Report No. 29116-UG The Republic of Uganda Country Financial Accountability Assessment May 2004 Africa Region Operational Quality & Knowledge Services Unit Financial Management Document of the World Bank THE REPUBLICof UGANDA Report of a Country Financial Accountability Assessment May 2004 Country Financial AccountabilityAssessment The Republic of Uganda THE REPUBLICOFUGANDA COUNTRY FINANCIALACCOUNTABILITY ASSESSMENT Table of Contents PREFACE ............................................................................................................................................ 111 Section 1: Introduction ......................................................................................................................... 1 Section 2: Government FinancialPlanningand Budgeting .............................................................. 4 2.1 Budget planning and resource allocation........................................................................................ 4 2.1.1 Review and assessment of the current system................................................................... 4 2.1.2 Recommendations ............................................................................................................. 6 2.2 Budget execution and monitoring................................................................................................... 7 2.2.1 Review and assessment of the current system................................................................... 7 2.2.2 Recommendations ............................................................................................................. 8 2.3 Aid coordinationand external resource management .................................................................... 9 2.3.1 Review and assessment of the current system................................................................... 9 2.3.2 Recommendations ........................................................................................................... 12 Section 3: Government Accounting and FinancialReporting ......................................................... 13 3.1 Accounting, financial reporting and internal control.................................................................... 13 3.1.1 Review and assessment ofthe current system................................................................. 13 3.1.2 Recommendations ........................................................................................................... 19 3.2 Information technology and records management ....................................................................... 20 3.2.1 Review and assessment of the current system................................................................. 20 3.2.2 Recommendations ........................................................................................................... 23 3.3 Human resource management (HRM).......................................................................................... 24 3.3.1 Review and assessment of the current system................................................................. 24 3.3.2 Recommendations ........................................................................................................... 26 Section 4: Public Sector Auditing ...................................................................................................... 27 4.1 External audit................................................................................................................................ 27 4.1.1 Review and assessment of the current system................................................................. 27 4.1.2 Recommendations ........................................................................................................... 31 4.2 Internal audit................................................................................................................................. 32 4.2.1 Review and assessment of the current situation.............................................................. 32 4.2.2 Recommendations ........................................................................................................... 34 Section 5: Legislative Scrutiny, Access to Information on PFM,Ethicsand Integrity .................35 5.1 Legislative scrutiny ...................................................................................................................... 35 5.1.1 Review and assessment ofthe current system................................................................. 35 5.1.2 Recommendations ........................................................................................................... 37 5.2 Access to information on public financial management............................................................... 37 5.2.1 Review and assessment of the current system................................................................. 37 5.2.2 Recommendations ........................................................................................................... 39 5.3 Ethics and integrity....................................................................................................................... 39 5.3.1 Review and assessment of the current system................................................................. 39 5.3.2 Recommendations ........................................................................................................... 42 Section 6: PublicEnterprises(PE's) .................................................................................................. 44 6.1 Review and assessment of the current situation ........................................................................... 44 CountryFinancial AccountabilityAssessment TheRepublicof Uganda 6.2 Recommendations ........................................................................................................................ 46 Section7: Non-Governmental Organisations (NGO's) .................................................................... 47 7.1 Review and assessment of the current situation ........................................................................... 47 7.2 Recommendations ........................................................................................................................ 48 Section8: The Accountingand Auditing Profession ........................................................................ 49 8.1 Review and assessment of the current situation ........................................................................... 49 8.2 Recommendations ........................................................................................................................ 52 Appendix 1: StatusMatrix of 2001 CFAA Action Plan ................................................................... 53 Appendix 2: Bibliography .................................................................................................................. 56 Appendix 3: Listof PeopleMet .......................................................................................................... 61 Index of Tables Table 1: Summary of Budget releasesfor 2002/03 ................................................................................. 7 Table 2: Uganda: IDA portfolio as of January 1, 2004 ......................................................................... 11 Table 3: Uganda: Audit compliance...................................................................................................... Table 4: Summary of draft PwC recommendations for a new Accountant General's Office (AGO)...11 14 Table 5: New Chart of Accounts ........................................................................................................... 17 Table 6: Planned schedule for the rollout of the IFMS ......................................................................... 18 Table 7: Proposedrollout plan .............................................................................................................. 22 Table 8: Accountants and InternalAuditors at AGO -April 2004....................................................... 24 Table 9: Staff at the OAG (as per Staff List) -April 2004 ................................................................... Table 10: Numbers of Government Accountants and Auditors who sat examinations inDec. 2003 ...25 25 Table 11: Audit of Local Government Accounts (excluding sub counties) .......................................... 29 Table 12: Trends innumber of Accounts to be audited by the OAG.................................................... 29 Table 13: Trends in OAG fundingfrom the GoU................................................................................. 30 Table 14: Status of reports on Central Government Accounts .............................................................. 36 Table 15: Uganda's ranking inthe TI Corruption Perception Index..................................................... 