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REPORT OF THE AUDITOR GENERAL OF STATE FINANCES

FOR THE YEAR ENDED 30 JUNE 2012

Office of the Auditor General of State Finances

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TABLE OF CONTENTS

TABLE OF CONTENTS ........................................................................................ I

ABBREVIATIONS AND ACRONYMS.............................................................. III

FORWARD BY THE AUDITOR GENERAL ....................................................... 1

EXECUTIVE SUMMARY ..................................................................................... 6

REPORT ON OAG ACTIVITIES DURING THE YEAR .................................... 8

1.1 HISTORICAL BACKGROUND .....................................................................................8

1.2 MANDATE AND FUNCTIONS OF THE AUDITOR GENERAL ...................................8

1.3 OAG VISION, MISSION AND CORE VALUES ............................................................9

1.4 OAG STRUCTURE ........................................................................................................9

1.5 STRATEGIC PLAN IMPLEMENTATION ................................................................... 10

1.6 FINANCIAL MANAGEMENT AT OAG ...................................................................... 13

SUMMARY OF CROSS CUTTING ISSUES ...................................................... 14

2.1 AUDIT COVERAGE .................................................................................................... 14

2.2 OVERVIEW OF AUDIT RESULTS ............................................................................. 20

2.3 CROSS CUTTING ISSUES IDENTIFIED DURING OAG AUDITS ......................... 24

2.3.1 Failure to implement some prior year Auditor General’s recommendations ........ 24

2.3.2 Persistent weaknesses in preparation of financial statements ............................... 27

2.3.3 Persistent errors noted in books of account and financial statements of public

entities ........................................................................................................................ 29

2.3.4 Unsupported assets and liabilities in entities’ financial statements ...................... 33

2.3.5 Debts not recovered by public entities for a long period ...................................... 34

2.3.6 Financial management in Non Budget Agencies within Districts ........................ 34

2.3.7 Lack of clarity on financial reporting for district pharmacies and Business

Development Centres (BDCs) ..................................................................................... 35

2.3.8 Irregular Expenditure ......................................................................................... 36

2.3.8.1 Unsupported expenditure ....................................................................................................... 37

2.3.8.2 Wasteful expenditure ............................................................................................................. 39

2.3.9 Unauthorized expenditure .................................................................................. 39

2.3.9.1 Public entities spending in excess of budgets approved by Parliament ..................................... 39




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2.3.9.2 Unauthorised staff benefits and staff advances ....................................................................... 40

2.3.10 Tenders awarded without complying with existing public procurement

procedures .................................................................................................................. 41

2.3.10.1 Contracts signed before obtaining performance guarantees .................................................. 41

2.3.10.2 Use of inappropriate procurement methods in award of tenders ............................................ 41

2.3.10.3 Tenders awarded without sufficient support documents ......................................................... 42

2.3.11 Weaknesses in contract management ................................................................ 42

2.3.11.1 Long delays in completion of civil works .............................................................................. 42

2.3.12 Weaknesses in management of internally generated revenue ............................. 43

2.3.13 Weaknesses in management of fixed assets in public entities ............................ 45

2.3.14 Non compliance with tax laws .......................................................................... 46

2.3.15 Poor recovery of loans given to beneficiaries of Vision Umurenge program

(VUP) in districts........................................................................................................ 47

2.3.16 Contributions for Mutuelle de Santé scheme not remitted ................................. 48

2.3.17 Lack of proper legal framework for Tumba and Rukara colleges ...................... 49

2.3.18 Concerns over Text books distributed in government schools ........................... 49

2.3.19 Management of SFAR student loans and recoveries.......................................... 51

2.3.20 Weaknesses in management of database for FARG beneficiaries ...................... 52

2.3.21 Gaps in monitoring of FARG activities in Districts ........................................... 53

2.3.22 Concerns over quality of livestock distributed to the population........................ 53

2.3.23 Concerns over expired drugs in hospitals and pharmacies ................................. 54

2.3.24 Concerns over slow pace of recovery of funds from sale of fertilizers ............... 55

2.3.25 Lack of follow up by RDB on investment certificates issued ............................ 55

2.3.26 Issues identified in audits of Government Boards ............................................. 56

2.3.27 Funds misappropriated in fraudulent cases not recovered .................................. 59




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ABBREVIATIONS AND ACRONYMS

AFD Agence Française de Développement AFROSAI-E African Organization of Supreme Audit Institutions-English speaking AGF Automobile Guarantee fund AGI Adolescent Girls Initiative BCR Banque Commerciale du Rwanda/Commercial Bank of Rwanda

BNR National Bank of Rwanda BRD Banque Rwandaise de Développement CEPEX Central Public Investment and External Finance Bureau CHUK University Teaching Hospital- Kigali CNLG National Commission For The Fight Against Genocide

CNLS National Commission for the Fight Against AIDS CSR National Social Security Fund CSRP Civil Service Reform Project CTAMS Mutual Health Technical Support Cell EAAPAC East Africa Association of Public Accounts Committees EAPHLN East Africa Public Health Laboratory Networking Project EARP Electricity Access Rollout Program

EASSDP Electricity Access Scale-Up and Sector Wide Approach Development Project

EATTFP East Africa Trade and Transport Facilitation Project EDPRS Economic Development and Poverty Reduction Strategy EIF Enhanced Integrated Framework EWSA Energy, Water and Sanitation Authority FARG Genocide Survivors Fund FER Fond d’Entretien Routier (Road Maintenance Fund) GBEs Government Business Enterprises GMO Gender Monitoring Office GoR Government of Rwanda ICPAR Institute of Certified Public Accountants of Rwanda IDF Institutional Development Fund IFMIS Integrated Financial Management Information System

INTOSAI International Organisation of Supreme Audit Institutions IPPIS Integrated Personnel and Payroll Information System IRST Institute of Technology and Scientific Research ISAE Institute of Agriculture and Animal Husbandry




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KHI Kigali Health Institute KIE Kigali Institute of Education KWAMP Kirehe Community Based Watershed Management Project LEVEMP Lake Victoria Environmental Management Project LWH Land Husbandry Water harvesting and Hillside Irrigation MDTF Multi Donor Trust Fund MHC Media High Council MIDIMAR Ministry of Disaster Management and Refugee Affairs MIFOTRA Ministry of Labour and Skills Development MINADEF Ministry of Defense MINAFFET Ministry of Foreign Affairs MINAGRI Ministry of Agriculture MINALOC Ministry of Local Government MINEAC Ministry of East African Community MINECOFIN Ministry of Finance and Economic Planning MINEDUC Ministry of Education MINICOM Ministry of Commerce MINIFOM Ministry of Forestry and Mines MINIJUST Ministry of Justice MININFRA Ministry of Infrastructure MININTER Ministry of Internal Affairs MINIRENA Ministry of Natural Resources MINISANTE Ministry of Health MINISPOC Ministry of Sports and Culture MINIYOUTH Ministry of Youth, Culture and Sports NBA Non Budget Agency NCDC National Curriculum Development Centre NCHE National Council for Higher Education NDIS National Decentralization Implementation Secretariat NEC National Electoral Commission NHRC National Human Rights Commission NID National Identification Project NIMR National Institute of Museums of Rwanda NISR National Institute of Statistics NPPA National Public Prosecution Authority NUR National University of Rwanda NURC National Unity and Reconciliation Commission OAG Office of the Auditor General of State Finances OCIR CAFÉ Rwanda Coffee Development Authority OCIR THE Rwanda Tea Authority ONATRACOM Rwanda Public Transport Authority




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OP Payment Order ORINFOR National Office for Information OTR Ordonnateur Trésorier du Rwanda (Central Treasury of Rwanda) PAC Public Accounts Committee PADAB Bugesera Agricultural Development Support Project PAIGELAC Inland Lakes Integrated Development and Management Support Project PAPSTA Support Project to the Strategic Plan for the Agriculture Transformation PAREF Projet d'Appui à la Reforestation PAYE Pay As You Earn PDCRE Smallholder Cash and Export Crops Development Project PFM Public Financial Management Reform Basket Fund PHHS TF Post Harvest Handling and Storage Task Force PPF (LISP) Project Preparation Facility of the Livestock Infrastructure Support

Programme PPPMER Rural Small And Micro Enterprises Project PRIMATURE Prime Minister's Office PSCBP Public Sector Capacity Building Project PSGG Project for Strengthening Institutional Framework for Good Governance RAB Rwanda Agricultural Board RBC Rwanda Biomedical Board RCA Rwanda Cooperative Agency RCAA Rwanda Civil Aviation Authority RCE Rukara College of Education RCIPRW Regional Communication Infrastructure Program – Rwanda Project RCS Rwanda Correctional Services RDB Rwanda Development Board RDRP Rwanda Demobilization And Reintegration Programme REB Rwanda Education Board REMA Rwanda Environment Management Authority RHA Rwanda Housing Authority RHODA Rwanda Horticulture Development Authority RIAM Rwanda Institute of Administration & Management RLDSF Rwanda Local Development Support Fund RNP Rwanda National Police RNRA Rwanda Natural Resources Authority RPPA Rwanda Public Procurement Authority RRA Rwanda Revenue Authority RSSB Rwanda Social Security Board RSSP II Rural Sector Support Project Phase II RTDA Rwanda Transport Development Agency RURA Rwanda Utilities Regulatory Agency




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SADCOPACs Southern Africa Development Community Organisation of Public Accounts Committees

SEDP Sustainable Energy Development Project SFAR Student Financing Agency of Rwanda SFB School of Finance and Banking SONARWA Société Nouvelle d’Assurances du Rwanda TCT Tumba College of Technology TSC Teachers Service Commission TSDP Transport Sector Development Project UAF Universal Access Fund UBPR Union des Banques Populaires du Rwanda UNAIDS United Nations Programme on HIV/AIDS UP Umutara Polytechnic USPLS Public Sector Umbrella in Fight Against Aids VUP Vision Umurenge program WDA Work Force Development



Office of the Auditor General of State Finances 1

FORWARD BY THE AUDITOR GENERAL

Article 184 of the Constitution of the Republic of Rwanda of 4 June 2003,

as amended to date stipulates that the Auditor General shall submit each

year to each Chamber of Parliament, prior to the commencement of the

session devoted to the examination of the budget of the following year, a

complete report on the state financial statements for the previous year.

That report must indicate the manner in which the budget was utilised, unnecessary expenditure

which was incurred or expenses which were contrary to the law and whether there was wasteful

expenditure or misappropriation.

Accordingly, I now submit to Parliament a report on the audits conducted during the period from

June 2012 to 30 April 2013. The audits mainly covered expenditure incurred by Government

entities for the year ended 30 June 2012. This report presents cross cutting issues identified

during financial audits and performance audits. Individual reports containing the audit opinion

and details of all findings have been issued for each audited entity.

This report also covers other activities of the Auditor General’s office for the year ended 30 June

2012 and achievements realized during the year.

Audit coverage

The audit coverage represents the percentage of expenditure incurred by the entities audited

when compared to the total national expenditure for the financial year, as presented in State

consolidated financial statements. The expenditure incurred by entities audited during the period

June 2012 to 30 April 2013 represents 75% of the reported Government Expenditure for the year

ended 30 June 2012. The total Government expenditure reported in State consolidated financial

statements for the year ended 30 June 2012 amounted to Frw 1,377,747,090,152 compared to

Frw 1,189,125,680,494 for the previous year ended 30 June 2011.




The above coverage was achieved, alongside audit of the State consolidated financial statements,

full time involvement of OAG in audit of the East African Community, as well as increased

involvement and participation in PAC activities especially during the months of October and

November 2012. The Office also conducted six (6) value for money audits during the current

year, four of which (Audit of Vision 2020 Umurenge Programme (VUP); Follow up audit of

Management of agricultural inputs: seeds and fertilizers; Expropriation exercise undertaken

towards the acquisition of the land for construction of Rukarara I Hydro Power Plant; and

Management of Government assets) had been finalized while two relating to Health care waste

management and Water Sector management are still ongoing. In addition, a special audit of the

Integrated Personnel and Payroll Information System (IPPIS) was carried out and completed

during the year.

Basis of OAG audits

The OAG conducted audits of public entities and projects as required under Article 183 of the

Constitution of the Republic of Rwanda, in accordance with International Standards on Auditing.

