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THE REPUBLIC OF UGANDA
NATIONAL AGRICULTURAL ADVISORY SERVICES (NAADS) PROGRAMME
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30TH JUNE 2014
TOGETHER WITH THE REPORT AND OPINION THEREON BY THE
AUDITOR GENERAL
OFFICE OF THE AUDITOR GENERAL
UGANDA
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TABLE OF CONTENTS
LIST OF ACRONYMS .................................................................................................. iii
REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS ....................... iv
OF NATIONAL AGRICULTURAL ADVISORY SERVICES (NAADS) FOR THE YEAR ENDED
30TH JUNE 2014 ........................................................................................................ iv
1.0 INTRODUCTION ............................................................................................. 1
2.0 PROGRAMME BACKGROUND ............................................................................ 1
3.0 AUDIT SCOPE ................................................................................................. 4
4.0 AUDIT OBJECTIVE .......................................................................................... 4
5.0 AUDIT PROCEDURES PERFORMED ................................................................... 6
6.0 FINDINGS ...................................................................................................... 7
6.1 Compliance with the Financing Agreement ........................................................ 7
6.2 Monitoring and Evaluation of interventions by NAADS secretariat ........................ 7
6.3 Procurement Management ............................................................................... 8
6.4 Framework contracts ....................................................................................... 9
6.5 Distribution of farm inputs ............................................................................... 9
6.6 Tea Intervention Project ................................................................................ 10
6.7 Commitments through local letters of credit at the year-end ............................. 13
6.8 Fixed Assets ................................................................................................. 13
6.9 Unaccounted for funds .................................................................................. 14
6.10 Summary issues from inspection of Districts and sub-counties .......................... 15
6.11 Progress on Issues raised in the Previous Year’s Audit Report ........................... 16
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LIST OF ACRONYMS
Acronym Meaning
NAADS National Agricultural Advisory Services
ATAAS Agricultural Technology and Agribusiness Advisory Services
EAAPP East African Agricultural Productivity Project
BOU Bank of Uganda
IDA International Development Agency
IFAD International Fund for Agricultural Development
URA Uganda Revenue Authority
AASP Agricultural Advisory Services Providers
NARO National Agricultural Research Organisation
SESA Strategic Environmental and Social Assessment
CBF Community Based Facilitators
UGX Uganda Shillings
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REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS
OF NATIONAL AGRICULTURAL ADVISORY SERVICES (NAADS) FOR THE YEAR
ENDED 30TH JUNE 2014
THE RT. HON. SPEAKER OF PARLIAMENT
I have audited the accompanying financial statements of the National Agricultural
Advisory Services (NAADS) Programme for the year ended 30th June 2014. The financial
statements which are set out on pages 14 to 55 comprising of;
Consolidated Statement of Receipts and Payments.
Statement of Financial Position
Consolidated Statement of Sources and Uses of Funds
Statement of Budget Comparison
Notes to the financial statements including summary of significant accounting policies
adopted.
Management’s Responsibility for the financial Statements
Management is responsible for the preparation and fair presentation of the Programme
financial statements in accordance with the modified Cash receipts and payments basis of
accounting and the terms of Memorandum of Understanding and for such internal
controls as management determines is necessary to enable the preparation and fair
presentation of the Project Financial Statements that are free from material
misstatements whether due to fraud or error.
Auditor’s Responsibility
My responsibility is to express an opinion on the financial statements based on my audit.
I conducted the audit in accordance with International Standards on Auditing (ISA).
Those standards require that I comply with the ethical requirements and plan and
perform the audit to obtain reasonable assurance about whether the financial statements
are free from material misstatements.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial statements. The procedures selected depend on the Auditor’s
judgment, including the assessment of the risks of material misstatements of the financial
statements, whether due to fraud or error. In making those risk assessments, the Auditor
considers internal controls relevant to the entity’s preparation and fair presentation of the
financial statements in order to design audit procedures that are appropriate in the
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circumstances. An audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of accounting estimates made by management, as
well as evaluating the overall presentation of the financial statements. I believe that the
audit evidence I obtained is sufficient and appropriate to provide a basis for my qualified
opinion.
PART “A”
Basis for Qualified Opinion
Supplies of tea seedlings
Shs.18,555,353,908 incurred on the purchase and distribution of 38,168,367 tea
seedlings. However, I was unable to confirm the expenditure as it lacked information of
actual acreage planted. Further, discrepancies were noted in the availed
delivery/distribution records.
Unsupported expenditure
The secretariat incurred Shs.3,953,424,825 on the purchase and distribution of farm
inputs to farmers that were not supported by evidence of receipt by the beneficiary
farmers. Further still, I was not provided with accountability for funds amounting to
Shs.499,088,800 at the secretariat and Shs. 7,913,477,134 in Districts and sub counties.
As such, I was unable to confirm that the funds in this respect were put to intended use.
Qualified Opinion
In my opinion, except for the possible effect of the matters described in the Basis for
Qualified Opinion paragraph, the financial statements present fairly in all material
respects the Financial Position as at 30th June 2014 and the funds received and
expenditure incurred for the year then ended in accordance with the terms of the
Memorandum of Understanding and in compliance with the basis of accounting described
under Note 6.0 of the financial statements.
John F.S. Muwanga
AUDITOR GENERAL
KAMPALA
23rd March 2015
REPORT OF THE AUDITOR GENERAL AND SUPPLEMENTARY INFORMATION
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PART “B”
DETAILED REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS
OF NATIONAL AGRICULTURAL ADVISORY SERVICES (NAADS) PROGRAMME FOR
THE YEAR ENDED 30TH JUNE 2014
This Section outlines the detailed audit findings, management responses, and my
recommendations in respect thereof.