41 Table 16: Reported percentagelevels of Bribery in selectedInstitutions............................................. 41 Table 17: Cases handled by the IGG..................................................................................................... 42 Table 18: Distribution of ICPAUmembership ..................................................................................... 49 Indexof Figures Figure 1: ForeignAssistance Inflows...................................................................................................... 9 Country Financial AccountabilityAssessment TheRepublic of Uganda PREFACE Context Sound Economic Governance i s essential for the achievement of the desired reduction in poverty levels and improvements in economic growth in Uganda. Good Public Financial Management (PFM) is important for efficient, effective and equitable utilisation of scarce national resources. Whilst the extent to which policy makers are held accountable to their constituents is an excellent indicator of good governance. Accountability and transparency go hand in hand in developing open and participatory decision-making processes. 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 of 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 of 2004. However all stakeholders agreed as part of improved harmonisation and co-ordination that it should be carried out as part of a broader Country Integrated Fiduciary Assessment (CIFA) for Uganda. The CIFA aims at integrating three diagnostic exercises (CFAA, Public Expenditure Review (PER) and Country Procurement Assessment Report (CPAR)) to facilitate a comprehensive assessment of PFMinUganda. The overall purpose of the CIFA and its sub component exercises, including the CFAA, i s to provide GoUand Development Partners with a comprehensive, integrated and candid assessment of 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, institutional performance and capacity building. Overview of 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 of the Integrated FinancialManagement System (IFMS) has been concluded, the roll out and further development and funding of the IFMS poses a significant challenge to the GoU. There are also considerable concerns about the adequacy and integrity of the current payroll system. The critical issue of the operational independence of the Auditor General remains unresolved and needs to be addressed urgently. Oversight and supervision of 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 of anti-corruption activities is highly commendable, the cost of corruption to the economy remains a significant problem. Team composition The assignment team for the CFAA consisted of the following members: 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 mentioned above. Country Financial AccountabilityAssessment TheRepublic of Uganda 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 (FMUnit, Africa Region). The work was completed with guidance of 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) is acknowledged. The study was conducted duringthe first quarter of 2004 through a combination of questionnaires, written submissions, desk reviews and interviews with key personnel of 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 inputstowards the finalisation of this report as well as the CIFA report. The workshop was attended by a representative group of all the stakeholders mentioned in Appendix 3 (including Development Partner's) who participatedinand contributedto this process. Finally, the CFAA team expresses its 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 of 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 of Messrs. L. Semakula, P.W. Mangeni, D.T. Kisembo and R. Byaruhanga without whose assistancethe team wouldn't have been able to achieve its targets, is recognised. Also our gratitude i s extended to the team from the Accountant General's Office who supported the missionincollectingthe questionnaires and arranging appointments with counterparts. - iv - Country Financial AccountabilityAssessment The Republic of Uganda SECTION 1: INTRODUCTION Background 1. Uganda has been undertaking economic reforms geared to maintenance of 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 reformUganda has implemented i s the liberalisationof markets in all sectors of the economy and the decision that the private sector should lead the economic growth process. Indeed, the country registered high rates of economic growth duringthe 1990sand poverty declined from 54% in 1997 to 35% in 2000. However, from the turn of the century the Ugandan economy began experiencing several challenges reflected mainly by the slow down inthe rate of economic growth. 2. Previous evaluations of Public Financial Management (PFM) and Accountability systems inUganda' 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 International Development (DFID) funded Financial Accountability Programme (FAP).These centrally managedprogrammes have resulted inthe 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 of the PFM framework. Inaddition 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 of Public Service (MOPS)for PayroWPersonnel. Some attempts have been made to co-ordinate these development activities through the recent establishment of a Public Expenditure Management Committee -better knownas PEMCOM. 3. The Country Integrated Fiduciary Assessment (CIFA), of which the Country Financial Accountability Assessment (CFAA) i s a key component, is being undertaken at a time when the Government of 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 governance. It conforms with GoU's main strategic directions: adherence to macro stability, increased private sector participation inthe economy, a renewed emphasis on rural development and improved delivery of social services. In supporting these objectives the CAS proposes a lendingprogramme, which i s increasingly geared towards operations with a direct bearing on poverty and strengthening of social sector programmes. 4. In pillars one and two of the PEAP the importance of strengthening public expenditure management and of good governance in improving the efficiency of 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 of Poverty Reduction Support Credits (PRSC) and general budget support, which commenced in 2001 to support the Government's PEAP. The CIFA and its subcomponent processes will help GoU and Development Partners in CAS and PEAP preparatiodrevision and be an important input to ongoing reform programmes includingthe preparation of general budget support and PRSC. Objectives of a CFAA 5. A CFAA is a diagnostic tool designed to enhance knowledge of PFM and accountability arrangements. Financial Accountability i s the obligation to demonstrate and take responsibility for the results of 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 of the EFMPIIdesignstudies (1998/99),CFANCPAR (2001), Highly IndebtedPoor Countries (HIPC)TrackingStudy (2001/2), Reviewof LocalGovt PFM(2003) and annualPERs - 1 - Country Financial AccountabilityAssessment The Republic of Uganda stewardship function are important determinants of performance, development effectiveness and poverty reduction. The CFAA i s not an audit-nor does it provide a "pass/fail" assessment of a country's PFM system. A CFAA provides a well-informed and objective assessment, a diagnosis of problems, advice on their resolution and an indication of the level of fiduciary risk. However, it i s not intended to, and does not, provide assurance on the specific uses to which funds have been or may be applied. A CFAA also facilitates the design and implementation of a development action plan to support financial accountability. Scope and Action plan 6. This CFAA i s an update of the assessment done in 2001. It discusses progress made in the area of PFM reforms since then and provides a "status-matrix'' in Appendix 1on the implementation of the key recommendations of the 2001 CFAA. As this exercise i s to form an integral part of the CIFA report, it has been agreed that there should be no executive summary or separate action plan. Nevertheless the following salient recommendations are noteworthy: 0 Streamline the requirements in the budget process and improve contents of budget performance reports; 0 Record and monitor all foreign development assistanceinthe budget; 0 Approve and implement the proposed new organisational structure of the Accountant General's Office (AGO); 0 Improve the integrity of the payroll system; 0 Secure funding for the roll out of the Integrated FinancialManagement System (IFMS); 0 Enact appropriate legislation to ensure the independenceof the Auditor General (AudGen); 0 Implement changes to the Internal Audit function as required by the Public Finance and Accountability Act (PFAA); 0 Strengthen various elements of the oversight as well as legislative and public scrutiny functions; 0 Strengthen monitoring of accountability of Public Enterprises (PES) and Non-Governmental Organisations (NGOs); and 0 Enact the draft Accountants Bill which aims to strengthen regulation of the accountancy profession. 