Report No. 29377-UG The Republic of Uganda Country Integrated Fiduciary Assessment 2004 (In Five Volumes) Volume III: Country Financial Accountability Assessment (CFAA) May 2004 Poverty Reduction and Economic Management 2 Country Department of Uganda Africa Region Document of the World Bank IFMS Integrated FinancialManagement Ushs Uganda Shillings Information System VFM Value for Money IG Inspectorate of Govemment WAN Wide Area Network IGG Inspector General of Govemment IIA The Institute of Intemal Auditors IMF Intemational Monetary Fund Vice President: Callisto Madavo Country Director: Judy M. O’Connor Sector Manager: Anthony M. Hegarty Task Team Leader: Marius Keon TABLE OF CONTENTS PREFACE.................................................................................................................................................... i INTRODUCTION ....................................................................................................................................... 1 1. GOVERNMENT FINANCIAL PLANNING AND BUDGETING ............................................ 4 A. BUDGET PLANNING AND RESOURCE ALLOCATION ........................................................................ 4 B. BUDGET EXECUTION AND MONITORING ........................................................................................ 7 c. AID COORDINATION AND EXTERNAL RESOURCE MANAGEMENT .................................................. 9 2 . GOVERNMENT ACCOUNTING AND FINANCIAL REPORTING .................................... 15 A. ACCOUNTING. FINANCIAL REPORTING AND INTERNAL CONTROL ............................................... 15 B. INFORMATION TECHNOLOGY AND RECORDS MANAGEMENT ...................................................... 23 c. HUMAN RESOURCE MANAGEMENT (HRM) ................................................................................. 28 3 . PUBLIC SECTOR AUDITING .................................................................................................. -32 A. AUDIT ........................................................................................................................ EXTERNAL 32 B. AUDIT ......................................................................................................................... INTERNAL 38 4 .LEGISLATIVE SCRUTINY, ACCESS TO INFORMATION ON PFM, ETHICS AND INTEGRITY .............................................................................................................................................. 42 A. SCRUTINY .............................................................................................................. LEGISLATIVE 42 B. ACCESSTo INFORMATION ON PUBLIC FINANCIAL MANAGEMENT ............................................ 45 c. AND INTEGRITY ............................................................................................................... ETHICS 47 5 . PUBLIC ENTERPRISES (PE’S) ................................................................................................. 52 A. REVIEW AND ASSESSMENT OF THE CURRENT SITUATION ............................................................ 52 B. RECOMMENDATIONS ................................................................................................................... 54 6 . NON-GOVERNMENTAL ORGANISATIONS (NGO’S) ........................................................ 56 A. REVIEW AND ASSESSMENT OF THE CURRENT SITUATION ............................................................ 56 B. RECOMMENDATIONS ................................................................................................................... 57 7 . THE ACCOUNTING AND AUDITING PROFESSION .......................................................... 58 A. REVIEW AND ASSESSMENT OF THE CURRENT SITUATION ............................................................ 58 B. RECOMMENDATIONS ................................................................................................................... 61 APPENDIX ................................................................................................................................................ 63 APPENDIX1. STATUS MATRIX OF 2001 CFAA ACTIONPLAN ............................................................... 63 APPENDIX2 . BIBLIOGRAPHY .................................................................................................................. 66 APPENDIX3 . LISTOF PEOPLE MET ......................................................................................................... 71 iii LIST OF TABLES . Table 1 Summary o f Budget releases for 2002/03 .................................................................................. 8 Table 2. Uganda: IDA portfolio as o f January 1, 2004 .......................................................................... 12 Table 3 . Uganda: Audit compliance....................................................................................................... 13 Table 4 . Summary of draft PwC recommendations for a new Accountant General’s Office (AGO) .... 17 Table 5 . New Chart o f Accounts ............................................................................................................ 20 Table 6. Planned schedule for the rollout of the IFMS .......................................................................... 21 Table 7 . Proposed rollout plan............................................................................................................... 26 . Table 8 Accountants and InternalAuditors at AGO - April 2004 ........................................................ 29 . Table 9 Staff at the OAG (as per Staff List) - April 2004 .................................................................... 29 Table 10. Numbers o f Government Accountants and Auditors who sat examinations in D e c . 2003 .... 30 . Table 11 Audit o f Local Government Accounts (excluding sub counties) ........................................... 34 Table 12. Trends in number of Accounts to be audited by the OAG..................................................... 35 Table 13. Trends in OAG funding from the GoU .................................................................................. 36 Table 14. Status of reports on Central Government Accounts ............................................................... 43 Table 15. Uganda’s ranking in the TI Corruption Perception Index...................................................... 49 Table 16. Reported percentage levels o f Bribery in selected Institutions .............................................. 49 Table 17. Cases handled by the IGG...................................................................................................... 50 Table 18. Distribution o f ICPAU membership ...................................................................................... 59 LISTOF FIGURES Figure 1. Foreign Assistance Inflows..................................................................................................... 10 iv PREFACE Context Sound Economic Governance i s essential for the achievement o f the desired reduction in poverty levels and improvements in economic growth in Uganda. Good Public Financial Management (PFM) i s important for efficient, effective and equitable utilisation o f scarce national resources. Whilst the extent to which policy makers are held accountable to their constituents i s an excellent indicator o f good governance. Accountability and transparency go hand in hand in developing open and participatory decision-makingprocesses. In 2001, a Country Financial Accountability Assessment (CFAA) was carried out and recommendations and an action plan made for improvements to the country’s financial management and accountability processes. The Government o f Uganda (GoU) and Development Partners are keen to assess progress and learn from successes and failures. It i s with this broad goal that the Development Partners (World Bank, the Swedish International Development Authority (SIDA), the UK Department for International Development (DFID) and the African Development Bank (AfDB)) and the GoU commissioned this CFAA in the first quarter o f 2004. However all stakeholders agreed as part o f improved harmonisation and co-ordination that it should be carried out as part o f a broader Country Integrated Fiduciary Assessment (CIFA) for Uganda. The CIFA aims at integratingthree diagnostic exercises (CFAA, Public Expenditure Review (PER) and Country Procurement Assessment Report (CPAR)) to facilitate a comprehensive assessment of PFM in Uganda. The overall purpose o f the CIFA and its sub component exercises, including the CFAA, i s to provide GoU and Development Partners with a comprehensive, integrated and candid assessment o f Uganda’s key fiduciary risks as reflected in GoU’s resource allocation, resource management and control, resource utilisation and accountability processes, and to make recommendations for improving the PFM framework, institutionalperformance and capacity building. Overview o f findings Significant progress has been made since the previous CFAA in particular on strengthening and updating the Legal Framework and Regulatory Environment for PFM. Also, excellent progress has been made in developing human resource capacity in the accounting and auditing cadre in the public sector and significant strides have been made to develop the accounting and auditing profession. While the procurement o f the IntegratedFinancial Management System (IFMS) has been concluded, the roll out and further development and funding o f the IFMS poses a significant challenge to the GoU. There are also considerable concerns about the adequacy and integrity o f the current payroll system. The critical issue o f the operational independence o f the Auditor General remains unresolved and needs to be addressed urgently. Oversight and supervision o f all public enterprises including statutory authorities and semi- autonomous Government bodies and Non-Governmental Organisations also needs to be strengthened. Finally, whilst the progress made in increasing public awareness o f anti-corruption activities i s highly commendable, the cost o f corruption to the economy remains a significant problem. Team composition The assignment team for the CFAA consisted o f the following members: V World Bank: Marius Koen (Team leader, AFTFM), Patrick P. Umah Tete (AFTFM, Uganda) and Jonathan Nyamukapa (AFTFM, Zimbabwe); DFID: Consultants (Peter Murphy and Carole Pretorius); AfDB: Charles Muthuthi; SIDA: Consultant (Stefan Sjolander). The World Bank gratefully acknowledges the financial and other support provided by the Development Partner’s mentionedabove. The Manager: Financial Management - Africa Region (Mr. Anthony M. Hegarty) provided technical guidance and was responsible for quality assurance arrangements. Peer reviewers for the CFAA were Mr. Henrik Harboe (Norwegian Agency for Development Coordination, Oslo) and Mr. Gert van der Linde (FM Unit, Africa Region). The work was completed with guidance o f the Country Director (Ms. Judy M. O’Connor), the Country Manager (Ms. Grace M. Yabrudy) and the Country Economist (Mr. R. Sudharshan Canagarajah). Contributions and support by the in-country DFID Economic Adviser (Mr. Jonathan Beynon ) and Governance Adviser (Ms. Wandia Gichuru) i s acknowledged. The study was conducted during the first quarter o f 2004 through a combination o f questionnaires, written submissions, desk reviews and interviews with key personnel o f Government agencies and other organisations. The team would like to express their sincere gratitude to all the individuals from both the public and private sectors that participatedand submitted comments. A workshop was held on April 20 and 21, 2004 to discuss and consider the draft findings and salient recommendations, and to provide final inputs towards the finalisation o f this report as well as the CIFA report. The workshop was attended by a representative group o f all the stakeholders mentioned in Appendix 3 (including Development Partner’s) who participated in and contributedto this process. Finally, the CFAA team expresses i t s sincere gratitude for the assistance and courtesies extended by all parties that participated in the analysis. In particular we would want to mention the names o f Mr. C.M. Kassami (Permanent Secretary: Ministry of Finance Planning and Economic Development), Mrs. M.C. Muduuli (Deputy Secretary to the Treasury) and Mr. G.O.L. Bwoch (Accountant General) who spearheaded the client participation. The efforts and enthusiasm o f Messrs. L. Semakula, P.W. Mangeni, D.T. Kisembo and R. Byaruhanga without whose assistance the team wouldn’t have been able to achieve its targets, i s recognised. Also our gratitude i s extended to the team from the Accountant General’s Office who supported the mission in collecting the questionnaires and arrangingappointments with counterparts. vi INTRODUCTION Background Uganda has been undertaking economic reforms geared to maintenance o f macroeconomic stability, high rates of economic growth, and above all, reducing poverty as espoused in the country’s Poverty Eradication Action Plan (PEAP). Furthermore, the country has made a commitment to meeting the Millenium Development Goals within the specified timeframe. The pivotal economic reform Uganda has implemented i s the liberalisation o f markets in all sectors o f the economy and the decision that the private sector should lead the economic growth process. Indeed, the country registered high rates o f economic growth during the 1990s and poverty declined from 54% in 1997 to 35% in 2000. However, from the tum o f the century the Ugandan economy began experiencing several challenges reflected mainly by the slow down in the rate o f economic growth, Previous evaluations of Public Financial Management (PFM) and Accountability systems in Uganda’ have resulted in the Ministry of Finance, Planning and Economic Development (MoFPED), instituting, with World Bank and bilateral support, an Economic and Financial Management Programme (EFMP-11) and a complementary UK Department for Intemational Development (DFID) funded Financial Accountability Programme (FAP). These centrally managed programmes have resulted in the adoption of a new legislative framework for budget, procurement and financial management and are expected to progressively strengthen the principles, standards, systems and institutional arrangements o f the PFM framework. I n addition PFM support i s being provided to various sector programmes (Health, Education, Local Government) and specific organisations including the Office of the Auditor General (OAG) and the Ministry o f Public Service (MOPS) for PayrolLPersonnel. Some attempts have been made to co-ordinate these development activities through the recent establishment o f a Public Expenditure Management Committee - better known as PEMCOM. The Country Integrated Fiduciary Assessment (CIFA), o f which the Country Financial Accountability Assessment (CFAA) i s a key component, i s being undertaken at a time when the Government o f Uganda (GoU) i s revising its PEAP and Development Partners are initiating the process of integrating and revising their Country Assistance Strategies (CAS) for Uganda. The World Bank’s CAS focuses on higher economic growth, poverty reduction and institutional reforms to improve govemance. I t conforms with GoU’s main strategic directions: adherence to macro stability, increased private sector participation in the economy, a renewed emphasis on rural development and improved delivery of social services. In suppo,rtingthese objectives the CAS proposes a lending programme, which i s increasingly geared towards operations with a direct bearing on poverty and strengthening of social sector programmes. In pillars one and two of the PEAP the importance of strengthening public expenditure management and o f good govemance in improving the efficiency o f public service delivery i s emphasised. Pursuant to the shift from projects to budget support, the World Bank and other Development Partners are providing a series o f Poverty Reduction Support Credits (PRSC) and general budget support, which commenced in EFMPII design studies (1998/99), CFAAKPAR (2001), Highly Indebted Poor Countries (HIPC) Tracking Study (2001/2), Review o f Local Govt PFM (2003) and annual PERs -1- 2001 to support the Government’s PEAP. The CIFA and i t s subcomponent processes will help G o U and Development Partners in C A S and PEAP preparation/revision and be an important input to ongoing reform programmes including the preparation o f general budget support and PRSC. Objectives of a CFAA A C F A A i s a diagnostic tool designed to enhance knowledge o f PFM and accountability arrangements. Financial Accountability is the obligation to demonstrate and take responsibility for the results o f financial decisions against agreed expectations. In general, these expectations are that funds are used economically, efficiently and effectively for the purposes intended. The capacity and quality o f the stewardship function are important determinants o f performance, development effectiveness and poverty reduction. The C F A A i s not an audit-nor does it provide a “pass/fail” assessment o f a country’s P F M system. A C F A A provides a well-informed and objective assessment, a diagnosis o f problems, advice on their resolution and an indication o f the level o f fiduciary risk. However, it i s not intended to, and does not, provide assurance o n the specific uses to which funds have been or may be applied. A C F A A also facilitates the design and implementation o f a development action plan to support financial accountability. Scope and Action plan This C F A A i s an update of the assessment done in 2001. It discusses progress made in the area o f P F M reforms since then and provides a “status-matrix” in Appendix 1 o n the implementation o f the key recommendations o f the 200 1 CFAA. As this exercise i s to form an integral part o f the C I F A report, it has been agreed that there should be n o executive summary or separate action plan. Nevertheless the following salient recommendations are noteworthy: Streamline the requirements in the budget process and improve contents o f budget performance reports; Record and monitor a l l foreign development assistance in the budget; Approve and implement the proposed new organisational structure o f the Accountant General’s Office (AGO); Improve the integrity o f the payroll system; Secure funding for the r o l l out o f the Integrated Financial Management System (IFMS); Enact appropriate legislation to ensure the independence o f the Auditor General (AudGen); Implement changes to the Internal Audit function as required by the Public Finance and Accountability A c t (PFAA); Strengthen various elements o f the oversight as well as legislative and public scrutiny functions; Strengthen monitoring o f accountability o f Public Enterprises (PES) and Non-Governmental Organisations (NGOs); and Enact the draft Accountants Bill which aims to strengthen regulation o f the accountancy profession. Also, in order to minimise duplication with the work carried out for the PER, this CFAA report focuses primarily on the execution and monitoring phases o f the budget cycle and the oversight and accountability frameworks. Budget formulation has been restricted primarily t o a review o f the legislative and regulatory issues as w e l l as the systems and procedures for aid co-ordination. A separate CIFA -2- exercise i s also being carried out for Local Government (LG), therefore references to LG are primarily from a Central Government perspective. Fiduciary risk assessment W h i l s t the CFAA includes an objective assessment and diagnosis o f strengths and weaknesses o f certain elements o f the PFM, the overall assessment o f the level o f fiduciary risk will form part o f the C I F A report. Nevertheless, fiduciary risk i s o f such importance that one cannot omit addressing the issue- albeit only in summary. The fiduciary risks associated with poor budget formulation and budget preparation processes have reduced. In terms o f appropriate legislation and regulatory frameworks, significant progress has been made to ensure that the risk associated with lack o f clear rules and regulations has been reduced. Also more useful information i s provided in the annual accounts. I t i s recognised however that Rome was not built in a day, the process o f implementation o f new rules and ways o f working does take time and does require changes in attitude, continued capacity building and widespread demand for greater accountability. Risks remain in t e r m s of: 0 Enforcement o f procurement and payroll rules and procedures; 0 Completeness o f data o n debt; 0 Effective independent oversight, and 0 Timeliness and effectiveness o f legislative and public scrutiny. In addition, the appropriate legislative framework for integrity i s s t i l l being developed. There remain significant legal, institutional and capacity constraints on the ability o f the integrity bodies (IGG, DEI, Police, DPP) to carry out their various functions including public education, detection, investigation and prosecution o f offenders. -3- 1. GOVERNMENT FINANCIAL PLANNING AND BUDGETING A. BUDGET PLANNING AND RESOURCE ALLOCATION Review and assessment o f the current system Legislativeframework and regulatory environment 1.1 The Constitution, the PFAA, 2003 and the Budget Act, 2001 provide the basic legal platform for the budget formulation process. The Budget A c t stipulates first and foremost the information on the budget process that Government i s required to present to Parliament and when. Mandatory presentations from Government include a macro-economic plan, fiscal and monetary programmes for economic and social development for a three year period, as well as estimates o f revenue and expenditure covering both the one-year period (new financial year) and the three-year horizon (medium term planning period). In addition a number of other reports are presented, for example, the Minister o f Finance i s expected to present data on value for money (VFM) in relation to specified targets in the budget. The President i s asked to present specified data on the national debt and the total sum o f grants received by the State and achievements obtained through these grants. The A c t also regulates the budget formulation procedures within Parliament. 1.2 The P F A A provides the legal framework for enhancing the control and management o f public resources and strengthening fiscal transparency and accountability. The PFAA further strengthens the budget planning process including the need for Accounting Officers (AOs) to be accountable to Parliament for outputs and puts in place measures to improve control o f resources and adherence to accounting practices. 1.3 Although the content and structure o f the Budget A c t seems to be appropriate and according to MoFPED has considerably improved timeliness o f the budget process, the A c t does seem to represent a very tight schedule especially for the MoFPED during the six months prior to the new fiscal year, which begins on the 1st of July. This i s further exacerbated by the fact that this period, partly as a result o f the Act, also requires close consultations between the Government and Parliament o n the content o f the budget proposals and i t s priorities. The Public Expenditure Review (PER) process in Uganda also forms an integral part of the budget process, not least during the period o f consultations between the Government and the Parliament. 1.4 One significant reason for the “congestion” during the latter part o f the annual budget process i s the very ambitious requirements for the presentation o f budget information specified in the Budget Act. The provision o f these documents to a large extent rests with the MoFPED. Given current capacity constraints the requirement for so much information to be analysed and presented in a short period o f time could have an adverse effect on accuracy and quality o f documentation. 1.5 Another very important set o f regulatory frameworks in the budget process are Government internal circulars and guidelines, especially the main budget circular issued from the MoFPED to sector ministries (AOs) in October. Apart from scheduling internal budget work, this circular regulates a number of issues; examples in the circular for fiscal year 2004/05 are regulations relating to supplementary budgets, Sector WorkinglBudget Framework Papers, consequences o f the on-going PEAP review process, the link between identified outputs/outcomes and proposed budgets f r o m sector ministries, the inclusion of a11 Development Partner resources in the budgetary resource envelope, the issue o f arrears, instructions -4- to identify ghost workers, issues relating to the MOPS decisions (wage bill, vacant posts, etc), identification o f protected expenditure and a number o f other technical issues, including some relating to LG. Budgetformulation 1.6 The introduction o f the Medium Term Expenditure Framework (MTEF) in Uganda made it possible to formulate a resource envelope for medium term planning that i s consistent with balanced macro-economic development. Most importantly, the MTEF also makes it possible for the MoFPED to project the size o f different budget components (e.g. wage, non-wage, development) in different scenarios on an aggregate level. In this respect the MTEF continues to represent an important stabilising fiscal factor. 