An audit opinion was issued for each of the entities audited. For the case of the special

assignment and performance audits, specific INTOSAI standards relating to such assignments

were applied.

Summary of audit results and key recommendations

Overall, I have noted a significant improvement in financial management in public entities

during the year ended 30 June 2012, except in the case of Government Boards, Higher Learning

Institutions and Embassies where the pace of improvements is slower. Notably, the number of

entities that obtained reports with unqualified (clean) audit opinion increased from 11 reports

(9%) in my previous year report to 37 reports (28%) in this current report. This improvement is

attributed to positive changes in the audit environment such as: continued commitment by many

Chief Budget managers to implement audit recommendations, Government follow up of Auditor

General’s recommendations through imihigo, continued oversight by PAC, continued PFM

reforms undertaken by Government through MINECOFIN and continued sensitisation of

auditees by the OAG.




The improvements are reflected in the increased level of implementation of prior year audit

recommendations where 60% of all recommendations were fully implemented. Most entities

audited used IFMIS in capturing accounting information and therefore had complete books of

account. There was a significant reduction in the amount of unsupported expenditure and other

irregular expenditure as well as reduced cases of non compliance with procurement procedures

and regulations. Significant steps have also been taken to address the problem of inadequate

accountability of revenue collections in districts.

Despite the above improvements, 72% of the audit reports (97 reports) were qualified mainly due

to avoidable and easily addressable factors such as:

• Lack of proper reconciliation of opening balances, especially for the merged entities/boards;

• Lack of proper accounting records especially for Embassies;

• Omitted transactions and balances in the books of account. For the case of districts, balances

of non budget agencies were omitted from the books of account and financial statements;

• Mispostings in books of account resulting from poor budgeting in public entities;

• Unsupported balances and adjustments in the financial statements;

• Irregular and unauthorised expenditure;

• Non compliance with existing laws and regulations, especially tax and procurement laws;

• Weak controls over the management of fixed assets, cash collections, and bank transactions;

• Poor contract management leading to delayed execution of constructions works; and

• Failure to implement some prior year audit recommendations.

None of the Districts, Embassies, Higher Learning Institutions, Government Business

Enterprises and Boards audited obtained reports with an unqualified audit opinion, though some

of them, especially districts made significant efforts to address many of the Auditor General

recommendations. There is need for MINECOFIN to continue guiding these entities to ensure

that issues identified in their reports are addressed to enhance better financial management.

Effective audit committees will play a key role in monitoring implementation of audit

recommendations.




For the case of Embassies, the audits identified that there were no proper books of account

maintained to track utilization of funds disbursed to them. Most of the Embassies audited neither

maintained cashbooks nor prepared any bank reconciliations during the year and could not

provide proper documents to support payments made from their bank accounts.

A highlight of key OAG achievements

The office continued to focus on the implementation of the 2011-2016 OAG strategic plan with

the main aim of strengthening OAG’s institutional capacity to deliver on its mandate. Some of

the achievements realized during the year include:

• Increased audit coverage: From 60% in 2007 to 75% in the current report;

• Continued enhancement of audit quality through external peer quality review done by

AFROSAI-E. OAG Rwanda scored highly during the peer review.

• Continued strengthening of OAG institutional Capacity through Internal and external

professional trainings. The Office has five qualified accountants and 92 of the staff registered

for professional examinations will be sitting for their exams in June 2013;

• Continued commitment and participation in audits of the East African Community (EAC)

and its organs. OAG is a permanent member of the EAC audit commission, where our

contribution is quite visible;

• Increased participation and sensitization of stakeholders through various stakeholder

workshops, meetings and seminars. I have engaged with leadership of the local governments

across the country and with all the Chief Budget Managers through various fora organised by

the Right Honourable Prime Minister and Parliament; and

• Recognition of OAG by AFROSAI-E in enhancing quality through peer reviews: OAG was a

leader of the peer review team for the Supreme Audit Institution of the United Republic of

Tanzania and a member of the team that conducted the peer review of the National Audit

Office of South Sudan.

I implore all stakeholders to continue rendering the necessary support for OAG to fully

implement its current strategic plan in order to address challenges currently hampering the Office

in pursuit of its mandate. The progress made by Parliament towards enactment of the Public




Audit Bill is highly appreciated. This Bill will significantly enhance the independence of OAG

and ensure compliance with INTOSAI standards and declarations on independence.

Acknowledgement

I would like to acknowledge the support from Government (Executive) for initiating and

implementing PFM reforms and taking initiatives aimed at creating a conducive audit

environment necessary to enhance public financial management. I also acknowledge Parliament

of the Republic of Rwanda for its oversight mandate and enacting enabling laws and regulations

to strengthen OAG independence.

I extend my gratitude to Development Partners who have continued to support OAG to build its

wholistic capacity to execute its mandate.

Last but not least I am grateful to my staff for their unwavering commitment to our core values

and their determination which enabled OAG to deliver on its mandate and for embracing the

ongoing developments in the Office.

Obadiah R.BIRARO

AUDITOR GENERAL

KIGALI, .………………………………. 2013




EXECUTIVE SUMMARY

According to Article 183 of the Constitution of the Republic of Rwanda of 4 June 2003, as

amended to date, and Law n° 05/98 of 4 June 1998 establishing the Office of the Auditor General

of State Finances (OAG), the responsibilities of the Office of the Auditor General include the

following:

• Auditing and reporting on accounts of all public entities, local administrative entities, public

enterprises, parastatal organizations and projects;

• Conducting financial and value for money, economy and efficiency audits in respect of

expenditure in all institutions referred to above;

• Conducting accountability, management and strategic audits of accounts in the institutions

mentioned above.

I carried out my audits in accordance with International Standards on Auditing. Those standards

require that I comply with ethical requirements and plan and perform the audits to obtain

reasonable assurance whether the financial statements are free from material misstatement. An

audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the

financial statements. It also includes assessing the accounting principles used and significant

estimates made by management, as well as evaluating the overall financial statements

presentation.

I also considered the public entities’ internal control systems to determine my auditing

procedures for the purpose of expressing an opinion on their financial statements.

The results of my audits were reported in the individual reports and are summarized in five

volumes as below:

Volume I Executive summary;

Volume II Report on State Consolidated Financial Statements;




Volume III – Key findings from audit of Local Governments (Districts and City

of Kigali);

Volume IV, PART 1 – Key findings from audit of Ministries, and other Central

Administration entities and projects;

Volume IV, PART 2 – Key findings from audit of Boards and Government Business

Enterprises; and

Volume V – Key findings from Performance audits and Special assignments.

This Volume 1 of the annual report is presented in 2 sections as follows;

Section 1- Report on OAG activities during the year

Section 2- Summary of Cross cutting issues identified during OAG audits




SECTION 1

REPORT ON OAG ACTIVITIES DURING THE YEAR

1.1 HISTORICAL BACKGROUND

The Office of the Auditor General was established by the Law no 05/98 of 4th June 1998. Its first

annual report covering 17 entities audited was issued in 2000. At that time, the office had 36

staff. Fourteen (14) years later, the office has expanded tremendously to 119 staff. The annual

report currently has 135 reports from 129 entities.

1.2 MANDATE AND FUNCTIONS OF THE AUDITOR GENERAL

Article 183 of the Constitution of the Republic of Rwanda of 4 June 2003, as amended to date,

and Law n° 05/98 of 4 June 1998 establishing the Office of the Auditor General of State

Finances (OAG) require the Auditor General to audit and report to Parliament on the Public

Accounts of Rwanda and of all Public offices including local government organs, public

enterprises and parastatal organizations, privatized state enterprises, joint enterprises in which

the State is participating and government projects.

The responsibilities of the Office of the Auditor General include the following:

• Auditing and reporting on accounts of all public entities, local administrative entities, public

enterprises, parastatal organizations and projects;

• Conducting financial and value for money, economy and efficiency audits in respect of

expenditure in all institutions referred to above;

• Conducting accountability, management and strategic audits of accounts in the institutions

mentioned above.




1.3 OAG VISION, MISSION AND CORE VALUES

Vision

“To promote an accountable, honest and effective Government administration”.

Mission

“To promote accountability, transparency and best practice in government operations as a means

to good governance”.

Core Values

The Auditor General and the staff of the Office of the Auditor General, in executing their

responsibilities are committed to live by the office’s core values of:

• Integrity: Being upright and honest;

• Objectivity: To display impartiality and professional judgment;

• Independence: from the audited entity and other outside interest groups;

• Accountability: by providing assurance that activities were carried out as intended and with

due regard for fairness, propriety, and good stewardship;

• Confidentiality: respect of the confidentiality of information acquired in the course of work;

and

• In Public Interest: by making decisions with the public interest in mind.

1.4 OAG STRUCTURE

The OAG structure is composed of 123 positions which are expected to increase to 150 in

2014/2015. The Office is headed by the Auditor General who is assisted by the Deputy Auditor

General and the Secretary General. It has 7 Departments: 6 audit departments, and 1 for

Administration and Finance.




1.5 STRATEGIC PLAN IMPLEMENTATION

This is the second year of implementing our OAG Strategic Plan for the period 2011/12 -

2015/16. The Strategic Plan has a set of activities aimed at strengthening OAG’s own

institutional capacity for better management of its resources on one hand and to engage its

stakeholders effectively and proactively on the other. The Strategic Plan is built around five

pillars, namely:

i. Enhancing the independence of the OAG;

ii. Strengthening institutional capacity in line with its mandate;

iii. Building and strengthening professional audit capacity;

iv. Strengthening OAG’s capacity to engage stakeholders effectively; and

v. Coordination, implementation and monitoring.

Achievements realized on each pillar during the year are elaborated below:

1.5.1 Enhancing the independence of the OAG

International best practice requires that the Office of the Auditor General be seen to be

operationally, financially and functionally independent, especially from those institutions of

government which it audits. This is critically important so as not to compromise the oversight

role that the office exercises over the use of public funds in these institutions. The OAG

continued to engage with Parliament in efforts to finalize the Public Audit Bill.

The enactment of this Bill will significantly enhance the independence of OAG and ensure

compliance with INTOSAI standards and declarations on independence.

1.5.2 Strengthening institutional capacity in line with its mandate

In order to improve efficiency of the audit process, the OAG upgraded its ICT infrastructure in

preparation for automation of the audit process. The upgrade included Data migration, improved

internet connectivity through IPBX Upgrade, acquisition of more laptops and Mobile

Communication Facilities for staff, installation of Document Tracking and Workflow

Management System (E-Records) with the assistance of Rwanda Development Board, and

upgrade of IDEA software and Refresher courses.




The OAG also enhanced the security system at the OAG Building through the installation of a

walkthrough X-ray scanner, card and biometric readers, cameras and an automated attendance

register.

1.5.3 Building and strengthening professional audit capacity

OAG has been beset, for several years, with the problem of high staff turnover as trained and

skilled professional accountants leave for greener pastures. Although this is not a unique problem

to the OAG alone in Rwanda, the office has been particularly hit hard because its staff are

targeted by other employers due to the robust training and experience acquired during the course

of their work. Fortunately, we have a Government supported training programme which is firmly

in place. The office continues to strengthen its institutional capacity through Internal and external

professional trainings. The Office has five qualified accountants and 92 of the staff registered for

professional examinations will be sitting for their exams in June 2013.

OAG also undertook other specialist training and capacity building with the assistance of both

AFROSAI-E and INTOSAI, both to which it is a member. These specialist programmes, which

include Value for Money and Forensic Audits, are part of the ongoing on the job training that is

specifically targeted at enhancing our staff’s professional knowledge and understanding of audit

standards and audit processes, which in turn ensures that they deliver high-quality service.

1.5.4 Strengthening OAG’s capacity to engage stakeholders effectively

OAG’s vision, mission and core values are built on the belief that those who are entrusted with

public resources should be held to account and are expected to use the resources transparently,

efficiently and there should be value for money. OAG engaged with various stakeholders in

order to enhance good governance and accountability as envisioned by the Vision 2020 and the

EDPRS.

OAG’s engagement with the stakeholders included:

• Holding the Stakeholders Forum: This was held by PAC in the Parliament building in

October 2012. The meeting provided a forum during which OAG and audited entities

interacted in order to gain increased appreciation of public financial management issues in




general and the audit process in particular. With a number of questions being answered, and a

number of processes being explained, the outcome of the Forum was very encouraging, and

OAG hopes that it also provided a building block for further understanding and the deepening

of trust between the OAG and the various Budget Agencies that it audits.