7. 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 of the budget cycle and the oversight and accountability frameworks. Budget formulation has been restrictedprimarily to a review of the legislative and regulatory issues as well as the systems and procedures for aid co-ordination. A separate CIFA 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 8. Whilst the CFAA includes an objective assessment and diagnosis of strengths and weaknesses of certain elements of the PFM, the overall assessment of the level of fiduciary risk will form part of the CIFA report. Nevertheless, fiduciary risk i s of such importance that one cannot omit addressing the issue-albeit only in summary. 9. The fiduciary risks associated with poor budget formulation and budget preparation processes have reduced. In terms of appropriate legislation and regulatory frameworks, significant progress has been made to ensure that the risk associated with lack of clear rules and regulations has been reduced. Also more useful information i s provided inthe annual accounts. 10. It i s recognised however that Rome was not built ina day, the process of implementation of new rules and ways of working does take time and does require changes inattitude, continuedcapacity buildingand widespread demand for greater accountability. Risksremain interms o f - 2 - Country Financia/ Accountability Assessment The Republic of Uganda 0 Enforcement of procurement and payroll rules and procedures; 0 Completeness of data on debt; 0 Effective independent oversight, and 0 Timeliness and effectiveness of legislativeand public scrutiny. 11. In addition, the appropriate legislative framework for integrity is still being developed. There remain significant legal, institutional and capacity constraints on the ability of the integrity bodies (IGG, DEI, Police, DPP) to carry out their various functions including public education, detection, investigation and prosecutionof offenders. - 3 - Country Financial Accountability Assessment The Republic of Uganda SECTION 2: GOVERNMENTFINANCIALPLANNINGAND BUDGETING 2.1 Budget planning and resourceallocation 2.1.1 Review and assessment of the current system Legislative framework and regulatory environment 12. The Constitution, the PFAA, 2003 and the Budget Act, 2001 provide the basic legal platformfor the budget formulation process. The Budget Act stipulates first and foremost the information on the budget process that Government is 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 of 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 of 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 of grants received by the State and achievements obtained through these grants. The Act also regulates the budget formulation procedures within Parliament. 13. The PFAA provides the legal framework for enhancing the control and management of 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 of resources and adherence to accounting practices. 14. Although the content and structure of the Budget Act seems to be appropriate and according to MoFPED has considerably improved timeliness of the budget process, the Act 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 of the Act, also requires close consultations between the Government and Parliament on the content of the budget proposals and its priorities. The Public Expenditure Review (PER) process in Uganda also forms an integral part of the budget process, not least during the period of consultations between the Government and the Parliament. 15. One significant reason for the "congestion" during the latter part of the annual budget process is the very ambitious requirements for the presentation of budget information specified in the Budget Act. The provision of 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 ina short period of time could have an adverse effect on accuracy and quality of documentation. 16. Another very important set of 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 WorkingBudget Framework Papers, consequences of the on-going PEAP review process, the link between identified outputs/outcomes and proposed budgets from sector ministries, the inclusion of all Development Partner resources in the budgetary resource envelope, the issue of arrears, instructions to identify ghost workers, issues relating to the MOPSdecisions (wage bill, vacant posts, etc), identification of protected expenditure and a number of other technical issues, including some relating to LG. - 4 - Country Financial AccountabilityAssessment TheRepublicof Uganda Budgetformulation 17. The introduction of the MediumTerm Expenditure Framework (MTEF) in Uganda made it possible to formulate a resource envelope for medium term planning that is consistent with balanced macro- economic development. Most importantly, the MTEF also makes it possible for the MoFPED to project the size of different budget components (e.g. wage, non-wage, development) in different scenarios on an aggregatelevel. Inthis respect the MTEFcontinues to represent an important stabilising fiscal factor. 18. Following the presentation of the sector ceilings from MoFPED, sector ministries are, as part of 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 of the BFPs supposedly fulfils the requirement for a needs assessment inthe MTEFprocess. According to the MoFPED, BFPsare gradually improving and becoming less of an academic exercise. However, whether it i s because of the fact that the sector ceilings are determined early in the Ugandan budget process, or due to some other reason, in many cases BFPs still lack realism, Le. 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 of the sector to utilise the funds. 19. In order to enhance realism, BFPs should be based on a set of costed activities, which support the objectives of the sector programmes. This 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. 20. More 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. This is because of the uncertainty associated with final revenue projections and actual Development Partner financing. As agreed under the partnership principles, 2003/04 sector ceilings include Development Partner financed projects and budget support. Although, the quality of information on Development Partner project financing still remains poor, improved forecasts of both revenue and such financing as shown in the 2002/03 Annual Budget Performance Report, would stabilise medium term forecasts and therefore improve the credibility of the MTEFprocess. 21. The state budget in Uganda i s divided between the Poverty Action Fund (PAF)-protected areas and non-PAF areas. PAF areas, responding to the PEAP-priorities, are prioritised by Government in the budget and protected from cuts inreallocationprogrammes or cash limitations due to liquidity constraints. By creating the PAF, GoU has succeeded in mobilising Development Partner support. The share of expenditures included in PAF increased from 17% in 1997/98 to 31% in 2000/01 and to 36% in 2003/04. Under normal circumstances PAFexpenditure 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. 22. The Government has recently adopted the Government Financial Statistics (GFS) system and the Classification of the Functions of Government (COFOG), which i s to be adjusted to local conditions, i.e. to follow the structure of the new PEAPcurrently under revision. Overallassessment 23. Ingeneral, the Ugandanbudget formulation process works fairly well and has improved since the last CFAA in2001. 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 inlegislation have strengthened the budget planning process. However, although there are a large number of regulations in support of the primary legislation, it i s understood that there i s still some confusion over roles and responsibilities in terms of enforcing compliance, for example in budgeting for the payment of - 5 - CountryFinancial Accountability Assessment TheRepublicof Uganda arrears. In addition, the regulations place a heavy workload on MoFPED as a large volume of instructions, guidelines and other regulations require interventionor action by the ministry. Consequently, this situation could constitute a fiduciary risk if the sheer volume of detailed requirements makes it difficult for MoFPED to follow up on those key financial control mechanisms, such as the comprehensiveness of registered commitments or submission of non-tax revenue from sector ministries and to impose the necessary sanctions on non-compliance. 