1.7 Following the presentation o f the sector ceilings from MoFPED, sector ministries are, as part o f the budget process, expected to produce Budget Framework Papers (BFPs) outlining their respective priorities for the next fiscal year. In a dialogue with the MoFPED, sector ministries are given the opportunity, based on the BFPs, to argue for increased ceilings. The formulation o f the BFPs supposedly f u l f i l s the requirement for a needs assessment in the MTEF process. According to the MoFPED, BFPs are gradually improving and becoming less o f an academic exercise. However, whether it i s because o f the fact that the sector ceilings are determined early in the Ugandan budget process, or due to some other reason, in many cases BFPs s t i l l lack realism, i.e. they do not reflect what can actually be achieved in relation to available capacity in the sector. Sector working groups are not realistic in their budget formulation process and include too many planned undertakings, which are inconsistent with budget ceilings and the capacity o f the sector to utilise the funds. 1.8 In order to enhance realism, BFPs should be based on a set o f costed activities, which support the objectives o f the sector programmes. T h i s presupposes access to accurate and appropriately classified financial data. This would support a more balanced budget dialogue and should result in the formulation of more realistic sector ceilings. 1.9 M o r e realistic ceilings should enable sector ministries to utilise the MTEF more effectively. As currently many line ministries report that the MTEF only supports the annual budget process. T h i s i s because o f the uncertainty associated with final revenue projections and actual Development Partner financing. As agreed under the partnership principles, 2003104 sector ceilings include Development Partner financed projects and budget support. Although, the quality o f information o n Development Partner project financing still remains poor, improved forecasts o f both revenue and such financing as shown in the 2002103 Annual Budget Performance Report, would stabilise medium term forecasts and therefore improve the credibility o f the MTEF process. 1.10 The state budget in Uganda i s divided between the Poverty Action Fund (PAF)-protected areas and non-PAF areas. P A F areas, responding to the PEAP-priorities, are prioritised by Govemment in the budget and protected from cuts in reallocation programmes or cash limitations due to liquidity constraints. By creating the PAF, G o U has succeeded in mobilising Development Partner support. The share o f expenditures included in PAF increased from 17% in 1997198 to 31% in 2000101 and to 36% in 2003104. Under normal circumstances P A F expenditure i s protected from budget cuts and therefore promotes pro- poor spending. However there are instances whereby political interference has resulted in alterations to budget allocation which appear to be inconsistent with stated policies. -5- 1.11 The Government has recently adopted the Government Financial Statistics (GFS) system and the Classification o f the Functions o f Government (COFOG), which i s to be adjusted to local conditions, Le. to follow the structure o f the new PEAP currently under revision. Overall assessment 1.12 In general, the Ugandan budget formulation process works fairly w e l l and has improved since the last C F A A in 200 1. Legislation and supporting circulars are comprehensive and relevant even though it would be difficult for the Government to comply with all the stated requirements. Recent changes in legislation have strengthened the budget planning process. However, although there are a large number o f regulations in support o f the primary legislation, it i s understood that there i s s t i l l some confusion over roles and responsibilities in terms o f enforcing compliance, for example in budgeting for the payment o f arrears. In addition, the regulations place a heavy workload on MoFPED as a large volume o f instructions, guidelines and other regulations require intervention or action by the ministry. Consequently, this situation could constitute a fiduciary risk if the sheer volume o f detailed requirements makes it difficult for MoFPED to follow up on those key financial control mechanisms, such as the comprehensiveness o f registered commitments or submission o f non-tax revenue from sector ministries and to impose the necessary sanctions o n non-compliance. 1.13 Revenue projections have improved, while tax revenue as a share o f Gross Domestic Product (GDP) has stagnated at about 12% and non-tax revenue does not meet forecasts. Budget coverage i s improving, resources not explicitly included are primarily linked to a diminishing number o f Development Partner projects that have been directly funded outside the budget framework and non-tax revenue fmanced expenditure exempt from transfer to the Consolidated Fund. A new and mandatory requirement for Government ministries to include all projects in their budget submissions i s being introduced for the fiscal year 2004/05. A number o f budget projection uncertainties linked to a weak payroll system, unfunded pension commitments, potential state enterprise subsidies and ongoing development projects rolled forward remain. There i s a risk that some o f these could give rise to substantial extra budgetary expenditure in-year. Due to budgetary constraints, there are n o extra resources set aside for contingencies, although this could change with more realistic projections in the BFPs. In which case, overdrafts would henceforth be exacerbated by external factors, such as exchange rate fluctuation, or political interference. 1.14 Roles and responsibilities in the budget formulation process are clearly defined in policy documents and timeliness in budget preparation has improved as a result o f the introduction o f the MTEF. PAF-protected sectors present good quality working and review papers. Government i s engaged in extensive consultative processes concerning the budget, particularly for the core PAF ministries and the MoFPED. 1.15 The PEAP and the definition o f related P A F areas support a close link between (poverty) policies and expenditure plans, even if impact i s unclear due to weak P F M and reporting structures at LG level. However late final projections o f revenue and donor financing pledges, introduce uncertainty into the MTEF resource envelope determination. Improved forecasting o f both these aggregates would stabilise medium term projections and facilitate increased credibility and sector engagement in the MTEF process. The protected PAF creates distortions and potentially causes efficiency losses in the Government’s budget formulation process. This i s due to budget cuts impacting disproportionably o n non-PAF areas that are linked to and support the performance and effectiveness o f P A F resources. 1.16 As has already been stated sector BFP submissions continue to lack realism in relation to capacityh-esources and would benefit f r o m improved prioritisation and costing. The planned shift towards -6- a more integrated and dynamic resource allocation system would better support plans for a more performance based budget process and reduce the risk o f distortion and efficiency loss. Recommendations 1.17 The Govemment i s moving towards output/outcome related allocations in the budget process. T h i s step forward could be supported by a number o f initiatives in the budget formulation process. Short-term (1-2 years) 0 The large number o f requirements specified in the budget process should be prioritised and streamlined to support areas linked to budgetary control and a more realistic and appropriate budget dialogue. MoFPED should be able to follow up in core areas where sector ministries do not comply to regulations. 0 Capacity in line ministries to develop costed plans for inclusion in the BFPs should be improved. 0 Capacity o f MoFPED to evaluate and challenge line ministry proposals should be strengthened. 0 Continue t o improve information on contingent liabilities, commitments and state enterprise operations. 0 Continue to improve revenue forecasting mechanisms and information on agreed Development Partner funding levels. Medium-term (3-5 years) 0 Following access to more accurate and timely accounting information through the new IFMS, sector ministries should be asked to cost and calculate activities before requirements are presented in the BFPs. B. BUDGET EXECUTION AND MONITORING Review and assessment o f the current system 1.18 The Government presents a Semi-annual and an Annual Budget Performance Review report reflecting cash releases in relation to the budget to Parliament. Table 1 i s a summary o f budget releases performance by function for the fiscal year (FY) 2002/03. For the Development Partner budget support, monitoring i s done through the quarterly budget performance report. -7- Table 1. Summary of Budget releases for 2002/03 t Cash balances are available from monthly bank reconciliations. # Economic Functions and Social Services. 1. * The actual expenditure reported by Treasury amounts to an overspending o f Ushs76 trillion. Due to the fragmented nature o f the current accounting and budget systems the information could not be broken down to the sectoral detail provided in the table above 1.19 Releases o f more than a hundred percent should not be interpreted as lack o f expenditure control. The total “overdraft” for 2002/03 i s an exception, which was funded through higher income from PES in- year than expected. The reason for this improved performance by PES has not been reviewed by this assessment. 1.20 The Government uses a number o f systems to control expenditure in relation to the budget. All additional expenditure in-year i s funded through reallocations (i.e. cuts in non-PAF areas). According to the Budget Act, supplementary budgets cannot exceed 3% o f the budget. The MoFPED controls all cash releases through a cash budgeting system. Releases for the next quarter are usually announced to sector ministries during the first or second week o f the quarter and disbursed monthly. While the MoFPED states that the quarterly sum announced i s eventually paid out, sector ministries and the AGO claim that the actual disbursement can be lower than promised. Cash i s disbursed in accordance with sector ministries’ quarterly action plans presented to MoFPED, and P A F priorities. 1.21 Since 1999, sector ministries operate a commitment control system (CCS). N o money i s registered in the CCS or paid out from the ministry concerned before the quarterly release from the MoFPED i s known (and in many cases also actually received). Priorities follow PAF protected areas and cases where Government provides counterpart funding in order to access Development Partner funding. Wages, the largest expenditure in core P A F sectors, are not included in the CCS. The CCS will be introduced as a pilot exercise in a number o f districts during FY 2004/05 under the Fiscal Decentralisation Strategy. 1.22 Sector ministries report back monthly to M o F P E D on their fmancial releases (and commitments registered). The information i s used by the MoFPED at fiscal year-end to check o n disbursement o f development funding. 1.23 Core P A F protected sectors transfer approximately 70% o f their resources to LG (the actual disbursement i s made by MoFPED). Expenditure control i s imposed through special reporting linked to a large number o f conditional and unconditional grants. Subsequent releases are withheld unless financial reports for the previous period are presented. Accounting information i s rarely used as a source o f -8- information for budget monitoring. In many cases LGs find it difficult to produce regular monthly accounts due to the demand for special reports relating to PAF and Development Partner funds. 1.24 Supplementary appropriations require prior parliamentary approval before any commitments i s made. Cash releases below individual budget appropriations for the full fiscal year are not subject to parliamentary scrutiny. Information concerning these lower than budgeted payments i s considered to be made available to the legislature through the annual accounts. Punitive action against AOs for any overdraft or increase o f arrears is stipulated in the budget circular, although it is not known whether any sanctions have actually been imposed Assessment 1.25 Generally release control systems for regular budget expenditure seem to work well, with the exception o f the possibility o f a need for additional subsidies to state enterprises and unexpected additional pension commitments. However, according to a recent PRSC-program document expenditure on public administration i s increasing and different sources suggest that there are a number o f “ghost workers” in core PAF sectors as a result o f a breakdown o f payroll controls and procedures. 1.26 Currently Budget Performance Reports do not reflect actual expenditure or commitments. However with the introduction o f the IFMS, it i s anticipated that actual expenditure data will be included in the Budget Performance Reports as discussed further in Section 3.1. 1.27 The budget circular from M o F P E D for fiscal year 2004/05 states that budget allocations should be more closely linked to the presentation o f outputs/outcome and h o w these relate t o stated objectives for the sector. Once budgeted and actual expenditure, and commitments are captured in the I F M S it would provide the Government with more reliable information on how expenditure relates to outputs and results. Recommendations Short-term (1-2 years) 0 Follow-up on the appropriateness o f present systems for calculation o f annual pension commitments, annual state enterprise subsidies. 0 Introduction o f actual expenditure per sector in the Budget Performance Reports - this will be done in financial year (FY) 2003/04. Medium-term (3-5 years) 0 Introduction o f commitment information in the Budget Performance Reports. 0 Introduction o f performance reporting in the Budget Performance Reports. c. AID COORDINATION AND EXTERNAL RESOURCE MANAGEMENT Review and assessment o f the current system Legal framework 1.28 The Constitution and the PFAA gives M o F P E D the mandate to plan and manage public finances. The power to raise external financial resources i s vested in the Minister responsible for Finance. Both the -9- Cabinet and the Parliament approve all external borrowings. The regulatory framework over external borrowings appears appropriate. Aid coordination 1.29 Foreign assistance finance as a percentage o f GDP was 13.91% in FY 2002/03 and i s expected to be 14.02% o f GDP in FY 2003/04. The Aid Liaison Department (ALD) in MoFPED i s responsible for effective and efficient coordination o f aid resources. The Macro-economic Policy Department matches the external aid requirements with appropriate Development Partners within the macro-economic policy framework. I t also keeps Development Partners informed o f the Government’s needs and priorities for external financing through h a l f yearly meetings o f line ministry and sector working groups or in the case o f Development Partners without country offices in Kampala, through formal requests. Other opportunities for GovemmentAIevelopment Partner exchanges o n priorities happen during PEAP and PER processes. Within the Development Partner group, there are a number o f Consultative Group meetings that facilitate coordination. At Central Govemment level specialisation amongst Development Partners i s becoming increasingly common, thereby reducing the co-ordination costs. 1.30 The Government’s aid policy i s that all foreign developmental assistance to Uganda including loans, grants and technical assistance (TA) should be within the framework o f the PEAP. The PEAP i s the Government’s Comprehensive Development Framework. I t i s intended to harmonize the implementation o f all development programmes and facilitate the adoption o f Sector Wide Approaches (SWAps) to resource allocation and management o f foreign assistance aid inflows. The Govemment i s committed to taking a lead role and owning Uganda’s developmental process and through consultations with i t s Development Partners has agreed a set o f Partnership Principles. These Principles are intended to enhance the management o f external aid resources through the budget framework with emphasis moving away from projects to programmes under SWAps. Formal co-ordination mechanisms linking aid policies and programmes to the PEAP are clearly established with the aim o f enhancing the optimal use o f foreign assistance for poverty alleviation initiatives. Figure 1. Foreign Assistance Inflows A major concern o f the Government i s that the FORHGN ASSISTANCE INFLOWS proportion o f foreign assistance funds channelled through investment projects rather than budget support or programmes under 900 SWAps i s very high, contrary to the agreed .- o 800 Budget E 700 Partnership Principles. As Figure 1 opposite a Support y) 600 shows, out o f total foreign assistance inflows to 2 500 Projects Uganda amounting t o U S $ 789 million in the .- c 400 300 FY 2002103, U S $ 3 3 0 million (42%) was received through investment projects. The a 200 OTotal E 100 projections for FY’s 2003104 and 2004105 show u o that this trend will persist with investment project financing exceeding budget support/SWAps financing in FY 2004105. This complicates the management and implement- Financial Year tation o f development assistance to Uganda. Source: Macro-economic rolicy vepamnent, MorYJu - 10- 1.3 1 However, as illustrates above, there i s strong support from Development Partners to move towards SWAPS in key sectors as the level o f budget support financing has steadily increased in the past five years. This will promote common management and implementation arrangements and significantly reduce the transaction costs incurred by Government in coordinating and managing foreign assistance. External resource management 1.32 ALD (under the Director o f Budget) keeps custody o f all loans and grants agreements and maintains a register o f the agreements. The Foreign Funds Division in the Treasury Office o f Accounts (TOA), in MoFPED has the responsibility o f managing local and foreign debt including i t s tracking, recording and monitoring. TOA maintains a Debt Management and Financial Analysis System (DMFAS) for aid management. The Macro-economic Policy Department in MoFPED prepares debt reports produced by this system and other information provided by Bank o f Uganda (BoU). These are distributed to various agencies including Parliament, International Monetary Fund (IMF), World Bank and other Development Partners. A key concern was that there was no automated interface to the I F M S until recently. However, interfacing o f the D M F A S to I F M S i s already being done and monitored during the current pilot period. 1.33 A serious issue, however, relates to the bypassing o f MoFPED in the process o f recording the actual disbursement o f project funds. This problem arises because Development Partners do not actively share estimates o f expected disbursement with MoFPED. In addition, certain bilateral Development Partners channel grants directly to projects without informing MoFPED. In such cases the Development Partner may inform the line department responsible for executing the project that disbursement has been made but the line department does not share that information with MoFPED. T h i s means that MoFPED i s unable to keep i t s aid database up-to-date. As a result, the development budget estimates and debt records are incomplete. Similarly, NGO-executed projects are not recorded and therefore these activities cannot be taken into account t o promote an optimal allocation o f Government’s o w n resources both within and across sectors. Direct payments by Development Partners to the providers o f goods and services are also difficult to capture. Together these factors undermine the ability o f MoFPED to plan the budget based on a comprehensive understanding o f all resources available and jeopardize the efficacy o f public expenditures. T o deal with this problem MoFPED has issued instructions to a l l Government Units that starting from FY 2004/05 all Development Partner-funded projects (loans and grants) will be part o f the total budgetary resource envelope ceilings. Harmonisation issues 1.34 The prompt receipt by Development Partners o f accurate audited accounts regarding the implementation o f programmes i s an important fiduciary objective that also enhances the harmonisation agenda. T o further this agenda, Government’s audited accounts should follow the best practices outlined in the Organisation for Economic Co-operation and Development - Development Assistance Committee (OECD-DAC) Guidelines and Reference Series booklet entitled Harmonizing Donor Practices for Effective Aid Delivery. For example, the “whole of Government” accounts submitted to Parliament should have sufficient disclosure of source o f all budget suppoidgrants received. 1.35 There i s a need to harmonise disbursement procedures and accrue the benefits associated with a simplification and standardisation o f the disbursement application process. For example if a Government form was designed that could be used for all disbursement applications the training and supervision o f staff responsible for completing the forms would be simplified. In addition, this would increase Government ownership o f the process. 1.36 Private sector auditors in Uganda are playing a key role in auditing foreign assistance programmes/projects. However, these auditors have not been assessed for competence in accordance with - 11 - the OECD-DAC guidelines. Therefore, the World Bank working with the African Development Bank (AfDB) and other Development Partners need to undertake an evaluation process o f all private sector auditing firms. This i s particularly relevant because as noted in Section 4.1, there i s some concern over the quality o f private sector audits. 1.37 There i s need to harmonise the auditing requirements o f foreign assistance projects/programmes. The OECD-DAC guidelines provide a sample Terms o f Reference for the audit o f a development assistance project. This will need adjusting to incorporate unique audit requirements, for example, a separate opinion on compliance with specific loan covenants. The Government, concerned Development Partners and the AudGen need to agree on sufficient audit coverage so that the scope o f work o f the auditor addresses all the issues identified as applying to the programme/project. The ultimate goal would be reached when all Development Partners buy into a single audit opinion on the financial statements as a whole. This would do away with the need for separate opinions o n Statement o f Expenditures and bank balances as the practice o f issuing more than one audit report involves unnecessary duplication o f work. InternationalDevelopment Association (IDA) portfolio 1.38 As o f the beginning o f January 2004, there were 23 credits amounting to US$1,184.3million in the Uganda IDA-portfolio - this includes both investment and adjustment credits. M o s t o f the projects are implemented by Project Implementation Units (PIUs). PIUs are mainly responsible for the coordination and implementation o f the projects, which includes management, accounting and reporting on project funds, and arrangements for external auditing. These are considered to be independent units, although they work closely with their respective line ministriedsectors through project management committees. Table 2. Uganda: IDA portfolio as o f January 1,2004 Environmentally and Socially Sustainable Development 5 157.8 52.4 Financial Sector 1 20.0 5.1 Human Development 4 186.5 57.6 Infrastructure 8 367.0 87.0 Poverty Reduction and Economic Management 3 254.5 101.8 Private Sector Development 2 198.5 15.7 23 1,184.3 319.6 1.40 Development Credit and Trust Fund Agreements for IDA financed projects normally establish the time period for submission o f audit reports as six months after the year-end. The following information was extracted from the World Bank Audit Report Compliance System (ARCS) for FY 2003 and 2002: This number includes an amount o f $150m for the undisbursed single tranch PRSC3. If this amount i s exluded, the number changes to 70%. - 12- Table 3. Uganda: Audit compliance Audit reports submitted within the fiscal year: June 30,2003 49 out o f 65 (75%) 6 out o f 12 (50%) 0June 30,2002 65 out o f 66 (98%) 10 out o f 16 (63%) Audit reports submitted within 6 months time frame June 30,2003 29 O u t o f 65 (45%) 0 out o f 12 (nil%) 0 June 30,2002 47 out o f 66 (71%) 0 out o f 16 (nil%) 1.41 While the portfolio performance for Credits in 2003 i s well below the Africa Region’s average o f 88%’ remedial steps have been taken, and early indications are that the high levels o f 2002 will be achieved in FY 2004. Also, the situation for Trust Funds has improved and the expectation i s that 100% compliance will be achieved. As a result, it i s expected that the timeliness o f the submission o f audit reports will also improve. Recommendations Aid coordination and external resource management Short-term (1-2 years) 0 MoFPED t o establish a Government-wide aid tracking and accounting system, to capture all loans and grants -this could be included as a requirement in Treasury Accounting Instructions 0 Development Partners to ensure M o F E D i s fully informed o f disbursements o f loans and grants. 