• Auditor General’s Public Finance Management (PFM) related Meetings: The Auditor

General held several PFM meetings with stakeholders in all four provinces in the country and

City of Kigali. Besides providing the opportunity to explain the audit process, these meetings

also helped to put OAG’s proposed PFM related reforms into context. OAG hopes that

eventually there will be a wider acceptance and appreciation of its work and its role in the

Country’s governance system.

It should also be noted that the OAG Audit Report (2010/11) review, scrutiny and discussions

were in the press from June 2012 to December 2012. During this period, the PAC had

interactions with officials from public entities audited, thus providing further opportunities

for public interaction on the Audit Report.

• Presentation to the Audit Committees of Public Enterprises: In July 2012, the OAG

Director of Quality Assurance (on behalf of the AG) made a presentation on “The External

Audit Process and Challenges in Public Enterprises’ to the Audit Committees of Public

enterprises. The workshop was held in Musanze District and OAG participated in facilitating

the workshop at the invitation of MINECOFIN.

• Supporting Rwanda Parliament (PAC) to host a conference for PACs of countries

within the East and Central Africa region: OAG co-hosted a conference for PACs of

countries within the East and Central Africa region (EAAPACs & SADCOPACs), which was

held at Parliament building in Kigali in September 2012. The theme of the conference was

“Building the Foundation of an Effective Financial Management System through

Transparency and Accountability in the Budget Formulation and Spending Process”. The

conference proved to be great capacity building opportunity for PAC and by the end of the

conference, PAC members acquired new insights and had established some valuable new

networks with peers in the region.

OAG also continued to work closely with the PAC during their review of the 2010/2011 audit

reports.




• Other stakeholder engagement opportunities: During the year, OAG Directors supported

MINECOFIN in conducting training for Audit Committees of all districts in the country.

Audit Committees from the following Provinces were trained:

• Eastern Province;

• City of Kigali;

• Northern Province;

• Southern Province; and

• Western Province.

1.6 FINANCIAL MANAGEMENT AT OAG

OAG had a budget of Frw 3,178,054,414 for the year 2011/2012. This included Frw

2,218,439,496 from Government of Rwanda for staff salaries and operating expenses of OAG,

and Frw 959,614,918 from development partners for implementation of the strategic plan.

OAG’s financial statements were audited by a member firm of ICPAR and received an

unqualified audit opinion (Clean report). The audit report was submitted to Parliament.




SECTION 2

SUMMARY OF CROSS CUTTING ISSUES

2.1 AUDIT COVERAGE

The audit coverage represents the percentage of expenditure incurred by the entities audited

when compared to the total national expenditure for the financial year, as presented in state

consolidated financial statements. The expenditure incurred by entities audited during the period

June 2012 to 30 April 2013 represents 75% of the reported Government Expenditure for the year

ended 30 June 2012. The total Government expenditure reported in State consolidated financial

statements for the year ended 30 June 2012 amounted to Frw 1,377,747,090,152 compared to

Frw 1,189,125,680,494 for the previous year ended 30 June 2011.

The proportion of expenditure covered by audits reported within this year’s report of 75% is

higher than that in previous reports, and this has been increasing over the years, as shown in the

graph below:

The above coverage was achieved, alongside audit of the State consolidated financial statements,

full time involvement of OAG in audit of the East African Community, as well as increased

involvement and participation in PAC activities especially during the months of October and

November 2012.




The Office also conducted six (6) value for money audits during the current year, four of which

(Audit of Vision 2020 Umurenge Programme (VUP); Follow up audit of Management of

agricultural inputs: seeds and fertilizers; Expropriation exercise undertaken towards the

acquisition of the land for construction of Rukarara I Hydro Power Plant; and Management of

Government assets) had been finalized while two relating to Health care waste management and

Water Sector management are still ongoing. In addition, a special audit of the Integrated

Personnel and Payroll Information System (IPPIS) was carried out and completed during the

year.

In terms of entities audited, the number covered by the audits represents 39% of all entities

included in the State consolidated financial statements. This is an increase of 7% when compared

to the 32% covered last year. There is continued focus on audit of Districts to support the

Government Decentralisation strategy and on Ministries and Provinces since they are the overall

supervisors of Government programmes. In addition, there was focus on Government Boards

since most of them had not been audited since their creation in the last one to three years. Other

specific areas of focus this year were Government projects especially those funded by the World

Bank.

The total number of entities and projects audited during this reporting period is 129 out of the

334 entities and projects consolidated, as shown in the chart below:




Entities whose financial statements were audited during the reporting period comprise:

• All districts (100%) coverage;

• All Provinces (100%) coverage;

• All Government ministries (100%) coverage;

• Seventy five (75%) coverage of Government Boards;

• Forty four percent (44%) coverage of other central government entities;

• Eighteen percent (18%) coverage of Government programs and projects; and

• Nine percent (9%) coverage of Government Business enterprises.

When compared to the previous year, there was an increase in coverage for Government Boards,

Central Government entities and Projects. Coverage for Provinces, Ministries and Districts

remained at 100% like it was in the previous year but that of GBEs reduced significantly during

this year. See graph below:

The percentage of coverage of GBEs has reduced due to our shift in focus to audit Government

Boards created in the recent years through the merger of various entities. The boards audited

cover 29 entities which were merged to form the boards. This is the first time most of the Boards

are being audited. See entities merged in the table below:




Board Number of entities merged

1 Rwanda Natural Resources Authority 3 2 Rwanda Biomedical Centre 10

3 Rwanda Development Board 6 4 Rwanda Agricultural Board 3 5 Rwanda Education Board 5

6 Rwanda Correctional Services 2

Total 29

In my previous year report which covered several GBEs, I highlighted that these entities needed

specific attention to improve on their financial management and internal controls to safeguard

public resources. Even when most of them were not audited this year, I recommend that

Government takes specific interest to follow up the status of implementation of

recommendations made in previous reports of these GBEs and support them to strengthen their

internal control systems and Governance structures. The OAG is committed to ensuring that

GBEs are audited on a regular basis and believes that the passing of the audit bill will support

these efforts. The effectiveness of ICPAR in regulating and supervising Public Accounting

practitioners in Rwanda will also enhance these efforts of increasing audit coverage of GBEs

through outsourcing.

The table below provides the number of entities and projects (per category) that were included in

the State consolidated financial statements for the year ended 30 June 2012 and those that were

audited during the period.

Entities Total number of entities &

projects consolidated

2012

Entities &

projects audited - 2012

Entity Coverage

(%ge-2012)

Entity Coverage

(%ge-2011)

Entity Coverage

(%ge-2010)

Entity Coverage

(%ge-2009)

Entity Coverage

(%ge-2008)

12 months

Entity Coverage

(%ge-2007)

12

months

12

months

12

months

6

months

12

months

12

months

a. Ministries 17 17 100% 100% 94% 100% 100% 100%

b.

Other Central Administration units 93 41 44% 21% 23% 8% 32% 28%

c.

Government Projects and Programs 149 27 18% 15% 14% 12% 20% 13%

d. Provinces 4 4 100% 100% 100% 100% 100% 100%




Entities Total number of entities &

projects consolidated

2012

Entities &

projects audited - 2012

Entity Coverage

(%ge-2012)

Entity Coverage

(%ge-2011)

Entity Coverage

(%ge-2010)

Entity Coverage

(%ge-2009)

Entity Coverage

(%ge-2008)

12 months

Entity Coverage

(%ge-2007)

12

months

12

months

12

months

6

months

12

months

12

months

e. Districts and City of Kigali 31 31 100% 100% 100% 100% 100% 100%

f.

Government Business Enterprises 32 3 9% 30% 32% 3% 3% 25%

g. Government Boards 8 6 75% 0% 0% 0% 0% 0%

Sub Total 334* 129 39% 32% 33% 25% 36% 31%

g.

State consolidated financial statements 1 1 100% 100% 100% 100% 100% 100%

Total 335 130 39% 32% 33% 25% 36% 31%

Source: MINECOFIN (State consolidated financial statements)

* Owing to limited capacity to cover all entities in a specific financial year, I still carry out audits

relating to previous financial years for some entities. This annual report comprises 28 reports

covering periods outside the reporting period of 1 July 2011 to 30 June 2012 compared to 23

institutions covered outside the reporting period last year. The Institutions whose financial years

are outside the period from 1 July 2011 to 30 June 2012 are provided in the table below:

No. Institution Number of reports

outside the reporting

period of 1 July 2011

to 30 June 2012

Years covered by reports

1 CHUK 1 One (1) report covering the year ended 30 June 2011

2 SFB 1 One (1) report covering the year ended 30 June 2011

3 GMO 1 One (1) report covering the year ended 30 June 2011

4 PAREF 1 One (1) report covering the year ended 30 June 2011

5 RHA 1 One (1) report covering the year ended 30 June 2011

6 Rwanda Cooperative Agency (RCA) 1 One (1) report covering the year ended 30 June 2011

7 East African Trade and Transport Facilitation Project (EATTFP )

1 The report covering the year ended 31 December 2011




No. Institution Number of reports

outside the reporting

period of 1 July 2011

to 30 June 2012

Years covered by reports

8 Transport Sector Development Project (TSDP )


9 Rwanda High Commission in Kampala 1 One (1) report covering the year ended 30 June 2011

10 Rwandan Embassy in Hague 1 One (1) report covering the year ended 30 June 2011

11 Rwandan High Commission in Nairobi 1 One (1) report covering the year ended 30 June 2011

12 Rwandan High Commission in London 1 One (1) report covering the year ended 30 June 2011

13 Rwandan Embassy in Brussels 1 One (1) report covering the year ended 30 June 2011

14 Regional Communication Infrastructure Project


15 MDTF 1 The report covering the year ended 30 June 2011

16 NDIS 1 The report covering the year ended 30 June 2011

17 Media High Council 1 The report covering the year ended 30 June 2011

18 Decentralization and Community development Project

1 The report covering the year ended 30 June 2011

19 Teacher Service Commission (TSC) 1 The report covering the year ended 30 June 2011

20 LEVMP II 1 The report covering the year ended 30 June 2011

21 REMA 1 The report covering the year ended 30 June 2011

22 EAPHLN 1 The report covering the year ended 30 June 2011

23 NHRC 1 The report covering the year ended 30 June 2011

24 PSGG 1 The report covering period of 16 months ending 31 October 2011

25 NID Project 1 The report covering the year ended 30 June 2011

26 National Land Centre 1 The report covering the year ended 30 June 2011

27 Rukara College of Education 1 The report covering the year ended 30 June 2011

28 NCDC 1 The report covering the year ended 30 June 2011

Total reports 28




2.2 OVERVIEW OF AUDIT RESULTS

The audit of the 129 entities and projects covered during this reporting period resulted in OAG

issuing 134 audit reports (excluding the audit report on the State consolidated financial

statements) because certain entities were audited for more than one financial year. Although the

majority of audited entities (72%) obtained qualified audit opinions, there has been an overall

improvement in financial management in public entities during the year ended 30 June 2012.

This was noted in most entities, except for the Government Boards, Higher Institutions of

learning and Embassies where the pace of improvements is slower. Out of the 134 audit reports

issued during the audit period, 37 reports (28%) obtained an unqualified audit opinion, a notable

improvement when compared with 11 reports (9%) that obtained an unqualified audit opinion in

my previous year report.

What does a qualified audit opinion mean?

A qualified audit report is issued on financial statements if at the conclusion of the audit, the

auditor believes that the financial statements contain omissions and errors which are material and

could mislead users of the financial statements if not corrected or disclosed. A qualified audit

report can also be issued if the auditor was unable to obtain information that was necessary for

the audit of significant balances or if the auditor identified material instances of non compliance

with the existing laws and regulations or financial reporting framework.

Unqualified (clean) audit report

On the other hand, an unqualified audit report implies that financial statements presented are a

true and fair reflection of the transactions of the entity audited and that such transactions were in

all material respects, executed in accordance with the relevant laws and regulations. It is

important to note that even where an unqualified audit opinion is issued, there may be some

minor weaknesses highlighted for management attention to improve on the internal controls.