24. Revenue projections have improved, while tax revenue as a share of 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 of Development Partner projects that have been directly funded outside the budget framework and non-tax revenue financed expenditure exempt from transfer to the Consolidated Fund. A new and mandatory requirement for Government ministries to include all projects intheir budget submissions i s being introduced for the fiscal year 2004/05. A number of budget projection uncertainties linked to a weak payroll system, unfunded pension commitments, potential state enterprise subsidies and ongoing development projects rolled forward remain. There is a risk that some of these could give rise to substantial extra budgetary expenditure in-year. Due to budgetary constraints, there are no extra resources set aside for contingencies, although this could change with more realistic projections in the BFPs. In which case, overdrafts would henceforthbe exacerbated by external factors, such as exchange rate fluctuation, or political interference. 25. Roles and responsibilities in the budget formulation process are clearly defined in policy documents and timeliness in budget preparation has improved as a result of the introduction of 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 PAFministries and the MoFPED. 26. The PEAP and the definition of relatedPAFareas support a close linkbetween (poverty) policies and expenditure plans, even ifimpact i s unclear due to weak PFM and reporting structures at LG level. However late final projections of revenue and donor financing pledges, introduce uncertainty into the MTEF resource envelope determination. Improved forecasting of both these aggregates would stabilise medium term projections and facilitate increased credibility and sector engagement in the MTEFprocess. The protected PAFcreatesdistortions and potentially causes efficiency losses inthe Government's budget formulation process. This is due to budget cuts impacting disproportionably on non-PAF areas that are linked to and support the performance and effectiveness of PAFresources. 27. As has already been stated sector BFP submissions continue to lack realism in relation to capacity/resources and would benefit from improved prioritisation and costing. The planned shift towards a more integrated and dynamic resource allocation system would better support plans for a more performance basedbudget process and reduce the risk of distortion and efficiency loss. 2.1.2 Recommendations 28. The Government is moving towards output/outcome related allocations in the budget process. This step forward could be supported by a number of initiatives in the budget formulation process. Short-term (1-2 years) e The large number of 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 inthe BFPs should be improved. 0 Capacity of MoFPED to evaluate and challenge line ministry proposals should be strengthened. e Continue to improve information on contingent liabilities, commitments and state enterprise operations. - 6 - CountrvFinancialAccountabilitv Assessment TheReDublic of Uaanda e 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. 2.2 Budget execution and monitoring 2.2.1 Review and assessmentof the current system 29. The Government presents a Semi-annual and an Annual Budget Performance Review report reflecting cash releases in relation to the budget to Parliament. Table 1is a summary of budget releases performance by function for the fiscal year (FY) 2002103. For the Development Partner budget support, monitoring i s done through the quarterly budget performance report. t Cashbalances areavailablefrommonthlybankreconciliations. # Economic Functions and Social Services. * The actual expenditure reported by Treasury amounts to an overspending of 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 providedinthe table above 31. Releasesof more than a hundredpercent shouldnot be interpreted as lack of expenditure control. The total "overdraft" for 2002103 i s an exception, which was funded through higher income from PESin-year than expected. The reason for this improved performance by PES has not been reviewed by this assessment. 32. The Government uses a number of systems to control expenditure in relation to the budget. All additional expenditure in-year i s funded through reallocations @e. cuts in non-PAF areas). According to the Budget Act, supplementary budgets cannot exceed 3% of 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 of the quarter and disbursed monthly. While the MOWED 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 PAFpriorities. - 7 - Country Financial AccountabilityAssessment The Republic of Uganda 33. Since 1999, sector ministries operate a commitment control system (CCS). No 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 PAF sectors, are not included in the CCS. The CCS will be introduced as a pilot exercise in a number of districts duringFY 2004/05 under the Fiscal Decentralisation Strategy. 34. Sector ministries report back monthly to MoFPED on their financial releases (and commitments registered). The information i s used by the MoFPED at fiscal year-end to check on disbursement of development funding. 35. Core PAF protected sectors transfer approximately 70% of their resources to LG (the actual disbursement is made by MoFPED). Expenditure control i s imposed through special reporting linked to a large number of 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 of 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 PAFand DevelopmentPartner funds. 36. 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 conceming 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 of arrears i s stipulated in the budget circular, although it i s not known whether any sanctions have actually been imposed. Assessment 37. Generally release control systems for regular budget expenditure seem to work well, with the exception of the possibility of a need for additional subsidies to state enterprises and unexpected additional pension commitments. However, according to a recent PRSC-programdocument expenditure on public administration i s increasing and different sources suggest that there are a number of "ghost workers" incore PAFsectors as a result of a breakdown of payrollcontrols and procedures. 38. Currently Budget Performance Reports do not reflect actual expenditure or commitments. However with the introduction of the IFMS, it i s anticipated that actual expenditure data will be included in the Budget Performance Reports as discussedfurther in Section 3.1. 39. The budget circular from MoFPED for fiscal year 2004/05 states that budget allocations should be more closely linked to the presentation of outputs/outcome and how these relate to stated objectives for the sector. Once budgeted and actual expenditure, and commitments are captured in the IFMS it would provide the Government with more reliable information on how expenditure relates to outputs and results. 2.2.2 Recommendations Short-term (1-2 years) Follow-up on the appropriateness of present systems for calculation of annual pension commitments, annual state enterprise subsidies. 0 Introductionof actual expenditure per sector inthe Budget Performance Reports -this will be done infinancial year (FY)2003/04. Medium-term (3-5 years) 0 Introduction of commitment information in the Budget Performance Reports. 0 Introduction of performance reporting inthe Budget Performance Reports. - 8 - Country Financial AccountabilityAssessment The Remblic of Uaanda 2.3 Aid coordination and external resourcemanagement 2.3.1 Review and assessment of the current system Legalframework 40. The Constitution and the PFAA gives MoFPED the mandate to plan and managepublic finances. The power to raise external financial resources is vested in the Minister responsible for Finance. Both the Cabinet and the Parliament approve all external borrowings. The regulatory framework over external borrowings appears appropriate. Aid coordination 41. Foreign assistance finance as a percentage of GDP was 13.91% inFY 2002/03 and i s expected to be 14.02% of GDP in FY 2003104. The Aid Liaison Department (ALD) in MoFPED i s responsible for effective and efficient coordination of aid resources. The Macro-economic Policy Department matches the external aid requirements with appropriate Development Partners within the macro-economic policy framework. It also keeps Development Partners informed of the Government's needs and priorities for external financing through half yearly meetings of line ministry and sector working groups or in the case of Development Partners without country offices in Kampala, through formal requests. Other opportunities for Government/Development Partner exchanges on priorities happen during PEAP and PER processes. Within the Development Partner group, there are a number of Consultative Group meetings that facilitate coordination. At Central Government level specialisation amongst Development Partners i s becoming increasingly common, thereby reducing the co-ordination costs. 