0 The World Bank, the AfDB and other Development Partners to evaluate the competence o f private sector audit f i r m s in line with the OECD-DAC guidelines. In terms of disclosure o f source o f funds, Government’s audited accounts should follow best practices as outlined in the OECD-DAC Guidelines. 0 Review aid coordination arrangements and manual to incorporate impact o f I F M S and use o f the new information sharing network in MoFPED. Develop mechanisms for improved sharing (and integration) of GovernmentlDevelopment Partner financial interactions (web sites, data sharing) Medium-term (3-5 years) 0 Development Partners to assist in strengthening financial management capacity, especially at LG level. Once fiduciary issues are reasonably resolved, foreign assistance to be increasingly integrated into sector wide programmes. 0 Physical monitoring to assess progress o f the implementation o f projects could be initiated by implementing standard monitoring reports such as the W o r l d Bank’s Financial Monitoring Reports and should be accompanied by impact assessments. 0 MoFPED to ensure that the interface between D M F A S and I F M S i s fully implemented. - 13 - e Harmonise Development Partner disbursement practices through simplification and standardization. e Harmonise the auditing requirements o f foreign assistance projects/programmes to facilitate a single audit report approach. e Consider rationalising the debt management function under one unit within MoFPED. IDA portfolio Short-term (1-2 years) e Conduct more financial and procurement training courses for project staff. e Conduct regular reviews o f statements o f expenditure. Medium-term (3-5 years) e Start phasing out use o f PIUs by integrating project coordination and implementation into the line ministries structure for new projects and sector programmes. T h i s will build greater permanent institutional capacity within the Government structure and will also ensure greater continuity and ownership o f projects by respective line ministries. - 14- 2. GOVERNMENT ACCOUNTING AND FINANCIAL REPORTING A. ACCOUNTING, FINANCIAL REPORTING AND INTERNAL CONTROL Review and assessment o f the current system Legal framework for accounting and reporting 2.1 The new P F A A and related Public Finance and Accountability Regulations (PFAR), (Statutory Instruments 72 and 73 o f 2003) came into force on the lSt July 2003. They make significant improvements in the framework for accounting and financial reporting and address a number o f the recommendations made in the CFAA, 200 1 including: Supplementary appropriations require prior parliamentary approval before any commitment i s made; AOs are required to report failure to achieve VFM; The AudGen i s empowered to have full access to information on classified expenditures; The accounts must include flow o f funds statements and broader coverage o f Government expenditure; and Specific offences and penalties or procedures for recovery o f losses. New provisions include: Improved definition o f the respective roles and accountabilities o f the Minister, the Permanent Secretary (PS) Finance, the Accountant General (AccGen) who i s allocated specific authority over AOs o f Ministries, Departments & Agencies (MDAs) with respect to determination o f accounting bases, principles, standards and systems; and AOs o f MDAs are required to be accountable to Parliament for outputs in addition to regularity and propriety, to ensure control over commitments and to establish and maintain audit committees. The Act also integrates provisions o f various laws related to loans, guarantees and contingencies and provides for transitional arrangements for the commencement o f different provisions, for example: (i) Audit Committees and Output Oriented Budgeting (OOB) - 1 July 2004; (ii) Reporting on net-worth o f state enterprises - 1 July 2005; (iii) all other provisions - 1st July 2003. 2.4 Although Treasury Accounting Instructions, June 2003 have been drafted, the 1991 Treasury Accounting Instructions remain operational and do not reflect the contents o f either the new legislation or other PFM improvements implemented in recent years. Both these sets o f instructions are based on existing manual systems that are in the process o f being superseded by the new IFMS. T h e AccGen - 15 - proposes to incorporate the new internal controVaccounting requirements o f the IFMS before finalising the Treasury Accounting Instructions; this i s expected to be completed during the pilot operation o f the IFMS ending June 2004. 2.5 A number of recommendations made in the CFAA 2001 are outstanding. These include: 0 CFAA/ROSC3/HIPC4 poverty tracking recommendations relating to central improvements in public expenditure management (OOB, Cash Management, and Commitment Control) have not, as yet, been substantively integrated into the legislative framework; and 0 Recommendations for inclusion o f provisions for wider publication o f accounts based information related to expenditure/outputs have yet to be elaborated. 2.6 These recommendations could be addressed through the further development o f PFAR and Treasury Accounting Instructions, which would not require amendment o f the Act. Functions and responsibilities for accounting & financial reporting 2.7 The current organisational arrangements provide for three sections within the AGO, the TOA, the Treasury Inspectorate Department (TID) and the Internal Audit Department (IAD), these are engaged in overall management and supervision o f the accounting framework, the consolidated fund, internal audit and inspection, statutory reporting and central processing for public debt, payrolVpensions and foreign aid transactions. MDA Accounting and Internal Audit Units are primarily responsible for internal control, pre-audit, payment of creditors, receipting, accounting, bank reconciliation and financialhudgetary control reporting. 2.8 Professional accountants/consultants and data centre support personnel as well as 20 trainee IFMS graduates have been deployed, on contract, by EFMP-I1 into the A G O during the last eighteen months, to facilitate implementation o f the EFMP-I1 (World Bank) and FAP (DFID) programmes. In addition extensive professional and IFMS/Information Technology (IT) related training has been provided through EFMP-I1 and the World Bank’s Local Government Development Programme (LGDP) across the CentraKocal Government accounting cadre. As a result significant improvements in accounting policies, procedures as well as professional accounting skills and I T related capacity has developed at both the A G O and the MDAs. 2.9 A study’ on the re-structuring of the AGO i s currently being finalised, this draft study report makes a number o f recommendations and these are summarised in Table 4 below. Report on the Observance of Standards and Codes (ROSC) Update March 2003 - IMF Country Report N o 03/85. ImplementationReport on Action Plans to Strengthen Capacity o f HIPCs to track Poverty Reducing Expenditure, March 2003. Ministry o f Finance, Planning and Economic Development FAP /01/02 - OrganisationalReview o f the Directorate of Accounts Draft Final Report - October 2003 - 16- Table 4. Summary o f draft PwC recommendations for a new Accountant General’s Office (AGO) 9. Professional including graduate entry and in-house professional training. I High 10. Implement further upgrading o f accountant pay scales I High 2.10 Based on previous experience it i s anticipated that the proposed restructuring w i l l take considerable time to progress through the necessary approvals by MoFPED, MOPS and the Public Accounts Committee (PAC). It i s clear however, that if the benefits o f the large investments for the PFAA, training and implementation o f the IFMS are to be realised, then early finalisation, approval and implementation o f the restructuring proposals needs to be prioritised. This will also serve to ensure sustainability and to maximise the opportunity for skills transfer while the EFMP-II/FAP consultants are present. A similar review o f staffing requirements needs to be implemented for the accounting units at MDAs whose operations will progressively be affected by the IFMS and the new requirements o f the PFAA. Systems for flows o f funds, commitment and expenditure control 2.1 1 Each MDA has recurrent, development and revenue bank accounts and a large number o f special accounts primarily related to projects. Within the constraints o f the budget and available cash MoFPED releases cash to MDAs & LGs, based on submitted action plans, against which they may make commitments and payments. Special accounts arise from the practice o f Development Partners maintaining parallel project accounting structures and also as a result o f AOs opening operational accounts in commercial banks to facilitate project related operations. These latter practices reduce transaction costs for the B o U and also enables MDAs to rollover unspent development financing from one year to the next. This practice, if not properly managed, may result in unrecognised additional funding outside the overall budget envelope in the following year. Development Partners may also choose to transfer funds directly to executing agencies at central and local level, although this i s being discouraged. 2.12 The MoFPED (Treasury Inspectorate Department) has implemented a manual CCS for MDAs covering non-personnel recurrent and non-project development expenditure. Personnel expenditure i s controlled through the payroll system and non-budget project financed expenditure i s subject to control by individual AOs, PIUs or Development Partners. In addition a number o f MDAs are gradually transforming to policy, planning and regulatory/enabling organisations with substantial expenditure being decentralised, devolved, deconcentrated, privatised or contracted to LG, Agencies and contractors through the use of conditional grant mechanisms. These ‘through the budget transfers’ are also subject to the commitment control regime. 2.13 MDAs are required to submit quarterly action plans and monthly commitment monitoring reports, as a basis for MoFPED quarterly expenditure approvals and monthly cash releases. Releases in the form o f warrants are issued by the AccGen to MDA & LG bank accounts at the B o U or direct to operational - 1.1 - project accounts at commercial banks. Commitments are not permitted until available cash cover exists in MDA bank accounts. Failure to make CCS returns leads to delay or cancellation o f releases by MoFPED. Capacity within line ministries to monitor and approve action plans for release o f conditional transfers to LGs i s weak. 2.14 The effect o f the system has been to successfully facilitate aggregate commitment and cash control and to facilitate the control and reduction o f arrears to Government suppliers. However other effects include delays in procurement due to non-availability o f cash, idle balances in MDA accounts and significant operational inefficiencies. Additionally, depending on the aggregate Government cash position, MDAs report that monthly cash releases may fall short o f quarterly approvals and that non-PAF related expenditure may be subject to severe cuts compared to PAF expenditure, which i s protected under various aid arrangements. MDAs also report that the system has a tendency to increase the incentives to generate arrears, particularly in relation to non-controllable expenditure items such as utilities and to undermine both P A F and non-PAF activities, which are often mutually interdependent. Systems for accounting, financial reporting and internal control 2.15 Existing basic transaction, processing internal control and accounting systems are either manual (Receipting, Payment Vouchers, Cash Books, Vote Control Registers, Reconciliation Processes) or stand alone partially computerised systems. Non-tax revenue & Uganda Revenue Authority (URA) tax i s transferred from MDA/URA collection accounts monthly to the Consolidated Fund. The AudGen’s latest report for 2001/02 cite numerous cases o f fraud, waste and poor documentation in relation to revenue collection, recurrent and development expenditure/revenue. However the AccGen i s o f the view that the trend i s significantly downward and that the materiality o f such leakages i s decreasing. Key ministries (Education, Health, Agriculture & Works) also claim that the basic framework o f accounting (including improved record keeping, better maintenance and reconciliation o f ledgers, more timely and accurate production o f monthly and annual accounts and regular bank reconciliation) i s operating more efficiently and that at as a result their accounts are produced with greater levels o f accuracy, timeliness and reconciliation. 2.16 The suggested improvements are attributed to a number o f factors including, strict implementation o f the CCS system, which requires submission o f expenditurehon- tax revenue reports before release o f further funds, closer monitoring o f contingent liabilities, increasing levels o f computerisation, data conversion preparations for implementation o f IFMS and improved skills on the part of accounting personnel as a result o f the EFMP-II/FAP training programmes. However a review o f the status o f CCS and monthly/quarterly reporting suggests that many gaps continue to exist in the regularity and quality o f accounting and financial reporting. Although clearly some improvement has occurred internal control and financial reporting systems remain weak in respect o f supporting documentation, completeness, accuracy, timeliness o f reporting and reconciliation. 2.17 Public debt and Aid: Transaction processing, accounting and debt reporting are undertaken centrally by the AccGen in cooperation with the ALD and the BoU. The DMFAS (Debt Management) system i s installed in the AccGen and B o U and the AccGen’s system has recently been upgraded with the assistance o f United Nations Conference on Trade and Development - staff have been trained, procedures developed, reports and manuals designed. Data has been captured from the B o U system and data validation and cleaning exercise i s ongoing, this includes review o f domestic debt obligations and contingent liabilities. Monthly debt reporting i s now available from the system. A coordination committee involving stakeholders has been established. Capture o f project related foreign aid transactions, although more comprehensive due to increasing use o f direct budget support and improved capture o f project data by the A i d Management System, remains incomplete. - 18- 2.18 Payroll: Considerable doubts remain, both at the AGO and in MDAs, over the integrity o f the payroll system - amplified by well publicised cases o f 1000’s o f ghost workers. A recent consultancy report6 undertaken by Crown Agents identified multiple risks at each stage o f the payroWpensions and Human Resource (HR) processing system including invalid or unauthorised payments, delays in making payments, errors in payments, incomplete data and unauthorised access. Studies for a new Integrated Personnel and Payroll System (IPPS) and Human Resource Management (HRM) system have been undertaken but currently funding for implementation has not been secured. UCS provides information system support for payrolUpensions, general ledger and cheque production using obsolete application software that i s difficult to maintain and upgrade. 2.19 Managing and consolidating the current manual monthly and quarterly financial reporting systems appears difficult, with concerns being expressed about the integrity, timeliness and therefore usefulness for budget reporting and decision making. Only at the year end i s significant effort i s made by MDAs to generate accounting data that can be consolidated for purposes o f producing annual financial statements. MoFPED budget performance reports have to rely on a number o f multiple data sources to enable preparation. The GoU has recognised for some time that current systems do not provide a sound basis for accounting and financial reporting and as a consequence G o U has been engaged on implementing a major reform programme through the EFMP-I1 and FAP projects. An important element of this i s implementation o f the IFMS which aims to provide the framework to address many o f the systems weaknesses identified earlier. Bases for accounting and financial reporting 2.20 The IFMS implementation and the new PFAA requires the AccGen to specify the basis o f accounting and classification for all Central Government MDAs, LG or other General Government reporting units. Although yet to be explicitly stated in Treasury Accounting Instructions, the basis o f accounting adopted for the 2002/03 financial statements i s primarily cash modified by the inclusion o f some receivabledpayables. Financial statements for the year ended 30 June 2003 for all MDAs and the Consolidated Fund have been prepared in compliance with t h i s approach. In addition, accounting policies based on the International Public Sector Accounting Standards (IPSAS), Financial Reporting under the Cash Basis ofAccounting7, are defined in the form o f explanatory notes to the accounts. A new multi- dimensional IMF GFS based Chart o f Accounts (COA) has been formulated for financial year 2003/04 and takes the following form: Review o f Business Processes o f the Payroll and Pensions System o f Central Government o f Uganda December 2003 - Crown Agents ’This IPSAS was promulgated in January 2003 by the Public Sector Committee o f the Intemational Federation o f Accountants (IFAC). - 19- Table 5. New Chart of Accounts MTEF Objective/Output/Activity 6 Account Class, Item, Sub Item, Sub Sub Item, Sub Sub Sub Item 6 Spares Spare Segments 6 Total 38 2.21 The spare segments provide flexibility for future requirements. The budget for 2004/05 i s being prepared using this new COA. COFOG functional classification i s being defined by use o f the IFMS reporting capability. The C O A provides a framework for improved budget management, progressive adoption o f elements o f accrual accounting including the eventual recognition o f non-financial assets & liabilities, depreciation etc. A recent IMF study' suggested some classification changes to further enhance the consistency between the C O A and the GFS. The final study report confirms a relatively close fit between the accounts and the GFS. Implementation o f this COA will allow multiple different forms o f budget and accounts reporting and expenditurehevenue tracking at all levels o f Government, resulting in improved information for decision making, improved information on the use o f resources and more transparent financial reporting. 2.22 A major challenge in utilising this framework i s the availability o f necessary skills, necessary data and the integrity o f the accounting systems. Considerable effort will need to be made to train personnel at all levels to understand the potential o f the system, in conjunction with the IFMS, to support monitoring, decision making and reporting and to utilise the capabilities o f the system. The current transitional strategy for implementing accruals and the new classification system would benefit from clearer identification o f the responsibilities, steps and timeframes involved. New IFMS for accounting & financial reporting 2.23 A team o f consultants supported the AccGen to undertake a Financial Management Study finalising a requirements specification for the IFMS in March 2002. The procurement and evaluation process was completed in February 2003 with the award o f a contract to Hewlett Packard (HP) for the provision o f a turnkey solution including hardware, application software (ORACLE Financials Treasury Solution), a Wide Area Network (WAN) and supporting trainingkhange management. Implementation o f the system began in March 2003 and following mapping, user acceptance and production testing pilot operations commenced in February 2004. The implementation process has included a sensitisation and change management programme, a data conversion exercise, interface development for other systems (Payroll, Tax & Debt), extensive discussion o f internal controls, accounting procedures, financial reporting, securities and roles and responsibilities. 2.24 The new IFMS system will initially operate on a pilot basis in the MoFPED, five sector ministries and four LGs but w i l l also facilitate capture o f transactions and balances from other non-pilot MDAs and LGs through the use o f journals, consolidated year end financial statements will therefore be generated * IMF, Report on GFS Mission July 2003 - 20 - from the IFMS. The IFMS i s based on the core (Budget Management, Purchase Order, Accounts Payable, Accounts Receivable, Cash Management, General Ledger, Financial Reporting) modules o f ORACLE Financials, and i s fundamentally an accrual based package. It therefore provides as a standard feature for the capture o f revenuetexpenditure transactions and where available balances on an accrual basis (Accounts Payable, Accounts Receivables, Financial Assets and Liabilities). However € € O €/' RACE L 9 has provided a facility to allow the generation o f cash based year end financial statements to meet the cash based requirement. The system also provides for: (i) Capture and consolidation o f MDA budgets; (ii) Release o f budget and warrants to MDAs; (iii) Commitment control and reporting; (iv) In-year cash flow management; (v) Interfacing capacity for capture o f Payroll, Public Debt, Cheque and URA Tax Revenue Data; and (vi) Extensive reporting. 2.25 During early system' mapping it has emerged that the budget formulation and cash flow forecasting modules did not fully meet the requirements o f the original specification and that significant customisation i s required. Following intensive discussions, H P has agreed to facilitate this customisation, but these functions will not become operational until the commencement o f the 2005106 budget cycle in October 2004. 