1.0 INTRODUCTION
Article 163 (3) of the Constitution of the Republic of Uganda 1995 (as amended)
requires me to audit and report on the public accounts of Uganda and all public
offices including the courts, the central and local government administrations,
universities and public institutions of the like nature and any public corporation or
other bodies or organizations established by an Act of Parliament. In accordance
with the same provisions I appointed Team & Co Certified Public Accountants to
carry out the audit on my behalf and report to me on the above Project to enable me
report to Parliament.
2.0 PROGRAMME BACKGROUND
2.1 SECRETARIAT BACKGROUND
The Government of Uganda (GOU), through the National Development Plan (NDP)
aims at raising agricultural incomes thorough increased productivity and value
addition. The Development Strategy and Investment Plan (DSIP) of the Ministry of
Agriculture and Animal Industry and Fisheries (MAAIF) have been designed within
the framework of NDP to guide sectorial growth. The DSIP seeks to transform
substance farming into commercial agriculture. Agricultural research and advisory
services are core mandates of MAAIF for enhancing agricultural production and
productivity among others. For this purpose the Government of Uganda established
the National Agricultural Advisory Services Organization.
The National Agricultural Advisory Services (NAADS) is a statutory organization that
was established by an act of parliament in 2001. Section 5 of the NAADS Act 2001
sets out the seven (7) objectives of the organization, which are to;
• Promote food security, nutrition, and household incomes, through increased
productivity and market oriented farming;
• Empower all farmers to access and utilize contracted agricultural advisory
services;
• Promote farmer groups to develop capacity to manage farming enterprises;
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• Create options for financing and delivery of agricultural advice for the different
types of farmers, but with emphasis on subsistence farmers, particularly women,
youth and people with disabilities;
• Gradually shift from public delivery to private delivery of agricultural advice;
• Develop private sector agricultural advisory delivery capacity and systems and
assure quality of advice;
• Catalyse the participation of the private sector to fund agricultural advisory
services.
The NAADS program is financed through a Basket/Budget Support mechanism where
donors and GOU pool resources together based on agreed common flow of funds
mechanism for the program as prescribed in the Project Appraisal Document (PAD)
May 23, 2010 for the Agricultural Technology and Agribusiness Advisory Services
(ATAAS).
As a decentralized program, funds are budgeted and released to the districts through
the districts’ individual Votes with the balance of funds being budgeted and released
to the NAADS Secretariat, the national coordinating arm of the program. The
beneficiary District/sub county local governments and farmers co-fund the program.
Among its coordination functions, the NAADS Secretariat is responsible for the
compilation and submission of program financial reports (PFR) to Government and
the Participating Partners. Final accountability to the Participating Partners is through
an attribution of expenditures based on their financing shares in the annual NAADS
budget.
By FY 2012/13 the program had gradually expanded to cover a total of 1,352 sub
counties in 112 districts including Kampala. The sub counties constitute the
population sampled in respect of the 2012/13 statutory audit.
2.2 In the FY 2013/14, NAADS implemented the following three (3) projects;
2.2.1 Agricultural Technology and Agribusiness Advisory Services (ATAAS) Project
The project includes five components:
Component 1: Developing Agricultural Technologies and Strengthening the National
Agricultural Research System. The objective of this component is to develop
agricultural technologies through research, and to strengthen agricultural research
institutions.
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Component 2: Enhancing Partnerships between Agricultural Research, Advisory
Services and other stakeholders. The objectives of component 2 are to enhance the
efficiency and effectiveness of technology development and dissemination by
supporting closer linkages between NAADS, NARO, and other stakeholders.
Component 3: Strengthening the National Agricultural Advisory Services. The
objective of this component is to support improved delivery of demand driven and
market oriented advisory services to farmers to promote their progression from
subsistence to market orientation.
Component 4: Supporting Agribusiness Services and Market Linkages. The objective
of this is to promote integration of smallholders in value chains by supporting
collaboration between agribusiness, farmers, advisers, and researchers to create
viable sustainable market and agribusiness linkages.
Component 5: Program Management. The objective of component 5 is to support the
NARO and NAADS secretariats to ensure: (i) Efficient execution of administrative,
financial management and procurement functions;(ii) coordination of project
activities among various stakeholders;(iii) implementation of safeguard measures
mandated by the Government of Uganda and The World Bank; and (iv) an effective
use of the joint M&E and ICT systems established under component 2.
2.2.2 East African Agricultural Productivity Project (EAAPP)
NAADS is also involved in the implementation of the East African Agricultural
Productivity Project. EAAPP is a five year project whose implementation commenced
in 2011. The project objectives are;
(i) enhance regional specialisation in agricultural research;
(ii) Facilitate increased sharing of agricultural information, knowledge and
technology across boundaries. The objectives are pursued through
strengthening existing Uganda national agriculture research program in
cassava, supporting regional research, training and dissemination of relevant
technologies and supporting increased availability of improved genetic
materials. The project is implemented by NARO and MAAIF but NAADS as the
National Organisation responsible for extension is responsible for the
coordinating farmers training and dissemination of technologies to end users.
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The project is funded by an IDA credit and this funding complements the IDA
supported ATAAS Project described above.
2.2.3 Pilot Goat Breeding and Production Scheme for Export
This is a project that is implemented by NAADS, Ministry of Agriculture Animal
Industry and Fisheries and Sembeguya Estates in Sembabule district. The project is
fully funded by the Government of Uganda. The project objective is to enhance goat
production in the country to exploit export opportunities for goats.
3.0 AUDIT SCOPE
The audit involved a review of transactions undertaken during the FY 2013/2014,
covering the NAADS Secretariat and the participating Districts and 50% of the Sub-
counties.
4.0 AUDIT OBJECTIVE
The Audit was conducted in accordance with International Standard of Auditing. The
objective of the audit was to form an opinion on the financial affairs of NAADS
organization for the FY 2013/2014.
