropriate to use INTOSAI standards as a benchmark for assessing the ability of OCAG to perform effectively its key oversight role. Modern best practice looks to establish a Supreme Audit Institution, which is demonstrably independent of the body, which it is auditing. INTOSAI standards promote the concept of Parliament appointing the external auditor of OCAG, and indeed this is done in neighbouring countries for example, under the Ugandan Constitution, the external auditor is appointed by Parliament.

Section VI of the auditing standards also promulgates reporting by the CAG directly to Parliament, not through the President, stating that: “The Supreme Audit Institution shall be empowered and required by the Constitution to report its findings annually and independently to Parliament or any other responsible public body; this report shall be published. This will ensure extensive distribution and discussion, and enhance opportunities for enforcing the findings of the Supreme Audit Institution.” The presentation of unaudited reports by the Paymaster General to the House of Representatives would undermine the role of the CAG.

However, if actually implemented, the imposition of surcharges and/or disciplinary procedures for illegal expenditure and the withholding of salaries for non response to audit queries will go some way to meeting the requirements of the Lima declaration which states that “The audited organisations shall comment on the findings of the Supreme Audit Institution within a period of time established generally by law, or specifically by the Supreme Audit Institution, and shall indicate the measures taken as a result of the audit findings. To the extent the findings of the Supreme Audit

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Institution's findings are not delivered as legally valid and enforceable judgments, the Supreme Audit Institution shall be empowered to approach the authority, which is responsible for taking the necessary measures, and require the accountable party to accept responsibility.”

The proposed legislation contains a significant amount of detail on the operational procedures to be undertaken by the CAG in executing his functions and section 53 excludes specifically the involvement of external auditors in pre-audit duties. However, there is no specific mention of value for money audits and neither the current nor the proposed legislation has any provision for the audit of the OCAG itself.

Recent efforts by Government to improve the legislative framework for external audit clearly show that it recognises the importance of an effective oversight body in mitigating fiduciary risk. However, whilst the proposed introduction of an Audit Services Board with responsibility for pay and personnel matters should improve human resource issues, OCAG’s ability to undertake quality audits is likely to be constrained for some time by relatively low pay levels, lack of qualified staff and general lack of expertise in modern audit techniques. The situation is made more difficult by the lack of financial regulations and the CAG’s role in authorising payments from the Consolidated Fund, potentially undermining his independence. These constraints combined with inadequate funds to undertake effective audits means that potentially, public funds could be at significant fiduciary risk.

The proposal in the draft legislation to make the audit reports more user friendly is to be welcomed as often technical reports lack focus and cannot be easily used by non technical personnel.

However, it is also not clear how the presentation of unaudited reports by the Paymaster General (as per current Financial Administration Act) is intended to improve financial accountability, indeed it could be argued that it undermines the oversight role of the CAG. It is presumed that the concern has been over the lateness of reporting by the CAG, but it would be preferable to improve the timeliness of reporting rather than undermine the importance of external scrutiny.

5.1.3 Conclusion and recommendations

Through the enactment of the Financial Administration Act, the Government has tried to tackle the practical problems it was experiencing in the control and management of its finances. Currently, it is trying to overcome some of the anomalies and inconsistencies in this Act by drafting new detailed legislation on audit requirements. Delays in the production of regulations in other areas following the enactment of legislation have obviously influenced the level of detail in these initial drafts. However this level of detail in primary legislation could inhibit the CAG’s ability to manage and respond to changing circumstances.

As noted in earlier sections, in order to eliminate inconsistencies and contradictions, there is a need to develop an agreed strategy for the control and management of government finances in the short, medium and long term. The following recommendations are specifically in terms of strengthening the ability of OCAG to undertake its oversight functions effectively and efficiently.

High priority

Review of legislation and development of supporting regulations It is recommended that the current draft audit legislation be subject to widespread consultation with key stakeholders and the level of detail contained in the primary legislation reviewed. In particular, if OCAG is to act as an independent, effective and transparent oversight body, it is recommended that consideration is given to: i) clarifying the role of the Audit Services Board, the CAG and the Minister in terms of establishment, skill requirements, staff regulations and other personnel matters; ii) establishing a requirement for the audit of the OCAG itself and the appointment of the auditor of OCAG by the House of Representatives; iii) establishing a requirement for value for money auditing; iv) ensuring that appropriated funds are not subject to cash rationing; v) enabling the CAG to report directly to

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the House of Representatives and; vi) in the longer term, assessing the feasibility of establishing a totally independent organisation which is accountable directly to the House of Representatives.

Develop audit manuals: In order for the OCAG to undertake effective audits, it is important that once the legislation and regulations have been finalised that audit manuals are developed to support and guide the audit process.

Review organisation structure and resource and staffing requirements Undertake a review of staffing levels and an assessment of skill and resource requirements and training needs.

Improve quality and timeliness of CAG reports. Improve timeliness of reporting by CAG to Parliament and make reports more relevant and user friendly.

On the job training Provide practical training to all levels of staff in the conduct and supervision of audit programmes, writing of audit reports.

Ensure independence of CAG from day to day activities Remove CAG’s responsibilities in relation to the authorisation of payments from the Consolidation Fund.

Medium priority

Training in value for money auditing: Increasingly vfm auditing is seen as an important mechanism by which the use of public funds can be assessed. Often this is incorrectly interpreted as least cost by financial auditors, it is therefore essential that audit teams are established which have a combination of technical skills.

Establish audit committees in Ministries to follow up audit queries (Internal and external): It is important that queries are followed up in a timely manner, the imposition of penalties for non compliance is to be commended, but could be supported by the establishment of committees to formalise any MDA response.

Establish scheme for the professional training of personnel: It is important that auditors obtain professional accounting and auditing skills and are members of an accountancy body that regulates their conduct. It is therefore recommended that a training scheme for auditors be established to gradually build up the pool of expertise in the Office.

Low priority

Training in the management of sub contracted audits: The volume of work to be undertaken by the CAG is considerable, there is therefore a need for many audits to be subcontracted, the ability to manage these private sector audits successfully and ensure quality control is a skill which will become increasingly important for senior members of OCAG

5.2 Internal Audit

5.2.1 Review of the current situation

The Financial Administration Act. No. 8 of 1996 requires each Ministry to have an internal audit function with the internal auditor administratively reporting directly to the Ministry’s Accounting Officer and supervised by the Accountant General. It also requires verification, inspections, and confirmations of the public finances by the internal auditor. There is no internal audit cadre, and no clear qualification/skills for an internal auditor. Any accountant can become an internal auditor and can be transferred or assigned accounting or internal audit responsibility at any time by the Accountant General.

Currently there are 211 accounting staff deployed in the ministries, departments and regions out of which 10% carry out internal audit work. A few small departments do not have internal auditors but the majority have one or two internal auditors. The majority of the internal auditors do not have appropriate qualifications. Although, a few have ordinary accounting certificate, the majority have

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no accounting/internal auditing qualifications. None of them is a member of the Institute for Internal Auditors.

Most of the internal auditors have attended the short course training conducted by the Zanzibar Institute of Financial Administration (ZIFA) on accounting and internal audit. Few, if any, have received specific training in internal audit and there is no training policy to train and upgrade their skills.

The draft Financial Administration Regulations, 2002 spell out the responsibilities of the internal audit function and propose that there will be sub-regulations to be issued based on internationally recognized internal audit standards, and instructions that shall ensure the internal audit function operate independently of the management of the Ministry.

Most of the work concentrates on the post audit of transactions, based on daily /monthly receipts and payments made and cash deposited in the bank. Stores are checked wherever possible. There is no system of feed back from recipient of the goods to cross check that the expenditure tallies with actual receipt of goods by the intended unit.

The reporting mechanism is not adequate. According to the legislation, an internal auditor reports his/her findings to the Accounting Officer of the line Ministry who is required to give the necessary direction, or take necessary action after receiving the report. The same reports are to be sent to the Accountant General. Our understanding from the staff of Accountant General office is that these reports are not passed to the Accountant General as required. In addition, the internal auditors interviewed during this study stated that their reports were rarely followed-up and it was difficult for them to pursue them through the Accounting Officers. There is no feedback on action taken by the line Ministries on the report of the internal auditor and no measures being taken by the Accountant General office to ensure that their findings are taken seriously.

Currently there are no audit committees established to provide an effective channel for the processing of audit reports and recommendations. The draft Financial Administration guidelines propose the establishment of these committees in each Ministry. The committee will meet quarterly and will be responsible for the approval of the annual audit work programs, review all internal and external audit reports and provide advice to the accounting officer on action to be taken on issues raised in the reports.

5.2.2 Assessment of the current situation

Generally Internal Audit is not functioning adequately across the ministries. Internal audit is not clearly established throughout the government ministries and departments and where it is established there are clearly concerns about the effectiveness of its operations. There are a large number of offices relative to the auditing capacity available. From the discussions with various ministries and departments it was evident that the internal audit is not well established in many government offices and in some cases there was no internal audit function. The role of internal audit in assessing internal controls and recommending improvements to systems and procedures is not well defined. The scope of work is not well defined, and is limited to financial verifications such as receipts and expenditures without sufficient emphasis on the efficiency and effective use of public resources. This is due to the inadequate capacity, resources, lack of manual, and guidelines. Other reasons for this ineffectiveness is lack of enforcement of punitive measures, inadequate technical and managerial capacity in the finance function and lack of accountability of Accounting Officers.

The number of internal auditors who are trained and experienced in internal auditing is still very small and the training provided so far is not adequate. In many cases, and particularly at the lower levels and in the field, internal auditing standards are very poor.

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Regular training of accounts and audit staff provided so far is not adequate. A comprehensive training and capacity building program is needed which will include specific training on auditing standards, such as INTOSAI, IFAC, IIA, performance audit, computer and risk assessment skills.

5.2.3 Conclusion and Recommendations

The following recommendations are designed to enhance the capacity and establish an effective Internal Audit function.

High Priority:

Review the current internal audit arrangements and develop an internal audit strategy to enhance the internal auditing function. The reform strategy should focus on improving the effectiveness of the internal audit unit and its functions. This could involve a creation of a separate and independent internal audit unit with a technically qualified team headed by the chief internal auditor.

Revisit the current law and regulations, adopting effective public sector auditing standards, such as INTOSAI, IFAC, IIA. Adopting modern internal auditing and inspection techniques of evaluating the adequacy and effectiveness of funds/services provided to the public. Expand internal auditors roles to cover value for value money audit and risk management.

Recruit qualified staff to meet capacity requirements.

Develop the internal audit manual this could easily be developed based on the proposed Internal Audit Guidelines for the East and Southern African Association of Accountant Generals (first draft December 2000).

Medium Priority:

Develop a comprehensive training and capacity building programme which will include specific training on auditing standards, such as INTOSAI, IFAC, IIA, performance audit, computer and risk assessment skills.

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6 Legislative scrutiny, ethics and integrity

6.1 Legislative Scrutiny

6.1.1 Review of the current situation

The House of Representatives (HoR) together with the President forms the legislature in Zanzibar. There are 81 MPs and according to the Zanzibar Constitution seven standing Committees. Currently there are six committees in operation, these are: i) the Economic and Finance Committee; ii) Public Accounts Committee; iii) Committee on Women and Children’s affairs; iv) Committee on Communications and Transport; v) Committee on Constitutional and Legal Affairs and; vi) Oversight Committee.

The Honourable Speaker allocates MPs to Committees and a proportion of Committee members should be selected for their professional expertise, although in practice this is not always feasible. The Committee is dissolved annually, but normally three members will stay on to ensure continuity. Each Committee has one committee clerk, who is permanent. Exposure of both Committee members and Committee clerks to the operations of other parliamentary committees is very limited.

Whilst the Economics and Finance Committee have overall responsibility for overseeing budget issues, responsibility for scrutinising the budgets of individual ministries is assigned across the other Committees. Responsibility is assigned as follows:

a) the Economics and Finance is responsible for MoFEA, MANREC, Ministry of Trade, Industries, Marketing and Tourism (MTITM);

b) the Committee on Women and Children’s Affairs is responsible for Ministry of Health and Social Welfare (MHSW), MECS and Ministry of Youth Employment, Women and Children (MYEWC);

c) the Committee on Constitutional and Legal Affairs is responsible for MCAGG, State House and Chief Ministers Office (CMO); and

d) the Committee on Communications and Transport is responsible for MCT and MWCEL.