2.26 The following IFMS schedule i s planned to r o l l out the system in stages: Table 6. Planned schedule for the rollout of the I F M S Stage Entities Dates Funding 1 MoFPED 5 Sector Ministries & 4 Local Commenced operation EFMP-I1 Governments February 2004 2 12 Remaining - Sector Ministries & 6 Districts 0 l/07/04 -30/06/05 EFMP-I1 3 37 Districts, 13 Municipalities, 28 Agencies & 01/07/05 -30/06/07 Unfunded 26 Embassies 4 Fixed Assets Module - All Entities 01/07/05 -30/06/07 Unfunded 2.27 To date the IFMS implementation has been driven by the AccGen, consultants and selected ministry Accounting Units, however ifthe above objectives are to be achieved, then all actors operating within the Govemment's budget and P F M system must engage with the system, utilising the IFMS as the central repository o f all Govemment financial transactions. T h i s does not preclude development o f task specific financial information and analysis systems, but it does require such systems to interface with the IFMS. 2.28 In this context the most important actors are the MoFPED, (Budget, Aid Coordination & Macro- economic Policy Departments) and the planning and budget units in Ministries. Ministry of Local Govemment (MoLG) has an important role in facilitating the LG implementation. A specialist Revenue Module for LGs i s also being piloted by Kampala City Council. This implementation has been constrained by: 0 Limited counterpart staff availability and capacity; 0 Reliance on the AccGens Department to provide transitionaVproject management capacity; and 0 Weak participation from MoLG. HP and subcontractors ORACLE Consulting are contracted to implement the system. -21 - 2.29 The principle fiduciary risk issues fiom an accounting and fmancial reporting perspective relate to sustainability, functionality and extension o f the system", and include: e Ensuring the availability o f a sustainable staff capacity and necessary maintenance budgets; e Progressively extending and deepening the functionality and utilisation o f the system; e Completion o f the rollout to ensure the system provides the necessary coverage for the whole o f Government; and e Securing the additional funding necessary to complete implementation. Recommendations 2.30 Uganda has over the last three years made substantial progress in designing and implementing new legal, organisational and systems framework for accounting and fmancial reporting. The direction o f the existing reforms and the support provided appears to be appropriate and reasonably well coordinated but implementation i s still at an early stage and much remains therefore to be done that will involve further long t e r m support. The recommendations outlined here aim to build on and deepen the ongoing reform process addressing any gaps where they have been identified: Short-term (1-2 years) AGO, MoFPED and MOPS coordinate the review, approval and early implementation o f the results o f the organisational review o f the AGO. Undertake organisational review o f Accounting & Internal Audit Units in MDAs to reflect impact o f new legislation, IFMS, transformation o f ministries to enabling /regulatory entities and new internal audit arrangements including recent proposals from the Internal Audit Forum held in Kenya. Undertake a full domestic debt validation exercise aimed at clearly identifying and registering all domestic debt obligations as well as identifying any contingent liabilities not currently recognised. Review and implement short term measures (internal audit) to improve integrity o f existing payroll system. Secure funding for procurement and implementation o f new IPPS. Finalise and issue a new set o f Treasury Accounting Instructions that are appropriate for the new IFMS and that formalise the operation o f the CCS and Cash Management System. Establish and commence implementation o f a strategy, based on actual account/performance data as opposed to plans, budgets or releases, for publication/dissemination o f in-year financial information suitable for informing all stakeholders involved in planning and monitoring Government operations. Rationalise and consolidate the number o f Government bank accounts with the progressive move towards a Treasury Single Account Model as the IFMS and Electronic Funds Transfer (EFT) Systems are implementedand rolled out. lo Should the IFMS fail, there i s no current backup at the moment other than the continued use o f existing systems in parallel. The implementationmethodology requires that transfer to the new system occurs in stages. Full transfer to the new system will not occur until the new system has become fully operational, at which time parallel arrangements will be discontinued. Backup/disaster recovery arrangements exist in the event o f partiakatastrophic hardwarehetwork failure. - 22 - Within the context o f a hard budget constraint, improve Central Government’s approach to cash flow forecasting and commitment control to remove planning and procurement distortions at MDA level. Tighten monitoring o f submission o f accounting information (monthly accounts) from MDAs both in manual and IFMS context. Relate submission to issue o f release as currently provided in ccs. Provide further training for planning, budgeting, accounting and management staff on the COA and the classification system. Articulate strategy for adoption o f accrual accounting including timeframes. Implement a further programme o f awareness training in the MoFPED and with MDA planning and Budget Units as preparation for the IFMS Budget Module implementation. Secure the necessary minimum conditions for implementation o f the Local Government Revenue Module and improving M o L G engagement including making available counterpart staff, recruitment o f a project manager and necessary technical and change management support. Implement measures to improve integrity o f existing pension system taking into consideration the recommendations in the report o f the Crown Agents. Medium-term (3-5 years) Implement capacity building for Kampala City Council Revenue Module & rollout to LG. Implement and rollout the proposed IPPS across Government. Implement and rollout additional IFMS modules (Fixed Assets, Tender Management, Inventory and Procurement). Finalise rollout o f core IFMS including Budget Module. Assess the impact o f accrual information, such as depreciation, on the budget statements submitted for voting, funding strategy and monitoring o f financial performance, clarify and agree implications with Parliament. Implement transition to accrual accounting. Long-term (6-10 years) Gradually comply with IPSAS including the migration to an accrual standard. B. INFORMATION TECHNOLOGY AND RECORDS MANAGEMENT Review and assessment o f the current system Information technology 2.3 1 The national Information and Communication Technology Policy, 2003 has now been approved by the Cabinet. The policy provides for the following division o f responsibilities: Broadcasting Technology under the Office o f the President; I T under MoFPED; and Postal & Communication Technologies under Ministry o f Works, Housing & Communication. - 23 - 2.32 The M o F P E D I T mandate i s partially being undertaken through the UCS. In the past UCS was a standalone department o f the MoFPED and provided limited support to the ministry for management o f specific systems. Recently U C S has been incorporated in the AGO as a separate department and will form part o f the re-structuring exercise referred to in paragraph 2.9. In addition G o U i s establishing a new agency, referred t o as the National Information Technology Agency (NITA), that will: 0 Co-ordinate, monitor and provide guidance on I T related Government activities including master plans, IT policies, strategies, standards and management; 0 Guide and support I T acquisition, implementation and delivery; and Provide I T support for mission critical systems. 2.33 This implies a decentralisation o f application management to MDAs & LGs, which reflects the reality o f distributed technology and information systems. 2.34 The U C S transformation process started in 2002 and i s expected t o take approximately three years to complete, including approval o f legislation, T o date the following activities have been undertaken: 0 Qualified and experienced Executive Director recruited; 0 Drafting o f a Bill for NITA; Recruitment o f I T staff with I T skills necessary to support the I F M S Data Centre; 0 Extensive involvement in procurement and implementation o f the IFMS; and 0 Involvement in the design and implementation o f the EFT project and support t o the IPPS project. 2.35 A corporate planning exercise i s also underway to define the mission objectives and overall organisational and resource framework for NITA. 2.36 In parallel to these developments much o f the Government continues to operate a set o f small scale stand alone I T based systems using generic software such as Word, Excel or Access. Exceptions include the tailor made U C S payroll and accounting systems, the B o U banking system and the URA Tax Revenue which are based o n a GL package (SCALA) and task specific debtor systems designed for tax collection. EFMP-I1has also been funding an information sharing network for MoFPED, which i s n o w operational and LGDP i s investing in a data collection monitoring and evaluation system. I T skill levels are sufficient for personal computing, small scale systems and basic networking but once higher order skills are required the supply o f personnel falls rapidly. Large scale investment in I T i s taking place in the private sector, which leads to strong competition for the high level skills within the local market. Establishment o f NITA i s critical t o the success o f the I F M S and other I T based application development and should be prioritised. 2.37 Apart from the ongoing U C S transformation the biggest driver o f change at the moment i s the I F M S supported by the EFMP-11. This large scale mission critical system provides an opportunity for MoFPED, U C S and other stakeholders to experience the full cycle o f project activities related to the acquisition and implementation o f a large scale management information system. The implementation has to date provided extensive exposure to G o U I T staff to systems planning, analysis, and procurement, implementation, and IT/Communications technology. These processes have been managed through a project management team including major operational stakeholders (AccGen, Budget, AudGen, UCS) and - 24 - chaired by the AccGen. A Steering Committee has met periodically to provide overall policy guidance. The AccGen’s consultant team has provided extensive support with one team member being appointed project manager, existing UCS staff members have participated and been trained in the process. 2.38 The new three tier architecture includes a production data centre housing development, application cluster and database cluster servers connected via switches to support service servers and disk array storage. This i s then connected via a firewall and switcheshouters to a MoFPED Local Area Network (LAN) and a WAN to pilot site server based LAN and user workstations. A disaster recovery site i s currently being implemented to provide necessary protection. The architecture i s currently operational in MoFPED and pilot sites. 2.39 Specific policies instrumental in the system implementation process have been: 0 Strong ownership by a MoFPED executive (AccGen) and support from senior management (Deputy Secretary to the Treasury); 0 Contracting H P on a turn key basis to avoid complexity o f dealing with more than one supplier; 0 Emphasis on the application, capacity building and change management aspects o f the implementation and a requirement that the contractor demonstrate the independent capacity o f the client to manage the system. (with appropriate maintenance contracts); 0 Embedding the project in the MoFPED as opposed to the creation o f a separate project implementation unit; 0 Recruitment o f a strong team o f professional accountants t o facilitate management o f the process supported by a few key international consultants; 0 Recruitment o f supplementary graduate level personnel to facilitate early implementation and to provide for sustainable application management following the departure o f the consultant team; 0 Phased implementation involving pilot testing before rollout; and 0 Extensive engagement and training o f G o U personnel at all stages o f the process. 2.40 The I F M S pilot test commenced in February 2004 following user acceptance, infrastructure deployment, production set-up including capture o f reconciled balances as at 3 1st December 2003 and training. Parallel running and application tuning will initially involve capture o f backlog data and then capture o f live data as the system becomes fully operational. Full control functionality will develop over the pilot period and post operational acceptance. 2.4 1 Implementation checklists have been developed, accountability and timeframes assigned and are being monitored on a daily basis to facilitate going live. Manpower resources (AccGen’s staff, I F M S accountants, Financial Management Specialist consultants) are allocated to Central Application Support Group at AGO & Help Desk, M o F P E D sites, MDA & LG sites, AudGen and Data Centre. 2.42 Application & technical training and technical set-up are all programmed to be complete by go live date for pilot sites. A rollout strategy has also been developed that will overlap t h i s testing pilot testing phase and i s shown below: - 25 - Table 7. Proposed rollout plan 2.43 This rollout presents a number o f challenges particularly in connection with completion o f testing before signature of the rollout contract. Caveats will need to be agreed in the contract to reflect the possibility o f further work being required arising from the operational testing stage. As a result o f the implementation considerable competence i s being developed in large scale systems implementation. It i s important that this competence i s transferred into a sustainable G o U organisational infrastructure that may be utilised to maintain and further develop the system and also utilised t o support other mission critical systems such as the IPPS. The earlier recommendations regarding the transformation o f the U C S and the recruitment o f I F M S staff and specialist IT personnel are relevant in this context. 2.44 Overall the direction o f the I T Policy and institutional framework for I T support appears appropriate. What i s important n o w i s to ensure: 0 Early implementation o f the transformation o f U C S and development and implementation o f the corporate plan and effective resourcing o f NITA; and 0 Acceptance o f budgetary provisions within MDAs to source I T support activities from NITA. The immediate priority should be to provide operational funding within the AccGen’s budget for support o f the IFMS. Records management 2.45 The legal framework for records management i s contained in the National Records & Archives Act, 200 1. The framework provides for the transformation o f the Records Management Department o f the MOPS into a Records Management & Information Technology Agency. The legislation also provides for regulations for elaboration o f policies, definition o f records management activities, instructions, monitoring and compliance. It i s understood that these polices and procedures have been developed in draft form and that some training has been provided to records management staff with the assistance o f DFID and some basic computer equipment provided by the Danish International Development Agency (DANIDA). However despite the existence o f the A c t and the support provided it i s apparent that G o U has been unable to fund the implementation o f the legislation or t o find a Development Partner to further assist the implementation process. 2.46 As a result records management remains severely under resourced with largely inadequate temporary arrangements for the central storage o f record and generally limited facilities available within MDAs. The primary form o f recording keeping i s currently manual with similar information often duplicated in several places across Government. Records management staff have been appointed to most MDAs and LGs and some training provided however, in general staff, lack the training, storage and equipment to deliver anything other than a l o w level o f service to their respective institutions. The perception among the professional staff i s that records management i s not seen as being a priority except when a specific issue needs to be addressed and the relevant records are missing. - 26 - 2.47 Clearly the current situation contains a number o f fiduciary risks in t e r m s o f potential loss o f important documentation through inadequate storage, natural causes (fire, water penetration etc), theft, negligent records management or a lack o f policy and procedural advice on h o w to handle documentation. In addition potential efficiency losses exist due to the manual nature o f the system, duplication o f records and the difficulty faced in searching for, tracking or relating information contained in documentation. The AudGen refers frequently to the lack o f supporting documentation in a large number o f his audit queries. Inadequate document trails also create an environment conducive to,fraud and corruption. 2.48 With the introduction o f modern I T technology the potential for improved records management exists but also increased risk o f data loss as documentary information i s transferred to electronic media and stored in computer databases. There i s a need for U C S to coordinate the I T strategies between the major systems initiatives including the IFMS, IPPS and Records Management. Recommendations 2.49 Implementation o f the policy framework for I T since the CFAA, 2001 has progressed as far as institutional responsibility i s concerned but strategy formulation i s s t i l l in the early stage. However progress towards creation o f the necessary I T institutional framework i s proceeding at a slower pace. Given the investments being made in the I F M S through EFMP-I1 and the urgent needs in respect o f IPPS and Records Management there i s a need to accelerate the reform process to ensure coordination, necessary transfer o f knowledge and sustainability o f the new systems. Short-term (1-2 years) Secure funding for architecture needed to r o l l out I F M S and future IPPS. Utilise the system implementation and project management skills developed during the I F M S implementation to support the IPPS and related implementation activities. Accelerate transformation o f the U C S and the establishment o f NITA and development and resourcing o f a corporate plan. Secure funding for implementation o f the Records Management Agency and development o f Records Management Function. Review HR policy in relation to I T staff and provide for the recruitmenthetention o f the I F M S Data Centre personnel in the new Agency and recruitment o f necessary (systems admin staff) I T personnel in MDAs. Implement contractual arrangements between the AccGen, MOFPED and NITA for maintenance and sustainability o f the I T infrastructure including the Data Centre and WAN. Provide for ongoing software, maintenance and development costs for sustainability o f the system within the AccGen’s budget. Medium-term (3-5 years) Implement National Records & Archives A c t utilising new I T based systems. Develop NITA capacity for coordination o f I T policy across Government and support mission critical systems. - 27 - Long-term (6-10 years) 0 Consider options for outsourcing I T infrastructure to service providers who can spread the cost o f hardware, communications and HR investments across multiple clients thus lowering both investment and operational costs. c. RESOURCE MANAGEMENT ( H W ) HUMAN Review and assessment of the current system Legislative and regulatory environment 2.50 The most important legislative framework for HRM i s the Public Service Act, Cap 28811, the Uganda Government Standing Orders, 1990 and Administrative Instructions issued by the MoPS from time to time. Recently, Parliament has been presented with a new draft Public Service Act, which i s consistent with changes put forward by the Constitutional Review Commission (CRC) and a number o f other proposed changes in the field o f H Rh4 including the devolvement o f HRM to LG. Several new regulations are also to be introduced in relation to retrenchment. Standing Orders will be revised accordingly when the new A c t has been enacted. 2.5 1 Principal actors in all HR related issues in the Government’s administration are the MoPS and the Public Service Commission (PSC). In this respect the MoFPED and financial management functions at line ministries are regulated by the same decision-making bodies as far as HRM i s concerned, as all other MDAs. MOPS’S responsibilities include decisions about new structures including number o f posts and their grade, title and salary levels. The PSC decides about individual cases o f new posts or the intended manning o f existing posts from a perspective o f “fairness” and “equity”. Decisions are taken following the submission o f proposals from the concerned entity. Staffing levels 2.52 Overall the staffing situation at the AGO and the OAG has improved since the last CFAA in 2001 (refer to the tables below). The number o f vacancies i s lower and there are more qualified staff at both offices. However, the large number o f unqualified senior staff, especially at the OAG, continues to constitute a fiduciary risk and the lack o f independence o f the AudGen with respect to HR issues increases the risk further (refer to Section 4.1 in this regard). ’’In this report all Acts promulgated prior to 2000 will be referenced by their relevant Chapter o f the Laws o f Uganda Revised Edition, 2000. The relevant Volumes are shown in the Bibliography l i s t in Appendix 2. - 28 - Table 8. Accountants and Internal Auditors at AGO - April 2004 Title Actual staff Vacancies Accountant General 1 0 Commissioner 3 0 Assistant Commissioner 2 2 Principal Accountant'Internal Auditor 7 2 Senior Accountant/IntemalAuditor 23 1 AccountanthntemalAuditor 39 2 Senior Accounts Assistant 7 7 Senior Inspector 0 6 Accounts Assistant 3 0 Table 9. Staff at the OAG (as per Staff List) - April 2004 2.53 There are more than 600 accounting staff in Central Government. The increased number o f qualified staff (and following from this, less vacancies) i s due to a number o f recent initiatives and macro economic conditions. Salaries have increased slightly for a group o f accountants on the upper scale o f the salary code. There i s no shortage o f supply o f trained accountants on the labour market (as reflected by the number o f applicants to advertised vacancies). The salary differential between the private market and the public sector i s lower than three years ago. Private sector salaries are now assessed as twice as high compared to three to four times as high three years ago. Individuals also take into account employment security and public sector pension schemes as well as salary levels. The whole area o f public accounting and auditing has benefited in status from new legislation and training opportunities. Only five individuals left the Central Government accounting cadre in 2003. Improvements are also to a large extent linked to on-going reform work in the areas o f public accounting and auditing, especially through the World Bank EFMP-I1 credit. Training 2.54 Reform initiatives are also the main impetus behind organised training for the majority o f Central Government accountants and auditors. In the past, Government's own resources allocated to training were very limited. Through the EFMP-I1 a large number o f accounting and auditing staff at both Central and Local Government level have been trained. A new Training Plan has been elaborated and approved. -29- Table 10. Numbers o f Government Accountants and Auditors who sat examinations in Dec. 2003 2.55 An individual performance review process has been designed and partly introduced, although the results are not yet used to identify individual training needs or decide upon promotions. An individual's performance review i s only one o f several factors intended to be recognised in promotion decisions. Reforms 2.56 The Pay Reform Strategy for the public service was adopted in 2001. Ushsl5 billion was budgeted for the fiscal year 2003/04 for salary increases aimed primarily at staff with technical and professional skills who are difficult to recruit and retain. As a result, the expectation was that salaries for example accountants, auditors and economists would rise by more than 40%. In practice however, the increase for accountants and auditors has only been about 10 %, and only for a small segment o f these staff. 2.57 This actual change in relation to the intended, i s linked to the whole structure o f HRM within Government. Intentions to increase salaries for individuals or key groups by 40 % i s not compatible with the fact that civil servants are paid in accordance with a fixed salary scale code and where every job title i s linked to a specific level. Individual salary enhancements for desk officers or middle management that could reach the levels o f high ranking managers, would severely distort the balance o f a system where salaries in general are low. 2.58 There i s a clear division o f responsibilities between the MoPS and other MDAs in relation to HRM decisions. MDAs can make decisions on training and training schemes, while the MoPS and the PSC decide, on the basis o f recommendations received from the MDA, on all individual cases o f disciplinary action, staffinghecruitment, salaries and organisation. In practice however, it i s understood that the ability o f the MDAs to influence decisions i s greater than the formal regulations would suggest, as the MoPS and PSC seldom diverge from proposals put forward by the concerned entity. However, the delay in appointing Assistant Directors in the O A G seems to contradict this position (refer to par 3.25). Recommendations ' 2.59 The HR situation relating to finance staff has improved substantially since the 2001 CFAA, in line with improvements in technical accounting systems. Discussions on how HRM responsibilities can be gradually devolved would however enhance efficiency and in the medium t e r m should be supported by further restructuring and manpower analysis. Short-term (1-2 years) 0 Implementthe proposed new organisation structure at the AGO. l2Sat exams o f the Institute o f Certified Public Accountants o f Uganda (ICPAU). l3Sat exams o f the UK based Association o f Chartered and Certified Accountants (ACCA). - 30 - 0 Analyses the restructuring needs and manpower planning requirements at sector ministries and agencies. 0 Continue training in accordance with the new Training Plan. 0 Institute the changes required to provide the AudGen with the necessary autonomy over HR issues so that he i s able to fulfil his oversight role. Medium-term (3-5 years) 0 Implement restructuring proposals for accounting staff at sector ministries 0 Establish individual performance reviews as the normal basis for training and promotion. 