4.1 At NAADS Secretariat, special attention was paid to establish:
a. Whether designated Accounts have been maintained in accordance with the
provisions of the Financing / Grant agreements and funds disbursed out of the
Accounts were used only for the purpose intended in the financing / grant
agreement;
b. Whether the NAADS secretariat is in compliance with the Treasury Accounting
Instructions 2003, issued under the Public Finance & Accountability Act 2003 and
provisions of the Project Implementation Manual;
c. Compliance with the budget execution requirements at the Secretariat, Districts
and Sub Counties including adherence to budget provisions under various vote
heads;
d. Whether Funds Flow and Disbursement from the MFPED to the NAADS
Secretariat, Districts and Sub Counties was in compliance with agreed
arrangements including banking arrangements;
e. Whether staff claims/payments are in line with their appointments and salaries
and allowances of whatever nature are claimed against proper documentation;
f. Whether advances to staff and third party individuals/ institutions from the
NAADS Secretariat vote were properly accounted for and properly retired;
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g. Whether the management of organisation activities is in line with the approved
Government of Uganda framework, and also in accordance with Participating
Partner agreements. The auditor will be required to report on the effectiveness of
some of the arrangements including farmer groups and technology transfer;
h. Whether procurement at the Sub Counties, Districts and NAADS Secretariat had
been conducted in accordance with the guidelines approved by the Government
of Uganda and the Participating Partners.
i. Whether the assets procured from project funds exist and there is verifiable
ownership by the implementing agency or beneficiaries in line with the financing
agreement. In addition, whether the Assets of NAADS are being used for
organisation activities including whether vehicles are being used in the interest of
the Programme or have been intercepted by senior government officials and
consultants for their own routine use instead of serving the programme;
j. Whether programme reporting to both Government of Uganda and the
Participating Partners is accurate and represents the affairs as at the time of the
audit. Particular emphasis was made to verify the preparation and accuracy of
Programme Management Reports to the stakeholders; including reconciling the
quarterly IFRs submitted to the Bank to the financial statements;
k. Whether the organisation met its tax obligations, social security and other
statutory obligations. Particular attention was made to verify whether these were
dully deducted and remitted to the relevant authorities;
l. Physical existence of project outputs at the beneficiary level.
m. Whether ineligible expenditures were incurred.
4.2 At the participating Local Authorities special focus was given to the following areas:-
a. The system in place at local authorities in relation to management of NAADS
funds, operations and controls including the performance of internal audit, the
local authority’s management and tender procedures;
b. Compliance with Local Government Act and Local Government Accounting and
Financial Regulations and any other applicable laws and regulations on the
transactions that local authorities undertake;
c. Breaches of Government Regulations;
d. Accountability of NAADS expenditure;
e. Performance of private service providers in the participating NAADS Districts/
Sub-counties as contained in the progress reports;
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f. Procurement is being implemented in accordance with the relevant procurement
guidelines including the revised community guidelines;
g. Utilisation of ATAAS funds in line with the approved work plan /budget;
h. Verification of the quarterly financial reports;
i. Physical existence and utilisation of NAADS assets at the District and Sub-county
level;
j. Whether the District/ Sub-counties / Farmer contributions to the programme
were in line with the approved budget with particular emphasis on the
documentary evidence to establish whether these contributions were deposited
on the respective NAADS Accounts.
5.0 AUDIT PROCEDURES PERFORMED
a. Revenue/Receipts
Obtained a schedule of all programme funds provided by the development parties
and Government of Uganda and reconciled the amounts to the programme cash
books and bank statements.
b. Expenditure
Reviewed the Programme funding Agreement to ascertain agreed budget line
activities for the Basket funding and checked whether funds had been utilized in
accordance with the approved work plan;
Vouched transactions of the programme in particular funding received and
expenditures incurred during the period covered by the audit in order to establish
that documentation in support of expenditure agreed with the amount and
description on the payment vouchers and or applications, bank statements and
was properly controlled and accounted for.
c. Internal Control System
Reviewed the internal control system and its operations to establish whether
sound controls were applied throughout the period
d. Procurement
Reviewed procurement of goods and services for the project and reconciled with
the approved procurement plan.
e. Fixed Assets Management
Reviewed use and management of project assets during the period under review.
f. Periodic Reports about project Activities
Reviewed the programme agreement provisions, and reconciled it to the project
activities during the period under review.
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g. Programme Financial Statements
Examined on a test basis, evidence supporting the amounts and disclosures in
the programme financial statements; assessed the accounting principles used
and significant estimates made by programme management as well as evaluating
the overall financial statement presentation.
6.0 FINDINGS
6.1 Compliance with the Financing Agreement
Component 3 of the financing agreement focussed on the provision of advisory
services. However, Government changed the implementation of this component to
free input distribution which led to disagreements with the development partners
that resulted in their suspension of funding for the component.
The change in implementation to provision of free inputs to farmers implies that the
expenditure of Shs 84,823,360,000 recorded under component 3 of the ATAAS
project is ineligible for funding by the participating partners and achievement of the
ATAAS project intended objectives for component 3 may have been compromised.
Management explained that discussions were held with development partners during
the mission of August 2014 and it was agreed that GOU funds should solely be used
to input purchase for distribution to farmers. As such the development partners
agreed to fund other components excluding component 3.
I advised management to ensure that project activities are implemented as agreed
with the development partners to avoid suspension of funding to the project.
6.2 Monitoring and Evaluation of interventions by NAADS secretariat
NAADS is involved in implementation of strategic government interventions in the
agricultural sector for enhancement of household income. The interventions include
the distribution of farm inputs across the country. To assess the impact of the
intervention and to further focus government efforts on priority areas in the sector, it
is necessary to establish a strong and functioning monitoring and evaluation
function. However, it was noted that the existing monitoring and evaluation function
at NAADS is lacking in aspects such as;
(i) Beneficiaries are not identified and documented before procurement of inputs
which creates the risk of diversion of inputs.