The Economic and Finance Committee has 6 members and is supported by a clerk. Occasional support is also provided by the Auditor General and a liaison officer from the MoFEA’s Department of Social Sectors, Project Development and Research. The Committee’s responsibilities include the scrutiny of any Bill related to finance and economic issues prior to the first reading. The Committee can recommend that a Bill be redrafted but cannot block its presentation to the HoR.

Budget responsibilities begin at the time of approval with a discussion of the overall budget composition and its consistency with national priorities. The Committee reported that the HoR was not directly involved in the production of the ZPRP but gave it its endorsement. Written reports from the MoFEA and line ministries are submitted providing an overview of last year’s activities and plans for the forthcoming year. A report is prepared by the Committee which is sent to the Chief Minister and the MoFEA, proposing any changes that are felt to be necessary.

The main role of the Committee, however, is to review the budgets and activities of the MoFEA, the MANREC and the MTITM. The Committee conducts half-yearly assessments and visits a number of activities funded by those ministries. Revenue performance, budget execution and the delivery of services all feature in the monitoring work of the Committee. The Committee’s report is made available to the Chief Minister and to the respective MDA. It is then discussed in the HoR. The HoR cannot enforce its recommendations but uses its ability at budget time to influence changes it feels are necessary.

The Public Accounts Committee (PAC) has seven members. According to standing orders, the PAC should be chaired by the Opposition, who should also form the majority of members. However following the 2000 elections, the Opposition boycotted parliamentary proceedings. Consequently

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in accordance with Section 71 of the Zanzibar Constitution, boycotting of three parliamentary sessions (meetings) has resulted in their removal from the House. It is understood that elections are due to take place in March 2003.

Currently all PAC members are from the ruling CCM party. The PAC is responsible for overseeing all government operations, including central government, local government and public corporations. Although the PAC should spend up to six weeks reviewing the CAG’s report, due to financial constraints, the PAC only spend about four weeks carrying out it scrutinising role. Their time is normally divided between the two islands, 3 weeks in Unguja and 1 week in Pemba. Government Officers are either requested to appear before the Committee or the Committee actually visits the Ministry/Department/Corporation. Legal action can be taken if the Officers do not appear when requested. According to the timetable, the PAC will be holding their next session in January 2003 and will review the findings of the 1998/9 and 1999/2000 reports, which were received in June 2002. It is understood that these technical reports are not presented in a format, which can be easily understood by non-financial experts.

Whilst the PAC reviews financial issues arising from the CAGs reports, the Oversight Committee assesses whether planning objectives and aims are being delivered, for example, the building of a classroom, health centre or road. In many ways the activities of the two Committees should complement each other. During their visits, the PAC is accompanied by a representative from the OCAG and the Oversight Committee by a Planning Officer.

According to the standing orders of the House of Representatives, the general public are not free to attend Committee meetings. Committee reports are presented to the Speaker who then presents them to the Chief Minister, who as leader of Government Business then presents the report to the House of Representatives. Reports are only available to the Public after they have been presented to the House of Representatives.

In reviewing financial legislation, it was also noted that the House has no technical support or facilities. There are provisions in the standing orders to enable the House of Representatives to have a legal adviser when reviewing new pieces of legislation but lack of funds currently prohibit this level of support.

6.1.2 Assessment of the current system

Independent scrutiny by elected representatives is an important means of ensuring that public funds are used for the intended purposes and in the most cost effective and efficient way. The Economic and Finance Committee works for approximately 30 days a year normally between December and March, in addition to budget work, as financial constraints preclude the possibility of more thorough monitoring. Members also report that they do not feel fully qualified or equipped for some of the tasks with which they are charged and that they rely more on their experience and acumen as private citizens more than as MPs. The Clerk is also not a financial professional. This lack of capacity coupled with a shortage of funding is clearly a major obstacle to the effectiveness of the Committee. Strengthening their engagement in the ZPRP and in pre-budget discussions would be worthwhile functions of the Committee but these are effectively ruled out at present for the reasons cited.

The PAC is currently reviewing the CAG’s report for 1998/9 and 99/00, whilst the elapsed time period is not excessive, the reports are still over two years old. In the past, the CAG’s reports have evidently contained numerous references to previous year’s queries and Accounting Officers have paid little or no attention to the recommendations of the Committee. The ability to impose surcharges or withhold salary in the new legislation should improve the situation, but may be difficult to implement and will ultimately depend on the autonomy of the OCAG.

The lack of an Opposition, outdated reports, limited technical capacity and financial restrictions on the workings of the PAC make effective scrutiny extremely difficult. Lack of technical support and

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facilities also inhibit the ability of members of the House to carry out their legislative functions and this is particularly true with respect to financial legislation. Whilst it could be argued that lack of effective legislative scrutiny constitutes only minimal fiduciary risk by itself, if this is combined with low public awareness and limited media capacity, the risk of funds not being used for their intended purposes as set out in the budget will inevitably be increased.

6.1.3 Conclusion and recommendations

Committees can and should play a more proactive role, the following recommendations are designed to improve the ability of Committees and their members to undertake their responsibilities.

High priority

Capacity building: Greater exposure to Parliamentary Committee procedures in neighbouring countries and independent training in budget and financial matters is provided to Committee members and Committee clerks.

Fund availability: In order to enable Committees to plan and carry out their duties, funds should be set aside as a priority. Support for improving the capacity and ability of the House of Representatives to carry out their functions should also be sought.

Public access: In support of the need for strengthening public awareness of their role in monitoring the activities of the government, the public should be allowed access to the workings of some (if not all) Parliamentary Committees.

6.2 Ethics and Integrity

6.2.1 Review of the current situation

The ethics and integrity of Public Leaders and Government Officials in Zanzibar is currently regulated by the following:

a) the Constitution of Zanzibar (1984);

b) the Public Leadership Code of Ethics Act (No’13 of 1995);

c) the Permanent Commission of Enquiry Act (1966) – Repealed and;

d) Government Orders

Section 128 of the Constitution notes that the authority of the Permanent Commission of Enquiry (Ombudsman) established under the Union Constitution includes Zanzibar.

Under the Public Leadership Code of Ethics Act (No’13 of 1995) the Ethics Commissioner who heads the Civil Service Ethics Secretariat has the mandate to enforce the code of ethics, which apply to a specified group of public leaders and politicians, this group specifically includes the President of Zanzibar and the Chief Minister of Zanzibar. These public leaders must declare assets and liabilities on a regular basis. The declaration should be made within 30 days of being elected or appointed, at the end of every year and on vacating office. The recent amendment (2001) to the Act also requires that the value of assets and their source be disclosed. These details are maintained on a register and a member of the public can file a written complaint and review the declaration, if the Ethics Commission considers the complaint to be reasonable. However, the person can be fined or imprisoned if (s)he discloses any of the information obtained to the media or to the general public.

Since the passing of the amendment, the Ethics Commissioner has the power to undertake investigations and verify declarations. He is also able to deal with complaints from members of the public who wish to remain anonymous. Complaints, which are considered justified, are presented to the President, who appoints an Ethics Tribunal comprising of one judge (either from the High court or Supreme Court) and two other eminent members of society. The recommendations of the tribunal are given to the Ethics Commissioner and then to the President, who makes the final decision.

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There is no provision for appeal. In February 2001, representatives from the Zanzibar Government visited the Ethics Secretariat on the mainland to learn about its operations, as noted above only two of Zanzibar’s public leaders are covered by the Act.

Government orders set out the code by which government officials should conduct their activities, it is understood that there are regular seminars about the contents of these orders, but the extent to which compliance is enforced is unclear. Misconduct appears to only result in transfer or demotion rather than more appropriate measures.

The 1966 Permanent Commission of Enquiry Act was repealed in 2001 by the Commission for Human Rights and Good Governance Act (No’3 of 2001). Whilst the former Act and thus the Commission had jurisdiction in Zanzibar and despite the fact that section 3 of the Act specifically states that the Act shall apply to Mainland Tanzania as well as to Tanzania Zanzibar, it is understood that legally the scope of the new Commission goes beyond that of the former Permanent Commission of Enquiry and thus according to the Zanzibar Constitution needs to be passed by the House of Representatives. An enabling piece of legislation is currently being drafted to put before the House to enable the Commission to carry out its work in Zanzibar.

In accordance with the Act, the current vice chairman of the Commission is from Zanzibar. The Commission is responsible for investigating human rights abuses or issues of mal-administration either on its own initiative or on receipt of a complaint. In terms of mal-administration, the Commission can investigate or inquire into complaints concerning alleged abuse of power, injustice or unfair treatment in relation to both public sector and private sector officials and institutions. The Commission cannot institute any proceedings against the Presidents of Zanzibar or the URT. The decisions and recommendations of the Commission are only advisory and such decisions are privileged in the same way as court proceedings.

Currently all instances of corruption (although not specifically referred to as such) are dealt with under the Penal Decree. Anti corruption and ethics legislation is currently being drafted by a committee under the MCAGG. It is not clear whether the new ethics legislation will include those leaders covered by the URT legislation and to what extent, if any, there will be an overlap in responsibilities. These issues will need to be clarified with the relevant Union authorities.

It is expected that this legislation will be presented to the April 2003 session of the House of Representatives. It is anticipated that one body will be created in Zanzibar to cover issues of both corruption and unethical behaviour.

6.2.2 Assessment of the current situation

There are numerous factors, which contribute to the development of an environment conducive to both the corrupter and the corrupted. These include: poverty; low institutional capacity of enforcement and regulatory agencies; political interference; low public awareness; greed and abuse of power; incompetence; poor discipline; conflicting, outdated or incomplete legislation and lack of adequate systems, procedures and guidelines.

Unfortunately many of these factors exist in Zanzibar and whilst Transparency International reports are for Tanzania and not Zanzibar specific, it is reasonable to assume that the perceptions of Tanzania and Zanzibar are likely to be similar. Table 6.1 overleaf shows the position of Tanzania in these reports. Encouragingly Tanzania appears to be improving, but this has to be viewed in the context of larger sample sizes and the inclusion of a number of former communist countries.

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Table 6.1 Tanzania’s rating in Transparency International’s Corruption Perception Index

Year Position Sample Size

2002 71 102

2001 82 91

2000 76 90

1999 93 99

1998 81 85

The Government’s proposed initiatives on corruption and the recognition of its potentially harmful impact on its economy as well as its poorest citizens are therefore to be welcomed. Since police issues are a union matter (as per schedule one of the Union Constitution), it is understood that there are potentially some difficulties in instituting strong, independent and effective mechanisms for dealing with corruption on the island. This is particularly true, given the constraints on the effectiveness of the Prevention of Corruption Bureau (PCB) on the mainland because of outdated and inappropriate laws relating for example to economic offences.

However in August 2001, the URT signed the Southern African Development Community (SADC) protocol on corruption and PCB is a founding member of the Southern African Forum against Corruption. It is therefore hoped that new legislation will be enacted on the mainland in 2003 to eliminate some of these impediments, thus also facilitating the establishment of a more effective and independent body in Zanzibar.

The capacity of the Human Rights and Good Governance Commission to be an effective body when it can only present recommendations to other bodies is an issue which has been widely discussed elsewhere and applies equally to Zanzibar. The autonomy of its operations under the Ministry of Constitutional Affairs and Justice has also raised concern about its ability to carry out its key functions.

The security of public sector employment regardless of unethical behaviour is not confined to Zanzibar, indeed it is common in many developing and developed countries, however inappropriate and outdated disciplinary procedures are known to seriously undermine public confidence in government.

6.2.3 Conclusion and recommendations

Recommendations in other sections of this report are aimed at mitigating a number of the system-based causes of corruption, whilst the ZPRP aims to address the issues surrounding poverty and vulnerability. The biggest challenge for any country’s anti – corruption legislation is to convince a generally cynical populace that the government’s strategies are honest and genuine. The success of any anti corruption programme is therefore heavily dependent on public perception of the transparency and integrity of all stakeholders in the process. Similarly any regulations or codes on ethical behaviour either for public leaders or government officials are worthless, if they are continually ignored.