Entities whose reports had unqualified audit opinion

The thirty seven (37) entities with unqualified reports comprise of 7 Ministries (MINECOFIN,

MINAGRI, MINIRENA, MINEAC, MIFOTRA, MINICOM, and MINIYOUTH); 3 Provinces

(Western, Southern and Northern provinces); Chamber of Deputies, Senate, Supreme Court,

PRIMATURE, RURA, Universal Access Fund (managed by RURA) and 21 projects.




The projects that obtained clean audit opinion are: LWH (under MINAGRI), PDCRE (under

MINAGRI), Electricity Access roll out programme- Dutch funded Component (managed by

EWSA), Electricity Access roll out programme- French funded Component(managed by

EWSA), Electricity Access Scale- up and sector- Wide Approach Development project(managed

by EWSA), Sustainable Energy Development Project (managed by EWSA), Civil Service

Reform Project (managed by MIFOTRA), IDF Grant (managed by MINECOFIN), the Public

Sector Capacity Building project (managed by MINECOFIN), MDTF (managed by

MINECOFIN), RCIPRW (managed by RDB), KWAMP (under MINAGRI), LEVEMP (under

REMA), PPF-LISP MINAGRI (managed by MINAGRI), 2 reports of East Africa Public Health

Laboratory Networking project (under MINISANTE), RSSP II (under MINAGRI), PAPSTA

(under MINAGRI), PFM Basket Fund (managed by MINECOFIN), Rwanda Petroleum Capacity

Building Project (Managed by MININFRA) and PAIGELAC (under MINAGRI).

A summary of audit reports issued is provided below:

Entities & projects audited

Total number of reports

issued

Number of qualified reports

Number of unqualified

reports

%ge of unqualified

reports

a. Ministries 17 17 10 7 41%

b. Other Central Administration units 41 44 39 5 11%

c. Government Projects and Programs 27 29 8 21 72%

d. Provinces 4 4 1 3 75%

e. Districts and City of Kigali 31 31 31 0 0%

f. Government Business Enterprises 3 3 2 1 33%

g Government Boards 6 6 6 0 0%

Sub Total 129 134 97 37 28%

h. State consolidated financial statements 1 1 1 0 0%

Total 130 135 98 37 28%

Overall, there was significant improvement in financial management in public entities during the

year ended 30 June 2012. Notably, the number of entities that obtained unqualified (clean)

reports increased from 11 reports (9%) in the previous report to 37 reports (28%) in this current




report. Most improvements were noted in Ministries, Provinces and projects as illustrated in the

graph below:

The improvements could be attributed to improved commitment by Chief Budget managers to

implement audit recommendations, Government follow up of Auditor General’s

recommendations through imihigo, continued oversight by PAC, continued PFM reforms

undertaken by Government through MINECOFIN and continued sensitisation of auditees by the

OAG.

The improvements are reflected in an increased level of implementation of prior year audit

recommendations where 60% of all recommendations were fully implemented. Most entities

audited used SmartFMS (IFMIS) in capturing accounting information and therefore had

complete books of account. There was also a significant reduction in the amount of unsupported

expenditure and reduced cases of procurement problems.

Despite the above improvements, 72% of the audit reports (97 reports) were qualified mainly due

to avoidable and easily addressable factors such as:

• Lack of proper reconciliation of opening balances, especially for the merged entities/boards;

• Lack of proper accounting records especially for Embassies;




• Omitted transactions and balances in the books of account. For the case of districts, balances

of non budget agencies were omitted from the books of account and financial statements;

• Mispostings in books of account resulting from poor budgeting in public entities;

• Unsupported balances and adjustments in the financial statements;

• Irregular and unauthorised expenditure;

• Non compliance with existing laws and regulations, especially tax and procurement laws;

• Weak controls over the management of fixed assets, cash collections, and bank transactions;

• Poor contract management leading to delayed execution of constructions works; and

• Failure to implement some prior year audit recommendations.

None of the Districts, Embassies, Higher Institutions of Learning, Government Business

Enterprises and Boards audited obtained an unqualified report. The districts however made

significant efforts to address many of the Auditor General’s recommendations. There is need for

MINECOFIN to continue guiding these entities to ensure that issues identified in their reports are

addressed to enhance better financial management. Effective audit committees will play a key

role in monitoring implementation of audit recommendations.

Rwanda Embassies

For the case of five (5) Embassies, the audits identified that there were no proper books of

account maintained to track utilization of funds disbursed to them. Most of those audited neither

maintained cashbooks nor prepared any bank reconciliations during the year and could not

provide proper documents to support payments made from their bank accounts. The Embassies

claim that they have not been adequately inducted in the Government of Rwanda public financial

management reforms and do not have public financial management guidelines used by public

entities in Rwanda. There is need for MINAFFET and MINECOFIN to provide Embassy staff

with Government financial management guidelines and support them through appropriate

trainings, to enhance accountability for funds managed by the Embassies. Further, there is need

for urgent follow up of issues raised in reports of Embassies, especially for cases where

Embassies were unable to provide proper records and documents to support payments made

through their bank accounts.




2.3 CROSS CUTTING ISSUES IDENTIFIED DURING OAG

AUDITS

2.3.1 Failure to implement some prior year Auditor General’s recommendations

Article 74 of Organic Law No. 37/2006 of 12 September 2006 on State Finances and Property

requires each Chief Budget Manager and Directors of public bodies to implement

recommendations of the Auditor General of State Finances aimed at improving the effective

management of finances under their control. Despite an overall increase in the percentage of

prior year recommendations implemented, many entities still did not implement some of the

prior year Auditor General’s recommendations. The audits identified that out of the 2,784 audit

recommendations made to respective entities in the previous audits, 1,677 audit

recommendations (60%) had been fully implemented while 1,107 recommendations (40%) had

not been fully implemented by the time of the current audits. This is an improvement when

compared to 49% level of implementation of Auditor General’s recommendations highlighted in

my previous report. See table below:

Recommendations

fully implemented in

2010 report

Recommendations

fully implemented in

2011 report

Recommendations fully

implemented in 2012

report

Ministries 61% 55% 70% Other central Government entities 52% 55% 53% Projects 72% 82% 79% Provinces 63% 60% 74% Districts and City of Kigali 51% 46% 63% Government Business Enterprises 41% 34% 52%** Government Boards N/A N/A 49% 53% 49% 60%

There was general improvement towards implementation of the previous year recommendations

compared to last year as illustrated in the graph below:




The improvement in implementation of prior year audit recommendations was noticeable across

board, except for High Institutions of learning and Rwanda High Commission in Kampala where

the level of implementation was low.

** For most Government Business Enterprises covered in my report of last year, I did not assess

the status of implementation of the audit recommendations because many of GBEs were not

covered by my audits this year due to a deliberate decision to focus on Boards. A total of 601

recommendations issued to GBEs and other entities during the previous year audits were not

assessed during the year. See details in table below:

No. Entity

No. of prior year

recommendations not assessed

during this year’s audits

GBEs audited last year but not covered this year

1 ONATRACOM 116 2 OCIR CAFÉ 66 3 OCIR THE 51 4 NUR 72 5 RCAA 28 333

Central Government entities audited last year but not covered

this year

6 KHI 20

7 RHODA 34 8 ISAE 24 9 NPPA 12

10 CNLG 23




No. Entity

No. of prior year

recommendations not assessed

during this year’s audits

11 RIAM 52 12 WDA 37 13 NURC 19 14 CEPEX 7

228

Projects audited last year but not covered this year

15 CEDP 7 16 E-Rwanda 13 17 Enhanced Integrated Framework/MINICOM 8 18 PPPMER 12 40

Total 601

The few GBEs audited this year showed that the level of implementation was still low, with

implementation of only 52% of the recommendations. ORINFOR that comprised most of the

recommendations of GBEs audited implemented only 41% of prior year audit recommendations.

In general terms, Districts, Boards, GBEs, High Institutions of learning and Embassies continue

to generate more audit issues compared to other entities. There were 38 entities that implemented

less than 60% of the prior year audit recommendations. These comprised of 16 central

government entities, 14 districts, 5 Boards, 2 projects and 1 GBE. See graph below for the

percentage of entities that implementation less than 60% of prior year recommendations.




I applaud public entities for the efforts made to strengthen public financial management through

implementation of my audit recommendations. These efforts should continue across board, in all

public entities to avoid and minimize recurrence of the weaknesses pointed out in Auditor

General’s reports. Detailed and focused action plans should be drawn by Budget agencies to

ensure implementation of audit recommendations. These action plans should then be monitored

on a regular basis by management and those supervising the different budget agencies.

2.3.2 Persistent weaknesses in preparation of financial statements

My previous reports highlighted the issue of errors in the State consolidated financial statements

and books of account of individual entities which ultimately distort information presented in

those financial statements. While efforts have been made to ensure public entities prepare

complete and accurate books of account and financial statements which support the State

consolidated financial statements, the problem of accounting errors in these books of account and

state consolidated financial statements persists. Many public entities still failed to record all

outstanding liabilities and receivables at year end as required of them by article 70 of Organic




Law N° 37/2006 on State Finances and Property. Some entities also omitted some bank accounts

from their books of account and the associated transactions.

Many public entities were allowed by MINECOFIN to adjust their financial statements before

finalization of the audit reports to capture the omitted transactions. While this was expected to

facilitate inclusion of all omitted balances in the financial statements, there are entities which did

not adjust their financial statements. Consequently, there were omitted liabilities amounting to

Frw 975,298,511 receivables amounting to Frw 2,901,876,558 and bank balances amounting to

Frw 218,558,389 as at 30 June 2012. Although the balances omitted as at 30 June 2012 were

lower than those in previous years, their existence (even where they were adjusted) is an

indication that the process of preparation of financial statements still has some weaknesses that

need to be addressed. See graph below for trend of balances of liabilities, receivables and bank

balances omitted from financial statements of public entities in three financial years from 30

June 2010 to 30 June 2012.

Chief Budget managers need to ensure that proper cut-off procedures are adhered to, such as

review of invoices register and delivery notes for suppliers and receivables records and bank

register for bank accounts. Further, MINECOFIN needs to continue making the necessary efforts

to help budget agencies minimize accounting errors through regular trainings and regular review




and follow up on the monthly financial statements submitted by the budget agencies to the

Ministry.

2.3.3 Persistent errors noted in books of account and financial statements of public

entities

Public financial management reforms undertaken by Government (through MINECOFIN) have

enabled most public entities to prepare financial statements supported by the necessary

underlying books of account, a significant improvement when compared to a period when some

public entities were not even able to prepare financial statements and only relied on bank

statements. Despite this progress, there are still numerous accounting errors in the financial

statements presented by public entities. These errors range from mispostings, unreconciled bank

balances, unsupported adjustments on opening balances, unexplained differences in balances

reported in state consolidated financial statements, and unreconciled inter-entity transfers which

could not be netted off at the time of consolidation. These accounting errors have been

highlighted in many of my previous reports but still persist. Specific action needs to be taken by

the Chief Budget Managers and MINECOFIN to address the problem.

• For the case of mispostings, they arose mainly from poor budgeting where in most entities,

allocation of funds to different budget lines was not done properly at the time of budgeting.

During budget execution, it was difficult for most entities to adhere to the budget allocations

since they were not done properly. As result, funds were committed from any budget line

having funds to implement activities, even when they were budgeted in a different budget

line. With the Integrated Financial Management system (IFMS) where the chart of accounts

is linked to the budget, transactions were recorded in budget lines where they were not

budgeted and hence mispostings.

Chief Budget Managers should make every effort to ensure that due care is taken during

budgeting so that budgets prepared reflect the intended activities of their entities. In addition,

there should be regular review of budget execution reports and financial statements so that

any errors are identified early and corrected timely to enable compilation of reliable monthly

financial statements and budget execution reports.




• For the case of unreconciled bank balances, there were entities where the closing balance in

the cashbook for several bank accounts was not properly reconciled to the closing balance

appearing on the bank statement. A proper reconciliation is necessary in order to confirm that

balances in financial statements are accurate. Unexplained differences therefore imply that

accuracy of bank balances reported in financial statements of some entities could not be

confirmed. Examples of institutions where the above cases were noted are: SFB, RDRC, NID

Project, NDIS, Nyaruguru, Ngororero, Gicumbi, Rusizi, Kirehe, Gatsibo, Kicukiro and

Nyarugenge districts.