(ii) There is no data base of farmers supported by NAADS to track their progress
and success of the interventions.
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The absence of a strong monitoring and evaluation mechanism leads to ad-hoc
implementation of the interventions and this may lead to failure to achieve intended
objectives.
Management explained that NAADS Secretariat provided technology inputs to
beneficiaries to address strategic and special demands usually identified at the top
political and policy leadership level. Management further explained that the support
would therefore normally be provided to clearly defined target groups known well
before procurement and initiation and approval of the procurements of technology
inputs for such support would require evidence of the source of demand.
I advised management to establish a well-functioning monitoring and evaluation
department to measure performance of government’s interventions. Further a well-
documented process should be developed to identify beneficiaries prior to
distribution of farm inputs.
6.3 Procurement Management
In implementing ATAAS project and other programs, NAADS makes various
procurements for supplies and services. However, my review of procurement
procedures and controls revealed the following anomalies;
(i) The procurement plan was not approved by the World Bank contrary to the
provisions of the financing agreement.
(ii) The department does not maintain procurement complaints register where
bidders can register their complaints.
(iii) There is no procurement notice board for publicity.
Failure to ensure approval of the procurement plan by the participating partners
implies non-compliance with the financing agreement provisions which may lead to
the partners’ refusal of funding procurements under the ATAAS project. Further,
absence of a notice board does not only compromise transparency in the
procurement process but also violates established standard government procurement
procedures.
In these circumstances, procurements are not done in accordance with approved
plan which impacts adversely on the implementation of various activities.
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Management explained that the procurement plan was approved by the Board and
submitted to the World Bank which never responded. Management further informed
me that indeed they don’t have a specific procurement notice Board but are using a
general notice board at NAADS Secretariat on the Ground floor at the reception area
and will put in place a specific notice board for procurement
I advised management to ensure that a procurement plan is prepared and approved
in accordance with the Project financing agreement provisions. Further, a
procurement notice board and a complaints register should be put in place to ensure
transparency and accountability within the process of procurement.
6.4 Framework contracts
A framework contract with an Estates firm was signed on 20th February 2014 to
supply 80 motorised Knapsack Sprayers at a price of UGX 1,850,000 per sprayer.
However, the call-off order made to the company on 23rd March 2014 was for 250
units. The additional 170units of motorised Knapsack Sprayers were in excess of the
contracted quantity of 80 units and therefore supplied without being subjected to the
procurement rules and regulations.
Management explained that this was due to the tremendous increased demand for
motorised Knapsack Sprayers following a successful demonstration stage of the
efficient technology in the control of pests and diseases of fruit trees crops notably
citrus, mangoes and coffee. As such, more of the knapsacks were urgently required.
I advised management to ensure full compliance with procurement rules and
regulations to obtain value for money at competitive prices.
6.5 Distribution of farm inputs
During the year, the secretariat incurred UGX 3,953,424,825 on the purchase and
distribution of inputs to farmers that was not supported by lists of beneficiaries or
acknowledgement by the beneficiaries. Further still the distribution of the inputs is
not properly planned because the procurement of the inputs was done before
determination of the beneficiaries.
As a consequence the expenditure on farm inputs was not adequately supported and
there is a risk that some of the inputs did not reach the targeted beneficiaries
implying that the intervention may not achieve the intended objectives.
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Although Management explained that all support documents required for payment as
per the financial procedures were attached to the payment vouchers and were
availed and reviewed during the audit process, I was not availed with the required
documentation.
I advised management to properly plan the distribution of the farm inputs by
inspecting the intended beneficiaries to confirm their requirements and readiness
before procurement of inputs is done. Further, management should ensure that
deliveries are monitored, properly documented and the beneficiaries should
acknowledge receipt of the inputs which acknowledgement should be used to
support the payment.
6.6 Tea Intervention Project
Expenditure amounting to UGX 18,555,353,908 was incurred on the purchase and
distribution of 38,168,367 tea seedlings mainly in the Kigezi region. In the course of
the audit i noted irregularities in the procurement, distribution, delivery and payment
for the tea seedlings as elaborated below;
(i) Suppliers of Tea seedlings
It was observed that contracts for the supply of tea seedlings were made after
supplies had taken place. This was contrary to the established government
procurement laws and regulations which require contracts to be signed after a due
procurement process.
Management explained that this was an innovation after failing with the conventional
procurement process which had revealed that nearly 60% of the seedlings were lost
mainly due to mismatch in funds availability, completion of the procurement process
and the agricultural/growing season and as a result of the delay most beneficiary
farmers would abandon the tea on road sides thus negating the tea intervention
efforts and wastage of funds. As a remedial measure, the District Authorities
together with Kinkizi Development Company who are implementers of the project
devised an innovative approach –the “garden store approach”. Under this approach
farmers who wish to plant tea in a given season do receive supplies directly from the
supplier before completion of the procurement process and it was found to reduce
the mortality rate of the tea plantlets from nearly 60% to 10% with adequate
measures in-built in the approach to mitigate against risk of paying for undelivered
supplies.
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I advised management to adhere to the procurement regulations.
(ii) Lead agencies
The tea intervention in Kigezi area is implemented in collaboration with three lead
agencies. These companies signed Memorandum Understanding (MOUs) with
NAADS to provide services such as mobilizing farmers provide market outlets,
training and field extension services, identify nursery operators, transport and
distribution of plantlets and to facilitate farmers to form cooperatives.
The initial MOUs signed in April 2013 did not provide any payment basis to the lead
agency. Subsequently, an addendum was signed in April 2014 providing a 30%
payment to the lead agency on the value of tea seedlings procured and planted.
During the year payments amounting to UGX 3,659,524,377 were made to the
project lead agencies. Issues of concern with this arrangement are;
The MOU does not clearly justify the 30% payment of the value of tea plantlets
to the lead agency.