The following recommendations are therefore designed to try and mitigate some of these public concerns.

High priority

Legislation: In designing new legislation to deal with anti corruption and issues of ethics and integrity for public leaders, it is recommended that consultations take place with a wide forum of

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stakeholders including representatives from relevant bodies in the Union government. Experience in other countries in the SADC region may also be useful.

Code of ethics: It is recommended that the government orders setting out the conduct of government officials are reviewed, strengthened and implemented. Inappropriate and outdated disciplinary procedures can seriously undermine public confidence in government.

Public education and media capability: There is a need to improve the capacity and ability of the public and the media.

Medium priority

Regional co-operation: As noted above, corruption knows no borders and valuable experience can be gained from exchange of ideas and even personnel, therefore in setting up any new body initiatives to improve co-operation with the mainland and generally in the region should be explored further and fully supported.

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7 Local Government Accounting

7.1 Review of the current situation

7.1.1 Legislative and Regulatory Environment

Local Government in Zanzibar is currently regulated by several pieces of legislation: i) the Constitution of the United Republic of Tanzania; ii) the Constitution of Zanzibar 1984; iii) the Regional Administration Authority Act No’ 1 of 1998 iv) the Zanzibar Municipal Council Act No’ 3 of 1995; and v) the District and Town Councils Act No’ 4 of 95.

Both Constitutions refer to the establishment of local government authorities in every region, district and area. The Regional Administrative Authority Act allows the President of Zanzibar in consultation with the President of the URT to i) set the regions, districts and areas for administrative purposes; ii) appoint regional and district commissioners and administrative officers and; iii) establish Shehias at a sub district level. Shehas, who are in charge of the Shehias, are appointed by the Regional Commissioner. They are responsible for implementing all laws, maintaining records of all documents relating to registration of births deaths etc as well as issuing permits. The Act also establishes Regional and District development committees who are mandated to monitor and assist in formulation of policies for local government authorities in their areas.

Act No’ 3 establishes Zanzibar Municipal Council, the method of election/appointment of Councillors and the Mayor and Deputy Mayor as well as the appointment by the President of the Director of the Council. Part V sets out the powers and duties of the Council which include: i) the control of all public roads and streets within the municipality; ii) the naming of streets and numbering of buildings; iii) the establishment and maintenance of recreation grounds; iv) the implementation of public health initiatives as required by the Minister (responsible for local government administration); v) the construction, equipment and operation of drainage and sewerage works; and vi) the administration of public markets.

Borrowing by the Council is only permitted with the approval of the Minister, whilst external financing (outside Zanzibar) is only permitted with the approval of the Minister of Finance. Both the Municipal and Town Councils operate a committee system. The Municipal Council has five committees and five associated departments. These are: i) Finance and Economic Development; ii) Town Planning; iii) Law and Order; iv) Labour, Construction and Environment and; v) Social Services Affairs. The Finance Committee is responsible for regulating and controlling the finances and executing financial policy. The responsibility of maintaining proper books of account is vested in the secretary.

Act No’ 4 establishes District Councils and three Town Councils, Wete, Chake, Chake and Mkoani. Town Councils are assigned certain specific functions including: i) the cleaning of trunk roads; ii) the regulation and conduct of public hire vehicles; iii) street lighting and; iv) the naming of streets and numbering of buildings. The functions of a District Council are more general and include the responsibility for: i) formulating, co-ordinating and supervising the implementation of plans for economic, commercial, industrial and social development; ii) passing by-laws; iii) ensuring that revenues are collected and: iv) considering, regulating and co-ordinating development plans, projects and programmes of villages and townships within its jurisdiction. The following table sets out the current regional and local government structures. Town and district councils have a three committee structure.

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Table 7.1 Regional and local government structures in Zanzibar

Unguja Pemba Total

Regions 3 2 5

Districts 6 4 10

District Councils 5 (West, North A, North B, Central, South)

4 (Chake Chake, Mkoani, Micheweni, Wete)

9

Sub District Council

1 (Tumbatu) 1 (Kojani)

Municipal Council 1 (Zanzibar) 1

Town Councils 3 (Chake Chake, Mkoani, Wete)

3

Primary health, education and agricultural extension services are all provided through the deconcentrated offices of the parent Ministry. There is no code of conduct for staff and councillors, no anti-corruption guidelines and no councillor-staff relation guidelines.

7.1.2 Planning, Budgeting and Budget Execution

Section 39 of Act No 5 places local authority staff under the jurisdiction of the Minister Regional Administration and Local Government (RALG) with respect to financial administration. Local authority councils are legally obliged to maintain Finance Committees, which prepare the budget for Council approval and then monitor its execution. Development plans are included in the budgets of the authorities, which are then approved by the Minister SFRA&LG. Local authorities are required to dedicate 75% of all local revenue to the co-financing of community-based projects, which are passed through Shehia Advisory Councils to the District Council.

Reviews of past performance are not routinely undertaken and plans are based on the recommendation of the District Development Committee which consists, inter alia, of the District Commissioner, Planning Officer, Council Chairman, the Council clerk, all district MPs and members of HoR and the heads of government departments operating in the district. The Council is ultimately responsible for coordinating with other Government bodies on issues related to development activities within their area of jurisdiction. This provides the link between the provision of social services, which are a central government/MDA responsibility, and the local planning process.

Revenues are to be deposited into the Council general fund. As identified in Section 40 of Act No 4 of 1995, they consist of: i) from central government (RALG subvention as detailed in annual budget); ii) 50% of fees for licenses granted by licensing body; iii) Registration of taxis; iv) Auctioneers licenses; v) Council business, trade; vi) Council rents; vii) Licenses for public entertainments; viii) Fees on licenses, permits passed by council by-laws; ix) Fines imposed according to by-laws on markets, animals, recreation; x) Sale of Council property; xi) Fees paid on rental of shops and service/entertainment taxes; xii) Rental on council buildings; and xiii) Property taxes.

In practice many of these taxes are administratively difficult to collect and the revenue base is founded on only a few of these items, notably property-related and market taxes. It is understood that the Government is currently reviewing trade licensing legislation to ensure that it is more

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consistent and promotes rather than deters the establishment of businesses. The RALG subvention is based on 25% of the Municipality PE requirement and 100% of the requirement of town and district councils. These are transferred from the MoFEA Vote.

Budget execution is conducted by allocating funds once resource availability is confirmed. This means that there is necessarily some fluidity and flexibility in providing resources to projects. Reallocations are considered by the Finance Committee and approved by the Council but in practice the limited resources and activities of the local authorities makes this a uncommon practice.

7.1.3 Accounting and Financial Reporting

There is no local government financial memorandum, no written regulations or instructions and no accounting procedures manuals. Financial administration at the local level is based on that at the central level and therefore many of the issues raised in section four apply at local government level. Accounting is the responsibility of the secretary of the council. The accountant accepts cash, deposits it in the bank and is also responsible for bank reconciliation.

The councils maintain Vote Book, cashbook, receipt vouchers and expenditure vouchers. The cashier does bank reconciliation on monthly basis. The Wete Town Council in Pemba has not received salary subsidy in full in the current financial year. Revenue receipts have, therefore, been diverted to help pay salaries. Although this has been done with the approval of the Finance Committee, it has resulted in the non-payment of other items. In addition to the salary and overtime arrears, employer’s contribution to ZSSF is 4 months behind. In a cash based accounting system, these liabilities do not get captured in the financial statements sent to the Ministry.Abstracts of revenue and expenditure are supposed to be received in the Ministry monthly from the district and town councils and quarterly from the Zanzibar Municipal Council. In actual practice, the councils submit a financial statement to the Ministry every quarter. This statement records only receipts and payments. Financial accounts are prepared on the basis of the abstracts, which are summaries of receipts and expenditure. As noted in section four, financial statements prepared on the basis of abstracts do not provide adequate information for decision-making. .

There are no financial statements generated at the level of the Shehia and no legislative requirement for statements to be produced. According to Ministry officials, the financial statements generated at the district level do have supporting documents, a view disputed by the OCAG.

7.1.4 Internal Audit

As in central government there are no internal audit guidelines or instructions for internal audit. The Municipal Council has recently appointed an internal auditor, but there are no internal audit staff in the district or town councils. . There are two internal auditors working with the MRALG Government, who visit the district but not the municipal councils and conduct basic internal audit checks on a quarterly basis. Internal auditors verify receipt book and bank statements to check that revenue receipts have been properly accounted. Whilst payment vouchers are checked, physical stock verification is rarely done because of the lack of personnel. .

7.1.5 External Audit

According to the legislation, the CAG is responsible for auditing the accounts of local authorities and the PAC is responsible for scrutinising local government accounts. In practice, audits have been limited because of financial constraints. District and town councils have been audited intermittently, whilst the municipal council has never been audited.

There is no specific audit programme for local government audits and no guidelines as to how councils should be audited. In Pemba for example, the local office of the CAG audits the accounts of the councils on the basis of the previous year’s audit and is carried out in an ad hoc manner

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covering accounts for part of the year. The annual accounts are audited by the head office of the CAG. Internal audit reports are not made available to the external auditors. Interim reports conducted by the local CAG officer are sent to the CAG’s office in Unguja. The external auditor in Pemba has noticed misallocation of votes, missing files and missing supporting documents for vouchers. In some cases, these have not been noted in the final audit report and/or acted upon; even recommendations for action to be taken against erring officials have not always been accepted.7.2 Assessment of current situation

7.2.1 Legislative and Regulatory Environment

There is general agreement that the current institutional and legal arrangements for local government and the delivery of services at a local level are in need of review. There are overlapping and unclear responsibilities between local authorities themselves and with other institutions for example in tax collection and also in relation to planning issues. There is also a great deal of central government involvement in local government, with MPs being represented on District Development Committees and the appointment of a certain number of Councillors. In practice there appears to be no clear cut distinction between regional administration and local government, indeed local government even seeing itself as part of regional administration.

Whilst the accounting and auditing requirements are broadly set out in the relevant legislation for Municipal, District and Town Councils. There appears to be no mechanism for ensuring that the Shehas are accountable to either the Community or the Government.

The current situation exposes public funds to a high level of fiduciary risk, although this is partially mitigated by the limited amount of funds being received and spent at the local level. However it could be argued that where there are inadequate resources, there is a greater need to ensure that they are used for their intended purposes.

7.2.2 Planning, Budgeting and Budget Execution

The large range of taxes, some of which are not collected, places an administrative burden on local authorities while the cost of collection may not be justified by the effort and cost involved. Conflicts between the ZRB and local authorities have also been reported regarding responsibility for the collection of some licence fees and permits, indicating the level of uncertainty, and likely inefficiency, in the local government tax system more generally. Many taxes may be considered as nuisance taxes as they raise little revenue.

It also seems that Shehias collect payments for some services which are not remitted to the authority’s general fund. The Shehia, according to Section 17 of Act No 1 of 1998, does not appear to be legally mandated to collect revenues and this reported practice appears irregular. Accounting for revenue collection, together with overall revenue administration, appears weak and there are few checks in place.

Similarly, the local authority structure seems overwhelmed with the responsibilities they have in budgeting and reporting. The result is that many of their mandated functions are carried out only partially or at the compromise of quality. This is a result of their low endowment of the technical skills and resources that are required to plan and implement the functions with which they are charged. Given the coordinating role assigned to Councils and the local authority administrative staff, this means that district development activities implemented by central government may also be compromised.

District council linkage to District Development Committee seems weak. There are a plethora of planning and administrative organs to administer what is a relatively small sum of money. This creates some uncertainty for central government MDAs who are expected to assume the recurrent costs of completed development projects.

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There are essentially four planning/development modalities for communities (MDAs, MoFEA Community Development Programme, District Development Committees and the Shehia/District Council modality. This severely hinders the coherency of planning, both for the prioritisation and implementation of development activities as well as for ensuring the recurrent funding of them upon completion. Coordination is often inadequate and there is also therefore a risk of double-funding some activities. Reporting structures appear to be similarly uncoordinated with MDA local offices reporting direct to the MDA and the local authorities reporting to RALG, leaving it unclear as to how the management of development activities are to be ensured.