0 Carry out a study to review the feasibility o f devolving the control o f financial staff to sector ministries. Long-term (6-10 years) 0 Gradually move funding and policy responsibility for training at the AGO from Development Partner funded initiatives to Government owned programmes. -31 - 3. PUBLIC SECTOR AUDITING A. AUDIT EXTERNAL Review and assessment o f the current system Legislation and regulatory environment 3.1 Article 163 of the 1995 Constitution sets out provisions for the mandate, scope o f work, appointment and removal o f the AudGen. The AudGen i s appointed by the President with the approval o f Parliament and may be removed from office by the President for inability to perform, misbehaviour, misconduct or incompetence. The Constitution provides that an independent auditor appointed by Parliament audits the financial statements o f the OAG. 3.2 The PFAA, 2003, Sections 33-37 and the Local Government Act, Cap 243 contain provisions for the external audit o f Government Accounts. Under the Public Enterprise Reform and Divestiture Act, Cap 98 the AudGen i s responsible for auditing the accounts o f Class Iand I1 PES (refer to Section 6.1). The PFAA expands the scope o f the AudGen’s work to include any public body that has received more than half i t s income from public funds. The new Public Finance and Accountability (Classified Expenditure) Regulations came into force on 1 July 2003. These regulations require the OAG to examine and inquire into all classified expenditure and for the O A G to have full access to all relevant records. These regulations will be applied for the first time to the audit o f the 2003/04 accounts. 3.3 A Cabinet Memorandum was prepared in 1999 to enable the preparation o f legislation to enhance the independence o f the OAG particularly in terms o f budgetary independence, independence in HR matters, the right of access to information for the purpose o f audits and the indemnity o f O A G staff. The MoFPED incorporated the recommendations into an Audit Bill. The AudGen provided comments expressing his concerns about the adequacy o f the draft legislation. Due to perceived Constitutional contradictions concerning for example the release o f HRM authority to the AudGen, it was agreed that new legislation would await the outcome o f the CRC. However, it i s understood that Cabinet recommendations to the CRC do not include these provisions. 3.4 The O A G i s a member o f the International Organisation o f Supreme Audit Institutions (INTOSAI) and the African Organisation o f Supreme Audit Institutions (AFROSAI). As a member o f INTOSAI, it i s expected to apply auditing standards promulgated by that body. 3.5 INTOSAI has also established a code o f ethics intended to serve as a foundation for the operations o f all Supreme Audit Institutions (SAIs). This code i s based on five key principles: (i) independence, objectivity and impartiality; (ii) trust, confidence and credibility; (iii)integrity; (iv) political neutrality; and (v) no conflict o f interest. Chapter I1 section 5 o f the “Lima Declaration o f Guidelines on Auditing Precepts” states that, “Supreme Audit Institutions can accomplish their tasks objectively and effectively only if they are independent o f the audited entity and are protected against outside influence.” - 32 - Functions and responsibilities 3.6 Under the Constitution, the PFAA and other enabling legislation, the AudGen has the statutory responsibility to report to Parliament on the propriety and regularity o f the way in which Governmentltaxpayers monies have been spent. In particular the Constitution requires the AudGen to “audit and report on the public accounts o f Uganda and all public offices .. and any public corporation or other bodies or organisations established by an Act o f Parliament”. 3.7 In accordance with the Constitution, the AudGen i s required to conduct both financial and VFM audits. Reports on Central and Local Government should be available for submission to Parliament within 9 months o f year-end and are submitted annually. In accordance with the PFAA, state enterprises and statutory authorities are required to submit audited financial statements to their responsible Minister within four months o f their year-end. I t i s then the responsibility o f the responsible Minister to present within 42 days, the audited accounts together with any observations to Parliament. W h i l s t reports on Central and Local Government are submitted directly by the AudGen, the auditor’s report on the expenditure appropriated by Parliament to LG, together with the reports o f the Local Government Public Accounts Committees (LGPAC) are submitted b y the Minister responsible for LG in accordance with the LGA. All audit reports are shared with the Inspectorate o f Government (IG). 3.8 Under Section 33 o f the PFAA, the AudGen i s also required to satisfy himself that the accounts conform to the requirements o f the Act and regulations that govern them and for the reporting o f fraud and corruption identified during audits to the appropriate authorities. Other legislation, for example Section 82 o f the LGA also requires the prior approval o f the AudGen or his representative before withdrawal o f funds from any district bank account. T h i s i s one example o f legislation that gives the O A G responsibilities, which potentially compromise i t s independence. Progress towards improved compliance 3.9 The O A G currently employs approximately 30014 audit staff and 66 administrative and support staff or 0.15% o f the Public Service. Over half o f the technical staff are employed in the 10 regional offices. As required b y the Constitution, the AudGen i s a professionally qualified accountant. Recent capacity building initiatives have resulted in the O A G now having 32 qualified accountants (including 15 who are not full members). A further 75 auditors are at various stages o f their professional exams. 3.10 A technical advisor funded under the EFMP-I1 i s working with the O A G to update audit methodologies and to implement new financial audit manuals so as to improve the quality o f the work carried out by OAG. Issues being addressed include risk analysis, random sampling and system audits such as payroll and procurement. In order to ensure sustainability, the manuals have been prepared with the active participation of OAG staff and an extensive training programme i s being developed. A payroll audit i s planned for FY2004/05 to test the procedures in the field. 3.1 1 In conjunction with an AFROSAI initiative to improve VFM audits in Africa, a VFM” study was carried out in 2002/03 on Universal Primary Education (UPE). This report was presented to the Speaker of the House in m i d 2003. There are plans to carry out 2 VFM assignments in the near future, but these plans have been disrupted by the departure o f a key member o f the VFM team. VFM manuals will be developed on the basis of practical country specific experience. l4OAG Corporate Plan. Also see Table 9 l5A second VFM study on UPE was conducted by private sector auditors. This report showed even greater losses as a different valuation methodology was used. - 33 - 3.12 The introduction o f the sophisticated ORACLE based I F M S poses significant challenges for the OAG as staff need to acquire the specialised skills required for conducting audits in such complex I T environments. I T systems are vulnerable to technical failure, unauthorised access and computer fraud and therefore the OAG will need to review the integrity, security and availability o f the I F M S system. In response to this challenge, the OAG with support from a specialist advisor funded under the EFMP-I1has secured an online audit facility to the I F M S allowing OAG to access all G o U transactions and activate an audit trail. OAG has also participated in user acceptance testing and recommended the development o f a number o f user controls. 3.13 A capacity building action plan has also been developed and an active and an enthusiastic specialist I T workgroup established. Technical training has been provided for all workgroup members. Audit software has been acquired and training commenced. Audit management software i s also being evaluated. 3.14 Annual reports to Parliament in respect o f Central Government have been produced within the specified 9-month period (by the 3 1 March) for the last six financial years. LG audits have been brought up to date as indicated in Table 11 below. Prior to financial year 2002/03, all audits were completed outside the statutory reporting timeframe due to the late submission o f the accounts for audit. However for 200 1/02 accounts audited during financial year 2002/03, 46% o f district and urban authority accounts were audited within the statutory period. It i s anticipated that all 2002/03 district and urban authority audits will be completed by June 2004. Table 11. Audit of Local Government Accounts (excluding sub counties) Source: OAG Corporate Plan 2003-2006 (a) I t i s assumed that the difference relates to the non-submission o f accounts for audit. 3.15 Efforts have also been made to improve information on the total number o f audits to be carried out by the Office and information o n entities to be audited by the AudGen i s n o w considered to be reasonably comprehensive. 3.16 shows the trend in the number o f accounts audited by the OAG. - 34 - Table 12. Trends in number o f Accounts to be audited by the OAG Source: OAG Corporate Plan 2003-2006 Volume-of work in for example 2001/02 refers to the number o f 2000/01 accounts to be audited. The total number o f sub-counties expected to produce accounts for audit i s 900, however for the financial year ending 2000101, only 113 sub-counties produced auditable accounts. Decentralisation increased the number o f transactions from central to local level and the introduction o f sub counties further increased the number o f transactions. These accounts have never been audited previously. The number of accounts to be audited i s projected as work i s ongoing. This figure includes State Enterprises, Statutory Authorities and Commissions. The majority o f donor funded projects and statutory corporations are outsourced to private audit firms. Private audit f i r m s are also auditing-the 2002/03 accounts for sub counties with assistake from the LGDP. It i s understood that the accounts for a number o f statutory authorities and state enterprises are not up to date and responsible Ministers need to follow up and ensure compliance with the relevant legislation. 3.18 In order to tackle the problem o f sub county audits, an Audit Strategy has been fmalised and funding secured from the World Bank. 3.19 An audit of the OAG itself, was completed in M a y 2002 for the period 1 July 1995 to 30 June 1998 by an independent auditor appointed by Parliament. The audit report made several recommendations aimed at improving the accountability and transparency o f the OAG. In response to these recommendations, the Office i s developing an Internal Financial Procedures Manual, a Code o f Conduct and i s in the process o f implementing audit management software designed to improve the scheduling o f audits and the use of resources. Constraints and challenges 3.20 The lack o f independence o f the O A G remains the most critical factor in the modemisation and development o f the Office. As noted in the report o f the INTOSAI task force on the independence o f SAIs, “in these days o f privatisation, decentralisation, public sector reforms and the fight against corruption, ensuring that SAIs have the independence, competence and resources needed to fulfil their mandates i s more important than ever.” 3.21 Unless the Cabinet has made appropriate recommendations to the CRC to improve the independence o f the O A G and facilitate the development o f appropriate audit legislation, there remain significant concerns about the accountability o f public funds, fiduciary risk remains high and the ability o f the AudGen to carry out his role as public watchdog i s severely restricted. Furthermore, his ability to play an active and effective role in the fight against corruption i s significantly diminished and the sustainability o f current support initiatives i s threatened. - 35 - 3.22 The G o U through voted expenditures by Parliament funds the OAG. Table 13 below shows the trend in OAG funding from the GoU. Despite a significant increase in workload and an increased emphasis on accountability, total funding for the OAG has not increased significantly over the last seven years in real terms. Since the reduction in cost per audit report i s not due to better utilisation o f audit resources, audit risk continues to increase. Table 13. Trends in OAG funding from the GoU Source: OAG Corporate Plan 2003-2006 (a) Figures based on draft estimates as per PER (b) Assumed not to have altered from previous year 3.23 The OAG’s budget i s approved by Parliament via the Annual Appropriation A c t but the MoFPED controls the actual releases. The 23% budget cuts imposed in 2002/03 affected all ministries including the OAG. W h i l s t the OAG i s part o f the PAF programme and thus protected from cuts in releases, the OAG s t i l l has to seek permission from MoFPED to re-allocate funds according to identified priorities. For 2002/03 performance o f outturn against budget for the OAG was wages - 67% (due to vacancies), non- wage recurrent - 100% and development - 100%. 3.24 The rapid increase in the number o f professional accountants in the OAG i s impressive but the majority are at the bottom o f the organisational structure (refer to Table 9). The key challenge will be to retain these staff once they have the requisite experience given the poor pay and terms and conditions o f service. Currently, there i s n o requirement that senior staff are qualified accountants and recent promotion results appear to have been based o n length o f service rather than appropriate qualifications. 3.25 The current organisational structure o f four distinct directorates i s outdated and neither facilitates inter directorate communication nor reflects the technical or administrative requirements o f a modern audit office. The AudGen has no powers to hire, fire or even transfer or rotate senior staff internally, thus providing them with broader experience. T h e MOPS gave permission for the introduction o f four Assistant Directors, eight Senior Principal Auditors and additional Principal Auditors to help improve the management and quality o f audit work. Advertisements for all posts were placed in 2003, Interviews for Principal Auditors were held and posts filled. The other posts were re-advertised and interviews held in March 2004. 3.26 The AudGen can recommend to the P A C that action be taken in instances where it considers that public funds have been wasted or lost. However, in the past, the lack o f seriousness o n the part o f auditees has been highlighted. The effectiveness o f Section 34 (a) o f the PFAA s t i l l has to be tested, but experience suggests that the recognition o f the importance o f the AudGen role in minimising fiduciary risk and ensuring accountability o f public funds i s not widely acknowledged. The AudGen i s planning a public education and awareness programme to sensitise relevant stakeholders including AOs o n the role of external audit and implications o f new legislation. -36- 3.27 The poor quality of audits (poor documentation o f audit files, lack o f standard audit progammes/level o f supervision) i s recognised by the AudGen and as noted above there are a number o f ongoing initiatives to address many o f these issues. However the operationalisation o f many o f these initiatives and the effectiveness of training i s limited whilst the AudGen has no ability to motivate staff through pay, promotion, incentives or discipline or fire staff contravening the internationally sanctioned principles o f a SAL Improvements in the quality o f audit work undertaken also need to be reflected in the quality o f audit report presented to Parliament. Material issues need to be clearly separated from detailed findings. 3.28 Although, contracting processes have been reviewed and standards raised, there s t i l l remains some concerns about the quality o f work carried out by private sector audit f i r m s and strict quality control measures need to be applied. There are good working relationships between the AudGen and the Inspector General of Government (IGG). However there i s s t i l l lack o f clarity o f roles and reporting mechanisms between the AudGen and the Public Procurement and Disposal o f Assets Authority (PPDA) on the issue o f value for money (vfm) /procurement audit. 3.29 Lack o f accommodation and outdated auditing techniques mean that external auditors are located in line ministries on a permanent basis for two to three years. This modus operandi has led in the past to problems o f the external auditor’s independence from the day-to-day working o f the organisation being audited. 3.30 The AudGen has set out his strategy for carrying out sub county audits, however the effective audit o f LG accounts at all levels remains a significant challenge given the state o f regional audit offices both in terms o f manpower, physical infrastructure, poor communications and inadequate facilities. However as 35% o f the national budget i s sent directly to LGs and approximately 50% o f line ministry expenditure i s spent at the local level, the materiality o f local expenditure cannot be ignored. In addition, financial management capacity and local oversight i s also limited in many districts, a risk analysis would also indicate a high-risk scenario. 3.3 1 W h i l s t the AudGen i s producing timely reports on Central Government activities, the presentation o f the associated PAC reports to Parliament i s now way behind schedule as discussed in section 5.1, thus compromising the cycle o f accountability. Recommendations 3.32 The following recommendations are designed to support the OAG’s mission to “audit and report to the public and thereby make an effective contribution to improving public accountability”. The ongoing support being provided under the EFMP-I1 appears both practical and appropriate. These recommendations do not therefore repeat planned actions, although it i s recognised that additional funding o f some o f these actions may be required, particularly in support o f training programmes being developed. However it i s noted that support to an oversight body such as the AudGen within a programme designed primarily to support an implementing body can be problematic. Short-term (1-2 years) 0 Enact appropriate legislation to ensure the independence o f the AudGen (preferably promoted by i t s own budget approved by Parliament in Minister o f Ethics and Integrity) so that O A G has: (i) accordance with the recommendations o f a professional and independentAudit Board; and (ii) the ability to manage effectively i t s own staff. - 37 - Clarify any contradictions in the legislation (Constitution and supporting legislation) on roles and responsibilities between the AudGen and PPDA on vfidprocurement audit. Establish appropriate communication strategies to ensure the best use o f limited resources. Increase funding to OAG to reflect its additional workload. Review other legislation e.g. LGA that could compromise independence. Develop short-term plans for retention o f qualified staff. Develop the Code o f Conduct and Internal Financial Procedures to improve the transparency and accountability o f the organisation. Review the format o f part one o f the AudGen Report to highlight material discrepancies. Establish telephone links between all regional offices and head office. Ensure that line ministers follow up on the audit o f all bodies under their respective ministries and report to Parliament on the reporting status o f all organisations. Medium-term (3-5 years) 0 Obtain separate physical accommodation both to accommodate physically staff currently in ministries and to provide a clear indication to line ministries o f the institutional separation between MoFPED and OAG. 0 Upgrade facilities at regional offices and establish more “sophisticated” communication (e.g. e- mail) links between head office and key regional offices. 0 Ensure that OAG has sufficient funds to enable h i m h e r to fulfil all statutory obligations and to develop procedures that would enhance future effectiveness. Long-term (6-10 years) 0 Complete the implementation o f a countrywide information/communications network. B. AUDIT INTERNAL Review and assessment o f the current situation Legislation and regulatory environment 3.33 The Internal Audit function has undergone significant development since the 2001 C F A A . Whereas at that time i t s mandate was derived from MoFPED’s Policy Statement o f June 2000, the I A D ’ s role within Government has n o w been further clarified and strengthened within the new PFAA, as well as the accompanying PFAR, 2003. The MoFPED Policy Statement o f June 2000 specified the IAD’s role as being to review, appraise, and report upon the following: 0 The soundness, adequacy and application o f internal controls; 0 The extent to which the Government’s assets and interests are accounted for and safeguarded; and 0 The sustainability and reliability o f financial and other management data developed within the ministries. 3.34 The policy statement obviously did not have the strength o f an A c t o f Parliament, and thus did not offer the protection afforded by such an Act. No guidelines had been developed at that time to assist the -38- audit department deliver on i t s mandate, and i t s independence was questionable (IAD reported to the A 0 o f the ministry or agency, as well as a Commissioner in the AGO). 3.35 The Government enacted the P F A A in 2003 giving the AccGen the necessary power to ‘ensure that the internal audit function within each Government Ministry, department, fund, agency, or other reporting unit i s appropriate to the needs o f the organisation concerned’ as w e l l as conforming to internationally recognised standards in respect o f i t s status and procedures. The recently completed study on the re-organisation o f the A G O also sets out the need to devolve the internal audit function to h4DAs. In support o f this process, a number o f key guidelines are under construction. These include: e Government Internal Auditing Guidelines; and e Ethical Guidelines for Internal Auditors in Government. 3.36 They are both at draft stage. A detailed Internal Audit Manual (draft) has also been prepared to guide the auditors in their day-to-day work. 3.37 A further development has been the introduction by the PFAA o f the need for audit committees to enhance the independence o f the function. Internal auditors for each ministry will n o w be responsible to the A 0 for the ministry as well as an audit committee (for that ministry) established to assist the A 0 in carrying out his ‘oversight responsibilities relating t o financial practices, internal controls, corporate governance issues, compliance with laws, regulations, ethics, and a l l audit matters’. The duties and responsibilities o f the audit committees are specified in the PFAR, as w e l l as in a newly developed Charter for Audit Committees, and an additional Charter for Internal Audit in Government (both s t i l l at draft stage), According to the current regulations, the audit committee’s duties include: e Approval o f annual work plans for the audit department; e Working closely with the AudGen, IGG, Director o f Public Prosecutions (DPP), and the Police among others, when necessary; e Reviewing and reporting o n overall quality o f internal audit services, adherence to professional standards (in particular independence), and reporting arrangements; e Ensuringthe internal audit budget i s adequate; e Facilitating risk assessment for the ministry or agency; e Discussing internal audit findings and recommendations with the AOs and monitoring implementation o f the recommendations; and e Reviewing arrangements in place to ensure compliance with regulatory and financial reporting requirements. 3.38 Clearly therefore, the new P F A A and the accompanying PFAR are going t o entrench internal auditing within the Government’s accountability framework, as w e l l as boost i t s independence. Indications are that requirements o f the new A c t will be implemented during 2004/05. 3.39 The Uganda Chapter o f the worldwide Institute o f Internal Auditors was affiliated in December 2003 after a humble beginning in December 2002. T h i s Institute i s intended to improve the professionalism o f the Internal Audit function in the country. Plans are underway to establish legislation to legalise i t s activities. During an Internal Audit Consultative Forum hosted by the World Bank in Nairobi in early March 2004 Ugandan stakeholders developed a set o f key proposals to address various Internal Audit initiatives. - 39 - Compliance and capacity 3.40 Since June 1999, the International Institute o f Internal Auditors (1IA)’s approved definition o f intemal audit has been as follows: “Intemal audit refers to an independent objective assurance and consulting activity designed to add value and improve an organisation’s operations. I t helps an organisation accomplish i t s objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness o f risk management, control, and governance processes.” 