42. The Government's aid policy i s that all foreign developmental assistanceto Uganda including loans, grants and technical assistance (TA) should be within the framework of the PEAP. The PEAP i s the Government's Comprehensive Development Framework. It i s intended to harmonize the implementation of all development programmes and facilitate the adoption of Sector Wide Approaches (SWAps) to resource allocation and management of foreign assistance aid inflows. The Government i s committed to taking a lead role and owning Uganda's developmental process and through consultations with its Development Partners has agreed a set of Partnership Principles. These Principles are intended to enhance the management of 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 of enhancing the optimal use of foreign assistance for poverty alleviation initiatives. Figure 1: Fore inAssistance Inflows 43. A major concern of the Government i s that the proportion of foreign assistance funds FOREGNASSISTANCEINFLOWS channelled through investment projects rather than budget support or programmes under 900 SWAps i s very high, contrary to the agreed .-In800 0Budget Partnership Principles. As Figure 1 opposite 700 600 Support shows, out of total foreign assistance inflows to tr) E2 500 Projects Uganda amounting to US$ 789 million in the c 400 FY 2002/03, US$330 million (42%) was .-E 300 0Total received through investment projects. The g 200 E 100 projections for FY's 2003/04 and 2004/05 show Q O that this trend will persist with investment project financing exceeding budget support/SWAps financing in FY 2004/05. This complicates the management and implement- FinancialYear tation of development assistanceto Uganda. Source: Macro-economic Policy Department, MoFPED - 9 CountryFinancial Accountability Assessment TheRepublicof Uganda 44. However, as illustrates above, there i s strong support from Development Partners to move towards SWAps in key sectors as the level of budget support financing has steadily increased in the past five years. This will promote common management and implementation arrangements and significantly reduce the transactioncosts incurredby Government incoordinating and managing foreign assistance. External resource management 45. ALD (under the Director of Budget) keeps custody of all loans and grants agreements and maintains a register of the agreements. The Foreign Funds Division in the Treasury Office of Accounts (TOA), in MoFPED has the responsibility of managing local and foreign debt including its 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 of 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 IFMS untilrecently. However, interfacing of the DMFAS to lFMS i s already being done and monitoredduringthe current pilot period. 46. A serious issue, however, relates to the bypassing of MoFPED in the process of recording the actual disbursement of project funds. This problem arises because Development Partners do not actively share estimates of 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 informthe line department responsible for executing the project that disbursement has been madebut the line department does not share that information with MoFPED. This means that MoFPED i s unable to keep its 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 to promote an optimal allocation of Government's own resources both within and across sectors. Direct payments by Development Partners to the providers of goods and services are also difficult to capture. Together these factors undermine the ability of MoFPED to plan the budget based on a comprehensive understanding of all resources available and jeopardize the efficacy of public expenditures. To deal with this problem MoFPED has issued instructions to all Government Units that starting from FY 2004105 all Development Partner-funded projects (loans and grants) will be part of the total budgetary resource envelope ceilings. Harmonisationissues 47. The prompt receipt by Development Partners of accurate audited accounts regarding the implementation of programmes i s an important fiduciary objective that also enhances the harmonisation agenda. To further this agenda, Government's audited accounts should follow the best practices outlined inthe 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 of all budget support/grants received. 48. There i s a need to harmonise disbursement procedures and accrue the benefits associated with a simplification and standardisation of the disbursement application process. For example if a Government form was designed that could be used for all disbursement applications the training and supervision of staff responsible for completing the forms would be simplified. In addition, this would increase Government ownership of the process. 49. Private sector auditors in Uganda are playing a key role in auditing foreign assistance programmes/projects. However, these auditors have not been assessedfor competence in accordance with 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 of all private sector auditing firms. This is particularly relevant because as noted in Section 4.1, there i s some concern over the quality of private sector audits. - 10- Country Financial AccountabilityAssessment The Republic of Uganda 50. There is need to harmonise the auditing requirements of foreign assistanceprojects/programmes. The OECD-DAC guidelines provide a sample Terms of Reference for the audit of 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 of work of 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 on Statement of Expenditures and bank balances as the practice of issuingmore than one audit report involves unnecessary duplication of work. International Development Association (IDA) portfolio 51. As of the beginning of January 2004, there were 23 credits amounting to US$1,184.3million in the Uganda IDA-portfolio -this includes both investment and adjustment credits. Most of the projects are implemented by Project Implementation Units (PIUs). PIUs are mainly responsible for the coordination and implementation of the projects, which includes management, accounting and reporting on project funds, and arrangements for external auditing. These are considered to be independent units, although they work closely with their respective line ministries/sectors through project management committees. Tahle 2: TTQanda:IDA Dortfolio as of Januarv 1.2004 NetworWSector Number of Net Commitment Disbursed projects US$ million US$million 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 Audit reports submittedwithin the fiscal year: June 30,2003 49 out of 65 (75%) 6 out of 12 (50%) June 30,2002 65 out of 66 (98%) 10out of 16 (63%) Audit reports submitted within 6 monthstime frame June 30,2003 29 out of 65 (45%) '0 out of 12 (nil%) 47 out of 66 (71%) 0 out of 16 (nil%) * Thisnumber includesan amount of $150m for the undisbursedsingle tranch PRSC3. If this amount is exluded, the number changes to 70%. - 11- Country Financial AccountabilityAssessment The Republic of Uganda 54. While the portfolio performance for Credits in 2003 is well below the Africa Region's average of 88%, remedial steps have been taken, and early indications are that the high levels of 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 is expected that the timeliness of the submission of audit reports will also improve. 2.3.2 Recommendations Aid coordination and external resourcemanagement Short-term (1-2 years) 0 MoFPED to establish a Government-wide aid tracking and accounting system, to capture all loans and grants -this could be included as a requirement inTreasury Accounting Instructions 0 Development Partners to ensure MoFED i s fully informed of disbursements of loans and grants. 0 The World Bank, the AfDB and other Development Partners to evaluate the competence of private sector audit firms inline with the OECD-DAC guidelines. 0 In terms of disclosure of source of funds, Government's audited accounts should follow best practices as outlined inthe OECD-DAC Guidelines. 0 Review aid coordination arrangementsand manualto incorporate impact of IFMS and use of the new information sharing network in MoFPED. Develop mechanisms for improved sharing (and integration) o f GovemmentlDevelopment 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 assistanceto be increasingly integrated into sector wide programmes. 0 Physical monitoring to assess progress of the implementation of projects could be initiated by implementing standard monitoring reports such as the World Bank's Financial Monitoring Reports and should be accompanied by impact assessments. 0 MoFPED to ensure that the interface between DMFAS and IFMS i s fully implemented. 0 HarmoniseDevelopmentPartner disbursement practices through simplification and standardization. 0 Harmonise the auditing requirements of foreign assistance projects/programmes to facilitate a single audit report approach. 0 Consider rationalisingthe debt managementfunction under one unit within MoFPED. I D A portfolio Short-term (1-2 years) 0 Conduct more financial and procurement training courses for project staff. 