7.2.3 Accounting and Auditing

The quality and reliability of accounting and internal audit work at the local government level is seriously hampered by the lack of relevant accounting standards, regulations and procedures manuals. Whilst timeliness of reports is also seen to be a source of concern and adequate record keeping is a real problem. Improvements in financial control procedures and management information system are clearly a crucial requirement.7.3 Conclusions and recommendations

7.3.1 Legislative and Regulatory Environment

UNDP/UNCDF support to Government in assessing local government structure and role is expected to begin in early 2003. The CFAA concurs with earlier findings that the structure of local government and its relations to regions, sector ministries and MRALG is cumbersome and inappropriate. For decentralisation to be effective in improving service delivery at the local level, it is essential that fiscal, administrative and legislative issues are addressed simultaneously. As with many countries, the failure in Zanzibar to look at these issues together has left local authorities with the legislative responsibility but no technical or financial capacity. In addition there is limited understanding of the roles and responsibilities of local government which can lead to abuse of power and potential misappropriation of funds. The following recommendations are therefore set out to address some of these key issues.

Local Government Reform: It is recommended that a more comprehensive review is undertaken of the problems in the local government system in Zanzibar, options from similar island communities with relatively small economies assessed and widespread consultation with stakeholders commenced. Once the review process has been completed, there is clear need for a local government reform programme which has the following key objectives: i) to promote democracy, transparency and accountability; ii) to enhance effectiveness of local government in service delivery; iii) to increase the resources available to local government in a sustainable manner; iv) to maximize revenue collection in order to become more financially independent; v) to improve accountability and efficiency of human resource use at the local government level vi) to establish regulations, memorandum and written guidelines to support legislation and; vii) to develop oversight mechanisms and processes to ensure that funds are used for their intended purposes.

7.3.2 Planning, Budgeting and Budget Execution

It is recommended that the schedule of local taxes, together with capacity in tax administration be reviewed. There appears to be some overlap and an absence of clarity with regard to some fees and licences under the mandate of the local authority and those to be collected by ZRB. Capacity in areas of revenue collection and administration requires priority attention. Tax rates should be reviewed and nuisance taxes done away with. Simultaneously, the ability of the local authorities to produce estimates of rateable values should be strengthened, as this is an area where revenues are currently under performing.

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A public budget review process should, at the end of each year, detail where resources have been directed and what the net result has been. Public information of this nature should be made available.

Tax collecting powers must be more clearly assigned. The role of the Sheha must also be clarified and appropriate mechanisms established to ensure all payments to local authority officials are remitted to the general fund. More public involvement in the budget and planning process would contribute to this, particularly with regard to transparency in revenue availability.

Reporting channels need to be more closely linked with ministerial responsibilities. MoFEA directs funds to local authorities yet reporting is to RALG. Sharing of data on activities, implementation and financial reporting is not undertaken at all horizontally (district, local MDA office).

7.3.3 Accounting and Financial Reporting

The financial management system at the local government level suffers from all the weaknesses witnessed in the central government, like poor record keeping, lack of financial data, weak internal controls, poor revenue management and expenditure control, inaccurate and untimely financial reporting and general under funding. Recommendations have been made for financial accounting in the central government that are relevant for local government too. The following additional actions are recommended:High priority

There is clear need for a local government reform programme. The need for Local Government Financial Memorandum should be reviewed at the same time as

the overall local government legislative framework is assessed. The role of internal audit in local government needs to be reviewed and a sustainable and

effective means of conducting internal audits developed. Internal audit report should be compulsorily made available to external auditors and a mechanism for ensuring that both internal and external audit reports are followed up should be instituted.

Medium priority

Prepare and implement an in-depth skills enhancement programme to upgrade accounting and auditing skills in local governments through a combination of technical assistance, training of trainers and mentoring. This should be undertaken in collaboration with NBAA.

Accounting standards should be adopted in consultation with the NBAA. Different forms should be used for collection from each source to avoid classification problems.Low priority

Review the need for the implementation of basic computerised accounting systems at the local government level.

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8 Public Enterprises

8.1 Review of the current situation

8.1.1 Public Corporations

Currently Public Corporations in Zanzibar are regulated by a number of Acts, these include:

a) the Public Investment Act, No’ 4 of 2002

b) the Financial Administration Act, No’8 of 1996

c) corporation specific legislation e.g. Zanzibar Insurance Corporation, No’ ? of 1996,

d) the Companies Decree of 1952; and

e) the Banking and Financial Institutions Act (for PBZ)

In June 2002, the President signed the Public Investment Act (No’ 4 of 2002) which sets out the reporting and accounting requirements of the Public Corporations and establishes a Public Investment Department (PID) in the MoFEA. It repeals the Public Enterprises Decree (No’4 of 1978) and defines a Public Corporation as a Corporation in which the Government is the sole or majority shareholder. It also legalises joint ventures between the private sector and Government. However it does not specifically repeal part VII of the Financial Administration Act (No’ 8 of 1996). Many of the public corporations also have their own legislation, for example the Zanzibar Insurance Corporation Act (No’ of 1996).

In terms of accounting and reporting requirements, both the Public Investment Act and the Financial Administration Act require public corporations to submit to the responsible Minister and the Minister responsible for finance a corporate strategy, annual reports and half yearly statements as well as audited accounts. The annual report and audited accounts having to be provided within six months of the end of the financial year and then submitted to the House of Representatives by the responsible Minister.

In terms of auditing requirements, the Public Investment Act (section 29). states that the accounts of the Public Corporation are to be audited by the Controller and Auditor General, auditors authorised by him or independent qualified Auditors appointed by the Board whilst other auditing legislation gives sole responsibility to the CAG or a person appointed by him.

Under the Public Investment Act, the Public Corporations are required to remit to the Ministry of Finance a proportion of its net profits. Section 15 of the Act allows the Public Corporation to borrow with the prior approval of the responsible Minister and provides guarantees to this borrowing to be charged against the Consolidated Fund.

The PID is headed by a Commissioner Public Investment, who is mandated to supervise, monitor and implement the restructuring of the public corporations as well as acting as registrar of public corporations. The responsible Minister is however given responsibility in consultation with the Minister of Finance for initiating the restructuring of a Public Corporation. No special fund has been created for the proceeds of sales and sale of assets less expenditure incurred in effecting such sales. As noted in Section 4, funds from the sale of a public corporation have been placed in a deposit account and then transferred to the Consolidated Fund.

Whilst a number of public corporations have been divested or liquidated in recent years including Small Scale Industries and Zanzibar Dairies Corporation, there are still twelve public corporations in existence. These are:

a) Zanzibar State Trade Corporation (ZSTC);

b) Zanzibar Insurance Corporation (ZIC);

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c) Motor Trade Corporation (MTC);

d) Zanzibar Tourist Corporation (ZTC);

e) Zanzibar Ports Corporation (ZPC);

f) Zanzibar Shipping Corporation (ZSC);

g) Zanzibar State Fuel and Power Corporation (ZSFPC);

h) People’s Bank of Zanzibar (PBZ);

i) Mahonda Sugar Industry;

j) Bwawani Hotel

k) Zanzibar Fisheries Corporation; and

l) Zanzibar Rubber Plantation.

Whilst the two final corporations are currently being retendered following the failure of the previous acquisition process, the feasibility of restructuring of a number of the other Corporations is also being considered. The following paragraphs provide a very brief overview of some of the relevant issues for a few of the key Public Corporations

Zanzibar Insurance Corporation (ZIC)

ZIC was established over thirty years ago with the MoFEA as the sole shareholder. For twenty-five years, it had a monopoly in the insurance market, but the liberalisation of the insurance market in recent years has meant that the ZIC is facing considerable competition from private sector insurance companies. In order to meet the challenge, it has recognised the need to establish a joint venture with a private sector organisation.

The National Insurance Act No’18 of 1997 established various guidelines in terms of an insurance company’s investment portfolio. Technically ZIC is currently not complying with these guidelines as an insufficient amount of the organisations capital is in cash based assets. Indeed over 25% of its assets are in fixed assets. Whilst ZIC has established its plans for divestiture, progress has been slow in their actual implementation due to various government constraints and the need to identify a suitable partner. Whilst issues of redundancies are recognised, the cost of redundancies to government has not been quantified.

Zanzibar Ports Corporation (ZPC)

ZPC was formed by the enactment of the Zanzibar Ports Corporation Act (No’ of 1997) and was the result of a merger between the Department of Marine Transport and the Zanzibar Wharfage Corporation. It has 525 permanent staff and is responsible to the Ministry of Communications and Transport. According to its own legislation, it has a ten member Board of Directors including the chairman who is appointed by the President. In accordance with its own legislation its accounts are currently audited by the CAG. Financially it reports through its responsible minister, its accounts for 2001 (financial year = calendar year) have been prepared, but due to the qualification of its previous accounts by the auditors for the inclusion of assets for which it has no title deeds, these accounts have not yet been sent for auditing. Large sums of money are owed by ZSC for use of ZPC facilities. It is understood that this inter public corporation debt equates to TZS 0.6 billion and US$ 1.5 million

Zanzibar Shipping Corporation

Zanzibar Shipping Corporation (ZSC) is also under the MCT and comprises of a shipping agency and a shipping line. The latter now has three ships, two passenger/cargo vessels and one tanker. The Corporation was formed in 1978 under the Public Enterprises Decree. Its accounts are currently audited by the CAG and it has the same financial year as government. The 1999/2000 accounts have been audited by the CAG and unlike the accounts for ZPC have not been qualified,

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although the Corporation indicates that the ships are only used by the Corporation and actually owned by the MoFEA, they are included as assets on the balance sheet. Over the past four to five years significant sums of money, in excess of US$ 3 million has been spent on repairing the fleet. Another US$160.000 has recently been guaranteed by PBZ to the Mombasa dockyard for repairs to the MV Mandaleo. Whilst it is understood that the shipping agency is a profitable concern, the profitability of the shipping line is doubtful without significant injections of capital as all ships are over twenty years of age and in recent years the market has become increasingly competitive.

Zanzibar State Fuel and Power Corporation (ZSF&PC)

The ZSF&PC Act of 196 established ZSF&PC. Despite its name, it has never had any interests in fuel but does have a monopoly for the generation, transmission and distribution of power in Zanzibar. Under the Ministry of Water, Construction, Energy and Lands, it has 484 employees and almost 50,000 customers, the majority are private customers. Following recent support from the World Bank, 20% of customers are on a prepayment system. The Corporation has had major financial problems for a long time, and has operated at a loss and with a negative cash position for over a decade. This position has been aggravated by factors including high operating costs, >TZS 150 per KWH in Pemba, uneconomic tariffs set by the Government, high losses of more than 30% and overstaffing.

As at September 2002, ZSF&P debtors included RGZ TZS 5.9 billion, URT, TZS 0.77 billion, Parastatals TZS 0.45 billion and private customers TTZS 4.08 billion. Currently monthly billing is in the region of TZS 60 million of which collection rate is about 50%. However the Corporation owes Tanesco a total of TZS 34 billion, TZS 15.8 of which is actual electricity costs, TZS15.5 billion is interest and TZS 2.7 billion is VAT.

Whilst ZSF&PC is currently paying its monthly recurrent charges of TZS ? million to TANESCO, discussions are ongoing between the two utilities on how to settle the outstanding debt.

Zanzibar State Trading Corporation (ZSTC)

ZSTC was established under its own Act in 1969. Under the MTIMT, the ZSTC deals primarily with purchase of cash crops (mainly cloves) but also various essential oils, Copra and to a limited extent Chillies. In the past 50% of estimated profit has been paid to the government, and the Corporation has been extensively involved in providing support to the Clove farmers including road construction and welfare payments for injured workers. Last year’s problems with clove smuggling resulted in significantly reduced income, this combined with this year’s major fall in clove prices (from over US$4,000 a ton to less than US2400 a ton) and government increases in the price paid to the farmer has meant that ZSTC is currently facing severe cash flow problems. In order to purchase cloves between 8th July and 3rd October it had to borrow TZS 8.8 billion from PBZ. If it is to restart the purchase of cloves, it is understood that it now needs a further TZS 1 billion from the Government. As noted in Section 4, the government owes ZSTC TZS 2.7 billion.