Payments to the lead agency are not supported by evidence of extension services
provided.
Management explained that the lead agency’s responsibilities are stipulated in the
Memorandum of understanding and payment is effected upon meeting the conditions
there in and the lead agency provides periodic reports on activities carried out on
basis of which payments are effected. I advised management to document activities
undertaken to enable proper justification of the payments.
(iii) Distribution/delivery of tea seedlings to farmers
A field inspection was conducted to confirm existence of tea seedlings distributed.
Four (4) farms were inspected and it was noted for the selected sample that tea was
planted on farms but we were not provided with acreage planted except for one
farm. Generally tea seedlings deliveries to the farms as recorded in the payment
records do not appear to match farm acreage planted. For the farm where acreage
was provided, there was a big discrepancy between the tea seedlings recorded as
delivered and the tea plants that can be accommodated on the farm. The specific
cases are noted below;
A farm for a religious parish
The tea garden was established in March 2012 and has received tea seedlings from
NAADS from start to date. I requested for information on tea seedlings supplied for
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the years 2012 and 2013 but this was not availed. For the year 2014 deliveries of
1,836,000 in May 2014 were noted. We were informed at the time of the audit
(11/12/2014) by the farm manager that in September 2014, additional 1,460,000 tea
seedlings were delivered to the farm. There was no information availed on the
garden acreage.
An individual’s Farm
The farm is located in Busengo Parish Nyarubuye Sub-county Kisoro. Acreage
planted is unknown. Planting of tea in the garden started in March 2012. I was
informed that the farm received seedlings in the subsequent tea seasons of
September12, March 2013, September 2013, March 2014 and September 2014. In
May 2014, the farm received 360,000 tea seedlings. Information on tea seedlings
delivered in the other seasons was not availed.
A Farm for Community Based Organisation
The farm is located in Rubuguri and Ntenko parish in Kisoro district. It is adjacent to
Bwindi National park. Farming commenced in 2012 with an initial delivery of 650,000
tea seedlings supplied. I was informed by the chairman of the community that these
seeds were not planted and dried up on the road side. The actual acreage planted is
unknown. A delivery of 1,793,793 tea seedlings was made to the farm on
20/05/2014 and received by the chairman. The farm has also received other tea
seedlings over the years but information on these deliveries was not availed.
An individual’s Farm
The farm called green valley dairy farm is located in Nyamasizi Kabale district. The
total acreage of the farm was not availed. It is recorded that the farm received
3,006,640 tea seedlings on 02/04/2014. I was informed by the farm manager that he
had also received an additional 1,000,000 million tea seedlings in September 2014.
The procurement processes and procedures in the tea intervention project are not
transparent and contravene procurements rules and regulations. In absence of clear
acreage planted, it was not known how the supplies to particular farms are
determined and there is a risk that some of the recorded deliveries of tea plants are
not actually supplied to the farms/ gardens. Furthermore, I was not certain that the
payments to lead agencies were for actual services rendered.
Management admitted to the need to have records on acreage for tea planted but
observed that tea growing areas in Kigezi sub region require experts to be able to
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determine contour acreage as opposed to horizontal acreage on which traditional
land measurement systems are based. As such management promised to engage the
services of an expert and aim to have the process completed by June 2016.
6.7 Commitments through local letters of credit at the year-end
Funds amounting to UGX 13,892,716,461 were transferred to Bank of Uganda as
commitments to open local letters of credit between 19th June and 27th June 2014.
Included in the funds transferred was UGX 137,551,648 as commission for the letters
of credit. It was further observed that 6 months later after the commitment of the
funds for the local purchases, UGX 6,977,959,526 remain unperformed local letters
of credit. This is made of mainly commitment to the suppliers of citrus seedlings
amounting to UGX 3,640,513,000.
The transfer of these funds to Bank of Uganda in form of local letters of credit was
done to retain unutilised funds at the year end and the additional cost of UGX
137,551,648 in form of the local letters of credit commission paid to Bank of Uganda
was considered wasteful. Such avoidable costs reduce funds meant for service
delivery in this case farm input distribution.
Management explained that the funds transferred were for purposes of retaining
unutilised funds which were for the contracts signed at the end of the year but had
not yet performed due to the fact that the funds amounting to Shs. 30 billion were
received in April towards the closure of the financial year and the procurement
procedures had not been concluded. Management further explained that some of the
supplies depend on the season/weather and being a dry season, it was advised that
some supplies be put on hold for the dry season to end.
I advised management to implement planned activities timely to avoid such year –
end funds retention schemes that result in wastage of resources. Further,
management should not enter into contracts without forecasting and analysing
weather conditions.
6.8 Fixed Assets
It was observed that the fixed asset register is not properly maintained. It lacks most
of the details of assets stipulated in the treasury accounting instructions. Some
assets do not have date of purchase, cost and right location. Further, some of the
motorcycles recorded this year appear twice in the register and one UAA 338F sold
during the year was still maintained in the asset register. It was also noted that the
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organisation started a disposal process of eight vehicles in 2012 when bids were
received but to date, only one vehicle had successfully been disposed off with the
rest still parked at Ministry of Agriculture Offices.
The absence of a comprehensive, accurate and up to date Assets Register implies
that there is a risk that asset losses and misuse may not easily be detected. Further,
failure to timely dispose of assets further diminishes the realisable amount from the
assets because of the continuous waste of these assets that reduces their value.
Management explained that although some assets in the register lack details, efforts
had been made in subsequent verifications to ensure that gaps of that nature and
others are filled. Management further explained that during their quarterly financial
back stopping to districts, reviewing the maintenance and updating of asset register
of NAADS assets is always done.
I advised management to ensure that there is an updated asset register showing all
details as per the Treasury Accounting instructions.