There were also cases where some bank reconciliation statements had outstanding payments

and deposits which had not been cleared for long. The long outstanding payments were noted

in National Youth Council, Rwanda High Commission in London, NID, RAB, Nyabihu,

Musanze, Ngororero, Ruhango, Nyanza, Gakenke and Gicumbi districts; while long

outstanding deposits were noted in KIE (up to 12 months), Rwamagana District (6 months)

and Ngororero (12 months).

• It should be noted that some entities did not even prepare bank reconciliation statements for

some of their bank accounts during the year. In some entities which prepared the bank

reconciliation statements, they were not reviewed by the Director of Finance and/or Chief

Budget manager. This aggravates the problem of accounting errors especially, given the

issues identified above in bank reconciliation statements.

There is need for all public entities to ensure that bank balances are properly reconciled to the

bank statements on a monthly basis. This will enable them to prevent and detect any

irregularities and errors that may be in bank transactions. Proper and regular review of bank

reconciliation statements by Chief Budget Managers will also go a long way in helping to

reduce cases of long outstanding payments and deposits, and unexplained differences.

• For the unsupported adjustments in opening balances, there are still many cases noted

where institutions made adjustments to the audited balances for prior years that affected the

opening balances for the year ended 30 June 2012 without proper explanations and support

documentation. The adjusting entries were made by accounts staff without any support




documentation and evidence of approval by the Chief Budget Managers and/or Directors of

Finance and Administration.

The effect of the above adjustments on audited balances for the prior year are reflected in the

State consolidated financial statements for the year ended 30 June 2012, where the opening

balances at 1 July 2011 differ from the closing balances in the audited State consolidated

financial statements for the year ended 30 June 2011 by Frw 13,529,553,823 as follows:

Cluster Closing balances as at

30.06.11 per audited

Financial Statements

Frw

Adjusted opening Balance as

at 1.7.11 per Consolidated

Financial Statements for the

year ended 30.06.12

Frw

Adjustments

Frw

Central Treasury 3,342,686,447 4,340,466,134 997,779,687

Central Government 47,023,803,978 57,200,866,937 10,177,062,959

Local Government 12,661,092,293 15,388,493,988 2,727,401,695

Development Projects 74,738,658,085 74,365,967,568 (372,690,517)

Total 137,766,240,803 151,295,794,627 13,529,553,823

Although some Chief Budget Managers provided justifications for some of the adjustments

made, such a significant amount for adjustments indicates that the problem of errors in books

of account of public entities has not been resolved. MINECOFIN needs to continue making

the necessary efforts to help budget agencies minimize accounting errors through regular

trainings and regular review and follow up on the monthly financial statements submitted by

the budget agencies to the Ministry. Chief Budget Managers should ensure all adjusting

entries are appropriately documented and approved before being posted in the books of

account.

• Unexplained differences in balances reported in State consolidated financial statements

Ordinarily, the State consolidated financial statements should be based on the information

presented in the financial statements of individual budget agencies. However, the audit of

Sate consolidated financial statements identified differences between the amounts reported

for budget agencies within the State consolidated financial statements and those appearing in

financial statements of individual budget entities. These differences have been noted in the

opening balances, receipts and payments of the particular institutions. Examples include:




Teacher Service Commission (TSC) 2010/2011, Senate, RDRC, MINICOM, PRIMATURE,

Nyamagabe, Bugesera, Rusizi, Gicumbi and Rubavu Districts.

The above cases indicate that institutions revised their financial statements but MINECOFIN

did not update the consolidated financial statements with the changes made. Chief Budget

Managers should ensure that financial statements submitted to MINECOFIN for

consolidation are not revised without the knowledge of MINECOFIN. All changes made after

submission of financial statements should be done after consultation with MINECOFIN to

avoid this problem.

• Inter-entity transfers not eliminated on consolidation

The audit of State consolidated financial statements identified that inter-entity transactions

could not be netted off as expected, resulting in a net balance of Frw 229,531,666. Ordinarily

such inter-entity transactions if correctly classified in books of account of individual entities

should have been eliminated on consolidation. See the un-reconciled difference in the table

below:

Description Amount

Frw

Central Treasury and RRA 131,275,548 Central Government 2,169,038,333 Local Government 37,200,918,495 Development Projects (39,271,700,710) Net Balance 229,531,666

It was noted that there is sometimes poor communication between the corresponding budget

agencies. The institution transferring the funds does not inform the beneficiary/receiving

institution about the transfer to facilitate the latter in proper recording of the receipts and

utilizing the funds for the intended purpose. There is need to ensure that any transfer to

another budget agency is properly communicated with the underlying workplans to explain

what the funds should be used for. There is need for the receiving entity to acknowledge

receipt of funds and submit the acknowledgement to the sending entity to minimise such

cases.




2.3.4 Unsupported assets and liabilities in entities’ financial statements

a) There were cases noted where institutions had liabilities and receivables in their financial

statements but these were not supported by any documents. Total unsupported creditors as

at 30 June 2012 amounted to Frw 2,597,844,947 and total unsupported debtors as at 30

June 2012 amounted to Frw 2,090,070,261.

b) Further, there were liabilities and receivables which did not have any analysis to show

what they related to. These amounted to Frw 1,056,707,500 and Frw 72,191,318 for

liabilities and receivables respectively.

c) Other cases were noted where liabilities presented in financial statements had negative

(debit) balances. Such cases were noted in nine (9) entities namely RDB, NDIS, CHUK,

MINALOC, MINISPOC, Umutara Polytechnic, Kicukiro, Nyanza and Nyarugenge

Districts. The total creditors having negative (debit) balances as at 30 June 2012 amounted

to Frw 701,159,339 as shown below:

Negative (debit) balance in financial

statements as at 30 June 2012

Frw

NDIS 7,417,760

CHUK 13,969,937

Nyanza District 89,835,473

Nyarugenge District 105,902

Kicukiro District 932,744 Umutara Polytechnic 10,281,380

MINISPOC 3,329,640

MINALOC 9,525,952

RDB 565,760,551

Total 701,159,339

This bad accounting practice falsifies the picture to mean that creditors were over paid

and that the institutions above expect to be paid by these creditors which may not

necessarily be the case.

It is difficult to ascertain whether the unsupported liabilities and receivables are genuine

and this may be abused and ultimately result in loss of funds to the Government. This




may be done by paying non- existent suppliers or collecting amounts from customers but

not disclosing them in the accounting records. The debit (negative) balances are indeed

an illustration of these anomalies and there is urgent need for the Accountant General’s

office to make follow up with these entities to perform necessary reconciliations to

ensure accurate reporting in Government financial statements.

2.3.5 Debts not recovered by public entities for a long period

The audits identified cases of long outstanding debtors totalling Frw 10,828,281,407. Most of

these debtors have been outstanding for more than a year and there is doubt on whether

Government will recover these funds. Delayed recoverability of debtors may result in loss of

public resources. There is need for the concerned entities to enforce recovery of these funds,

especially those which have been outstanding for so long. Consultations should be made with

MINIJUST and MINECOFIN on the appropriateness of legal action against the debtors in efforts

to recover the money.

2.3.6 Financial management in Non Budget Agencies within Districts

The issue of accounting for transfers made by Districts to sectors and transactions of non budget

agencies in general has not been addressed. The Districts continue to prepare their financial

statements without incorporating transactions of the non budget agencies. In the case of sectors

for example, the Districts are expected to ensure that funds transferred to them are properly

accounted for, and any bank balances not utilized should be accounted for in the district books of

account at year end.

However, Districts did not reflect bank balances held by sectors in their financial statements as at

30 June 2012. As a result, the reported expenditure for districts is higher than what was actually

spent by them. It includes balances totaling Frw 3,235,787,629 still held in 523 bank accounts of

the sectors as at 30 June 2012. The Districts did not also include transactions of other Non

budget agencies like schools, health centres and hospitals in their financial statements as required

by public financial management regulations. Balances totaling Frw 5,492,490,591 from 992

bank accounts of these other non budget agencies were not included in district books of account.




Such weaknesses imply that financial statements of districts are incomplete and also undermine

proper follow up and monitoring of NBA activities in the districts.

Management in Districts represented that they do not have sufficient manpower to enable them

capture information related to non budget agencies in District books of account and financial

statements. Under the current financial reporting system for NBAs, one Accountant at the

District may not be able to review and update district books of account with transactions of the

numerous non budget agencies in districts.

As recommended in my previous reports, consideration should be given to the organizational

structure and staffing levels at the Districts and their capacity to implement public financial

management reforms. In the meantime, there is need to improve the reporting system for NBAs

by requiring them to submit detailed monthly financial reports that show their transactions and

balances, to the district in a prescribed format that facilitates better tracking and follow up. This

should then be consolidated with the financial statements of the District to generate consolidated

monthly and annual financial statements of the district. I believe these financial reports will also

be of use to the Internal Audit unit of the district and MINECOFIN in their efforts to follow up

funds disbursed to non budget agencies.

2.3.7 Lack of clarity on financial reporting for district pharmacies and Business

Development Centres (BDCs)

a) The audits noted that District pharmacies were made autonomous by MINISANTE

without due adequate consideration to financial management and reporting implications.

There was lack of clarity on financial management and reporting requirements of District

pharmacies and as a consequence, financial transactions of pharmacies were neither

included in MINISANTE’s financial statements nor in those of districts. Since district

pharmacies do not report to MINECOFIN for consolidation purposes; revenue,

expenditure, bank balances, cash balances, accounts receivable and accounts payable for

many of the district pharmacies were omitted from the State consolidated financial

statements (except for Gakenke, Ngoma, Ngororero, Muhanga, Kamonyi and Nyaruguru

Districts where transactions of pharmacies were included in district books of account).




I have learnt that MINECOFIN has subsequently issued clear guidelines which now

require districts to incorporate transactions and balances of Pharmacies in their financial

statements. This is a step in the right direction and will help to reduce on cases of omitted

transactions.

b) For the case of Business Development Centres (BDC) set up by RDB in all Districts, there

are no clear financial reporting guidelines and transactions of these centres were neither

recorded by RDB nor by the Districts. Ultimately, they are omitted from the State

consolidated financial statements. I am aware that between January 2012 and May 2012,

RDB signed MOUs with various private enterprises to operate the BDCs and Districts

were requested to transfer all the funds on the bank accounts of the BDCs to RDB at the

time of handover. Available records at RDB show that as at 30 June 2012, BDCs had bank

balances of Frw 74,092,219.

However, by the time of auditing RDB in April 2013, only Frw 15,111,458 from BDCs in

six (6) Districts of Ngororero, Rubavu, Nyabihu, Nyagatare, Gicumbi and Huye had been

received by RDB. Funds from BDCs in the remaining Districts had not reached RDB bank

accounts by end of in April 2013. There is need for thorough audit of transactions of the

BDCs prior to their takeover by the private enterprises, to determine the revenues earned

and confirm whether all revenues had been properly accounted for. In addition, there is

need for urgent follow up to ensure that bank balances held on accounts of BDCs at the

time of their takeover are transferred to RDB.

2.3.8 Irregular Expenditure

Irregular expenditure is expenditure which would have been avoided if reasonable care had been

exercised. This includes expenditure that is not properly supported with documents. Irregular

expenditure also includes amounts supported but incurred contrary to the established

procurement regulations or expenditure involving unreasonable/inappropriate pricing,

expenditure not commensurate with quality of services/goods delivered and excess expenditure

incurred on basis of arithmetic errors in supporting invoices or fraudulent actions of the persons

involved.




Generally, the level of irregular expenditure has declined compared to previous years. Total

expenditure of Frw 2,927,029,213 was this year either not supported at all or did not have

sufficient support documents when compared to the Frw 10,668,450,282 identified during audits

of last year. Further, wasteful expenditure has reduced from Frw 1,612,460,075 in last year’s

report to Frw 849,510,992 this year.

See the trends in graph below:

Despite the significant reduction in the unsupported expenditure, Chief Budget managers should

ensure proper accountability for all funds appropriated to public entities. All funds should be

adequately supported and utilised for only authorised purposes.