Peoples Bank of Zanzibar (PBZ)

PBZ was established in 1966 under the Companies Decree with two shareholders the MoFEA and the CMO. Although initially it was just the government banker, its memorandum and articles of association did not disallow it from operating as a commercial bank. As a commercial bank it is regulated by Banking and Financial Institutions Act (1991) and operations are monitored by BoT. Periodic returns are sent to BoT and the central bank inspects operations from time to time. The accounts are audited by the Tanzanian Audit Corporation in accordance with the requirements of the BoT.

The problems now facing PBZ are a legacy of its past as government banker. Three non-performing assets of PBZ (ZSC, Bizanjee and Cortex ) have been transferred to the Loans and Advances Realisation Trust (LART), although it is understood that they have not been very successful in realising any of the outstanding amounts. The Bank is owed a further TZS 7 billion

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by the Government, an overdraft facility that the Government has still not honoured. In order to remedy the situation, the Bank is to receive assistance to undertake a comprehensive restructuring under the World Bank Financial Institutions Development Project.

8.1.2 Other Government Institutions

There are numerous government institutions, which have semi autonomous status. These include Zanzibar Institute of Financial Administration (ZIFA); Export Promotion Zone (EPZ); Zanzibar Investment Promotion Agency (ZIPA), Zanzibar Social Security Fund (ZSSF). These institutions have been established by specific statutes or by Presidential Decree. There is no overriding legislation, which governs their accountability. Boards are appointed and accounts are audited by the CAG or a person appointed by the CAG and then passed to the Minister. He/she presents the report to the House of Representative. Board Chairman, like heads of government departments appear before the PAC. Funding of these institutions is primarily salary costs, although some receive funding for other charges.

As described in Section 4, ZSSF is controlled by a Board of Trustees. The Board has two committees, the finance committee and the technical committee. The Finance Committee scrutinises the Budget, audit report, financial reports, investment viabilities and implementations before being tabled before the Board. The accounts for 2001/2 have already been audited by TAC and the annual report for 2001/2 issued. This shows a figure of TZS 2.018 billion as contributions receivable from government and a government subsidy of TZS 48 million for recurrent expenditure. According to ZSSF’s annual report, the government owes individual claimants TZS 5.01 billion in gratuities and pensions.

8.2 Assessment of the current situation

As stated in the 2002/3 budget speech the RGZ has been gradually withdrawing from the participation in direct production activities so that it remains with the responsibility of creating an environment conducive for policies and laws as well as developing the economic infrastructure. Indeed in the ZPRP and the Budget Speech, there is reference to a new policy on investment and there are proposals to review investment related legislation including the roles and responsibilities of Zanzibar Investment Promotion Agency (ZIPA) and trade licensing regulations.

It is also recognised in government circles that Zanzibar needs an environment which is more conducive to private sector involvement and that it is likely that changes in economic laws may be required, for example the Transfer of Property Decree, Cap 150 and Contract Decree, Cap 149. It is understood that the Land Tenure Act was updated in 1992 with Finnish assistance but the corresponding regulations have not been issued.

However, the legacy of the past has left many Corporations in difficult financial circumstances. Non commercial tariffs, inappropriate staffing levels and unsound business decisions means that a number of Corporations represent a major strain on government resources. After many years of enjoying a monopoly, several others are now facing stiff competition from the private sector. Their ability to survive and provide quality products will depend on their separation from the constraints and bureaucracy of government ownership.

In addition the previous requirement for contributions to be made based on budget estimates, rather than actual net profits has meant that even profitable Corporations are vulnerable to changing market conditions. In the case of ZSTC their financial position has been made even more vulnerable by having to effectively subsidise government services such as road construction and the provision of compensation for injured clove sellers.

Attempts to redress the situation are the basis for the new legislation, but as it was only enacted in June 2002, the implications of the new legislation are not well known. The procedures, rules and regulations for the divestiture of Corporations have not yet been established. Consequently there is

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significant fiduciary risk in relation to the proceeds from the sale of assets, unless procedures are made transparent and open to legislative scrutiny.

Currently the role of the PID is reactive not proactive, with the responsible Minister being given the responsibility for initiating restructuring. Again without the correct procedures, rules and regulations, there are potential transparency problems. Furthermore without active marketing campaigns, the most appropriate solution may not be found. The restructuring of public sector organisations is a highly complex discipline, one in which governments worldwide are notoriously ill equipped in comparison to the private sector investors. The remaining Corporations are potentially the most difficult to restructure and therefore external support and internal capacity building will be required.

The ability of responsible Ministers to authorise borrowing and guarantee its payment from the Consolidated Fund represents a significant fiscal risk to RGZ as contingent liabilities could be created without due consideration of the overall financial position of the Government.

There appears to be some confusion as to the human resource implications of public corporation legislation and the ability of Boards to hire and fire staff without the approval of the Civil Service Commission. It is not clear whether the relevant section (11) in the Public Investment Act does actually repeal all other legislation. Finally, there is also some debate as to whether the Public Investment Act repeals totally Part VII of the Financial Administration Act.

8.3 Conclusion and recommendations

In order to improve the performance of Public Corporations and the transparency of any restructuring exercise, it is important that there is a common understanding between the Government and the Public Corporations of their respective roles and responsibilities. The following list of recommendations is prioritised in terms of mitigating fiduciary and fiscal risks as well as improving the overall financial situation of RGZ.

High priority

Public Investment Act Workshop: Conduct a workshop for key stakeholders on the implications of the legislation with particular reference to human resource management and pension liabilities as well as the new method of determining the “contribution” of Public Corporations.

Develop Procedures, Rules and Regulations for Restructuring: As a matter of urgency develop procedures for restructuring and the transparent recording, deposit and future disbursement of sale proceeds.

Borrowing guarantees: Review the position of guaranteeing Public Corporation loans in the context of the Government’s wider debt management policy.

Debt restructuring: Finalise the situation with respect to the debt restructuring requirements of ZSF&PC as well as the longer term restructuring requirements.

Restructuring of PBZ: In order to safeguard private and government funds, commence the World Bank supported restructuring programme as soon as possible.

Capacity Building: Improve capacity of PID to undertake their role of overseeing the government’s restructuring process.

Contingent liabilities: An audit should be undertaken of contingent liabilities, including inter corporation debt.

Legislation: Review all relevant legislation to ensure that there are no obvious contradictions.

Medium priority

Asset Management: Clarify the situation with respect to the ownership of assets and amend financial records accordingly.

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9 Organisational and Human Resource Capacity Issues

9.1 Review of Current Situation

9.1.1 Regulatory Framework

The legislative framework for human resource management in the Zanzibar public service is contained within the Constitution, the 1986 Civil Service Commission Act and the Security of Employment Act (no’1 of 1988) as well as the various pension acts. The General Orders govern the running of the civil service, code of conduct, disciplinary and recruitment procedures. As noted in Section 8, there is some confusion over the precise role of the Civil Service Commission in the recruitment of personnel for Public Corporations. Financial accountability and responsibility applies equally to all public servants, however, the following paragraphs are predominantly concerned with finance related staff.

9.1.2 Manpower Issues

There are 26,100 employees in the Zanzibar Public Service, including employees of Parastatals and other semi – autonomous organisations. According to the records, there are 511 employees in MoFEA of which 45 are under the Accountant General’s department. It is understood that a significant number (200?) of the 511 MoFEA employees are currently on study leave.

According to Government sources, only 20% of the civil servants possess the correct qualifications for the jobs they perform. The situation is similar for the accounting cadre. The total number of accounting personnel under the overall control of the AccGen is 256. The qualifications of accounting staff by place of work is given in table 9.1 below.

Table 9.1 Qualifications of Accounting Staff in RGZ

Qualification Head Office Line Ministry Total

Post graduate degree 3 0 3

Post graduate diploma 0 1 1

First degree 7 1 8

Advanced diploma 6 15 21

Diploma 6 31 37

Sub total 22 48 70

Certificate 23 163 186

Grand Total 45 211 256

The AccGen considers an ordinary diploma as the minimum requirement to work as an accountant. As can be seen from the above table, 186 of the 256 employees possess only certificate level education.

As noted earlier, Accounts Officers in line ministries are under the control of the AccGen, but report to the head of the line Ministry for day-to-day work. Transfers are carried out by the AccGen in consultation with the head of the ministry. .

Generally it is reported that there are adequate numbers in all departments with the possible exception of IT personnel and indeed in some departments actual numbers are greater than establishment. There is a widespread agreement however that many people in post do not have the requisite skills to carry out either their current tasks or more importantly new ways of working.

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Recruitment and retention of finance personnel

Difficulties are encountered in the recruitment and retention of suitably qualified professional staff. Currently job descriptions and the associated qualifications and experience requirements are not well defined in the public sector. When positions become vacant, recruiting ministries/departments send a request to the Civil Service Department who shortlists candidates for interview from their list of job seekers. The names of shortlisted candidates are sent to the concerned Ministry/department for interviewing. Selection of eligible candidates by the Department of Civil Service is not based on any fixed criteria nor do they ensure that vacancies are publicly advertised to attract the most qualified candidate. In addition, establishments do not seem to be adhered to for example, the Department of Stock Verification has 51 persons although the requirement is 42.

Generally, remuneration in the public sector is less than in the private sector and working conditions are poor. Although public sector employees benefit from generous training opportunities compared to their private sector counterparts. However, lack of transparency over promotions and non-merit based appointments also deter hard working and enthusiastic graduates from joining the civil service. Disciplinary action is rarely taken and many recalcitrant employees are merely transferred.

9.1.3 Training

Training is currently co-ordinated by the Training Officer within the Department of Administration and Personnel in the MoFEA. However, there is no co-ordinated plan and no independent assessment has been made of training requirements.

In Zanzibar, general training facilities for accountants are limited. Only ZIFA offers general accountancy training to people from both the public and private sectors. The Institute offers a 1 year certificate course, a 2 years ordinary diploma course, a 3 years advance diploma course and a 1 year advance diploma course, for holders of ordinary diploma. Therefore, a large number of employees receive training in mainland Tanzania at the IFM, although numbers are restricted by availability of funds.

It is understood that short courses were stopped due to lack of space and evening classes have not been offered because of the distance from Zanzibar town centre. Once operational it is understood that the new Zanzibar state university will offer accountancy degrees in addition to those currently being provided at the private university.

9.2 Assessment of the current situation

The successful implementation of public finance management reforms requires that institutions be adequately staffed with appropriately qualified and motivated personnel. Currently, low levels of pay and poor working conditions do undermine motivation, contribute to high levels of staff turnover and reduce the sustainability of training interventions. At the same time, overstaffing /inappropriate staffing reduces the efficient delivery of service, as well as making effective supervision and management extremely difficult.

The lack of a culture of accountability and enforcement is a serious risk to financial accountability and the successful implementation of any of the financial management reforms.

Training can take many forms and on the job training is often the most effective. However this is often viewed as the least attractive as it does not result in any training allowances. A training needs assessment should identify the most effective form of training rather than the most lucrative. Furthermore, the training needs assessment should reflect both ongoing and “catching up” requirements. Indeed there is potential scope within an overall assessment of training requirements to review the role of ZIFA, the NBAA and other stakeholders in the provision of high quality and technically relevant training.

Whilst the recent combining of the ministries of finance and planning has improved co-ordination between the two bodies, there are still some issues that need to be addressed if the ZPRP is to

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achieve its objectives at the service delivery level. In particular, senior officials, particularly Principal Secretaries, must develop a vision for their MDAs and ensure that middle management e.g Commissioners are focused on the core tasks and objectives. This would prevent the random assignment of staff to ad hoc tasks, which takes officials away from their main duties. Many officials clearly spend a large amount of time performing functions that are unrelated to their appointed role.

The roles and responsibilities of each section or department are not clearly defined and there appears to be only limited interaction between the various departments even at key times of the year, for example at budget preparation.

9.3 Conclusion and recommendations

The achievement of greater financial accountability is very dependent on the capacity of available human resources to implement the proposed reforms. Although improved conditions and relevant training will assist, the greatest challenge will be to create an environment where individuals at all levels are required to be responsible and accountable for their actions and where sanctions for non compliance are strictly enforced.