3.4 1 From the foregoing, it i s apparent that the expectations for internal audit under the new A c t fully comply with the above definition: the function will be independent as w e l l as capable o f adding value to the organisation. What remains to be done i s to realise on the ground the ambitious plans that the A c t lays down. Currently, the internal audit function within Government i s not sufficiently independent. I t i s headed by a Commissioner in the MoFPED, with staff seconded to ministries. Within the ministries, internal audit staff report to the A 0 o f the ministry, although they also copy their reports to the Commissioner, Internal Audit, MoFPED. However, the support available from the Commissioner in MoFPED i s limited as t h i s top position i s too l o w in the Government structures t o be able to effectively advise somebody at PS level. 3.42 The IAD’s current duties s t i l l contain a large ‘pre-audit’ component, although there has been some movement towards internal control (system) review and other advisory services. N o technical and VFM audits are carried out as the department does not have the necessary skills. In the longer term, there will need to be appropriate strategies for the co-ordination o f system’s audit w o r k with the work carried out by the PPDA. 3.43 The staffing profile o f the IAD will obviously need to change to match i t s new structure. Currently the full establishment o f 45 professional staff i s available, comprising twelve qualified accountants (11 A C C A and one Certified Public Accountant (CPA)) and 33 first-degree graduates (mostly registered as A C C A and CPA students). There has been negligible staff turnover in the department since 200 1. N i n e additional staff members qualified with the A C C A qualification during that time (previously only one A C C A and one CPA were the qualified members o f the team). 3.44 The Government i s in the process o f installing i t s IFMS. T h i s will lead t o changes in the audit approach and will require revisions o f the draft Intemal Audit Manual. Recommendations 3.45 It i s important to note that the area o f Internal Audit as well as financial management in general i s undergoing change - change for the better. The team’s observations above acknowledge this, thus the recommendations below relate primarily to suggestions to optimise the implementation o f the changes: Short-term (1-2 years) 0 Develop a formal implementation plan for the proposed changes to the system required by the P F A A that came into force o n 1 July 2003 including recent proposals from the Intemal Audit Forum held in Kenya. 0 Elevate status o f internal audit at both headquarters and ministry level t o enable them to advise senior management effectively. - 40 - 0 Recruit additional qualified audit managers to manage the function in each of the ministries as they will now become stand alone departments. 0 Revise the draft Internal Audit Manual to incorporate auditing in a computerised environment. Medium-term (3-5 years) 0 I n conjunction with the newly established IIA Uganda Chapter, arrange more audit specific training for staff in each o f traditional auditing, VFM auditing, and auditing in a computerised environment. 0 Finalise the process of establishing legislation to legalise the Ugandan Chapter o f the IIA. -41 - 4. LEGISLATIVE SCRUTINY, ACCESS TO INFORMATION ON PFM, ETHICS AND INTEGRITY A. LEGISLATIVE SCRUTINY Review and assessment o f the current system Legislative environment 4.1 Uganda has a unicameral Parliament with 303 members, 214 directly elected by popular vote, 81 nominated by legally established special interest groups16. and eight ex officio members. The Cabinet i s appointed by the President. Members o f Parliament (MPs) serve five-year terms. There i s a Movement political system. The President i s both Head o f State and Head o f Government, the Prime Minister i s leader o f Government business. 4.2 There are 12 Standing Committees o f which five are directly concerned with financial matters: (i) Committee on Budget; (ii) PAC; (iii)the Committee on Commissions, Statutory Authorities and State Enterprises (COSASE); (iv) the Local Government Accounts Committee (LGAC); and (v) Committee on the National Economy, which deals with issues relating to the national economy including approval o f loan agreements. Each Standing Committee with the exception o f the Budget Committee has 15 members, who are nominated and subsequently elected by MPs. In addition to the elected members, all Chairpersons o f the other Committees are ex-officio members o f the Committee on Budget. 4.3 There are 10 Sessional Committees including one for Finance, Planning and Economic Development. The Sessional Committee on Legal and Parliamentary affairs reviews the report o f the IG amongst others. All Sessional Committees comprising o f not less than 15 and not more than 25 interested members are responsible for examining critically Govemment recurrent and capital budget estimates relating to their specific ministry. 4.4 According to Rule 134 o f the Rules o f Procedure o f Parliament o f Uganda”, the remit o f the PAC i s the examination o f the audited accounts showing the appropriation o f the sums granted by Parliament to meet the public expenditure o f the Central Govemment and the Judiciary. The functions o f COSASE are set out in Rule 147 and include the examination o f the reports and audited accounts o f statutory authorities, corporations and PES or other bodies or organisation established by an Act o f Parliament, and the monitoring o f the operations o f any o f these bodies. The LGAC, which was established in 2001/02 i s assigned the examination o f the audited accounts in relation to the report laid before Parliament b y the Minister18under Section 88 o f the LGA, 1997 showing the appropriation o f the sums granted by Parliament to LGs. All three Committees are expected to report to Parliament twice a year and according to the Constitution, the House i s expected to hold a debate on the AudGen’s reports within six months o f their receipt. The Committees are open to the media and members o f the public. ~ Women 56, l6 army 10, persons with disabilities 5, youth 5, workers 5. Rules o f Procedure of l7 Parliament o f Uganda, 30* April 2002 Minister for Local Government l8 - 42 - Although the press always exercises this right, members o f the public do not attend because they are unaware o f this rightlg. 4.5 The functions o f the Budget Committee are to (i) focus o n preliminary estimates and the macroeconomic plan and programs and submit recommendations to the Speaker; and (ii) consider the national Budget and compile amendments and refer them to the relevant Committees. Current situation 4.6 As shown in Table 14 below, the P A C has managed to eliminate a considerable amount o f the backlog. However the requisite time has not been allocated by the Business Committee to allow Parliament to debate the outcomes o f the reports. Whilst recognising the burden o n Parliament, the failure to allocate appropriate time to the. reports undermines the scrutiny process and the whole cycle o f accountability. Table 14. Status o f reports on Central Government Accounts b. Refers to the year of the accounts c. W.1.P-Work in Progress 4.7 Procedurally following the submission o f the P A C findings to Parliament, a Treasury Memorandum (TM) i s issued by MoFPED to inform Parliament o f what action has been taken on each recommendation. Only when the P A C reports have been tabled to Parliament do they become publicly available. Since the presentation o f the P A C reports are so behind, the issuing o f the TMs are also way behind schedule, therefore undermining the effectiveness o f the process. The PAC can advise the Minister o f Finance to take appropriate action against public officers who have contravened any A c t or abused their position, but constitutionally the legislature has n o executive powers. In addition, the P A C i s supported by a special unit from the Criminal Investigation Department, which can take forward criminal investigations, if required. 4.8 In 2003, some P A C members participated in overseas visits to observe the operations o f other PACs. In addition, some training was provided and limited computer facilities installed in Parliament for use by all MPs. I t i s recognised however that only a few o f the members have the necessary expertise to review part two o f the AudGen report which sets out the financial statements o f all the Central Government votes. 4.9 I t i s understood that COSASE has a significant backlog o f work and information o n the entities to be reviewed by the Committee i s incomplete. According to the AudGen’s records, which are considered to be reasonably comprehensive (but not totally), there are 7 1 entities, which should submit reports to the Committee. Review o f these reports in addition to the specific review o f the operations o f particular l 9 Other reasons for not attending may be that the public view the Parliament as a “sacred” place, and that Parliament has not sufficiently educated the public about the business o f the House and i t s Committees. - 43 - organisations, such as the National Social Security Fund (NSSF) and the URA requested by Parliament places a significant burden on the Committee. TMs are not produced as in most instances it i s the responsibility o f the Board of Directors to ensure that appropriate action i s taken. The extent to which Boards do carry out this important governance role i s discussed in Section 6. 4.10 Unlike PAC members, COSASE members have received n o special training and only a few o f the members have specific expertise in financial management issues. The Committee i s supported by only one Secretary. L G A C members have been quite active in reviewing the reports o f the LGPACs and associated audited accounts. However it i s understood that there i s some debate as to the relevant authority o f the L G A C vis a vis the LGPACs. 4.1 1 W h i l s t some personnel in the Parliamentary Commission have postgraduate training, their ability to provide appropriate research and technical support to the Committees i s severely limited both by the volume o f work and available funds. W h i l s t funds are allocated by the Executive t o the Committees, it i s geneqally regarded as insufficient to enable the Committees to carry out their work effectively. Work carried out by the P A C to eliminate the backlog was done during Recess and thus was limited by available time and funds to facilitate meetings outside normal parliamentary hours. COSASE i s faced with similar financial and resource constraints and yet i s responsible for overseeing significant levels o f expenditure. 4.12 In recent years, a number o f Commissions o f Inquiry have been set up t o deal with issues o f serious public concern where there are alleged breaches o f standards o f accountability and where it i s considered inappropriate to rely o n the normal systems o f auditing and investigations. Commissions o f Inquiry report to their appointing authority who will take the necessary action. Recommendations 4.13 In order to improve the effectiveness o f legislative scrutiny and enhance the overall cycle o f accountability, it i s recommended that consideration be given to the following recommendations. Short-term (1-2 years) Eliminate remaining backlog o f P A C reports and ensure that a l l outstanding reports are presented to Parliament within the next twelve months. Establish a comprehensive l i s t o f all entities t o be reviewed by COSASE and the status o f all associated audit reports. Develop a costed plan for the elimination o f the backlog. Develop a programme o f training2' for all Committee members and relevant Commission staff on financial management issues. Raise public awareness of their right o f access to committee meetings. This would assist in minimising the politicisation o f certain recommendations. Develop a regional forum o f P A C K O S A S E (or equiva1ent)LGAC members to facilitate exchange o f ideas, knowledge and experiences. Develop procedures for the review o f VFM reports and required actions. Ensure that reports of Commissions o f Inquiry are made available t o the public. *' This training would be in addition to the more generalised training requirements set out in the DFID funded study of the Uganda Parliamentary Service carried out in July 2003. - 44 - Medium-term (3-5 years) 0 Develop capacity o f all MPs to contribute to discussions on financial and economic management issues. 0 Continue the improvement o f technical support, library and information facilities available to Parliament and associated committees to carry out their assigned responsibilities. 0 Review the funding mechanism o f parliamentary committees. B. ACCESS ON PUBLIC FINANCIAL T O INFORMATION MANAGEMENT Review and assessment o f the current system Legal framework and actual practice 4.14 In international human rights legislation, freedom o f information i s part o f the fundamental right o f freedom o f expression. A key statement on human rights i s the Universal Declaration o f Human Rights which i s by customary international law binding on all states. Article 19 o f the Declaration guarantees everyone the “right to freedom o f opinion and expression” that includes the right to “seek, receive and impart information”. The Commonwealth Law Ministers endorsed the Freedom o f Information Principles in M a y 199921,and these were approved by the Commonwealth Heads o f Government in November22 of the same year. These principles, to which Uganda i s bound, as a member o f the Commonwealth, recognise the “importance o f public access to official information, both in promoting transparency and accountable governance and in encouraging the full participation o f citizens in the democratic p r o c e s ~ ” ~ ~ . 4.15 Article 29 o f the Constitution o f the Republic o f Uganda, 1995, provides “protection o f freedom o f conscience, expression, movement, religion, assembly and association” to every person. Subsection (1) (a) o f Article 29 guarantees the right to “freedom o f speech and expression, which shall include freedom o f the press and other media”. These fundamental rights o f Article 29 may not be restricted in any way. Article 41 (1) o f the Constitution guarantees the right o f access to information except where “the information i s likely to prejudice the security or sovereignty o f the State or interfere with the right to privacy o f any other person”. 4.16 Uganda, in line with other democratic societies, has made some progress towards ensuring the public has access to financial information. Article 155 o f the Constitution requires that budget estimates be laid before Parliament “not later than the fifteenth day o f the commencement o f the financial year”. Article 163 (4), without setting a time limit, requires the AudGen to submit to Parliament annually an audit report o f the Government accounts for the financial year immediately preceding. Then, Article 163(5) o f the Constitution requires Parliament to debate, consider and take appropriate action on the report o f the AudGen on the annual accounts within six months o f i t s submission to Parliament. These Articles guarantee that budget estimates and audited annual accounts o f Government come to the public domain through Parliament, whose sittings are open to the public. 4.17 The deliberations o f the PAC are open to the public. The approved budget reports, the Government’s annual accounts and AudGen’s report thereon, and reports o f the P A C are available in public libraries for public scrutiny. C i v i l society i s engaged in the public sector budget preparation Communique‘, Meeting o f Commonwealth Law Ministers, Port o f Spain, 10 May 1999, para. 21. 22 The Durban Communique‘, Commonwealth Heads o f Government Meeting, Durban, 15 November 1999, para. 57. 23 Communique‘, Commonwealth Functional Co-operation Report o f the Committee o f the Whole, Commonwealth Heads o f Government Meeting, Durban, 15 November 1999, para. 20. - 45 - process through the budget framework workshops, which are conducted at all levels o f Government. These examples show that Uganda has legislation, policies and practices that allow public access to the budget preparation process, however a key weakness i s that civil society i s not fully engaged in the budget execution process. For example Chapter 6 o f the UPE guidelines, December 2002 requires that schools must publicly display pupil enrolment and attendance, budgets and expenditures, U P E capitation grant received, names o f teachers and total teachers’ salaries received, amount received as extra charges, and quarterly reports. However, the guidelines do not require parents and the public in general to hold public hearings o n the usage o f funds for efficiency and effectiveness. 4.18 Similarly, citizens should be empowered to take charge o f governance and development issues at community level for other sectors as well. Public hearings involve exposing official records to external scrutiny thus eliminating the culture o f secrecy that fosters corruption. I t i s one o f the most powerful ways o f demanding accountability from decentralized governance units and therefore needs to be institutionalised in Uganda at the community level. 4.19 There are provisions in laws, such as the Official Secrets Act, Cap 302, the Public Service Act, Cap 288, the Penal Code Act, Cap 120 and the Anti-Terrorism Act, 2002 that may, if applied inappropriately, restrict access to public information. Equally, subsidiary laws regulating the operations o f the press and other media, that is, the Press and Journalist Act, Cap 105 and the Electronic Media Act, Cap 104 may limit h o w much information the media can publish. For example, Section 4 o f the Press and Journalist A c t allows “access to official information subject to any law in force relating to national security, secrecy or confidentiality o f information”. 4.20 However, it is recognised that despite the provisions in these laws that potentially control the freedom o f the press, the Government has been relatively tolerant o f press criticism. In addition, Sections o f the Press and Journalist A c t provide some protection by not compelling journalists to disclose the source o f their information except with the consent o f the person who provided the information or by an order o f the law. Nevertheless, the potential to use these laws to shut down media houses or outlaw independent media outlets that publish or broadcast information that i s very often critical o f the Government has negative implications on the proper functioning o f the media and free flow o f information. Instead, the media should be required to establish a non-statutory media council and a code of ethics that will advance media self-regulation practices. T h i s will help balance and protect the interests o f both the Government and the media practitioners. 4.21 In addition, gaps in law exist that may limit access to information. Article 41(2) o f the Constitution require Parliament to enact “laws prescribing the classes o f information” that citizens have a right to access under Article 41(1) and the “procedure for obtaining access to that information”. Provisions o f this Article o f the Constitution have not yet been implemented. The Access to Information Bill, N o , 7 o f 2004 i s currently with Parliament Recommendations 4.22 Uganda has a sound legal basis o n which to build a robust public access t o information framework. Further improvements can best be achieved by the Government working with civil society and the private sector to initiate the following: Short-term (1-2 years) 0 Enactment o f the Access to Information Bill. 0 Review o f any legislation, which might contradict the Access to Information Bill. - 46 - Medium-term (3-5 years) 0 As part o f the implementation o f the Access to Information Act, MDAs should provide training for their employees. This training should address the culture o f lack o f openness and secrecy within Government and ensure that civil servants are familiar with their obligations to disclose information. 0 Building upon the provisions o f the Access to Information Act, the Government should launch a nation-wide public education programme to raise awareness o f the constitutional provisions that guarantee public access to information. T h i s will be a programme o f two to three years and should include programmes to empower civil society to be able to actively participate in debates on the utilisation o f public financial and economic resources. 0 Develop the capacity o f the business media to report on financial and economic management issues. Long-term (6-10 years) Launch public hearing initiatives (form to be defined) to bring into focus the need for citizens to take charge o f governance and development issues at community level. Organized by civil society public hearings should be attended by beneficiaries o f development projects, concerned officials, N G O activists, the media and the public. c. ETHICS AND INTEGRITY Review and assessment o f the current system Legislationand regulatory environment 4.23 In July 2000, the President launched the “Government Strategy and Plan o f Action to fight corruption and rebuild ethics and integrity in Public Office: Fiscal Years 20004-2002/3.” In the intervening period a number o f Acts have been updated and changes in legislation proposed. A second three-year plan i s currently being developed and i s expected to be completed by April 2004. 4.24 The two most significant pieces o f legislation were the Inspectorate o f Government Act, 2002 and the Leadership Code Act, 2002. The IG Act provides for the powers and procedures required by the IG to fight corruption. The IG i s a Constitutional Office and i t s functions include: (i) the supervision o f the enforcement o f the Leadership Code; (ii) the promotion and fostering o f strict adherence to the rule o f law; (iii)public awareness programmes; and (iv) investigations. It i s headed by the IGG. The Leadership Code calls for open citizen access to leaders’ assets. The IG has established a leadership directorate and the media has published details o f leaders assets. I t i s understood that the publishing o f this information received a mixed response from some political leaders and that a recent Constitutional Court ruling means that the IGG has no powers to investigate officers appointed by the President. 4.25 Proposals for a revised and updated Prevention o f Corruption A c t are at the point o f completion and were to be submitted to Cabinet in March 2004. The purpose o f the revised legislation i s to provide a more effective legal framework for combating corruption and misappropriation o f public resources. I t seeks to consolidate existing legislation and identify and fill gaps in current provision. The revised act intends to strengthen enforcement, and provide for the confiscation, freezing and seizure o f assets as well as dealing with issues such as conflict o f interest. -47- 4.26 Public consultations are planned on proposed Whistleblower Protection/Qui Tam legislation. There are practical difficulties o f implementation o f such legislation in the Ugandan context but it i s seen as an important step in encouraging and protecting members o f the public in divulging information. Principles o f whistleblower legislation are expected to be presented to Cabinet by June 2004. Anti-money laundering legislation i s in draft form and i s also due to go to Cabinet during 2004. G o U recently signed the United Nations Convention against Corruption (December 2003). A Memorandum for the ratification o f this convention and the African Union Convention on combating Corruption has been submitted to Cabinet for decision. As noted in the previous section, the Access to Information Bill i s with Parliament, and i s seen to be a key piece o f legislation on the path to more open Government. 4.27 The Uganda Government Standing Orders were designed to check on the conduct o f public officers and are currently implemented b y the various service commissions. However, it i s generally acknowledged that these are out o f date. The URA, Ministry o f Health and the MOPShave developed new codes o f conduct for staff and there i s a plan to update the Government Standing Orders. 4.28 The Directorate for Ethics and Integrity (DEI) i s under the Office o f the President and i s headed by a Minister o f State for Ethics and Integrity. I t represents the political voice o f anti-corruption action in Uganda. I t i s charged with: (i) the responsibility for developing policies and legislation to fight corruption; (ii)co-ordinating the activities o f the anti-corruption agencies; (iii) monitoring and reporting on the implementation o f anti-corruption programmes; and (iv) the establishment o f ethical codes o f conduct for public sector employees. Progress to date, challenges and constraints 4.29 Corruption i s generally recognised as both a major barrier to sustainable development and a potential cause o f social unrest. Whilst there i s a general recognition o f the need to have core Government functions working well if the Government i s going to curb corruption, include cross cutting reforms such as pay, HRM, procurement and financial management. I t i s also acknowledged that there i s a need to improve detection, investigation and prosecution o f corruption cases. 