6.9 Unaccounted for funds
In the course of the audit I noted the following unaccounted for funds amounting to
UGX 499,008,800.
s/n Description Amount Remarks
1 Advance to PMA 352,000,000 Unaccounted for six months
after advance
Advance to Buginyanya
Zardi
147,008,800 Training workshops for 44
SNCs and 88 AASPs from
Mbale and Sironko Districts
at a cost of Shs. 29,040,000.
Payment to service providers
totalling Shs.17,528,800 paid
out on 30th June 2014. There
are no lists of workshop
participants.
Missing payment details
amounting to
Shs.59,749,000 payment
references 395327,477805
and 477814.
15
Excessive cash drawn on
cheque no 477816
amounting to Shs
40,691,000 for joint training
Workshop with NARO.
Accountability not sufficiently
supported.
In absence of support documents on payments I was unable to confirm that the
funds were used for intended purposes.
Management explained that it was following up the above accountabilities and failure
to obtain satisfactory accountability would result into instituting recovery measures.
I advised Management to expeditiously follow up the matter and institute recovery
measures from responsible officers where misuse is confirmed.
6.10 Summary issues from inspection of Districts and sub-counties
A review was carried on the programmes system of accounting and record keeping
including implementation of programme activities. The review was undertaken in 761
sub counties/town councils in the 112 districts spread across the country and the
following matters were observed. Details of the matters are attached in the
management letters appendix to this report.
(a) Unaccounted for Funds – UGX 4,007,686,846
These are funds for which we were not availed accountability documents by the
accounting officers. It includes expenditure for sub counties/town councils which did
not avail their books for audit, missing payment vouchers and supporting documents
and unbanked co-funding receipts. Further details are included in the District/sub
county management letters.
(b) Ineligible Expenditure – UGX 47,296,801
It was observed that some districts/sub counties incurred ineligible expenditure
under the ATAAS project by spending outside the approved annual budget or by
failing to comply with ATAAS project procurement procedures. Further details are
included in the respective district/sub county management letter.
16
(c) Un-remitted Statutory Deductions – UGX 179,906,634
In almost all the districts/sub counties audited, it was noted that withholding tax,
PAYE and NSSF were either not deducted or where deducted, remittance to URA and
NSSF was usually beyond the stipulated time.
(d) Record Keeping
I noted instances where the sub counties and districts financial reports amounts
differed from the amounts in the underlying records, the cash books and payment
vouchers implying that these reports are not derived from underlying records. These
are noted in the respective district and sub county management letters.
(e) Fixed assets and financial records
I noted that the fixed assets of NAADS were not properly handed over for safe
custody to the Chief Administrative Officers as per instructions during the transition
period. NAADS’ Motor vehicles and motorcycles in many districts and sub counties
continued to be used in activities unrelated to NAADS programme. Some of the
former NAADS coordinators were still in possession of financial records like receipt
books, cash books and payment vouchers in their homes at the time of the audit.
(f) Project implementation Manual (PIM)
Many of the districts and sub counties audited had diverted from the PIM. For
instance the food security component was not fully supported. Funds meant for this
component were in most cases diverted to market oriented component without
approval. More still, the top ceiling of the market oriented farmers support of
Shs.750,000 had been overridden thus supporting fewer farmers than planned.
I advised management to make a follow up on the above matters.
6.11 Progress on Issues raised in the Previous Year’s Audit Report
A review of previous year audit report was done and the status of prior year
recommendation is as below;
ISSUE STATUS/PROGRESS
1. Budgeting and budget
monitoring
The Project Implementation
Manual (PIM) requires NAADS
management to prepare a consolidated annual budget for
NAADS organization and the ATAAS Project. The consolidated
budget should then be submitted
to the NAADS board for review
Not done. There was no
consolidated budget
submitted to the world bank for approval.
Response A consolidated budget
was prepared for the
financial year 2013/2014,
17
and approval. The budget and
supporting work plan should also be submitted to MAAIF for
inclusion in the expenditure
estimates submitted to Parliament for approval. However two
separate budgets are prepared, one that is submitted to
Parliament for approval and the other for the ATAAS project
submitted to the World Bank for
approval. These budgets are not comparable.
submitted to the Board
for approval and finally to MAAIF for inclusion in the
expenditure estimates
submitted to Parliament for approval.
2. Irregular procurement of goods and services
NAADS Secretariat contracted Alakaituk Enterprises Ltd to install
and transport milk coolers. The contract value was UGX
310,665,969. It was however noted that this procurement was
not on the approved procurement
plan and management did not obtain a “no objection” from the
World Bank or inform the bank about this procurement. Further
still, the supplier was acquired
through direct procurement/contracting without
competition. NAADS procurement manual requires that the direct
procurement method is used for small procurements of less than
USD 5,000 or subject to prior
review by participating partners and this was not done.
Not done. Irregular procurements were again
noted during the audit of the financial year 2013/14
3. Delegated procurements to
districts
We noted that the NAADS secretariat delegated various
procurements amounting to UGX 7,307,260,000 to various District
Local Governments. It is a
requirement in the Project Implementation Manual (PIM) for
each delegation to be approved by the Participating Partners. It
was noted that management did not obtain approval for any of the
delegated procurements from the
Participating Partners. The procurements were done at the
districts but the payments were made by the secretariat to the
suppliers.
Response.
NAADS did not delegate
any procurements under ATAAS this FY. We
delegated procurement of tea seedlings to a few
LGS and were cleared by the contracts committee.
All other LG procurements
were made through the NAADS Zonal offices
which are part of the NAADS Secretariat.
4 Procurements outside
the procurement plan
The ATAAS Project
Implementation Manual Chapter 10: Project Management clause
10.2.3 requires the NAADS
secretariat to prepare annual
The procurement plan
was not submitted to the participating partners for
approval.