0 Conduct regular reviews of statements of expenditure Medium-term(3-5 years) 0 Start phasing out use of PIUs by integrating project coordination and implementation into the line ministries structure for new projects and sector programmes. This will build greater permanent institutional capacity within the Government structure and will also ensure greater continuity and ownership of projects by respective line ministries. - 12- CountryFinancialAccountability Assessment TheRepublicof Uganda SECTION 3: GOVERNMENTACCOUNTING AND FINANCIAL REPORTING 3.1 Accounting,financial reporting and internal control 3.1.1 Review and assessment of the current system Legal framework for accounting and reporting 55. The new PFAA and related Public Finance and Accountability Regulations (PFAR), (Statutory Instruments 72 and 73 of 2003) came into force on the 1"July 2003. They make significant improvements in the framework for accounting and financial reporting and address a number of the recommendations made inthe CFAA, 2001including: 0 Supplementary appropriations require prior parliamentary approval before any commitment i s made; a AOs are requiredto report failure to achieve VFM; The AudGen i s empowered to have full access to information on classified expenditures; 0 The accounts must include flow of funds statements and broader coverage of Government expenditure; and 0 Specific offences and penalties or procedures for recovery of losses. 56. New provisions include: 0 Improved definition of the respective roles and accountabilities of the Minister, the Permanent Secretary (PS) Finance, the Accountant General (AccGen) who i s allocated specific authority over AOs of Ministries, Departments & Agencies (MDAs) with respect to determination of accounting bases, principles, standards and systems; and 0 AOs of 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. 57. The Act also integrates provisions of various laws related to loans, guarantees and contingencies and provides for transitional arrangements for the commencement of different provisions, for example: (i) Audit Committees and Output Oriented Budgeting (OOB) - 1July 2004; (ii) Reporting on net-worth of state enterprises- 1July 2005; (iii)all other provisions - 1st July 2003. 58. Although Treasury Accounting Instructions, June 2003 have been drafted, the 1991 Treasury Accounting Instructionsremain operational and do not reflect the contents of either the new legislation or other PFM improvements implemented in recent years. Both these sets of instructions are based on existing manual systems that are in the process of being superseded by the new IFMS. The AccGen proposes to incorporate the new internal controVaccounting requirements of the IFMS before finalising the Treasury Accounting Instructions; this i s expected to be completed during the pilot operation of the IFMS ending June 2004. 59. A number of recommendations made inthe CFAA 2001 are outstanding. These include: 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 of provisions for wider publication of accounts based information related to expenditure/outputs have yet to be elaborated. Reporton the Observance of Standardsand Codes (ROSC) UpdateMarch2003 -IMFCountry ReportNo 03/85. ImplementationReporton ActionPlansto StrengthenCapacity of HIPCsto track Poverty ReducingExpenditure, March 2003. - 13- Country Financial AccountabilityAssessment The Republicof Uganda These recommendations could be addressed through the further development of PFAR and Treasury Accounting Instructions, which would not require amendment of the Act. Functions and responsibilitiesfor accounting & financial reporting 60. 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 of the accounting framework, the consolidated fund, internal audit and inspection, statutory reporting and central processing for public debt, payrolllpensions 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. 61. Professional accountants/consultants and data centre support personnel as well as 20 trainee IFMS graduates have been deployed, on contract, by EFMP-I1into the AGO duringthe last eighteen months, to facilitate implementation of 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 CentraYLocal Government accounting cadre. As a result significant improvements in accounting policies, procedures as well as professional accounting skills and IT related capacity has developed at both the AGO and the MDAs. 62. A study5on the re-structuring of the AGO i s currently being finalised, this draft study report makes a number of recommendations and these are summarised inTable 4 below. Table 4: Summary of draft PwC recommendations for a new Accountant General's Office (AGO) 63. Based on previous experience it is anticipated that the proposed restructuring will 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 of the large investments for the PFAA, training and implementation of the IFMS are to be realised, then early finalisation, approval and implementation of 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 of staffing requirements needs to be implemented for the accounting units at MDAs whose operations will progressively be affected by the E M S and the new requirements of the PFAA. Systemsfor flows of funds, commitment and expenditure control 64. Each MDA has recurrent, development and revenue bank accounts and a large number of special accounts primarily related to projects. Within the constraints of the budget and available cash MoFPED releases cash to MDAs & LGs, based on submitted action plans, against which they may make Ministry of Finance, Planning and Economic Development FAP/01/02 - Organisational Review o f the Directorate of Accounts Draft FinalReport -October 2003 - 14- CountryFinancialAccountabilityAssessment TheRepublic of Uganda commitments and payments. Special accounts arise from the practice of Development Partners maintaining parallel project accounting structures and also as a result of AOs opening operational accounts in commercial banks to facilitate project related operations. These latter practices reduce transaction costs for the BoU 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 inthe followingyear. DevelopmentPartners may also choose to transfer funds directly to executing agencies at central and local level, although this i s being discouraged. 65. 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 of 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. 66. MDAs are required to submit quarterly action plans and monthly commitment monitoring reports, as a basis for MOWEDquarterly expenditure approvals and monthly cash releases. Releases in the form of warrants are issued by the AccGen to MDA & LG bank accounts at the BoU or direct to operational project accounts at commercial banks. Commitments are not permitted untilavailable cash cover exists in MDA bank accounts. Failure to make CCS returns leadsto delay or cancellation of releasesby MoFPED. Capacity within line ministries to monitor and approve action plans for release of conditional transfers to LGsis weak. 67. The effect of the system has been to successfully facilitate aggregate commitment and cash control and to facilitate the control and reduction of arrears to Government suppliers. However other effects include delays in procurement due to non-availability of 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 of quarterly approvals and that non-PAF related expenditure may be subject to severe cuts compared to PAFexpenditure, 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 PAF and non-PAF activities, which are often mutually interdependent. Systemsfor accounting, financial reporting and internal control 68. 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 of fraud, waste and poor documentation in relation to revenue collection, recurrent and development expenditurehevenue. However the AccGen i s of the view that the trend i s significantly downward and that the materiality of such leakages i s decreasing. Key ministries (Education, Health, Agriculture & Works) also claim that the basic framework of accounting (including improved record keeping, better maintenance and reconciliation of ledgers, more timely and accurate production of 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 of accuracy, timeliness and reconciliation. 69. The suggestedimprovements are attributed to a number of factors including, strict implementation of the CCS system, which requires submission of expenditurehon- tax revenue reports before release of further funds, closer monitoring of contingent liabilities, increasing levels of computerisation, data - 15 - CountryFinancialAccountabilityAssessment TheRepublicof Uganda conversion preparations for implementation of IFMS and improved skills on the part of accounting personnel as a result of the EFMP-IWAPtraining programmes. However a review of the status of CCS and monthly/quarterly reporting suggests that many gaps continue to exist inthe regularity and quality of accounting and financial reporting. Although clearly some improvement has occurred internal control and financial reporting systems remain weak in respect of supporting documentation, completeness, accuracy, timeliness of reportingand reconciliation. 70. 