The introduction of new legislation, the ZPRP and new methods of working such as the MTEF provide an excellent opportunity to further review the roles and responsibilities of the central ministries vis a vis the line ministries, the semi- autonomous agencies and the public corporations. Other sections of this report on accounting, the use of IT, and external audit have detailed training recommendations, these are not repeated.

High priority

In view of the new ways of working and new legislation carry out a review of the roles and responsibilities of the various departments in the MoFEA, ensuring that conflicts of interest are avoided and limited manpower resources are utilised effectively and efficiently.

Define mandates of departments, establish manning and skill requirements and prepare job desciptions.

A training needs assessment should be undertaken as soon as possible, but the scope of the work should reflect the needs of the required posts, not those of the existing positions, whose role may have changed or even become redundant. Furthermore, both ongoing and “catching up” requirements should be assessed.

Train Accounting Officers in their roles and responsibilities. Training programmes designed and implemented to meet priority “catching up” needs. The roles, responsibilities, lines of reporting and accountability need to be clarified for all

accountants in line ministries and their training needs identified.Medium priority

MoFEA presses the case for meritocratic recruitment and promotion and the speedy introduction of performance based staff appraisal procedures. If feasible, MoF could volunteer to be one of the pilot ministries in the implementation of performance-based appraisals.

Training programmes designed to meet “career” needs. Schemes of service should be amended to reflect levels of training required before promotion

can be considered.

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10 Accounting and Auditing Profession

10.1 Review of the current situation

10.1.1 Legal and regulatory framework

Presently, the accounting and auditing profession in Zanzibar is not regulated by a specific statute, nor is it in any way organized in any formal or informal structure. On the mainland, the National Board of Accountants and Auditors (NBAA) was established under the Auditors and Accountants (Registration) Act No. 33 of 1972 and its mandate was later revised by Act No. 2 of 1995. The NBAA has self-regulating powers for governing the accountancy profession in Tanzania15 but the legislation does not specifically give it powers to regulate members of the profession in Zanzibar. Also, the regulation of the accounting and auditing profession is excluded from the list of union matters mentioned under section 5 of the Acts of Union.

There are fragmented pieces of legislation that regulates some of the functions performed by members of the profession, including the following:

a) the Companies Act16 regulates the appointment, duties and qualifications of auditors of companies. It stipulates that the Resident in Council (Finance Minister) should determine the qualifications of persons fit to perform the attest function, presumably through a government regulation or declaration; and

b) all private companies and individuals with a turnover of TZS1.5million and greater are required to submit financial statements for tax purposes which are prepared or certified by a tax consultant registered with the Commissioner of Tax in Tanzania. Only accountants registered with the NBAA are currently allowed to perform this function – this is consistent with the requirements of section 24 and 25 of the Auditors and Accountants (Registration) Act that apply to the mainland.

The records of the NBAA shows that as of December 2002 only nine of its almost 1,400 members are practicing in Zanzibar. In their professional capacity they have to comply with accounting and auditing standards, code of ethics and other technical pronouncements issued by the NBAA.

In addition, a Public Notice was issued by the RGZ in 1992 in an attempt “to encourage and facilitate professionally qualified and well experienced accountants and auditors (national and foreigner) to engage themselves as private practitioner(s) in public services through registered offices in Zanzibar.” Under this notice interested accounting and auditing professionals are required to apply for a “Practicing Certificate” from the Treasury Department in the MOFEA. As a matter of control over the professional and general conduct of the professionals the Accountant General has been authorised to scrutinise the professional status of the applicants and to provide eligibility by signing and issuing a “Practicing Certificate”. In practice the applicants fill out an application form and are subsequently interviewed by the Accountant General. Applicants are required to submit written consent to:

a) open a registered office in Zanzibar within 90 days after registration has been granted by the Registrar of Companies;

b) authorise the Accountant General to control their professional and general conduct;

15 For a detailed discussion of the Accounting and Auditing Profession in Tanzania (mainland) please refer to Chapter 10 of the Country Financial Accountability Assessment, May 2001.16 Revised laws of Zanzibar of 1959, Chapter 153: Companies Decree (Act), 34 of 1952 (as revised).

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c) agree to the Treasury Department reserving the right to cancel or suspend the “Practicing Certificate” when the professionals (i) fail to open the office within the mandatory period or (ii) have been found guilty of misconduct of the professional ethics;

d) submit quarterly reports to the Accountant General stating information about their clients and services rendered.

The Accountant General keeps a manual list of professionals who are authorised to practice in Zanzibar. The successful candidates are “authorised to offer professional services to clients in Zanzibar in accordance with the conditions legally in force”. In addition, they are notified in a separate letter to:

a) open a registered office in Zanzibar within 90 days; and

b) conduct their duties as stated in the following quote: “You will exercise Accounting Profession as directed by the National Board of Accountants and Auditors (N.B.A.A.) as on its statements, TANZANIA STANDARDS OF ACCOUNTING GUIDELINES (T.S.A.G.).”

10.1.2 Professional education

NBAA administers training programmes and examinations for professional and technician trainee accountants. While a number of educational institutions in Zanzibar provide full and part time courses in the accountancy disciplines, including the Zanzibar University, only one institution, the Zanzibar Institute of Finance and Administration (ZIFA) is an affiliated training institution for NBAA exams at the Technician level. ZIFA is currently processing an application to be accredited for purposes of exemption of its students in certain NBAA Professional exams. In order for ZIFA to be granted exemptions for its graduate students, it has to pass an exemption criteria set by NBAA who monitors the quality of accountancy training through moderation of the institution’s final examinations, vetting of its syllabi and regular visits to assess quality of accountancy training.

10.2 Assessment of current situation

A report of the United Nations Centre on Transnational Corporations entitled “Organization of the Accountancy Profession and the Role and Qualification of Auditors” provided the following summary of broad objectives for the accountancy profession and a professional accountancy body or organization:Table 10.1 Objectives for the Accountancy Profession/Accountancy Body

To seek public recognition of a broad range of skilled services that qualified accountants can provide.

To protect the public by ensuring the observance by its members of the highest standards of professional and ethical conduct.

To regulate the public practice arm of the accountancy profession.

To promote and increase the knowledge, skills and proficiency of members of the organization and students.

To promote and protect the welfare and interest of the organization and the accountancy profession.

To maintain the legitimate rights of its members.

To preserve at all times the professional independence of accountants in whatever capacities they are serving.

To advance the theory and practice of accountancy in all its aspects.

To ensure that members obtain the necessary back-up support that enables them to meet the needs of the community in areas in which they have special knowledge and expertise.

A rigorous legal and regulatory framework for the profession would provide protection to the public and help to build business confidence. The lack of such a framework therefore poses a high fiduciary risk to all those who use the services of accountants.

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While the Companies Act requires the Finance Minister to determine the qualifications of persons fit to perform the attest function, such requirements have never been established or issued. As a result the NBAA can not discipline any person or firm who falsely pretend to have professional qualifications and performs duties as a qualified accountant and auditor. These members may be disciplined by the NBAA for irregularities under the afore-mentioned standards but they can not be prosecuted by the NBAA in terms of any statute as the NBAA has no legal powers in Zanzibar.

While it was noted that the Accountant General is currently reviewing the registration and licensing process the following weaknesses needs to addressed:

a) While the Public Notice issued in 1992 targeted professionally qualified and well experienced accountants and auditors (national and foreigner), paragraph 4 of the application form currently in use seems to accommodate the licensing of non-professionals with some minimum academic and applicable practical experience;

b) The type of services for which licensing is done includes those performed by an accountant, auditor and /or financial consultant. It is not clear if applicants can apply for one or more of these services.

c) The Accountant General has the sole responsibility and liberty of licensing. At the surface this process seems to create the space for corruptive practices and monopolistic behaviour.

d) The manual list of professionals who are authorised to practice in Zanzibar is not current. While the NBAA membership register shows that only nine professionals are practicing in Zanzibar the list from the Accountant General shows many more. Also, redundant names have not been removed from the list since its inception.

e) It is unclear what the legal conditions are that practitioners need to comply with when they are authorised to offer professional services to clients in Zanzibar in accordance with the “conditions legally in force”.

f) The accompanying letter that goes with the “Practicing Certificate” effectively requires professionals to comply with only the Accounting Standards issued by the NBAA. This effectively rules out the requirement to comply with any of the other standards of professional and ethical conduct promulgated by the NBAA.

g) The same letter does not require practitioners to submit quarterly reports to the Accountant General and he does not keep records of such reports. This requirement, which forms part of the declaration included in the application form (refer to par. 9.1.2 above), therefore seems to be superfluous.

The absence of a regulator or other enforcement agent who could ensure the observance by its members of the highest standards of professional and ethical conduct exposes the public to the high fiduciary risk of non-protection.

10.3 Conclusion and Recommendations

High priority

Licensing: In the short term the process of registration and licensing of practitioners needs to be thoroughly reviewed to eliminate weaknesses and inconsistencies in the system. It is not desirable and transparent to require from the Accountant General to do this on his own. An independent committee/task group should be appointed by the Finance Minister to perform this task.

Medium priority

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Legal framework: In the longer term, Zanzibar should have a legal framework that would provide for the regulation of the accounting and auditing profession. The size of the business environment in Zanzibar and the limited resources available to regulate the profession does not justify the creation of an accountancy body separate from the NBAA. It is therefore envisaged that such a framework would probably extend the powers of the NBAA to Zanzibar while a small secretariat could be established to perform the day to day activities.

Organizational structure: The profession may also choose to organise itself as a sub-structure of the NBAA with representation on the board of the NBAA that will have as its objective to represent Zanzibar interests of the profession. Whatever the legal form of such structures, it is imperative that some professional accountancy body would ensure its members operate to the highest standards of professional competence and ethical behaviour, look after the public interest in all matters pertaining to the profession, protect the interests of professional accountants and enforce compliance with standards of professional and ethical conduct.

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11 Registration of Companies and Non governmental Organisations (NGOS)

11.1 Review of the current situation

11.1.1 Companies

Companies in Zanzibar are registered in accordance with the Company Decree Cap 153 of 1952. According to records maintained by the Registrar of Companies, there are 1780 local companies registered and 387 foreign companies. Over the past three years, the number of companies registering with the Office of the Registrar of Companies is shown in table 11.1 below

Table 11.1 Registration of Companies in Zanzibar 1999 - 2001

1999 2000 2001

New registration Local

109 74 102

Foreign

20 9 15

De registration Local

Nil Nil Nil

Foreign

Nil Nil Nil

Insolvencies Local

Nil Nil Nil

Foreign

Nil Nil Nil

According to the legislation, companies should submit annual returns to the Registrar. The penalty for non compliance is TZS 100 per day or TZS 36,500 per year (less than US$40). Compliance is limited and the Registrar has not actively pursued non complying companies. It is also recognised that the manual data maintained by the Registrar is incomplete and out of date.

The Office of the Registrar of Companies has recently received support from the World Intellectual Property Organisation (WIPO). This support has been predominantly for copyright purposes, but one of the computers provided by the support is also to be used for the creation of a basic database for the registration of companies.

In order to create the database, it is proposed that Companies will be asked to effectively re-register and provide updated information. This information will be supported by information from TRA, ZRB and licensing authorities such as the Tourism Commission.

As noted elsewhere in this report, investment and trade licensing arrangements are being reviewed now and it is hoped that the creation of a single licensing body will improve communications and the flow of information between relevant government organisations as well as facilitating private investment. It is understood that the licensing body will be separate from the Registrar of Companies. Furthermore the Government recognises the need to review and update the Companies Legislation and it is proposed that this exercise will start in 2003. A key focus of the review will be in trying to ensure that the law in Zanzibar is more closely aligned with modern corporate governance issues elsewhere in the world.

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11.1.2 NGOs

Currently in Zanzibar, all NGOs are registered under the Societies Act (No‘ 6 of 1995). Manual records maintained by the Registrar of NGOs within the Office of the Registrar of Companies show that there are 212 registered NGOs. However, the Office knows that the figure is not accurate.