2.3.8.1 Unsupported expenditure

The number of entities which incurred expenditure without any support documents significantly

reduced. Only six (6) entities (Rwanda High Commission in Kampala, INMR, RBC, REB,

Rukara College of Education and Umutara Polytechnic) incurred expenditure amounting to Frw

1,232,171,581 that was not supported by any verifiable documents, when compared to 21 entities

which incurred Frw 5,943,287,561 of unsupported expenditure identified during last year audits.




Despite this improvement, efforts should be made to avoid any unsupported expenditure in

public entities. See graph below for trend in unsupported expenditure.

Additional expenditure amounting to Frw 1,723,698,449 was incurred by thirty (30) audited

entities without sufficient support documents (compared to Frw 4,725,162,721 incurred by 28

entities during the 30 June 2011). The partially supported expenditure lacked some support

documents like contracts, utilisation reports, purchase orders, delivery notes among others. The

graph below shows the trend of partially supported expenditure identified from OAG audits over

the years.




2.3.8.2 Wasteful expenditure

Public entities (26 institutions) incurred wasteful expenditure amounting to Frw 868,881,417

(2011: Frw 1,612,460,075 in 31 institutions) that could have been avoided had they complied

with laws, regulations and procedures in force. Wasteful expenditure was mainly incurred to pay

penalties and interest to Rwanda Revenue Authority for failure and/or delayed remittance of

statutory deductions as well as court fines and damages. See summary in table below:

30 June 2012 30 June 2011

Nature of expenditure considered as wasteful Amount (Frw) Amount (Frw)

Penalties/interest and fines to RRA & CSR 591,074,461 1,274,815,823

Penalties on bounced cheques - 982,146

Court fines and claims for damages 166,452,613 167,306,139

Excessive payments for services/goods not delivered 19,645,640 112,110,673

Others 72,338,278 57,245,294

Total 849,510,992 1,612,460,075

Although the amount of wasteful expenditure has reduced this year, the Chief Budget Managers

should pay much attention to issues of regulation and compliance with existing laws and

regulations to eliminate wastage of public resources.

2.3.9 Unauthorized expenditure

2.3.9.1 Public entities spending in excess of budgets approved by Parliament

The audits identified cases where some public entities incurred expenditure that exceeded the

approved budgets for these entities as published in voted Budget Law modifying and completing

the law no 24/2011 of 29/06/2011 determining the state finances for the 2011/2012 fiscal year.

These entities submitted overspending proposal request forms to MINECOFIN to seek

authorization and funds to incur expenditure in excess of their budgets. MINECOFIN provided

approval to these entities and re-allocated funds from other budget agencies without any

evidence of formal consultations with Cabinet and Parliament. This implies that the approved

budget was not adhered to in some cases.

MINECOFIN explained that budget re-allocations were made only where it was necessary and

urgent and they have continued to engage with the Budget Committee of Parliament on such




cases, where they have happened. It was also explained that in some entities, the extra spending

was as a result of additional funding obtained after the budget revisions. Whilst I acknowledge

that some circumstances may require budget re-allocations after the deadline for budget revision,

there is need for MINECOFIN to consult formally with Parliament and Cabinet to discuss the

proposed budget re-allocation requests before they can be approved. This would facilitate a

balanced approach to budgeting where Government priorities in sectors affected negatively by

budget re-allocations can be re-assessed to determine alternative ways of implementation.

2.3.9.2 Unauthorised staff benefits and staff advances

There are still cases where bonuses and other staff benefits like communication, transport and

overtime allowances were paid to staff in public entities without appropriate approval. A total of

Frw 85,768,835 was spent on these benefits during the year, when compared to Frw 388,749,522

in 2011 as shown below:

The amount of unauthorised expenditure has greatly reduced when compared to last year but

Chief Budget Managers are encouraged to put in place appropriate mechanisms to avoid

unauthorised expenditure.




2.3.10 Tenders awarded without complying with existing public procurement

procedures

Cases of non compliance with procurement laws and regulations have significantly reduced in

public entities audited. Despite this tremendous progress, there are still some entities which

signed contracts with suppliers before obtaining performance guarantees while other entities

used inappropriate procurement methods. Cases of unsupported tenders have also persisted and

were noted during this year. Details are provided in sections below:

2.3.10.1 Contracts signed before obtaining performance guarantees

The issue of public entities not complying with the law that requires them to obtain performance

guarantees before signing of contracts with suppliers has persisted. Some entities signed

contracts with contractors and suppliers before they provided performance guarantees. This was

noted in National Land Centre, PAREF, AGF, PHHS TF, RCA, PRIMATURE, Burera and

Nyamagabe Districts.

Although in most cases the procured items were delivered by the suppliers, public entities are

exposed to a risk of loss in case the suppliers fail to perform. It is important that public entities

should comply with existing public procurement laws and regulations relating to performance

guarantees.

2.3.10.2 Use of inappropriate procurement methods in award of tenders

There are still many cases where the procuring entities use inappropriate procurement methods to

procure goods and services. Such cases include:

a) Use of request for quotations method for tenders exceeding Frw 1,000,000 instead of

restricted tendering/open competitive bidding. This was noted in KIE, City of Kigali,

Eastern Province, RTDA, NHRC, Huye district and MHC. Most significant among tenders

awarded using request for quotations was a tender worth Frw 3,212,743,200 awarded by

RTDA for periodic maintenance of the 15.3 km paved Jomba-Shyira road in Nyabihu

District.

b) Inappropriate use of single sourcing for procurements exceeding Frw 100,000 instead of

competitive bidding. Cases of emergency procurements are on the increase and there is a




need for procuring entities to adequately plan for works, goods and services to be procured.

This was noted in Umutara Polytechnic, KIE, Rwanda Embassy at the Hague, Rwamagana

District, RTDA, PHHS TF, Burera District, RCA, MINAGRI, SFB and Kirehe District.

2.3.10.3 Tenders awarded without sufficient support documents

During the audits, cases were noted where support documents for tenders awarded were often

incomplete. Tenders worth Frw 8,303,838,831 (2011: Frw 11,198,064,431) did not have

adequate support documents. Such missing documents include: performance guarantees, bid

securities, proof of tender publication, tender evaluation reports among others.

Although the amount of tenders without sufficient support documents has reduced when

compared to the previous year, there is need for Chief Budget Managers to ensure that all

necessary documents are kept to support each tender awarded. Without complete procurement

documents, it is difficult to ascertain whether the procurement process complied with the six (6)

fundamental principles of transparency, competition, economy, efficiency, fairness and

accountability required of all public procurements in Article 4 of law no 12/2007 of 29/03/2007

on Public procurement.

2.3.11 Weaknesses in contract management

2.3.11.1 Long delays in completion of civil works

The problem of delayed completion of construction works still persists in many public entities,

where works and services contracted are not completed within the contract period. Delays ranged

from 1 month to 2 years and in some cases like in Bugesera and Kirehe, construction works at

some sites were abandoned. The problem of poor contract management was more apparent in




districts where construction works for roads, school buildings, sector buildings and other

structures were not done timely. Thirty seven (37) contracts worth Frw 3,168,735,846 were

delayed, while 3 contracts related to construction of feeder roads in Bugesera District and

rehabilitation and extension construction works for a health centre in Kirehe District worth Frw

762,913,227 were abandoned.

For the 3 abandoned contracts, a total of Frw 364,998,733 had been paid to the contractors by

the time of abandoning the works. These delays and abandonment of works imply that

Government programmes were not realised within envisaged timeframes and this had negative

impact on service provision to the population. Management was unable to determine the value of

work done at the time of abandonment of works by contractors.

In Karongi District, construction works worth Frw 2,224,548,906 for Kibuye Hospital had been

significantly delayed. Works were expected to be completed by December 2012 but by the time

of audit in October 2012, work was still in the early stages and only 17.9% of the construction

works had been completed.

Public entities need to pay close attention to the capacity of contractors when engaging them for

civil works to minimize cases of delayed works. In addition, there is need for proper follow up of

construction works to ensure that the contract terms are adhered to.

In the case of abandoned works, there is need for proper evaluation of works done so that clear

steps can be taken to have the works completed. Entities where works were abandoned need to

report such cases to RPPA for possible sanctions against the contractors.

2.3.12 Weaknesses in management of internally generated revenue

a) With introduction of IFMIS, internally generated revenue in local Governments should be

directly uploaded in the general ledger through the revenue module within IFMIS.

However, there were cases where revenue reported in the revenue module differed from

that recorded in the general ledger and financial statements.. In Nyagatare District for

example, the Revenue module report indicated that the district had revenue from only 5




sectors and yet Nyagatare District has 14 Sectors and revenue was collected from all these

sectors.

These differences could be a pointer to configuration problems in IFMIS which need to be

addressed to enhance its effectiveness. There is need for MINECOFIN to ascertain the

causes of these unusual differences and ensure that any system problems are addressed to

enhance effectiveness of the IFMIS system.

b) In some central government agencies that generate/collect revenue such as National Land

Centre, Rwanda Natural Resources Authority (collecting fees for land registration on

behalf of RRA), NEC (revenue from printing services) and Rwanda National Police;

controls over monitoring of revenue collections were weak and could not enable

management to properly track the expected revenue collections against amounts banked.

Discrepancies were noted between reports made for revenue collections and the actual

revenue collections deposited in collection bank accounts. In some cases, the actual

revenue collections banked exceeded the revenue recorded in the collections report.

Management of these entities did not prepare the necessary reconciliations to facilitate

determination of total collections and assessment of whether all the revenue collections

had been deposited in the bank accounts. This made it difficult to explain the differences

identified at the time of the audits. Consequently, completeness of amounts banked from

revenue collections could not be confirmed.

Recommendations have been made to these entities and all those generating any form of

revenue to ensure that regular reconciliations are prepared between source documents,

bank deposit slips and bank statements. The entities made commitment to immediately

commence on doing the reconciliations. I believe some of them have already started

making these reconciliations to enhance their internal controls and explain differences

noted during the audit.

c) Cases of delayed bankings for revenue collections are still persistent in many public

entities, especially districts. For example, banking of cash collections totalling Frw

380,489,398 was delayed, with delays ranging from a few days in some entities up to 330

days (almost 1 year) in Gicumbi District. In some cases, collections had not been banked

by the time of the audit. Cases were noted in National Land Centre and Rulindo District.




d) There were still cases of receipt books issued but not returned, which were identified

during the audits. Although significant improvement in management of receipt books has

been made in districts, a total of 1,237 receipt books mainly for National Land Centre (949

receipt books) and Rwanda Natural Resources Authority (188 receipt books) had not been

accounted for by the time of the audits. Those in districts mainly relate to prior years.

Failure to promptly return receipt books used weakens controls over the revenue

collection system. There is a risk that the amount collected using the unreturned receipt

books may be misappropriated, resulting in loss of Government revenue. Management of

public entities should put in place measures to reinforce controls over receipt books to

ensure that they are all accounted for timely. Appropriate action should be taken against

those who fail to properly account for receipt books.

2.3.13 Weaknesses in management of fixed assets in public entities

As highlighted in my previous reports, fixed assets registers maintained by some entities did not

have adequate information to facilitate proper tracking of the fixed assets. In some cases, fixed

assets were not coded and no physical verification had been carried out. In addition, most

Government assets are not insured, and there are no title deeds for Government properties. It is

therefore difficult to ascertain the right of ownership in case disputes in ownership arise.

Government property can be misappropriated in absence of proper monitoring and title deeds.

Some of these weaknesses in controls over assets materialised during the year, resulting in

various cases of stolen assets or failure to account for some assets in the register. Cases were

noted where weaknesses in controls over fixed assets resulted in loss of assets worth Frw

33,584,140 in MHC, CHUK, RDB, PHHS TF and NHRC.

I am aware that Rwanda Housing Authority (RHA) has taken up the responsibility to register all

Government assets and manage them on behalf of Government. Management of RHA indicated

that the process of registering the assets had started but there is no comprehensive database of

these Government assets yet. Further, there is no clear strategy in place and policy guidelines to

guide the process of managing Government assets. There is also no clear reporting framework in

place to guide coordination between RHA and budget agencies.




Rwanda Housing Authority (RHA) should put in place a clear strategy for management of

Government fixed assets and policy guidelines to help improve coordination and monitoring of

assets in budget agencies. The process of compiling the Government fixed assets register should

be accelerated to ensure that a comprehensive fixed assets register for Government assets is

established.