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 BoU and the AccGen's system has recently been upgraded with the assistance of United Nations Conference on Trade and Development - staff have been trained, procedures developed, reports and manuals designed. Data has been captured from the BoU system and data validation and cleaning exercise i s ongoing, this includes review of 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 of project related foreign aid transactions, although more comprehensive due to increasing use of direct budget support and improved capture of project data by the Aid Management System, remains incomplete. 71. Payroll: Considerable doubts remain, bothat the AGO and inMDAs, over the integrity of the payroll system - amplified by well publicised cases of 1000's of ghost workers. A recent consultancy report6 undertaken by Crown Agents identified multiple risks at each stage of 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 payroll/pensions, general ledger and cheque production using obsolete application software that i s difficult to maintain and upgrade. 72. Managing and consolidatingthe 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 of producing annual financial statements. MoFPED budget performance reports have to rely on a number of 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 GoU has been engaged on implementing a major reform programme through the EFMP-I1 and FAP projects. An important element of this i s implementation of the IFMS which aims to provide the framework to address many of the systems weaknesses identified earlier. Basesfor accounting and financial reporting 73. The IFMS implementation and the new PFAA requires the AccGen to specify the basis of accounting and classification for all Central Govemment MDAs, LG or other General Government reporting units. Although yet to be explicitly stated in Treasury Accounting Instructions, the basis of accounting adopted for the 2002/03 financial statements i s primarily cash modified by the inclusion of some receivables/payables. Financial statements for the year ended 30 June 2003 for all MDAs and the Consolidated Fundhave been prepared incompliance with this 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 of explanatory notes to the accounts. A new multi- Review of BusinessProcessesof the Payroll and Pensions System of Central Government of Uganda December 2003 -Crown Agents This IPSAS was promulgated inJanuary 2003 by the Public Sector Committee of the International Federation of Accountants (IFAC). - 16- CountryFinancial AccountabilityAssessment The Republic of Uganda dimensional IMF GFS based Chart of Accounts (COA) has been formulated for financial year 2003/04 and takes the following form: Tahle 5: New Chart of Accounts __._._ -~ -. . - Segment I Disaggregation IDigits ITotal I 38 1 74. The spare segments provide flexibility for future requirements. The budget for 2004/05 is being prepared using this new COA. COFOG functional classification i s being defined by use of the IFMS reporting capability. The COA provides a framework for improved budget management, progressive adoption of elements of accrual accounting including the eventual recognition of non-financial assets & liabilities, depreciationetc. A recent IMFstudy' suggested some classification changes to further enhance the consistency between the COA and the GFS. The final study report confirms a relatively close fit between the accounts and the GFS. Implementation of this COA will allow multiple different forms of budget and accounts reporting and expenditurehevenue tracking at all levels of Government, resulting in improved information for decision making, improved information on the use of resources and more transparent financial reporting. 75. A major challenge in utilising this framework i s the availability of necessary skills, necessary data and the integrity of the accounting systems. Considerable effort will need to be made to train personnel at all levels to understand the potential of the system, in conjunction with the IFMS, to support monitoring, decision making and reporting and to utilise the capabilities of the system. The current transitional strategy for implementing accruals and the new classification system would benefit from clearer identification of the responsibilities, steps and timeframes involved. New IFMSfor accounting& financial reporting 76. A team of 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 of a contract to Hewlett Packard (Hp)for the provision of a turnkey solution including hardware, application software (ORACLE Financials Treasury Solution), a Wide Area Network (WAN) and supporting trainingkhange management. Implementation of 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 of internal controls, accounting procedures, financial reporting, securities and roles and responsibilities. 77. The new IFMS system will initially operate on a pilot basis inthe MoFPED, five sector ministries and four LGs but will also facilitate capture of transactions and balances from other non-pilot MDAs and LGs through the use of journals, consolidated year end financial statements will therefore be generated 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 of ORACLE IMF,Report onGFSMissionJuly 2003 - 17- Country Financial AccountabilityAssessment The Republic of Uganda Financials, and i s fundamentally an accrual based package. It therefore provides as a standard feature for the capture of revenue/expenditure transactions and where available balances on an accrual basis (Accounts Payable, Accounts Receivables, Financial Assets and Liabilities). However HP/ORACLE9has provided a facility to allow the generation of cash based year end financial statements to meet the cash based requirement. The system also provides for: (i) Capture and consolidation of MDA budgets; (ii) Release of budget and warrants to MDAs; (iii) Commitment control and reporting; (iv) In-year cash flow management; (v) Interfacingcapacity for capture of Payroll, Public Debt, Cheque and URA Tax Revenue Data; and (vi) Extensivereporting. 78. During early system mapping it has emerged that the budget formulation and cash flow forecasting modules did not fully meet the requirements of the original specification and that significant customisation i s required. Following intensive discussions, HE' has agreed to facilitate this customisation, but these functions will not become operational untilthe commencement of the 2005/06 budget cycle in October 2004. 79. The following IFMS schedule i s plannedto roll out the system in stages: Table 6: Planned schedulefor the rollout of the IFMS Governments February 2004 2 12RemainingSector Ministries & 6 Districts 01/07/04 -30/06/05 EFMP-I1 3 37 Districts, 13 Municipalities, 28 Agencies & - 01/07/05 -30/06/07 Unfunded 26 Embassies 4 FixedAssets Module -All Entities 01/07/05 -30/06/07 Unfunded 80. To date the IFMS implementation has been driven by the AccGen, consultants and selected ministry Accounting Units, however if the above objectives are to be achieved, then all actors operating within the Government's budget and PFM system must engage with the system, utilising the TFMS as the central repository of all Government financial transactions. This does not preclude development of task specific financial information and analysis systems, but it does require such systemsto interfacewith the IFMS. 81. 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 Government (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 Limitedcounterpart staff availability and capacity; 0 Reliance on the AccGens Department to provide transitional/project management capacity; and 0 Weak participation from MoLG. 82. The principle fiduciary risk issues from an accounting and financial reporting perspective relate to sustainability, functionality and extension of the system", and include: 0 Ensuringthe availability of a sustainablestaff capacity and necessarymaintenance budgets; 0 Progressively extendingand deepening the functionality and utilisation of the system; HP and subcontractors ORACLEConsulting are contracted to implement the system. loShould the IFMS fail, there is no current backup at the moment other than the continued use of existing systems in parallel. The implementation methodology requires that transfer to the new system occurs in stages. Fulltransfer 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 inthe event o f partial/catastrophic hardwarelnetwork failure. - 18- CountryFinancial Accountability Assessment TheRepublic of Uganda 0 Completion of the rollout to ensure the system provides the necessary coverage for the whole of Government; and Securing the additional fundingnecessary to complete implementation. 3.1.2 Recommendations 83. Uganda has over the last three years made substantial progress in designing and implementing new legal, organisational and systems framework for accounting and financial reporting. The direction of the existing reforms and the support provided appears to be appropriate and reasonably well coordinated but implementation is still at an early stage and much remains therefore to be done that will involve further long term 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(1-2years) AGO, M o ~ E and D MOPScoordinate the review, approval and early implementationof the results of the organisational review of the AGO. Undertake organisational review of Accounting & Internal Audit Units in MDAs to reflect impact of new legislation, IFMS, transformation of ministries to enabling /regulatory entities and new internal audit arrangements including recent proposals from the InternalAudit Forumheld inKenya. 