18
procurement plans with estimated
expenditures and the procurement method envisaged,
it also provides for quarterly
revision of this plan. The initial procurement plan and any
revisions should be submitted to participating partners for
approval. In the FY 2012/13, the secretariat procured works, goods
and services valued at UGX
3,559,299,574 that were not in the approved procurement plan.
5 Irregular procurement of tea seedlings in
Kanungu
On April 18, 2013, NAADS secretariat delegated the
procurement and supply of 4,210,526 tea seedlings worth
UGX 1,305,263,060 to Kanungu District Local Government under
Kinkizi Development Company
Limited and 1,097,645 tea seedlings worth UGX 340,269,950
under Kayonza Tea Factory.
Kanungu district contracts
committee sat on May 6, 2013 and awarded the contracts for
supply of the seedlings to 15 nursery operators to supply the
seedlings to beneficiary farmers. However, the contracts awarded
related to supplies made between
September and December 2012 implying that the procurement
process was done retrospectively. According to available
documentation, the deliveries
were purportedly made between November and December 2012,
six months before the procurement process to identify,
evaluate and award contracts to
the suppliers was done. The commitment letter was sent to
the district on April 18, 2013.
Not done. The procurement of tea
seedlings was again noted not to be in compliance
with procurement rules and regulations
6 Missing payment
vouchers
The treasury accounting
instructions require accounting
officers to maintain, serially numbered and properly filed
vouchers that support the entries in the books, for audit reference.
We however noted voucher
number EFT 2456397 for NFF hotel bills of UGX 114,211,525 is
missing.
No missing payment
vouchers were noted
during the audit.
7 Unsupported
expenditure
Noted payments effected by the
NAADS secretariat amounting to
Not done. Instances of
inadequate support for
19
UGX 304,477,000 that lack
adequate accountability. Management was advised to
ensure that all payments made
are adequately supported
payments made were
again noted.
Responses.
During the financial year under audit, all supporting
documents for payment were attached before
payments were made.
8 Double payment of
periderms to AASPS)
It was noted that a duplicate per
diem payment was made to Agriculture Advisory Services
Providers (AASPS) that
participated in the AFRISA hay making training. Management
was advised to recover the excess payment of UGX 27,300,000.
Not done
Response.
Management is still
pursuing the issue.
9 Transfers to Zonal
Bank accounts
It was noted that transfers to
zonal bank accounts are expensed on disbursement. In
some instances, actual expenditure in the zones differs
from the expenditure indicated on
the requisitions against which the zonal bank account is replenished
by the secretariat leading to incorrect categorisation of
expenses. Management was advised record the transfers of
funds by the secretariat to zones
as advances and only expense on receipt of accountability from the
zones.
Note done
10 Unaccounted for funds at districts
It was noted that districts did not provide accountability to the
secretariat for funds amounting to UGX 674,549,760.Management
was advised to obtain full
accountability for all funds transferred to districts.
Not done. Some districts did not provide
accountability for funds received for NAADS
activities during the year.
11 Activity advances It was noted that advances to staff for activities and workshops
are expensed on payment to staff
before the actual activity is done. Further still in most cases, the
accountability is not provided within 60 days and there is no
evidence of advance
accountability review. It was also observed that there is no
advances ledger/register maintained at the secretariat to
record activity advances. Management was advised to
maintain advance registers and to
ensure retirement of advances within 60 days.
Not done
20
12 Financial Statements It was noted that although
NAADS is required to prepare annual financial statements, the
nature and form of these financial
statements is not specified in the NAADS Act or the Financial
Management Manual. Absence of clear financial reporting guidelines
has resulted in the preparation of annual financial statements that
do not comply with any generally
accepted financial reporting framework and provide
insufficient information on financial performance. It is
necessary to develop and
document the financial reporting guidelines for NAADS.
Not done
Response. Management is till
handling the issue with
the Ministry of Finance, Planning and Economic
Development.
13 Statutory deductions Noted instances of failure to
deduct Withholding Tax from
suppliers and to timely file returns for PAYE and WHT.
Responses.
All statutory deductions
were withheld and returns for PAYE and WHT filled
on time.
14 Return of unexpended bank balances to
consolidated fund
It was noted that unexpended Bank balances of
UGX11,947,541,888 and 10,404,580,442 as at 30th June
2012 and 30th June 2013 respectively were not returned to
the consolidated fund.
Done. Unexpended bank balances were returned to
the consolidated fund
15 Accounting System
The NAADS secretariat accounting
system is partially computerized
with some of the transactions and financial statements processed by
the Integrated Financial Management System (IFMS).
However a substantial number of
payments are made outside the IFMS. The funds are transferred
to a NAADS expenditure bank account in Bank of Uganda
referred to as Basket Account. It is from this bank account, that
payments are made outside the
IFMS and there are no ledgers maintained to record these
payments. The secretariat financial statements are therefore
prepared using both IFMS data
and payment schedules prepared in Excel Work Sheets. Most funds
deposited on the basket account are drawn from the treasury
account as if they were payments to suppliers and this result into
overstatement of expenditure.
It is necessary to ensure that all
The transfers that were
made to the Basket
account were immediately transferred to beneficiary
accounts. The transfer were in respect to
emergency payments that
would not wait for processing the
identification numbers in IFMIS system.
21
transactions at the secretariat are
processed using IFMS so that there are captured in the ledgers.
Alternatively manual ledgers
should be maintained to record transactions made outside IFMS.
16 Procurements
described as
partnerships
It was noted that some of the
cooperation agreements for
partnerships were actually procurement of goods and
services not competitively done and not done in accordance with
the PPDA Act.
Not done. Similar
agreements were made
during the year.