In addition to the Registrar of Societies, separate departments initially under the CMO and more recently under the MCAGG exist, and are mandated to help co-ordinate the activities of NGOs. In practice, these departments have comprised of one or two officers. ANGOZA (Association of NGOs of Zanzibar) acts as an umbrella group for NGOs in Zanzibar. In addition an NGO resource centre was established in 1995 with support from the Aga Khan foundation. The main objective of the NGO resource centre is to enhance the performance of the non profit sector by improving its technical and managerial capacity and effectiveness. Individual NGOs are supposed to discuss, where appropriate, areas for assistance with specific Ministries (for example Education) and relevant local authorities.

The development of a policy for the governance of the NGO sector in the URT has a long and tenuous history. It began in 1996 with financial support from UNDP. Following a consultative workshop attended by representatives of government, donor agencies, national NGO umbrella organisations including ANGOZA, a National Steering Committee for NGO Policy formulation was formed.

Over the next three to four years, various consultative fora took place including representatives of NGOs, donors, URT and RGZ. The final draft of the policy was issued in 2000 and proposed the establishment of separate institutional arrangements for mainland Tanzania and Zanzibar, for example the creation of two National Co-ordination Boards. The Boards comprising of representatives from both NGOs (two thirds) and Government (one third) would be responsible for approving and co-ordinating the registration of NGOs and have the sole authority for the deregistration of NGOs.

However, it is understood that draft legislation recently presented to the National Assembly proposed that registration and regulation of NGOs become a union matter, with one board and with powers of deregistration residing with the Government. Following significant opposition from NGOs, the draft legislation was rejected by the National Assembly. A committee comprising representatives from NGOs and RGZ is currently discussing the establishment of a separate policy on NGOs in Zanzibar. This policy is to include a formal definition, an area that also created a great deal of controversy in the draft NGO bill presented to the National Assembly. It is understood that the proposed timetable will mean that a policy will be developed by early 2003 and that new legislation repealing the Societies Act will be formulated and presented to the House of Representatives by the end of 2003.

Concerns over the requirements of the Societies Act are well documented. Solely in terms of registration, the requirement for the organisation to have at least 10 members causes many small NGOs difficulties. Whilst the accounting and auditing requirements for organisations registered as a Society are set out in part V of the Act, compliance with these requirements is low and many NGOs are reluctant to pay a fee for filing their returns. In most cases no action is taken although recently the Chamber of Commerce has been deregistered reportedly, because of internal conflicts

In addition, the NBAA has issued a Tanzania Statement of Recommended Practice, TSRP # 2 Record Keeping and Accounting Practices for Non-governmental Organisations (NGOs) in Tanzania. It is a skeleton guide on how to maintain basic books of account as well as the format of presentation of its annual financial statements.

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11.2 Assessment of the current situation

11.2.1 Companies

Current company legislation is outdated. As noted above there are plans to amend the companies’ legislation in 2003 but realistically it will be 12 – 18 months before it will become effective. Staff in the Office of the Registrar are trying to improve the accuracy and completeness of data held, but many do not have the relevant qualifications or experience and most have only received limited training.

In addition, there is currently no requirement to reserve names and therefore there is potential for duplication. The role of enforcing compliance with legislation is not carried out and many companies are unaware of the requirements of the Act.

There is a recognised need to improve links with the TRA, ZRB and various licensing authorities and the Office already has a good relationship with the Tourism Commission. However, the practicalities of establishing the consultative mechanism have not yet been completed.

11.2.2 NGOs

It is widely accepted in both Zanzibar and mainland Tanzania that NGOs are important partners in national development, the promotion of democracy and actual service provision. There is also general agreement that the public should be entitled to know both the sources and utilisation of their funds. The existence of “briefcase” NGOs has raised concerns about the transparency of their operations in the House of Representatives, in the media and amongst the general public. The preparation and presentation of annual reports on activities and audited financial statements is one way of ensuring the accountability of NGOs to their members and to the public. Indeed open and public scrutiny of the affairs of public institutions is a key component of democratic theory and practice. However, key stakeholders have significantly different opinions on the use of this information and whether NGOs should be self regulatory, regulated by the Government or by the judicial system.

Solely, in terms of financial accountability, the current situation of incomplete and outdated information combined with non-compliance in terms of reporting requirements is clearly unsatisfactory. In theory, any fiduciary risk should be partially mitigated by the fact that the larger NGOs are mainly donor funded, and the donors in these cases determine the disclosure requirements and the management responsibilities. Yet, experience in other countries shows that these requirements are neither followed up in a timely and effective manner nor available for public consumption.

11.3 Conclusions and recommendations

As the private and non governmental sectors are now playing an increasing role in the economy of the islands and in the provision of services, it is essential that the public have confidence in the legitimacy and the integrity of these organisations. The following recommendations are designed to address the issue of financial accountability.

High priority

NGO Policy and legislation: Complete consultative process and agree with key stakeholders policy and associated legislation.

Company Database: Continue developing database of Companies

Establish Committee: with representatives from ZRB, TRA and the Office of the Registrar General to facilitate the co-ordination and collection of information on Companies operating in Zanzibar.

Company Legislation: Commence process of developing modern legislation, which will review the role of the office of the registrar general (registration and enforcement), the need for the registration

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of names etc.

Medium priority

Capacity Building: review the skill requirements and training needs of the Office of the Registrar and establish programme for upgrading skill levels.

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12 Public Access To Information On Public Sector Financial Management

12.1 Review of the current situation

The Constitution of Zanzibar states that “subject to any law for the time being in force, every person shall have the enjoyment of his freedom of expression, that is to say, freedom to hold opinion without interference, freedom to receive ideas and information without interference and freedom from interference, with his correspondence”. It further states that “every citizen shall be entitled to receive information at any time in respect of national and international events which are important to the lives and functions of the people and also on matters of public interest”.

Zanzibar has a number of legal barriers that potentially make it impossible or difficult to access information on public sector financial management. The major ones include:

The National Security Act, No. 3 of 1970, which as a union matter applies equally to Zanzibar expressly, prohibits disclosure of broad and vaguely defined categories of government held information. There is a perception that some public information could be shrouded in secrecy through the application of this Act.

The Registration of Newsagents, Newspapers and Books Act, No. ? of 1988 which requires journalists to be licensed by the Government and enables government and police wide powers to: i)seize publications, ii) search premises, iii)effect arrests and; iv)suspend or ban publications or individual journalists. In addition it also establishes an advisory board with the mandate of exercising “disciplinary control over journalists, editors and publishers” and regulating “ the conduct of and promoting good ethical standards and discipline of journalists.” Furthermore the Act requires all newspapers to be registered and approved by the Government and stipulates the imposition of a bond as security for any potential breach of a number of broadly defined offences.The Zanzibar Broadcasting Commission Act, No. ? of 1997 and the Registration and Control of Television Act No’ of 1983 cover the establishment of Zanzibar Broadcasting Commission (ZBC) and the regulation of the broadcasting industry as a whole. The chairman and executive secretary of the ZBC are appointed by the President.Civil Service Government Orders, which potentially restrict officials revealing public information because of criteria being applied for the classification of information in the public sector. This may lead to unnecessary or even intentional practices of “foot dragging” by officials who are in doubt about their right or duty to provide information, which is supposed to be available for public consumption.An NGO, the Journalists Association of Zanzibar (JAZ) has established a code of conduct for its members but this code is .not mandatory.

12.2 Assessment of the current situation

It is generally recognised that many of the laws directly or indirectly related to the dissemination of information are outdated and inappropriate for the twenty first century. The current laws were enacted in an era of a single television station and only two or three government owned newspapers. There are now more than a dozen newspapers on the island, and in the main areas of population in Unguja, Internet facilities and satellite television broadcasts are widely available.

The phrase in the Constitution “subject to any law being in force” undermines the Constitutional guarantee. Whilst most constitutions allow for some restrictions on freedom of expression, these should meet strict conditions. Three conditions are usually imposed. Firstly, state action restricting freedom of expression that is not specifically provided for by law is not acceptable, restrictions must be accessible and foreseeable so that citizens know in advance what is prohibited and may regulate their conduct accordingly. Secondly any restriction must serve either one of a limited list of legitimate objectives or promote a legislative objective of sufficient importance to warrant

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overriding a constitutionally protected right. Under international law, Article 19 of the International Covenant on Civil and Political Rights (ICCPR) permits restrictions on freedom of expression only as necessary to protect the rights and reputations of others, national security, or public order, health or morals. The third condition is that any restrictions must be necessary, reasonable or justifiable in a democratic society.

Whilst the need for regulation of the broadcasting industry is recognised, best practice is for the independence of the regulatory body to be guaranteed by law. Similarly the regulation of the ethical standards and discipline of journalists should be overseen by an independent self regulatory body, which is not under any government control. Indeed on the mainland the Media Council of Tanzania acts as a self regulatory independent body, but its remit does not extend to Zanzibar.

The main constraint is however the public’s awareness of the role that they can play in mitigating fiduciary risk and demanding access to information on public financial management.

12.3 Conclusions and recommendations

The ability of citizens to have the right to receive information and indeed the right to seek and impart information is a crucial component of good governance. Greater dissemination of information on funds and goods received at all levels but particularly the local level and how they are spent and /or distributed could help mitigate misappropriation or misuse of funds.

The following recommendations are prioritised in order to achieve improved financial accountability.

High priority

Constitutional and legal reforms: It is generally recognised that there is a need to update some of the current legislation. Widespread consultations should take place as soon as possible on this issue

Transparency of Parliamentary Committee meetings: The Finance and PAC meetings should be opened up to the public and the media unless matters are being dealt with where particular evidence needs to be heard in camera.Public awareness: There is need to raise the awareness of the public about their basic right of freedom to access public information and the impact of government activities on their daily lives.

Increase Access and availability: Information on transfers of funds or goods to local authorities, district offices, ministries, departments and agencies (and their use) should be widely disseminated through adverts in the media as well as specific notices in relevant areas.

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13 Action Plan

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Annex A Recurrent Estimates for Expenditure

Recurrent Estimates all figures in TZS million

Vote Ministry/Department 1998/99A 1999/00A 2000/01Ap 2000/01A 2001/02E 2001/02Ap 2002/03E