2.3.14 Non compliance with tax laws

The problem of non compliance with existing tax laws and CSR regulations has persisted and

many entities did not remit the required taxes and pension contributions as required by the law.

Some institutions did not deduct the required taxes from suppliers or PAYE from staff while

others deducted but failed to remit amounts withheld to Rwanda Revenue Authority or RSSB by

the fifteenth day of the following month as required by law. In some cases, the withholding tax

was remitted late.

Fifty six (56) entities, comprising 13 districts, 2 GBEs, 3 Boards, 6 ministries, 9 projects and

other 23 central Government entities did not comply with either the existing tax law or CSR

regulations or both. A total of Frw 564,571,091 was not deducted by public entities during the

current year compared to Frw 265,777,777 in my previous report. An amount of Frw

52,286,870 was deducted but not remitted as shown in the graph below:




Analysis of the taxes not deducted and/or not remitted is elaborated below:

• An amount of Frw 12,587,841 was not deducted as 3% withholding tax from suppliers. In

addition, an amount of Frw 6,057,460 deducted was not remitted by some entities to Rwanda

Revenue Authority.

• An amount of Frw 251,756,917 was not deducted as 15% withholding tax from suppliers. In

addition, an amount of Frw 26,135,819 deducted was not remitted to Rwanda Revenue

Authority.

• Pay As You Earn (PAYE) amounting to Frw 225,069,474 was not deducted while Frw

1,590,802 was deducted but not remitted to RRA.

• An amount of Frw 75,156,859 relating to social security contributions (CSR) was not

deducted. In addition, social security contributions (CSR) amounting to Frw 18,502,789 were

deducted but not remitted to RSSB.

This continued failure to remit taxes to RRA and social security contributions to RSSB attracts a

lot of penalties and ultimately results into diversion of Government resources. There is need for

public entities to ensure full compliance with the existing tax and social security laws and

regulations.

2.3.15 Poor recovery of loans given to beneficiaries of Vision Umurenge program

(VUP) in districts

There are still challenges in the recovery of loans given to beneficiaries of Vision Umurenge

Program (VUP) in districts. A report of RLDSF on loan recoveries shows that out of the Frw




821,857,385 expected to be recovered from loan beneficiaries as at 30 June 2012, only Frw

475,237,902 was recovered during the same period. This represents 57.8% which is still low and

likely to hamper Government’s efforts to realize the intended objectives. The ability of the

Government to realize its objectives through VUP financial services component may not be

realized timely since the money earmarked for the revolving fund is not being recovered.

Management of Rwanda Local Development Support Fund (RLDSF) has pointed out some of

the challenges affecting recovery to include attitude of beneficiaries and coordination in

monitoring and follow up of the beneficiaries at district level. The other concerns relate to delays

in disbursement of funds to the beneficiaries. There is need to put efforts in addressing the

challenges identified and enhance collaboration with district authorities to ensure that loans

disbursed through VUP offices are recovered to enable realisation of program objectives and

sustainability.

2.3.16 Contributions for Mutuelle de Santé scheme not remitted

To sustain the Mutuelle de Santé program at all levels, the Government requires 45% of

members contributions made at sections of Mutuelle de Santé to be transferred to the district and

the district to subsequently transfer 10% of the contributions received from the sections to

MINISANTE. However, the audits identified that many Mutuelle de santé sections did not remit

the contributions to the district and consequently the districts were also unable to remit the

expected portion of contributions to MINISANTE. Such cases were noted in Musanze,

Ngororero, Nyabihu, Nyanza, Gicumbi, Rubavu, Gasabo, Rutsiro, Rusizi, Kirehe, Bugesera and

Kayonza districts.

There is urgent need to strengthen controls over Mutuelle de Santé contributions by maintaining

a register of eligible contributors and this should be reconciled to the collections and bankings on

a regular basis.




2.3.17 Lack of proper legal framework for Tumba and Rukara colleges

A Cabinet decision of 14th September 2007 established various community colleges including

Rukara College of Education, Kavumu College of Education and Tumba College of Technology.

These colleges have been operating but there is no specific law in place determining their

responsibilities, organization and functions. No clear organizational structure had been

established for these institutions at the time of audit and their operations were not guided by any

legal framework.

There is need to put in place a legal framework guiding the operations of these colleges. Such a

framework would clearly define the responsibilities and organization of these institutions and put

in place an organizational structure appropriate for the functioning of these institutions.

2.3.18 Concerns over Text books distributed in government schools

The audit of Rwanda Education Board identified that some schools in the Country which

received text books procured to facilitate learning have not started using them yet. In some of

these schools, the text books are still packed in boxes in which they were delivered by the

suppliers and have not been put to use to achieve the intended objective of helping the students

to learn. Management in some schools attributed this to lack of training in library management

and lack of software used in textbooks management. In other schools, management attributed

this failure to lack of libraries in the schools, emphasizing that it would be difficult for students

to read/use the books without a library. See examples below:

District Schools where books were not used and are still packed

Rulindo One (1) school: Shyorongi

Nyabihu Two schools: GS Rwankeri and GS Jenda

Ngoma One (1) school: ETO Kibungo

Gicumbi Four (4) schools of: EAR Byumba, GS Kibali, GS Byumba Inyange and E.P Gacurabwenge

Burera Two (2) schools: ES Kirambo and GS Ruhanga




District Schools where books were not used and are still packed

Musanze Two (2) schools: Notre Dame de Fatima and Muhoza II

In other schools, Government supplied books which were not required by those respective

schools. For example, schools which did not have A’level were supplied with A’level text books

while some schools not offering some subjects were supplied with books for subjects they did

not offer. This ultimately implies that some schools have books which will not be used at all, and

yet there could be other schools that require these books. Examples are provided in the table

below:

District Books for programmes not offered in some schools

Ngoma One (1) school ETO Kibungo Books were provided for subjects not offered in the school

Gicumbi Three (3) schools

EAR Byumba A'level books provided but school has no A'level

GS Kibali A'level books provided but school has no A'level. In addition books were provided for some programmes in O'level not offered by school

GS Notre Dame du Bon Conceil Kinyarwanda books provided for A'level and yet subject is not offered at A'level

Burera One(1) school

ES Kirambo Kinyarwanda books provided for A'level and yet subject is not offered at A'level

To avoid risk of wastage of public resources on purchase of unutilized text books, the concerned

ministry (MINEDUC) and relevant agencies (REB and Districts) should make urgent follow up

in schools across the country and engage with all relevant stakeholders to address the challenges

limiting the use of text books procured so that students can start benefiting from them. In

addition, a detailed report should be made on which books are redundant in which schools so that

they can be collected and be redistributed to those schools which offer the relevant programmes.




2.3.19 Management of SFAR student loans and recoveries

The issue of incomplete information in the database on SFAR student loans and recoveries has

not fully been addressed yet. In addition, many entities did not facilitate REB/SFAR in the

process of recovering loans from their employees. There are also difficulties for REB/SFAR to

get the information on SFAR beneficiaries because many employers did not cooperate.

REB/SFAR issued various letters requesting many employers to declare their new staff who

could have benefited from the loan scholarship scheme but the majority of the institutions did not

respond.

Even where employers deducted and remitted loan recoveries to REB/SFAR, they did not

provide detailed schedules to show the individual employees/beneficiaries repaying the SFAR

loans.

These challenges make it difficult to ascertain whether indeed management of the Loan scheme

is recovering the loans to sustain its operations in the medium and long term. There is need for

REB to expedite the process of gathering information on all sponsored students and their

repayments status so that the students’ loan database is updated to reflect all loans disbursed and

recovered and ensure that the current status of the fund reflects a true picture of the unrecovered

loan balances. In addition, there is need to strengthen the legal framework and enforce the law, to

ensure that employers make declarations to REB for deductions made. A strong legal framework

should enable REB officials to make regular audits and follow up on recoveries of SFAR loans

with the employers.




2.3.20 Weaknesses in management of database for FARG beneficiaries

In order to keep proper track of beneficiaries, FARG has in place a database for different

categories of eligible beneficiaries identified based on clear guidelines. All those certified as

eligible are included in this database. The audit of FARG identified errors in the database and

also identified various cases where beneficiaries could not be traced to the FARG database.

a) Some of the errors in the database of beneficiaries of direct support included:

• Cases of duplicated ID number, implying that some beneficiaries were recorded more

than once in the database;

• Cases of incorrect ID numbers with unreasonable dates of birth of beneficiaries

captured in the database. For example, ID number 1 9327 0 0002680 0 8 and ID

number 1 9950 7 0032026 0 59 imply that the date of birth is 9327 for the holder of the

first ID and 9950 for the holder of the second ID above.

• Some ID numbers have less than the standard 16 characters, hence making it difficult to

identify beneficiaries while for some beneficiaries, the PIN numbers allocated to them

by FARG for identification, have less than the expected length of seven characters and

they did not have ID numbers.

b) There were also cases of some individuals who benefited from FARG but could not be

traced on the database of eligible beneficiaries. This was noted for the case of 13

beneficiaries of cows and five (5) students whose tuition fees were paid by FARG even

when their status in the FARG database indicated them as not approved to benefit.

The above weaknesses could result in loss of public funds if not addressed with due care. The

database of FARG beneficiaries needs to be cleaned and updated with complete information to

facilitate proper tracking and monitoring of beneficiaries. In addition, there is need for FARG to

ensure that only those identified as eligible in their database benefit from their services to

minimize any risk of abuse of the fund.




2.3.21 Gaps in monitoring of FARG activities in Districts

FARG activities such as management of education funds for secondary school beneficiaries and

shelters are managed at District level. To facilitate the districts, FARG coordinates with

MINECOFIN to ensure that funds are disbursed to districts for implementation of FARG related

activities. However, many districts did not submit financial and activity reports to FARG to

facilitate timely monitoring of implementation of FARG activities in Districts. For example, the

audit of FARG noted that only 7 districts of Karongi, Kamonyi, Rulindo, Ngoma, Nyamasheke,

Gatsibo and Kirehe submitted reports on the construction of houses indicating how many had

been handed over to beneficiaries. A total of Frw 6,471,096,951 had been disbursed between 30

June 2010 and 30 June 2012 for construction of 3,489 shelters for vulnerable genocide survivors

identified as not having shelters in 2010. The remaining Districts did not submit any regular

reports to FARG to indicate the status of constructions.

There is need for better coordination of FARG activities between National and district levels to

ensure timely interventions that benefit the survivors. Timely accountability for FARG funds is

key to enhancing better service delivery to the beneficiaries.

2.3.22 Concerns over quality of livestock distributed to the population

The Government continues to implement different programmes aimed at improving socio-

economic welfare of the citizens. In this regard, livestock was procured by various institutions

for distribution to selected beneficiaries across the country. A notable number of cows

distributed by FARG (especially imported breeds) have since died denying the targeted

beneficiaries opportunity to reap the intended benefits. In addition, the audit identified that 126

cows procured were not tested before distribution to the citizens, hence increased health risk for

such animals.

The death of some cows was attributed to changes in climatic conditions which were not

appropriate for some breeds introduced. In some cases, the beneficiaries claimed not to have

sufficient financial resources needed to properly feed the animals and provide the necessary and

routine veterinary services. There is need for guidance to Government institutions to enable them

to easily determine which breeds of livestock are appropriate for specific regions before




livestock is procured and distributed. In addition, no livestock should be distributed before

proper veterinary tests are conducted and approved by the Rwanda Agricultural Board.

There is also need for increased Government follow up of livestock with beneficiaries to enable

timely identification of challenges faced by the beneficiaries in managing the livestock. Such

follow up may facilitate timely interventions needed to minimize cases of dead and sickly

livestock.

2.3.23 Concerns over expired drugs in hospitals and pharmacies

There are concerns over the level of expired drugs in CAMERWA, King Faisal Hospital and

District pharmacies and the delayed disposals of these expired drugs to avoid environment and

health hazards to the public. The expired drugs held in pharmacy stores had not yet been

disposed off as pharmacies awaited instructions from MINISANTE on where to take the expired

drugs for destruction. At National level, there are cases of slow moving drugs held by

CAMERWA and King Faisal Hospital that had expired but had not been disposed off by the time

of the audit. The expired drugs once identified are kept in separate stores. Information gathered

during the audit of King Faisal shows that many of the expired drugs destroyed in July 2012 had

been held in the store for several years. For CAMERWA, drugs which expired since 2010 are

still kept in their stores awaiting incineration.