17 Agreement between Mugenga Holdings
Ltd, Kisoro Potato Growers Association
and Kisoro District
Local Government
Kisoro District Local Government signed a Memorandum of
Understanding (MoU) on 12th June 2012 between Mugenga
Holdings Limited (MHL) and
Kisoro Potato Growers and Marketing Association (KPGMA) to
set up a potato agro processing plant to be located at Cyanika,
Kisoro town to process Irish
potatoes. On the basis of this MoU, NAADS secretariat made a
payment of Ugx 500,000,000 on 23 August 2012. Noted
deficiencies with this arrangement as explained below;
There was no accountability provided for the payment of UGX
500,000,000 made to Mugenga Holdings Limited.
The share capital of the company of UGX 20,000,000 is much lower
than the contribution of UGX 500,000,000 by the NAADS
secretariat on behalf of the
farmers (Kisoro Potato Growers and Marketing Association).
The beneficiary farmers are not
registered with NAADS contrary to requirements of the project
management procedures provided
in the ATAAS Project Implementation Manual. At the
time of the audit (4/02/2014), which is 17 months after the
payment, the factory had not
been completed.
There is no work plan for implementation of this project
and no date set for completion of the processing plant. Although
Not done
22
the MoU provides for the district
to supervise the project there is no evidence in form of reports to
confirm that monitoring is done.
The secretariat should correct the
deficiencies highlighted and also improve monitoring to ensure
realization of the project objectives.
18 Supply of Parent Stock
Chicks and Poultry feeds to Eden Stores
Deliveries of both the chicks and
feeds were made on various dates in August 2010 without the
involvement of the subject matter
specialist or any other district official to verify and confirm the
supply.
In the post-delivery review report prepared a year later after
delivery by staff of NAADS
secretariat indicated that the beneficiary farmer –Eden stores
would commence distribution of chicks in December 2011.
However, by the time of the audit
(13/02/2014), distribution of chicks to intended beneficiaries
had not been done. The supplier was fully paid on 17th July 2013.
Recommended management follow-up to ensure distribution of
chicks to the farmers.
Not done
19 Cooperation Agreement between
NAADS and Agency for
National Development (A.N.D) for social
economic empowerment
through skills training.
NAADS signed a cooperation agreement with a Non-
Government Organization-Agency
for National Development for training youth to acquire various
skills. The training modules include those not related to the
NAADS mandate and the ATAAS
project such as metal fabrication, saloon, tailoring, Auto electrics,
and cookery and catering as well as carpentry and joinery. It is not
clear how the contractor was procured.
Advised management to terminate contract
Done. The contract was terminated.
20 Supply of Milk Coolers
The secretariat procured 20 milk
coolers and matching generators from M/S Alakaituk Enterprises
Ltd. Alakaituk handed over the milk coolers and generators to
NAADS on 01/08/2012 from which date NAADS commenced
payment of monthly storage fees
to Upstream Ltd of USD 6,161 per
Not done
23
month from August 2012 to
March 2013 and USD from April 2013 to June 2013. The total
expenditure on storage of the
coolers was USD 55,987. This cost was incurred because plans
for distribution and installation of the coolers were not finalized
before the handover.
Further still, our field verification
of the milk coolers revealed that they were not in use in some
cases because the installation was not completed and in others
because there is no milk from
intended beneficiaries. In Buyanja Sub-county Rukungiri district, the
installation was incomplete although the supplier was fully
paid all installation costs.
21 Clearing and Planting of Maize seeds on 500
acres of Land in Adjumani district by
J.S & O General
Supplies Ltd
NAADS secretariat delegated the above procurement to Adjumani
District Local Government and the contractor was paid UGX
360,000,000 for the services.
This activity was however not provided for in the ATAAS project
and the World Bank approved work plan. Also the procurement
was not done in accordance with NAADS and ATAAS procurement
regulations. It is not clear how
the supplier was selected and the World Bank was not informed and
did not give a “no objection” for the procurement as is required by
the ATAAS project procurement
rules. Further still, we noted that the payment of UGX 10,000 per
kilogram for the 10,000 kilograms of OPV seeds was excessive given
that the market price is UGX
1000-2000 per kilogram.
Advised management to follow up the issue
Not done. No action taken on excessive price paid.
22 Staff benefits not in
employment contracts
Noted that 22 staffs of NAADS
secretariat are paid a monthly transport allowance of UGX
214,286 that is not provided for in their respective employment
contracts. The total transport
allowance paid to staff during the financial year was UGX
56,571,504.
On 13th December 2012, NAADS secretariat paid for Christmas
Done
24
shopping vouchers for its staff at
Uchumi Super market valued at UGX. 17,700,000. This is a staff
benefit that is not provided in the
staff employment contracts and was also not taxed. Advised
management to ensure that payments to staff are done in
accordance with the employment contracts.
23 Sitting allowances to
NAADS secretariat staff
Noted instances of payment of
sitting allowances to various staff committees such as the contracts
committee and for staff
participating in interviewing new staff. The payment of these
allowances is unjustified given that these are staff of the
secretariat doing secretariat work within the offices and are actually
ineligible for funding by the
participating partner.
It was recommended that the payment of sitting allowances is
stopped.
Done
24 Fuel Log Books The secretariat maintains fuel logbooks for each vehicle. We
however noted that for some, all required details such as purpose
of journey, time in and out are
not recorded and there is no evidence of review of such
logbooks. Advised management to ensure that fuel log books are
properly completed and reviewed
Not done
25 East African
Agricultural
Productivity Project (EAAPP)
The EAAPP cashbook is not
analysed and there are no ledgers
for project expenses. EAAPP fund transfers to the zonal offices are
maintained in the same cashbook as ATAAS funds.
Payments amounting to UGX
61,625,300 from the EAAPP cash
book were not supported.
Advised management to maintain ledgers and ensure that
appropriate support for all
payments.
Done
26 Pilot Goat Breeding and Production
Scheme for Export
Management was advised to correct these deficiencies
Not done
25
APPENDIX 1
FINANCIAL STATEMENTS