8 President's Office(MBLM) 144.974 185.565 244.046 198.443 272.039 272.039 273.034

9 President' Office: regional admin 1261.711 1032.353 1387.012 1242.171 1954.088 1947.093 1998.786

10 President's Office 682.286 690.743 895.277 593.252 713.67 713.67 786.518

11 Auditor General 120.59 172.046 211.513 211.515 306.406 306.406 343.585

12 State Planning & Investment 297.872 0 426.366 182.901 0 0 0

13 CM's Office 454.03 519.431 970.678 507.885 1767.893 1775.102 1910.906

14 High Court 460.783 525.979 563.276 455.684 659.058 659.058 742.028

15 Attorney General 300.797 343.6 447.277 599.778 370.38 366.18 278.948

16 House of Representatives 1031.687 1230.702 1969.063 1470.995 2277.8 2277.8 2476.163

17 Economic Brigade 999.316 1232.981 1419.467 1419.467 3099.621 3099.621 3218.521

18 Prison 1073.349 1228.967 1482.295 1258.387 2164.857 2164.857 2180.25

19 Finance & Economic Affairs 14352.42 10787.83 12011.73 16822.29 20749.41 20749.41 10240.2

20 Agriculture 1434.504 1491.031 2007.515 2188.44 3089.621 2026.219 3555.913

21 Trade, Industry, Marketing, Tourism 194.564 411.291 329.081 193.572 412.247 412.247 410.716

22 Land & Env. Commission 206.064 323.049 334.433 0 0 0 0

23 Education 4370.695 5425.146 6399.169 5875.794 8736.196 8736.196 12081.16

24 Health & Social Welfare 2764.083 2536.711 4121.094 2610.949 5163.027 5163.027 5759.511

25 Water, Construction, Energy & Land 755.879 817.005 1041.04 927.272 1696.185 1696.185 1954.1

26 Communication & Transport 939.222 1114.232 2048.397 1282.585 2466.281 2466.281 2690.541

27 Information, Culture, Tourism & Youth 913.96 956.998 1308.634 674.77 0 0 0

28 Youth, Employment, Women & Children 231.899 275.731 422.879 196.894 892.602 891.602 882.161

29 Anti-smuggling unit 1407.72 1608.748 1739.666 1610.743 2815.128 2815.128 2993.637

30 Cash Crops & Fruits Commission 180.899 238.326 278.333 0 0 0 0

31 Tourism Commission 143.088 486.962 737.125 192.796 518.499 515.499 485.425

32 Fire & Rescue Force 0 422.948 471.005 471.005 1104.87 1104.87 1186.761

33 Constitutional Affairs & Good Governance 0 0 0 99.137 937.314 937.314 1310.81

34 Peoples' Militia unit 0 0 0 0 240.21 240.21 979.031

35 Public Debt 248 1568 10405 591.272 4993 4993 2777.11

34970.39 35626.38 53671.38 41878 67400.4 66329.01 61515.81

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Appendix B Bibliography

Year Month Name of Report or Study Author or Organization by whom it was issued

2002 June Public Investment Act (no’4 of 2002) RGZ

2002 Draft Bill to establish the Office of the Controller and Auditor General RGZ

2002 Central Tender Board Act ((no’5 of 2002) RGZ

2002 Zanzibar Poverty Reduction Plan RGZ

2002 Draft Finance Regulations RGZ

2002 April Awareness workshop on the PER and MTEF RGZ prepared by Economic and Social Research Foundation (ESRF)

2002 January Sensitisation seminar on PER/ MTEF Policy and planning process RGZ

2002 June Speech by the MoF on the development plan and the estimates of revenue and expenditure for the year 2002/3

ZRG

2002 November Membership Register of NBAA NBAA

2002 November Section M of Checklist Zanzibar Institute of Financial Administration

2002 November Union Matters: Financial Relationship between Zanzibar and mainland Tanzania: Issues – a brief summary

Philip Courtnadge, UNDP

2002 Application Form for Practicing Certificate (specimen) Treasury Department, MOFEA

2002 Practicing Certificate (specimen) Treasury Department, MOFEA

2001 Union Secretariat Proposal for Capacity Building Vice President’s Office

2001 Public Procurement Act URT

2001 Good Governance and Human Resources Act URT

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Year Month Name of Report or Study Author or Organization by whom it was issued

2001 Public Leadership Code of Ethics Act URT

2001 September Financial Administration Act (no’8 of 1996) RGZ

2001 July Public Finance Act No’ 3 of 2001 URT

1998 Regional Administration Authority Act (no’1 of 1998) RGZ

1995 Zanzibar Municipal Council Act (no’3 of 1995) RGZ

1995 District and Town Councils Act (no’4 of 1995) RGZ

1995 Auditors and Accountants (Registration) (Amendment) Act, No. 2 of 1995 URT

1992 General Introduction/Public Notice: Registration of Accountants and Auditors as Private practitioner(s) in Zanzibar

Treasury Department of Ministry of Finance, Revolutionary Government of

Zanzibar1984 Constitution of Zanzibar 1984 RGZ

1977 Constitution of the United Republic of Tanzania RGZ

1972 Auditors and Accountants (Registration) Act, No.33 of 1972 URT

1965 Treasury Instructions RGZ

1959 Revised laws of Zanzibar, Chapter 153: Companies Decree (Act), 34 of 1952 (as revised). Revolutionary Government of Zanzibar

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Appendix C List of People Interviewed

Title Name Ministry/Unit/Organization Position Held

Mr Abdulhakim A Issa Attorney General’s Office State Attorney

Mr Jaffer Ali Juma Civil Service Commission Chairman

Mr Jumbe Said Ibrahim Civil Service Commission Secretary

Mr Khatibu Said Khatibu CMO Director, Department of Coordination

Mr Juma Ussi CMO Head, Information Technology Center

Mr Hussain K. Shaaban CMO Software engineer

Mr Hawub G. Bilal CMO Software engineer

Mr Khamis J Chande House of Representatives Clerk

Mr Ramadhan Nyonje House of Representatives MP (Muyuni) and member of PAC

Mr Mdungi Makame House of Representatives Committee Clerk (PAC)

Ms Mwainaisha Ali House of Representatives Committee Clerk (Finance Committee)

Mr Issa Nassor Bako MANREC – (DCCFF) Pemba Planning and Administration Officer

Mr Ismail S Mgeni MANREC - Pemba OIC

Mr Seng Ali Kheh MANREC - Pemba Acting Planning Officer

Mr Mbarak Juma Ali MANREC - Pemba Chief Accountant

Mr Mbarouk Ali Hamad MANREC - Pemba Assistant Accountant

Mr Omar O Makungu MCAGG Principal Secretary and Deputy Attorney General

Ms Mwakaside MHSW Director of Planning & Administration

Mr Ramadan Kassu MHSW Chief Accountant

Mr J. Raphael MoFEA Principal Secretary

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Title Name Ministry/Unit/Organization Position Held

Ms Amina Kh. Shaaban MoFEA Deputy Principal Secretary

Mr Joseph Meza MoFEA Deputy Principal Secretary

Mr RashidKibao MoFEA Commissioner Economic Management and Budget

Mr Juma Juma MoFEA Asst Commissioner, Budget

Mr Shamte MoFEA Senior Officer, Budget

Mr Hussein S Khatib MoFEA Commissioner External Finance

Mr Abdulla S. Abdulla MoFEA Commissioner, Sectoral Policy, Project Development & Research

Mr Ame Bakar Ame MoFEA Accountant General

Mr. A.H. Khatib MoFEA Senior Accountant

Mr Mugambo MoFEA Commissioner Budget

Mr Jeta ??? MoFEA Chief Cashier

Mr Waadili Kavishe MoFEA - DAP Training Coordinator

Mr Abdulwahab A Mohammed MoFEA - DAP

Mr Hamduni Z Pazzy MoFEA - DAP Director – Administration and Personnel

Mrs Zaitun Salum Mbwana MoFEA - DAP

Mr Ali Tomivu MoFEA - Pemba

Mr Bakal H Bakari MoFEA – Pemba

Mr Juma A. Hafidi MoFEA / AccGen’s Office Assistant Accountant General

Mr Othman Tahir Fatawi MoFEA / AccGen’s Office Assistant Accountant General

Mr Abubakar V. Chilumba MoFEA / AccGen’s Office Senior Information Technology Officer

Mr Khatib A. Hassan MoFEA / AccGen’s Office Senior Accountant

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Title Name Ministry/Unit/Organization Position Held

Mrs Mwanabibi A. Hassan MoFEA / AccGen’s Office Public Debt Accountant

Mr Mtumwa J. Zidi MoFEA / AccGen’s Office Chief Cashier

Mr Khamis Juma MoFEA / AccGen’s Office Accountant

Mr Said Hamoud Said MoFEA / AccGen’s Office Accountant

Mr Said Mohammed Hussein MoFEA PID Commissioner

Mr Mohid Abdi Kadu MoFEA PID Accountant

Mr Mkusa I Sepetu MoFEA PID Lawyer

Mr Fredy Katema MoFEA PID Financial Management Officer

Mr Iddi H. Makame MoFEA/ ZIFA Lecturer

Mr Salum K. Nassor MoFEA/Department of Stock Verification Commissioner of Stock Verification

Ms Jaunet Lutanjuka MoFEA/Department of Stock Verification Senior Stock Verifier

Mr Baker A. Ibrahim MoFEA/Department of Stock Verification Stock Verifier

Mr Otuman Omar MoFEA/Department of Stock Verification Stock Verifier

Mr Gharib MoFEA/Department of Stock Verification Investigation Officer

Mr Hassan H. Wambi MSFRA&LG Principal Secretary

Mr Khamis Haji Juha MSFRA&LG Director of Regional Administration and Local Government

Mr Makame Vuai Simai MSFRA&LG Director of Planning and Administration

Mr Abdul Rahman H.A. Mnoga MSFRA&LG Senior Local Government Officer

Mr Khamis Haji Jelha MSFRA&LG

Mr Hamadi Ali Abdalla MSFRA&LG Chief Internal Auditor

Mrs Rukia Mbarak Amor MSFRA&LG Chief Internal Auditor

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Title Name Ministry/Unit/Organization Position Held

Mr Said Juma Ahmada MSFRA&LG Assistant Revenue Officer

Mr Hassan H Wambi MSFRA&LG Principal Secretary

Mr Shrewe Hamad Madeur MSFRA&LG (Pemba) Acting OIC (?) Regional Administration

Mr Juma Kasim Asid MSFRA&LG (Pemba) Chief Accountant

Mr Hussein O Faki MVECS - Pemba OICMr Mohammed Ali Hamod MVECS - Pemba Assistant AccountantMr Mohammed ? Mohammed MVECS - Pemba Cashier

Mr. L S L Utouh NBAA Executive Director

Mr. F.M.H. Mhilu NBAA Chief Internal Auditor

Mr Thimem Sailam OCAG Assistant Accountant

Mr Ali Shariff Hassan OCAG Assistant Auditor

Mr Keis Khamis Ramadhan OCAG Controller and Auditor General

Mrs Fatima Mohammed Said OCAG Principal Auditor

Mr Muhidin Talib Abdulla OCAG Senior Auditor

Mr Joli Hassen Juma OCAG Principal Auditor

Mr Muhidin Talib Abdulla OCAG

Mr David Jackson OCAG, Pemba In charge of the office

Mr O M Othman Office of the Director of Public Prosecution Director

Mr Nassor Suleiman Nassor PBZ General Manager

Mr Ali Vuai Ali President’s Office/Civil Service Department Director

Mr Abdi Kombo President’s Office/Civil Service Department Administrative Officer

Mr Ali Bakari President’s Office/Civil Service Department Administrative Officer

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Title Name Ministry/Unit/Organization Position Held

Professor Humphrey P B Moshi Presidents Office Economic Advisor to the President

Mr Registrar General’s Office Register General

Mr Abdulbaq H Ali Registrar Generals Office Assistant Registrar Companies

Mr Rajab Khabib Mwinyi Registrar Generals Office NGO Officer

Ms Lucie A Luguga UNDP Assistant Resident Representative

Ms Anita Ngowi Union Secretariat Director of Union Affairs

Mr W. Gama Union Secretariat Senior Legal Officer

Ms Fakharia Shomar Khamis Union Secretariat, VPO, Zanzibar Deputy of Secretariat

Mr Mugambo URT - MoF Commissioner, Budget

Mr Kisekwa URT AccGens Department Deputy Accountant General

Mr Frederick Werema URT Ministry of Justice and Constitutional Affairs Director of Constitutional Affairs and Human Rights

Mr P Lyimo URT MoF Permanent Secretary

Mr F A Mandara URT Presidents Office Ethics Secretariat Secretary

Justice William J Maina URT Presidents Office Ethics Secretariat Ethics Commissioner

Mr Mmanga Juma Ali Wete District Council, Pemba District Council Secretary

Mr Omar Suleiman Omar Wete District Council, Pemba Accounts Officer

Mr Hussein Khamis Sinam Wete Town Council Auditor

Mr Masoud Juma Haji Wete Town Council A/majenji

Mr Sheuf O. Sheuf Wete Town Council Afusa Mapato

Mr Said Ahmed Wete Town Council (Not legible)

Mr Kombo Hamad Yusuf Wete Town Council, Pemba Clerk of the Town Council

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Title Name Ministry/Unit/Organization Position Held

Mr Abdur Rahman A. Vuai Zanzibar Municipal Council Chief Accountant

Mr Iddi Kh Haji ZIC Acting General Manager

Mr Juma H J Reli ZIFA National Trainer (Director?)

Mr Juma M Ahmed ZPC Acting Finance Director

Mr Abdi Omar Maalim ZPC Director of Technical Services

Mr Salum Ahmad VKai ZPC Assistant Chief Accountant

Captain ALHAJ M Sururu ZSC General Manager

Mr Haji Vuai Ussi ZSC

Mrs Zakia Abdulla Msallam ZSC Chief Accountant

Mr Ali Mkopi Salim ZSC

Mr Self Mohammed Said ZSC

Mr Rashid H Haji ZSF&PC General Manager

Mr M S Mussa ZSF&PC Human Resources Manager

Mr Abdalla S Suleiman ZSF&PC Finance Manager

Mr Kassim M Juma ZSF&PC Internal Auditor

Mr Ally Khamis Ally ZSF&PC Budget/ Statistics Officer

Mr Khamis F. Thani ZSSF FSO

Mr Suleiman J Jongo ZSTC Marketing Manager

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