4.3 0 All stakeholders understand the difficulties and dangers associated with the successful prosecution o f grand corruption cases. The existence o f the political will at both the Central and Local Government level to tackle corruption i s the key factor in determining whether these issues will be addressed successfully. Given the lack o f a social contract between the Government and many members o f the public, there appears to be little incentive for the public to become actively involved in ensuring that the Government uses public funds appropriately. 4.31 As shown in Table 15 according to the Transparency International (TI) report the perception o f corruption in Uganda remains high. The report showed a slight improvement in rating between 2002 and 2003 which i s encouraging. - 48 - Table 15. Uganda’s ranking in the T I Corruption PerceptionIndex Year Position 1998 73 85 8th 1999 87 99 12th 2000 80 90 10th 2001 88 91 3rd 2002 93 102 9th 4.32 According to the Second National Integrity Survey conducted in 2003, some progress has been made and although admittedly based on a small sample size, there has been a decline in the reported percentage levels o f bribery since the initial survey in 1998. The comparative situation i s set out in Table 16. InstitutionNear 1998 2003 Police 63% 46% U RA 40% 3 1% Magistrate’s Courts 50% 29% LG 3 0% 16% 4.33 However the report also notes that corruption remains a significant problem, and adversely affects the poor in a number o f instances. The Police were cited as the most corrupt institution with Health services as the second most corrupt. W h i l s t institutions rated Traffic Police as the worst offenders, Tender Boards second and URA third. I t also demonstrates an increasing tolerance o f corruption, particularly petty corruption. W h i l s t the IG’s public awareness programmes have greatly increased the public’s knowledge and understanding o f i t s o w n activities, it appears to have had limited effect on disseminating the costs o f corruption to the nation and to the poor in particular. 4.34 Both DEI and the IG have serious staffing problems and concerns have been raised that staff in the IG are too inexperienced to be able to deal effectively with some o f the issues. The ability o f both institutions to retain highly qualified and experienced staff i s limited by pay and terms and conditions o f service. Unlike other countries, employees o f both these institutions share the same pay, terms and conditions o f service as other public sector employees. The DEI has a professional staff o f just three people currently and the position of PS has been vacant for over a year. 4.35 Despite staffing constraints, DEI has advanced the process o f getting new legislation approved including anti-corruption legislation and whistle blower protection. The twice-yearly IG’s reports show the type o f work being carried out, although the latest available report i s only for the period June - December 2002. Following receipt o f the information o n leaders assets, the IG’s leadership directorate has, with DANIDA support, completed analysis o f the returns received from Government Ministers (65), and i s now due to commence the verification process for this group. 24 The ranking from the bottom shows the actual position from the bottom in terms o f scores and ignores the fact that there i s sometimes more than one country with the same score. - 49 - 4.36 Table 17 shows the volume o f work being handled b y the IG, it should be stressed that a lot o f work i s carried out in conjunction with the Police and the DPP and therefore the numbers o f prosecutions and court cases will not include those handed over to these authorities. Table 17. Cases handled by the IGG new cases Source: Second Integrity Survey 4.37 Figures for 2002 show that there were 1967 new cases for the period July to December 2002 and 1501 for the period January to June. I t i s worth noting that the I G has had difficulty in enforcing the implementation o f many decisions at a local level because o f the autonomy and independence o f LG conveyed under the Constitution. These and many other aspects are subject to the current constitutional review process. 4.38 The DEI arranges an Inter Agency Forum25on a monthly basis and this facilitates improved working relationships, however it i s understood that there i s some debate both within and outside the forum on the respective roles o f some o f the agencies and the lack o f clarity on some issues, including mandates. A key question relates to the extent to which forum members can coordinate without compromising their constitutional independence. The DEI seeks to work in the area o f common good and joint action. I t i s also understood that there i s considerable concern as to how effective MoFPED can be in carrying out oversight as well as implementation activities. 4.39 Recent Cabinet proposals to the CRC to dilute some o f the powers o f the I G appear to be in contradiction to the President’s statement on zero tolerance o f corruption. Proposals include removing the power to prosecute, to dismiss personnel and suspend the possibility o f receiving complaints in the tendering process. I t would seem more appropriate to obtain greater clarity on the respective roles and responsibilities o f various players to ensure that there are the appropriate checks and balances. 4.40 The importance o f the Public and Civil Society in the fight against corruption cannot be underestimated and therefore the increasing tolerance o f society to petty corruption i s o f concern to many Ugandans. Recommendations 4.41 Whilst it i s recognised that many issues need to be addressed to combat corruption including public sector pay, greater public access to information and improved financial reporting systems, the following recommendations are designed to complement these efforts. 25Membership of this forum includes representatives from DEI, OAG, IG, Police (Criminal Investigation Department), DPP, PAC and the MoFPED. - 50 - Short-term (1-2 years) Finalise the development o f the second national anti-corruption plan including the development o f appropriate measurement indicators. Enact legislation on anti-corruption and anti-money laundering and assess the institutional implications o f the introduction o f new legislation. Continue awareness programmes conducted by civil society with growing emphasis on the opportunity cost o f corrupt practices (e.g. although a new road has been built, money allocated should have built a road, hospital and school). Clarify roles o f some o f the anti-corruption agencies and other bodies (e.g. PPDA) to ensure that there are appropriate checks and balances and that appropriate action i s taken. Clarify role o f IG at the local level and develop civil society forum for discussion on practical solutions to the issues. Present recommendations to Cabinet on the W h i s t l e Blower Protection/Qui Tam legislation including practical recommendations. Based on the results o f the National Integrity Survey, develop with the appropriate authorities anti-corruption programmes for specific ministries or organisations e.g. Police, URA, Tender Boards and Health. Assess the adequacy of funding for the relevant institutions. DPs should share with each other and the GoU information on ‘banned’ companies and individuals. Medium-term (3-5 years) 0 Develop regional forums and networks on anti-money laundering, anti-corruption issues further and explore the feasibility o f exchange o f personnel. 0 Review the terms and conditions o f service o f personnel in anti-corruption agencies in other countries and assess their relative effectiveness e.g. Hong Kong, Botswana, South Africa. 0 Implement the institutional changes required to cany out the requirements o f any new legislation. Long-term (6-10 years) 0 Improve the professional capacity o f personnel at district level institutions. - 51 - 5. PUBLIC ENTERPRISES (PE’s) A. REVIEW AND ASSESSMENT OF THE CURRENT SITUATION Legal and regulatory framework 5.1 The overarching law covering PES in Uganda i s the Public Enterprises Reform and Divestiture Act, Cap 98, as amended. The objective o f the A c t i s “to provide for reform and divestiture o f PES, to establish the Reform and Divestiture Committee charged with implementing the Government’s programme on the matter, and for related matters.” The A c t also specifies Government’s intention as being to: 0 Reduce the direct role o f Government in Uganda’s economy and t o provide a correspondingly greater role for the private sector; and 0 Improve the efficiency and performance o f those PESremaining under the ownership and control o f Government. 5.2 The Reform and Divestiture Committee i s chaired by the Minister responsible for Finance, and includes both the line Minister for the enterprise for sale, as w e l l as the Minister o f State responsible for Privatisation, among others. 5.3 Individual PES are also governed by the Acts o f Parliament establishing those enterprises, where applicable. For example, the NSSF i s governed by the National Social Security Fund Act, Cap 222 which i s the primary A c t establishing the fund. 5.4 PES’ accounting and reporting i s also covered by the new PFAA. As will be noted below, the P F A A super-cedes the requirements o f the other acts in so far as the reporting i s concerned. Lastly, those PESthat are limited liability companies also need to comply with the requirements o f the Companies Act, Cap 110. Public enterprise reform and divestiture 5.5 The Minister responsible for Privatisation within the M o F P E D has established a Parastatal Monitoring Unit (PMU) to exercise the strategic economic monitoring role in relation to the PES while liasing with the relevant line ministry. This involves reviewing operational plans before implementation, and monitoring performance against those plans. T o guide and facilitate the unit’s operations, the Government has categorised PES into five different classes. The categorisation i s in terms o f what the Government believes i s the way forward for each o f the enterprises, and i s as follows: 0 Class I - representing PESin which the State i s required to retain 100 % shareholding. Included in this class are the Uganda Wildlife Authority, C i v i l Aviation Authority, Cotton Development Organisation, NSSF, Uganda Tea Authority, Uganda Tourism Board, Uganda Coffee Development Authority, and any regulatory agencies formed as a result o f sectoral reform; - 52 - 0 Class I1- representing PES in which the State i s required to retain a majority shareholding. There are twelve entities in this class, mostly corporations such as Uganda Air Cargo, Uganda Posts and N e w Vision Printing and Publishing; 0 Class I11 - represented PES in which the Government was required to retain a minority shareholding. This category was successfully revoked by Statutory Instrument 14 o f 1997 hence there are no more enterprises in this class; 0 Class I V - represents PES in which the State i s required to fully divest. There are approximately eighty enterprises in this category; and 0 Class V - represents PES,which the Government should liquidate. 5.6 The P M U has good working relationships with the majority o f enterprises in classes 1 1, I V and V. This ranges from representation on the Board, to participation in key management decisions, especially with regard to any impending privatisation. The unit has however not been fully accepted by the majority of class Ienterprises, who insist that the Acts establishing the entities only recognise the line ministry as the one to which they have any reporting responsibilities. The unit has therefore not been able to fully exercise i t s monitoring role o n behalf o f the MoFPED with respect to these enterprises. Most o f their annual audited fmancial statements are not submitted to the PMU in time. Important to note i s the fact that a number of these class Ienterprises are not self-financing, drawing upon Government for the bulk o f funding for their budgets. 5.7 The P M U i s however thinly staffed, hence if all PES were to comply with their reporting requirements, the unit would have serious HR capacity constraints. 5.8 In order to control outputs and outcomes o f PES, PMU plans to introduce Results Oriented Management (ROM) were performance contracts are agreed with the management team and used as a basis o f measuring their performance. Accounting, internal control and audit 5.9 The Acts o f Parliament establishing the individual PES impose accountability and reporting requirements. Continuing with the example o f the NSSF, the National Social Security Fund A c t gives the Fund six months in which to produce and present to the line Minister audited fmancial statements. 5.10 Most PES have an accounting and finance department headed by a senior level manager, and an IAD whose power and authority vary from organisation to organisation. In some enterprises, the IAD reports to the Chief Executive, while in others, the department s t i l l falls under Finance. The tendency however i s towards giving the department greater authority and direct access to the Chief Executive. 5.1 1 According to Section 39 o f the PFAA, external auditing o f PES i s the responsibility o f the AudGen. However, he may appoint a private audit firm to carry out the audit o n his behalf and report on it to him in a form determined by him. 5.12 Most PES have a financial management manual and have an established system o f internal controls. Weaknesses are normally highlighted in the reports o f both the internal auditors and external auditors. A few PES have independent bodies, such as ‘audit committees’, to oversee implementation o f internal and external audit recommendations. 5.13 The Public Enterprise Reform and Divestiture A c t allows the enterprises only three months after year end in which to produce and present to the line Minister and the Minister responsible for Finance audited fmancial statements for the enterprise as w e l l as a report o f i t s operations for the year. The new - 53 - PFAA, on the other hand requires PESto produce their annual audited financial statements within four months o f the end o f the financial year, unless allowed a longer period by resolution o f Parliament. Since the PFAA super-cedes the previous legislation on these matters, hence there i s n o conflict. 5.14 As noted above, most o f the PEShave their own IDS. The effectiveness o f the IAD has however been limited by capacity (in most instances the department i s manned by three people or less), competence (not enough professionally trained auditors), and independence (most audit departments reported to the Head o f Finance). The situation appears to be under review in a number o f enterprises since the advent o f the PFAA, with efforts being made to upgrade the post o f Head o f Internal Audit to full managerial grade, and reporting directly to the Chief Executive. Audit committees may also be introduced as required by the Act. 5.15 The role o f internal audit i s also being developed from a predominantly pre-audit approach to a more value adding post audit and internal control bias. Corporate governance 5.16 The Public Enterprise Reform and Divestiture Act, the Companies Act, the PFAA as well as the individual Acts establishing the various PES all seek to entrench corporate governance within the organisations. This general corporate governance framework tends to follow international benchmarks. T o help the various sectors cope with the demands o f modern corporate govemance, an Institute o f Corporate Governance of Uganda has been established. The Institute has produced a Manual o n Corporate Governance to highlight the recommended guidelines for Uganda. However, the P M U plans to ensure that PES comply with corporate govemance principles by requiring a statement o f compliance o f corporate governance regulations to be included in the published accounts. 5.17 The framework highlights the rights and responsibilities o f all stakeholders, from shareholders, management and the Board (including audit committees), and the requirement for timely and accurate disclosure o f information through annual budgets and financial reports. Elements such as the newly introduced audit committees are obviously not yet in place in the majority o f the PES,but their need has been recognised and entrenched by the P M U and new P F A A . In addition, the Public Enterprise Reform and Divestiture A c t also specifically requires each enterprise to issue, within three months o f the end o f the financial year, a certificate signed by the Chairman, the Chief Executive, and the Chief Financial Officer, acknowledging responsibility for the proper and due regard for safeguarding o f assets o f the enterprise, and their compliance with those responsibilities. B. RECOMMENDATIONS 5.18 It i s apparent that the legislation necessary for improving both the control and performance o f PES i s already in place. What may s t i l l be lacking i s i t s full implementation. Also, as mentioned in Sections 4 and 5, the problem o f non-submission o f accounts for audit and the lack o f oversight by the COSASE reduces accountability. Short-term (1-2 years) 0 Include all class Ienterprises under the ambit o f the PMU. T h i s would ensure all PES are subjected to scrutiny by the Government unit set up for the purpose. 0 Improve HR capacity at the PMU to enable it to more effectively participate in the monitoring o f all PES. 0 Implement ROM in PESby use of performance contracts. - 54 - 0 Implement the requirement to have audit committees for each enterprise. T h i s will enhance the independence o f the audit function, as well as facilitate monitoring of the implementationo f audit recommendations. Medium-term (3-5 years) 0 Improve internal audit capacity within PES.This includes both training of audit staff, equipping them with the necessary tools and resources, as well as the audit committees (to be formed). 0 Improve on corporate govemance within PESthrough ensuring that a statement o f compliance with corporate governance regulations i s part of the publishedaccounts. -55- 6. NON-GOVERNMENTAL ORGANISATIONS (NGO’S) A. REVIEWAND ASSESSMENT OF THE CURRENT SITUATION Legislative and regulatory environment 6.1 NGOs are governed under the N G O Registration Act, Cap 113 and the N G O Regulations, 1990. NGOs are registered by the National Board o f NGOs, which issues them with a Certificate o f Registration. There are about 4,800 registered NGOs in Uganda, although most are very small. In Uganda, the majority o f NGOs are almost entirely dependent on public funding for their activities. 6.2 The NGO Registration Act and Regulations do not have a specific requirement for NGOs to either prepare annual audited accounts or submit these accounts and associated management letters to the National Board o f NGOs. In addition, the National Board o f NGOs does not receive any data on the annual monetary value o f N G O revenue (grant receipts). This lack o f information on actual income and expenditure represents a potentially high fiduciary risk that public funds are not being used by for their intended purposes. However NGOs are required to provide information on estimated income and expenditure to District Development Committees and proposed work plans to the Ministry with responsibility for planning and economic development. 6.3 The National Board o f NGOs has a Secretariat based at the Ministry o f Internal Affairs (MoIA) whose main responsibility i s to register and supervise the activities o f NGOs in Uganda. Currently the Secretariat lacks capacity and resources to effectively perform its role. It has three staff (including the Secretary to the National Board o f NGOs) seconded from the Immigration Department in the M o I A who report to the Commissioner Immigration. The Board has no control over the Secretariat staff who can be transferred to any department within the ministry at any time. 6.4 The Secretary to the National Board i s an officer in the Immigration Department and not a vote holder. These institutional and administrative arrangements mean that the Board has insufficient control over i t s budget allocations to carry out i t s functions. In other countries there i s a move towards the establishment o f a more autonomous co-ordinating and regulating body with the responsibility o f registering and monitoring NGOs. 6.5 There i s an N G O database but it i s not being updated due to manpower constraints. In order to improve on the information in the database, NGOs will have to be re-registered. Financial management 6.6 Some NGOs, in particular the larger, well established ones, prepare annual audited accounts as demanded by Development Partners and they use International Accounting Standards (IAS) in preparing the accounts. However, most o f the small NGOs lack the capacity to prepare accounts and therefore require training to improve on their accountability function. 6.7 Most o f the small NGOs do not have internal audit units or audit committees to ensure either effective internal control systems or support the principles o f good corporate governance. - 56 - Reforms 6.8 A Non-Governmental Organisations Registration (Amendment) Bill, 200 1 was drafted several years ago to replace and amend the N G O Registration Act. The main objective o f the Bill i s to include monitoring o f N G O operations and development o f policy guidelines for Community Based Organisations as part o f the function o f the N G O Board. However, the requirement for NGOs to submit annual audited accounts to the N G O Board or any other independent body i s not included in the Bill and hence the high fiduciary risk remains. To address t h i s risk, an N G O Policy document i s retrospectively being developed that will provide operational guidelines to NGOs hence facilitate the monitoring o f their activities. B. RECOMMENDATIONS 6.9 Improving N G O accountability i s critical for maintaining and strengthening the sector’s role as an effective mechanism for alleviating poverty. In order to strengthen the financial accountability o f the N G O sector without compromising their independence, the following i s recommended: Short-term (1-2 years) 0 The process o f registering NGOs needs to be updated and supported. 0 The N G O policy that i s being developed should take into account the requirement that all NGOs should prepare and submit annual audited accounts to the N G O Board. 0 A needs assessment should be carried out to determine the priority training needs for NGOs to increase financial accountability. This training should consider the need to support report writing, basic accounting procedures for non-accountants, and preparing financial statements. Medium-term (3-5 years) 0 Consideration should be given in the new legislation to the establishment o f a more autonomous co-ordinating and regulating body with responsibility for the registration and monitoring o f NGOs. 0 NGOs operating at national level should advertise the release o f audited accounts in the local press, and provide the public with access to the information. 0 Consideration should be given to the establishment o f a pooled accountancy resource within the overall N G O sector. This pooled accountancy resource would be accessible by all NGOs and would provide guidance to NGOs on preparing annual accounts. This would supplement formal training courses. - 57 - 7. THE ACCOUNTING AND AUDITING PROFESSION A. REVIEW AND ASSESSMENT OF THE CURRENT SITUATION Legislation and regulatory environment 7.1 The Institute o f Certified Public Accountants o f Uganda (ICPAU) was established by the Accountants Act, Cap 266. The Institute i s governed by a Council that comprises eight elected members, three ex-officio members (the AudGen, the Commissioner TOA and the Commissioner o f Education) and one member appointed by the Minister o f Finance. The main functions o f the Institute, as outlined in Section 5 o f the Act, are to regulate and maintain the standards o f accountancy in the country and to prescribe and regulate the conduct o f professional accountants in Uganda. The detailed functions o f the Council are stated in Section 14 o f the Act. The Institute was admitted as a member o f the Eastern, Central and Southern Afi-ica Federation o f Accountants (ECSAFA) in 1996 and joined I F A C in 1997. 