I am aware that MINISANTE is making efforts to increase the number of incinerators in the

country. The structures to house the latest Incinerator acquired are under construction through a

cooperative agreement signed with MINADEF in September 2011. While the construction works

were expected to be completed by April 2012, the works were still ongoing at the time of audit in

April 2013 and the incinerator had not been installed. Incinerator equipments were acquired by

MINISANTE and delivered by the supplier in May 2011.

The Ministry (MINISANTE) needs to coordinate with Rwanda Environmental Management

Authority (REMA) to ensure that expired drugs in health facilitates across the Country are

handled with due care and disposed off with urgency to avoid any contamination and health risks

associated with exposure to expired drugs. In addition, the process of installing another

incinerator should be expedited to increase the existing capacity for disposal of medical waste

and other disposable materials which are hazardous to the environment.




2.3.24 Concerns over slow pace of recovery of funds from sale of fertilizers

The problem of slow pace of recovery of funds from sale of fertilizers managed by the Post

Harvest Handling and Storage Task Force has not been addressed, despite recommendations in

previous reports. The amount not recovered from sale of fertilizers increased from Frw

5,345,074,977 at 30th June 2011 to Frw 10,672,650,638 as at 30th June 2012. The main concern

is that distributors, who take the fertilizers from Post Harvest Handling and Storage Task Force

are not repaying for the fertilizers taken.

All distributors did not submit any reports to Post Harvest Handling and Storage Task Force as

required to show the status of distribution of fertilizers and to ascertain whether the fertilizers

received from Post Harvest Handling and Storage Task Force had been given to the farmers.

There are also no reports to show whether districts made any follow up on the distributors (as

required) to ensure that fertilizers taken by the distributors were delivered timely to the farmers

and used for intended purposes.

The slow pace of recovery of these debts implies that Post Harvest Handling and Storage Task

Force is denied cashflows required to boast planned programmes. It appears as though

Government is financing activities of the distributors. In addition, inadequate follow up of

distributors at all levels including district level makes it difficult to track whether fertilizers are

reaching the intended farmers. There is need to strengthen monitoring of distributors and

enforcement of contract terms to recover the funds realized from sale of fertilizers.

2.3.25 Lack of follow up by RDB on investment certificates issued

In order to support and encourage investment in the Rwandan economy, RDB awards an

investment registration certificate to investors. The certificate is awarded to individuals or

companies that fulfill specific requirements and allows the investor some benefits and incentives

such as tax exemptions. This therefore requires RDB to monitor the activities of investors

awarded these certificates to ensure that they adhere to specific investment plans presented and

also to the related conditions associated with the Investment certificate. The audit of RDB

identified that RDB did not make any formal evaluations and assessments and follow up on the

investors awarded the investment certificates to ascertain if they complied with the terms of the

certificates. This monitoring gap may result in loss to Government if investors received




incentives associated with an investment certificate without fulfilling the conditions associated

with the certificates. A total of 141 investment certificates were issued by RDB during the year

ended 30 June 2012.

Management has trained several staff and designated them as key account managers to make

follow up on the investment plans. I believe these key account managers will help in

strengthening RDB monitoring efforts and assessment of investors’ compliance with the terms of

the investment certificates awarded. This will go a long way in helping the Government to

realize quality investments that will boost the Rwandan Economy.

2.3.26 Issues identified in audits of Government Boards

In recent years, the Government merged various entities in the different sectors to create boards.

The audits of these boards have revealed that there are various issues that need to be addressed to

make these boards more effective. Such issues include:

a) Lack of handover reports

In most boards, there was no evidence of proper official handover of assets and liabilities

from the merged entities to the newly created boards. For example, at RDB, RNRA, and

RBC, there were no detailed registers of all fixed assets of the merged entities that were

handed over to the new Boards. Most of the Boards have not even compiled a comprehensive

fixed assets’ register that includes all assets from previously merged entities to facilitate

monitoring and tracking of assets managed under the new boards. The condition, current

location and existence of assets previously managed by the merged entities cannot be easily

monitored.

The liabilities that need to be cleared by the new Boards on behalf of the old entities merged

may be difficult to settle in absence of clear documentation provided through the handover

process. This is also the case with any receivables not recovered by the merged entities

before the merger.

There is need for management of the Boards to identify all assets owned by the merged

entities prior to the mergers and ensure that they are clearly marked and labeled. The assets




should then be included in comprehensive fixed assets registers established by the new

boards, clearly indicating their current condition and current location.

b) Unsupported receivables and liabilities in Boards

At the time of the merger, assets and liabilities relating to the former entities were

consolidated into the newly formed boards’ financial statements. However, as highlighted in

(a) above, there was no proper handover at the time of merging and many of the liabilities

and assets were not validated and confirmed. In most Boards, management is not able to

provide sufficient explanation in respect of the balances originating from the merged

institutions. The balances are just being rolled forward from one financial year to another and

have been outstanding for long.

As at 30 June 2012, unverified/unsupported balances inherited from the merged institutions

amounted to Frw 3,144,575,438 for debtors and Frw 603,913,629 for liabilities as indicated

in table below:

RDB REB RBC Total

Frw Frw Frw Frw

Total receivables inherited from the merged institutions 111,666,407 2,687,454,656 345,454,375 3,144,575,438

Total liabilities inherited from the merged institutions (206,685,366) (4,351,508)

(392,876,755)

(603,913,629)

The validity of assets and liabilities carried in financial statements of some of the Boards is a

problem, making it difficult to rely on financial statements of some of the Boards.

There is need for management of Boards to undertake an extensive review exercise to

determine the validity of liabilities and assets carried in their financial statements. This will

enhance quality of financial statements and minimize risks associated with unsupported

transactions.

c) Inadequate follow up of issues inherited from merged entities

For some Boards, the merged entities had been previously audited by the Auditor General’s

office. However, the audits of Boards revealed that these Boards have not developed clear

action plans to track implementation of the issues identified in reports of the merged entities.




An assessment of the status of implementation of issues noted in audits of the merged entities

noted that only 49% of the recommendations had been implemented by the time of audit.

Many of the issues highlighted in audits of individual entities before the creation of the

boards continue to be raised in the audits of most of the boards.

There is need for boards to put in place adequate controls to address issues highlighted in

previous audits, to avoid their recurrence. Corporate Governance in Government Boards

should be strengthened. Further, efforts should be made to enhance better coordination of

activities of Boards. This is a key role for the Corporate Services Divisions created in most of

these Government Boards, to facilitate effective service delivery and accountability.

d) Inappropriate accounting policies applied in Boards

Most of the Government Boards have adopted modified cash basis of accounting even when

the nature of activities of some of the merged entities requires them to apply Accruals basis

of accounting in order to present reliable and more informative financial statements.

Ultimately, financial statements presented by these Boards do not reflect all activities as

would have been disclosed had accruals basis of accounting been adopted.

Such a case was noted at Rwanda Biomedical Centre (RBC), which presented financial

statements on modified cash basis of accounting without considering the nature of activities

of King Faisal Hospital and CAMERWA which require them to prepare financial statements

on accruals basis of accounting. Significant balances for fixed assets and stocks for King

Faisal Hospital and CAMERWA were therefore not disclosed in financial statements of RBC

because of applying inappropriate accounting framework- modified cash basis of accounting.

This is also the case for Rwanda Development Board where modified cash basis of

accounting does not appropriately reflect the proper carrying value of investments due to

wrong measurement criteria.

There is need for MINECOFIN to review the accounting and financial reporting framework

of boards to ensure appropriate policies are adopted to facilitate preparation of

comprehensive and reliable financial statements.




2.3.27 Funds misappropriated in fraudulent cases not recovered

A review of 29 fraudulent cases worth Frw 628,210,990 (excluding missing materials of TIG and

960 MINEDUC 9- YBE iron sheets not valued) in my report of last year identified that while

Government has taken efforts to make follow up, funds amounting to Frw 537,090,353 and

materials misappropriated in 22 fraudulent cases, had not been recovered by the time of audits.

Funds totalling Frw 51,297,675 had been recovered from seven (7) fraudulent cases reported in

my last year report. It should be noted that for the case of unsupported withdrawals of Frw

66,169,071 in Kigarama sector in Kicukiro District, supporting documents for only Frw

34,093,520 were subsequently provided and the remaining balance is still not recovered. For the

cash deficits of Frw 25,621,123 reported at ONATRACOM, only Frw 5,729,442 had been

recovered and the remaining balance had not been recovered.

Further, the audits identified five (5) additional fraudulent cases where funds amounting to Frw

22,725,312 were utilised for personal gain. These cases were identified at Umutara Polytechnic,

Rulindo and Gatsibo Districts, as analysed in the table below:

No. Entity where

Fraudulent case

was identified

Amount

(Frw)

Nature of the fraudulent case

1 Gatsibo District (DUKORE VUP Group in Gatsibo)

2,000,000 Funds for DUKORE VUP group in Gatsibo district requested for by the group to trade in bananas were transferred to the bank account of one member (Nsengiyumva Athanase) and this member withdrew the money and utilized it for personal activities instead of group activities. The member claims that funds were utilized for group activities but discussions with the President of the Group indicated that no group activity was carried out with these funds. The funds misappropriated had not been recovered by the group by the time of audit.

2 Rulindo District 2,010,027 Withdrawals made from BASE sector bank account no. 545-0002346-00 held in Banque Populaire de Nyamugali by the Sector Accountant- KALINDA Leobald on various dates for implementation of various sector activities were not recorded in the sector cashbook and are not accounted for. There are no supporting documents to justify utilization of the funds. I was informed by the Sector authorities that KALINDA Leobald has since disappeared. He also disappeared with a laptop for the sector. His whereabouts are not known. The District had reported this case to the Police by the time of the audit but no recovery has yet been made.

3 Rulindo District 2,507,075 The same sector Accountant- KALINDA Leobald had not accounted for 14 receipt books in previous year. On following them up this year to implement Auditor General’s recommendations, the District identified that he had collected Frw 2,507,075 using these




No. Entity where

Fraudulent case

was identified

Amount

(Frw)

Nature of the fraudulent case

receipt books but not declared it or banked on district bank account. I was informed that the District requested him to repay the funds but disappeared before he could refund the amount. As indicated above, his whereabouts are unknown and the district has not recovered the money. The case has been reported to Police.

4 Rulindo District 15,670,000 The District charges fees for those involved in mining activities in quarries within the different sectors of the district. For ease of banking, collections made from these different sites were remitted to one of the tax collectors identified for this purpose (Rebero Bertin) who was then expected to bank all the collections on the district bank account. However, Rebero Bertin deposited less money than collected and falsified deposit slips to show that he had deposited the actual amounts declared by revenue collectors. This resulted in misappropriation of Frw 15,670,000. The fraud was discovered by the District when review of bank reconciliations was done though late. The case is before the courts of law and Rebero Bertin was convicted.

5 Umutara Polytechnic

538,210 When providing accountability documents to justify funds received to implement activities, the Program Manager under the Innovative Programme for Enhancing Milk Production project at Umutara Polytechnic altered quantities and amounts on some invoices in order to fully support expenditure made. As a result, funds amounting to Frw 538,210 were justified by altered support documents and their justification is therefore fictitious. The amount diverted by the programme manager for personal gain and accounted for using altered documents had not been recovered by the time of audit.

Total 22,725,312

As highlighted in my previous annual report, many of the fraudulent cases resulted from failure

in enforcing existing internal controls specified in Government policies and procedures manuals.

Such failures included lack of proper review of support documents and reconciliations as well as

inadequate monitoring and follow up of Government activities by supervisors. A case in point is

that of Rulindo District where misappropriation of Frw 15,670,000 could not be prevented

because there was no proper review of bank reconciliation statements.

There is therefore need to enforce the controls stipulated in Government financial management

policies manuals to minimise future cases of fraud. Chief Budget Managers should ensure that

due care is taken to review all the necessary support documents before approval of payments.

For the cases already identified, Government efforts should continue in order to recover and

account for all funds misappropriated.

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