7.2 The Accountants A c t i s being revised under a new Accountants Bill, 2003. This draft Bill clarifies the issue o f membership o f the Institute, limits the associate members26 who can be granted a license o f practice to only those who were in practice prior to 1992, and changes the Registrar o f Accountants from the AudGen to the Secretary o f the Institute. The draft Bill gives the Council authority to amend the Statutory Instruments with the approval o f the Minister of Finance and will repeal the Accountants Act. I t also proposes that the profession regulates itself. Internationally, the accountancy profession now recommends that a national independent regulatory body i s created2’. This regulatory body would include representatives from the accountancy profession and other interest groups, with no single group having a controlling interest. 7.3 The Council meets regularly and i s assisted by a number o f committees including Education, Examinations Board, Member Services, Accounting and Auditing Services, Disciplinary and Ethics, Finance and Marketing. Staffing o f the Institute comprises a full-time Secretary who i s also the Chief Executive Officer, an Examinations Officer, an Administrative Officer and six support staff. 7.4 The Institute has occupied i t s o w n premises since April 1999. There are plans t o acquire more spacious premises in order to accommodate the demand for study facilities f r o m the large number o f students and members. Currently the Institute i s self funding with tuition and examination fees representing a significant proportion of i t s income. Recent developments 7.5 Significant progress has been made by I C P A U in regulating and developing the accountancy profession since 200 1. The number o f professional accountants registered with the Institute has increased 26 Associate membership i s granted to persons without a professional accounting qualification but who have intemational professional qualifications such as The Institute o f Chartered Secretaries and Administrators and The Institute o f Chartered Managers and Administrators, who were in public practice when the Act was enacted in 1992. The Institute issues Associate members with a License o f Practice. 27 The recent Enron and Parlamat sagas triggered this change. - 58 - from 222 in 2001 t o 365 in 2004, while registered associate members have fallen from 20 in 2001 to 16 in 2004. The distribution o f the membership throughout the economy i s shown in table 18. Table 18. Distribution of ICPAU membership Professional Accountants Percentage Public Practice and Consultancy 60 Commerce and Industry 25 Parastatals 10 Government 5 Total 100 7.6 The Institute has established, with the assistance o f the Institute o f Chartered Accountants o f Scotland, an examination scheme/syllabus consisting o f five levels with a total o f 15 papers. A Public Accountants Examination Board oversees t h i s process. T o date nine professional accountants and 29 accounting technicians have qualified. Professional education and continued professional development training 7.7 The Institute’s number o f students for the professional accounting course, the Certified Public Accountant o f Uganda - CPA(U), has increased to 2,200 from 292 in 2001 while the accounting technician course, which began in 2001, Accounting Technician o f Uganda - ATC(U), now has 1650 students. This increase i s mainly due to the EFMP-I1project sponsored by the W o r l d Bank and the F A P sponsored by DFID. 7.8 The Association o f Chartered Certified Accountants (ACCA) has the largest number o f students being trained in professional accounting in Uganda. While A C C A has been active in Uganda since the sixties, a Uganda country office was opened in September 1999 to support i t s students and members. The Uganda branch o f A C C A has a membership o f 493 professional accountants and 2,946 students. The Association also offers training at the Accounting Technician level. Currently there are 182 qualified technicians and 330 students. M o s t o f the A C C A professionals eventually become members o f the ICPAU. Approximately, four out o f every five members o f ICPAU are also members o f ACCA. 7.9 The minimum level o f general education required for entry to the Institute’s professional accounting course i s an Advanced level certificate with at least 2 principal D passes at Advanced level and 5 credits at Ordinary level including English and Maths or equivalent qualifications. While for ACCA, the requirement for entry i s an Advanced level certificate with a minimum o f 2 principal passes, The minimum entry requirement for the Institute’s accounting technician course i s an Ordinary level certificate with at least passes in English and Maths while for ACCA, anyone can apply although an Ordinary level certificate i s recommended. 7.10 The Institute, according t o the Accountants Act, has three categories o f membership which are full membership, associate membership and honorary membership. The draft Accountants Bill intends to delete honorary membership and replace it with retired members. Full membership o f the Institute, which i s open to all nationalities, can be achieved through either: - 59 - 0 A student passing the qualifying examinations conducted by the Examination Board and completing practical training o f three years; or 0 The Council granting membership to a member o f a Society or Institute o f Accountants approved as being a society or institute with a status equivalent to that o f the Institute. 7.1 1 Certificates o f Practice are offered to full members o f the Institute who intend to practice accounting and auditing in Uganda. At the moment, there i s no specific requirement to have auditing experience in order to acquire a Certificate o f Practice but the Institute has plans underway to make auditing experience a requirement for acquiring a Certificate. 7.12 The Institute and A C C A carry out Continuous Professional Development (CPD) Programmes for their members regularly during the year mainly through seminars. The Institute and A C C A recommend CPD of 35 and 40 hours respectively. This CPD i s voluntary but highly recommended although I F A C plans to ensure that in 2005, their member institutions make CPD compulsory. The Institute also produces quarterly technical news letters. 7.13 The country has about 10 institutions providing professional accounting and accounting technician courses. The leading institution i s the Management Accountancy Training Centre which produces about 100 accounting graduates per year. Makerere University Business School also provides training for professional accountants and accounting technicians at all levels. Most o f these institutions are located in Kampala. A major challenge i s to have training centres in the main upcountry towns. T h e cost o f training i s high in the best institutions and this i s a major constraint for students who are not sponsored by organisations. 7.14 The Institute does not publish i t s own manuals/textbooks for i t s examinations but issues approved reading lists for i t s students. The A C C A does publish i t s own manuals/textbooks. In both cases, the cost of these manuals/textbooks i s high and causes significant difficulties for students who are not sponsored by organisations. 7.15 The Institute grants exemptions to graduates, accounting technicians and diploma holders who want to pursue the professional accounting course, based on an assessment o f the student’s qualification and i t s accreditation o f the institutionhniversity at which the qualification was acquired e.g. a Bachelor o f Commerce (Accounting Option) degree holder from Makerere University would get credits for 10 subjects covering levels 1 & 2 of the professional accounting course, while an accounting technician would get credits in 7 subjects within levels 1 & 2. Currently, the Institute only provides credits to Makerere University graduates and not to graduates o f any other Ugandan University. Professional and technical standards 7.16 With effect from January 1, 1998, the Institute adopted both IASs and International Standards on Auditing for use in Uganda. Additionally, it has developed one local accounting standard dealing with Value Added Tax. A Code o f Ethics was also developed in 1997 for i t s members. 7.17 There i s no quality control or peer assessment programme to monitor local auditing f i r m s to ensure that they comply with minimum standards and maintain high technical standards. Challenges 7.18 A number o f issues impact on the performance and effectiveness o f ICPAU. Firstly it has been embroiled in a legal wrangle since its establishment regarding the l i s t o f international accountancy bodies - 60 - whose members may be admitted as full members. This dispute i s not resolved after eight years and it has had a damaging effect o n the Institute’s capacity to discharge its mandate. 7.19 Secondly, the Institute lacks the capacity and resources to monitor and enforce compliance o f accounting and auditing standards amongst practicing firms. Plans are in progress to solve this issue 4 f i r m s do carry regionally with E C S A F A but they are limited by financial resources. However, the Big28 out their standard internal quality reviews to ensure they are complying with the accounting and auditing standards. 7.20 Finally, while the Institute has reciprocity arrangements with the Institute o f Certified Public Accountants in Kenya and the National Board o f Accountants and Auditors in Tanzania. There i s a need to have more reciprocity arrangements with other countries and international accountancy associations in order to ensure that Certified Public Accountants o f Uganda can practice in these countries. Reforms 7.21 The Institute i s overseeing the development o f the Association o f Accounting Technicians o f Uganda. The Association has a constitution which was adopted in December 2003 and executive members have been elected. The Association i s based at the Institute’s offices. However, it i s expected that the Association will become independent in the long term and will prescribe and regulate the conduct o f accounting technicians in Uganda. B. RECOMMENDATIONS 7.22 The accountancy profession in Uganda plays an important role in enhancing accountability for public funds, not only through their members who are employed in the public sector, but also providing audit services to institutions entrusted with public funds. The fiduciary risks related to insufficient regulation and compliance mechanisms o f the profession can be reduced through the following measures: Short-term (1-2 years) 0 The eight year legal wrangle on membership criteria should be resolved. The draft Accountants Bill which aims at strengthening the accountancy profession should also be passed by Parliament. 0 The Institute plans to use ECSAFA’s resources to monitor and enforce compliance o f accounting and auditing standards amongst practicing firms. However, E C S A F A needs to be supported financially to carry out this activity in i t s member countries which include Uganda. 0 The Institute should continue overseeing the establishment o f the Association o f Accounting Technicians o f Uganda in order to become an independent body. 0 The Institute should implement i t s plans to make audit experience a requirement for a full member to be granted a Certificate o f Practice. 0 CPD should be made mandatory. Medium-term (3-5 years) 0 The feasibility o f introducing training loans to students who have financial constraints should be explored. 0 The accountancy profession should consider practical ways o f h o w training can be provided in the main upcountry towns. 28 They are PricewaterhouseCoopers,KPMG, Ernst and Young and Deloitte and Touche. - 61 - 0 The Institute should have more reciprocity arrangements with other countries so that i t s members’ qualifications become more internationally recognized. 0 Stakeholders in the accountancy profession in Uganda should consider the relevance o f recent international developments on how the profession should be regulated which basically advocates for the creation o f a strong national independent regulator to which the accountancy profession contributes expertise but which it does not control. - 62 - APPENDIX APPENDIX 1. STATUS MATRXOF 2001 C F M ACTION I PLAN Implemented draft Public Finance Bill, and presentation to Parliament. 2. Finalize the Draft Treasury Accounting Implemented Financial Regulations had been promulgated. Instructions and Financial Regulations & Treasury Accounting Instructions still in draft promulgate the new set. as discussed in par. 2.4. 3. Incorporate provisions in the Public Implemented Finance Bill defining the mandate and role o f MFPED in ensuring the efficient and effective use and accountability by Local Governments of centrally funded programs. 4. Draft constitutional changes for an In progress Constitutional Review Commission report has enhanced public accountability been issued but h as not yet been discussed by framework, and seek approval by Government. T h i s action i s in relation to the Parliament. independenceo f the Auditor General. Refer also Section 4.1. I Budget and Expenditure Control I 5. Improving on recent milestone developments: Pursuit of co mpleteness of the budget Under imple- Projections captured. N o mechanism as yet for framework by capturing all donor finds mentation the timely reconciliations o f outtum. To be for programming under the MTEF; operationalised as part of Integrated Project ceilings. Measures to e nhance budget execution; Under imple- PFAA 2003, CCS implemented and IFMS i n mentation progress to ensure budget discipline and feasible output. Measures to improve performance in In progress More tax sources identifiedand collection by domestic revenue mobilization; URA instituted. NTR management being improved hrther. Enha ncing the transparency of the Implemented Through consultative process, performance budget process. reports, Citizen’s guide and budget at a glance. ~ 6. Consolidating and sustaining recent In progress All the above measures under 5 aimed at gains: requiring a strategic framework for achieving this. integrating and sustaining the implementation o f the on-going initiatives, and capacity building. - 63 - Accounting and Reporting 7. Mitigating high risks i n the short term: Reg ularize material non-reconciled Not achieved Being discussed in current Parliamentary items in the Public Accounts; session. Ens ure timely monthly reportingby Implemented ministries; Introduce quarter1y consolidated Implemented financial reports; Establis h a representative Financial Implemented PEMCOM. Management Committee to reinforce internal oversight; Surcharge or censure errant public Implemented Treasury Memorandum advises Parliament on officers who are charged with the action which government has taken. Parliament responsibility o f managing and can sanction government r e defaulters e.g. controllingpublic finds; withholding o f budget approval. Developin g a Pay Reform Strategy In progress Implementation to be achieved over a 5 year should be prioritized. Deriod effective 2001/2. 8. Reducing risks in the short to medium- term: I mprove the quality o f Public Accounts; Implemented Accounts for FY2002/03. Recruit, develop and retain be tter Implemented Now more than 60 professionally qualified qualified staff; staff in service. Enforce fi nancial discipline and Implemented PFAA 2003, IFMS and strengthening of CCS. minimize non-compliance with set procedures, rules and regulations; Eli minate potential overlap in the Under imple- New roles of AccGen’s Office redefined as per mandates and roles o f the Treasury mentation to PFAA will eliminate remaining overlaps, Inspectorate/InternalAudit Depts; Rein force management and Implemented PEMCOM set up. - coordination of intemal oversight. 9. Medium to long-term: Implement IFMS; Partially In process o f piloting and rollout. achieved Co mplying with IFAC promulgations. Implemented Required by PFAA. 10. Enhance OAG independenceby having Not achieved Was delayed due to constitutional review its own annual budget approved by Commission’s work. May now be Parliament. implemented under the revision of the Audit Bill, 2002. 11, An audit certificate should be provided by Implemented the AG on the annual audited Public Accounts as required by law and i n line with international practice. 12. Salary issues: development o f a Pay Partially Pay reform i s being implemented through Reform Strategy should be prioritized. achieved salary increase and a single spine salary introduced in July 2003 in l i n e with the job evaluation recommendation. 13. Measures to strengthen quality assurance Implemented and other capacity building in OAG, including TA and establishing a Technical Services Dept. I 14. -- Mobilize technical and fmancial support 1 Partially I Study tours were undertaken to enhance to enable the PAC to discharge i t s achieved capacity. Still lack o f resources. mandate effectively. 15. Mobilize technical and fmancial support Not achieved Facilitation required. Refer also to footnote 20. to enable COSASE to discharge i t s mandate effectively. 16. Update accounts, clear the backlog o f Implemented audits and address accounting weaknesses in commissions, statutory authorities and state enterprises. 17. Institute procedures to empower the O A G Implemented PFAA regulations, 2003. with rights o f access to all public bodies for audit purposes. 18. Arrears o f project audit reports should be Implemented addressed (Accounting Officers and OAG). 19. Divestiture arrangements require Implemented DRIC set up chaired by the Minister o f State strengthening. for Finance (privatisation) to over see divestiture process. Partially P F A A 2003 requiring reporting on a monthly improve efficiency and reinforce achieved basis, quarterly inspections to verify status accounting controls for PAF and being done. L G A to be revised. IFMS to be conditional grants funds. introduced in some Local Governments. 2 1. Technical assistance and incentives to Partially enable Local Govemments to prepare achieved complete and reliable annual audited fmancial reports on a timely basis. 22. Study to determine the optimum staff structures and new salary arrangements to reform strategy. Training ongoing for attract and retain relevantly qualified accounting cadre. Implemented up of the Local Government PACs to ensure their effectiveness and sustainable funding o f their operations. 24. Implementation o f LGDP. Implemented I Ethics and Integrity 25. Mobilize resources for identified agencies In progress There are pledges from Norway and DFID to to effectively implement the G O U fund the new strategy for ethics and integrity Strategy Plan to fight corruption and which i s to be launched in M a y 2004 for 4 build ethics and iniegrity in-public office. I years. penalizefor “informalities” in the resource gap especially in Ethics and Integrity management o f public resources. department which curtails process o f implementation. Recent court rulings and proposed constitutional review amendments would reverse Drogress. Y criteria for I C P A U membership. ~ I mentioned in par 7.2. to strengthen the capacity o f the I C P A U proposed legislation. to discharge i t s statutory obligations. - 65 - APPENDIX2. BIBLIOGRAPHY A. Books, Reports, Statutes and Articles 1. Crown Agents. Draft Final Report on Business Processes o f the Payroll and Pension Systems in the Central Government o f Uganda. December 2003. MoFPED, Second Economic & Financial Management Project and Financial Accountability Program. 2. Department for International Development (DFID) (UK). Managing Fiduciary Risk When Providing Direct Budget Support (Issues Paper). March 2002. 3. Department for International Development (DFID) (Eastern Africa). 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Technical Assistance Mission Report: Supply and Installation of DMFAS, Uganda, 15 June 2000-11 August 2003. 11" August 2003. Prepared by Jacques Baert, Debt Management Consultant. 97. Williamson, D. & Canagarajah S. Is there a Place for Virtual Poverty Funds I n Pro-Poor Public Spending Reform? Lessonsfiom Uganda s PAF. Development Policy Review, Volume 21, Number 4, July 2003. 98. World Bank. UGANDA: Country Assistance Strategy. F Y 200 1-2003, Uganda Country Department, Africa Region. 99. World Bank. Uganda: Country Financial Accountability Assessment, January 10, 2001. 100. World Bank. Mozambique: Country Financial Accountability Assessment, December 2001, 101, World Bank. UGANDA: Country Portfolio Performance Review (CPPR). F Y 2002-2003, Uganda Country Department, Africa Region. 102. World Bank and International Monetary Fund. Report on the Tracking o f Poverty-Reduction Spending in Uganda: 2001-02. 2002. 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PREM 2, Country Department o f Uganda, Africa Region. 113. World Bank. Aide Memoire: Second Economic and Financial Management Project, UGANDA: Implementation Review Mission. September 15 to October 2,2003. 114. World Bank. Aide Memoire: Fourth Poverty Reduction Support Credit (PRSC4) UGANDA: Pre-appraisal Mission. October 27-November 7, 2003. 115. World Bank. Unedited input to Financial Management Component o f Aide Memoire: Fourth Poverty Reduction Support Credit (PRSC4) UGANDA: Pre-appraisal Mission. October 27-November 7, 2003. 116. World Bank. Draft Financial Management Component o f Policy and Results Matrix: Fourth Poverty Reduction Support Credit (PRSC4) UGANDA. January 2004. B. Responses on CFAA Checklists by Stakeholders Public Sector 117. Budgeting 118. Sector Ministries (Financial Accountability Arrangements) 119. Public Sector Accounting and Financial Reporting 120. The Auditor General 121. Staffing o f Public Sector Financial Management Departments 122. Internal Audit 123. Internal Control and Records Management 124. Government Business Enterprises 125. Legislation and Legal Framework 126. Donor Funds Financial Management and A i d Policy Coordination 127. Non-Governmental Organizations (NGO’s) & Community Based Organizations (CBO’s) 128. Legislative Scrutiny, Ethics and Integrity 129. Public Access to Information on Public Sector Financial Management Private Sector 130. Accounting and Auditing Standards and Accounting & Auditing Standards C. Web Resources 13 1. European Corporate Governance Network. Corporate Governance Codes, Principles and Recommendations. Online. Available URL address: http://www,ecgi.org/codes/index.htm. 132. INTOSAI (International Organisation o f Supreme Audit Institutions). Auditing Standards. 1992 (revised 1995). Online. Available URL address: http://www.intosai.org/l-defaue.htm1. 133. Organisation for Economic Co-operation and Development (OECD). O E C D online - Corporate Affairs. Online. Available URL address: http://www.oecd.org/department/0,2688,en~2649~33721~1~1~1~1~1,00.html. 134. The Institute o f Intemal Auditors. Standards for the Professional Practice o f Intemal Auditing. Online. Available URL address: http:/ihttp://www.theiia.org/ecm/guidance.cfm?doc-id=l499. - 70 - APPENDIX 3. LISTOF PEOPLE MET Training Mrs J. Nantongo Registry Principal Records Management Officer Mr S. Emasu - Accountant General’s Office EFMP-I1 Financial Management Specialist - Internal AuditPolicy Mr D. Nyende Accountant General’s Office - EFMP-I1 Financial Management Specialist - BudgeVFinancialManagement Mr M. Ochai Macro-economic Policy Department Principal Economist Mr C. Mugune Treasury Inspectorate Department Principal Accountant - 71 - Dr J.P. Okullu-Mura Department o f Information Director o f Information Mr A. Aheebwa Directorate o f Ethics and Integrity Acting Permanent Secretary Mr P. Beggan Directorate o f Ethics and Integrity Governance Advisor MINISTRY OF PUBLIC SERVICE Mr I B.K. Muwonge I Ministry o f Public Service I Asst. Commissioner: Archives & Records Mr J. Mughuma Public Service Commission Senior Assistant Secretary Ms P.B.M. Sezi Directorate o f Human Resource Management Director Ms Prisca Boonabantu Finance and Administration Principal Assitant Secretary Mr M.R. Otim Planning Department Acting Head o f Planning Mr G.E. Okongo Human Resource Management Principal Personal Officer Mr D. Kalongole Accounts Senior Accountant Mrs J. Mpanga National Board for NGOs Chairperson Ms S. Kasule National Board for NGOs Secretary Mr P.M. Ssentongo- National Board for NGOs (Board Member): Asst. Commissioner: Coordination & Mr 1 W.B. Kasaija I 1 CAFE Intemational Uganda 1 Monitoring Department, Office o f the Prime Minister ~ ~ ~ ~ ~ ~ ~ . . ~~~~~~ ~ Intemal Auditor . Mr I Apollo Matovu I Actionaid Uganda I Finance Manager - 72 - PRIVATE SECTOR INSTITUTIONS Mr I G.M.Kasanya I Institute o f CertifiedPublic Accountants o f I SecretaryKhief Executive Officer Eastern Africa (Kampala) Mr E. Aberg Embassy o f Sweden (SIDA), (Kampala) Ambassador Ms A. Hildeman Embassy o f Sweden (SIDA), (Kampala) First Secretary, Economist Ms G.K. Mugambe Embassy o f Sweden (SIDA), (Kampala) Economist Mr W. ten Kate Ambassade van het Koninkrijk der Nederlanden First Secretary, Macroeconomist Mr M. Heide Royal Norwegian Embassy (Kampala) First Secretary, Senior Economist Mr T. Williamson Overseas Development Institute Research Officer: Center for Aid and Public Exoenditure. Poverty and I Public Poiicy Group Mr I T. Djurhuus 1 Royal Danish Embassy [ Deputy Head o f MissiodCounsellor - 73 -