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 of existing payroll system. Secure fundingfor procurement and implementation of new IPPS. Finalise and issue a new set of Treasury Accounting Instructions that are appropriate for the new IFMS and that formalise the operation of the CCS and Cash Management System. Establishand commence implementation of a strategy, based on actual account/performance data as opposed to plans, budgets or releases, for publicatioddissemination of in-year financial information suitable for informing all stakeholders involved inplanning and monitoring Government operations. Rationalise and consolidate the number of 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. Within the context of a hard budget constraint, improve Central Government's approach to cashflow forecasting and commitment control to remove planning and procurement distortions at MDA level. Tighten monitoring of submission of accounting information (monthly accounts) from MDAsboth in manual and IFMS context. Relate submission to issue of releaseas currently provided inCCS. Provide further training for planning, budgeting, accounting and management staff on the COA and the classification system. Articulate strategy for adoption of accrual accounting including timeframes. Implement a further programme of 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 of the Local Government Revenue Module and improving MoLG engagement including making available counterpart staff, recruitment of a project manager and necessary technical and change management support. Implement measures to improve integrity of existing pension system taking into consideration the recommendations inthe report of the Crown Agents. Medium-term(3-5 years) 0 Implement capacity buildingfor Kampala City Council Revenue Module & rollout to LG. 0 Implement and rollout the proposed IPPS across Government. 0 Implement and rollout additional IFMS modules (Fixed Assets, Tender Management, Inventory and Procurement). Finaliserollout of core IFMS including Budget Module. - 19- Country Financial Accountability Assessment The Republic of Uganda 0 Assess the impact of accrual information, such as depreciation, on the budget statements submitted for voting, funding strategy and monitoring of financial performance, clarify and agree implications with Parliament. 0 Implement transition to accrual accounting. Long-term (6-10 years) 0 Gradually comply with IPSAS including the migration to an accrual standard. 3.2 Informationtechnology and records management 3.2.1 Review and assessmentof the current system Information technology 84. The national Information and Communication Technology Policy, 2003 has now been approved by the Cabinet. The policy provides for the following division of responsibilities: 0 BroadcastingTechnology under the Office of the President; 0 ITunder MoFPED; and 0 Postal & CommunicationTechnologies under Ministry of Works, Housing & Communication. 85. The MoFPED IT mandate i s partially being undertaken through the UCS. In the past UCS was a standalone department of the MOWEDand provided limited support to the ministry for management of specific systems. Recently UCS has been incorporated inthe AGO as a separatedepartment and will form part of the re-structuring exercise referred to in paragraph 62. In addition GoU i s establishing a new agency, referred to as the National Information Technology Agency (NITA),that will: 0 Co-ordinate, monitor and provide guidance on IT related Government activities including master plans, IT policies, strategies, standards and management; 0 Guide and support IT acquisition, implementation and delivery; and 0 Provide IT support for mission critical systems. 86. This implies a decentralisation of application management to MDAs & LGs, which reflects the reality of distributedtechnology and information systems. 87. The UCS transformation process started in 2002 and i s expected to take approximately three years to complete, including approval of legislation. To date the following activities have been undertaken: 0 Qualified and experienced Executive Director recruited; 0 Draftingof a Bill for NITA; 0 Recruitment of IT staff with IT skills necessary to support the IFMS Data Centre; 0 Extensive involvement inprocurement and implementation of the IFMS; and 0 Involvement inthe design and implementation of the EFT project and support to the IPPS project. 88. A corporate planning exercise i s also underway to define the mission objectives and overall organisational and resource framework for NITA. 89. In parallel to these developments much of the Government continues to operate a set of small scale stand alone IT based systems usinggeneric software such as Word, Excel or Access. Exceptions include the tailor made UCS payroll and accounting systems, the BoUbanking system and the URA Tax Revenue which are based on a GL package (SCALA) and task specific debtor systems designed for tax collection. EFMP-I1 has also been funding an information sharing network for MoFPED, which i s now operational - 20 - Country Financial Accountability Assessment The Republic of Uganda and LGDP i s investing in a data collection monitoring and evaluation system. IT skill levels are sufficient for personal computing, small scale systems and basic networking but once higher order skills are required the supply of personnel falls rapidly. Large scale investment in IT is taking place in the private sector, which leads to strong competition for the high level skills within the local market. Establishment of NITA i s critical to the success of the IFMS and other IT based application development and should be prioritised. 90. Apart from the ongoing UCS transformation the biggest driver of change at the moment i s the IFMS supported by the EFMP-11.This large scale mission critical system provides an opportunity for MoFPED, UCS and other stakeholders to experience the full cycle of project activities related to the acquisition and implementation of a large scale management information system. The implementation has to date provided extensive exposure to GoU IT 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 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 participatedand been trained inthe process. 91. 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 switches/routers to a MoFPED Local Area Network (LAN)and a WAN to pilot site server based LAN and user workstations. A disaster recovery site is currently being implemented to provide necessary protection. The architecture i s currently operational in MoFPED and pilot sites. 92. Specific policies instrumental inthe system implementation process have been: Strong ownership by a MoFPED executive (AccGen) and support from senior management (Deputy Secretary to the Treasury); Contracting HP on a turn key basis to avoid complexity of dealing with more than one supplier; Emphasis on the application, capacity building and change management aspects of the implementation and a requirement that the contractor demonstrate the independent capacity of the client to managethe system. (with appropriate maintenance contracts); Embedding the project in the MoFPED as opposed to the creation of a separate project implementation unit; Recruitment of a strong team of professional accountants to facilitate management of the process supported by a few key internationalconsultants; Recruitment of supplementary graduate level personnel to facilitate early implementation and to provide for sustainable application management following the departure of the consultant team; Phasedimplementationinvolving pilot testing before rollout; and Extensiveengagement and training of GoUpersonnel at all stages of the process. 93. The IFMS pilot test commenced in February 2004 following user acceptance, infrastructure deployment, production set-up including capture of reconciled balances as at 31st December 2003 and training. Parallel running and application tuning will initially involve capture of backlog data and then capture of live data as the system becomes fully operational. Fullcontrol functionality will develop over the pilot period and post operational acceptance. 94. 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, IFMS accountants, Financial Management Specialist consultants) are allocated to Central Application Support Group at AGO & HelpDesk, MoFPED sites, MDA & LG sites, AudGen and Data Centre. - LI - Countrv FinancialAccountabilityAssessment The Republic of Uganda 95. 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 this testing pilot testing phase and i s shown below: 96. This rollout presents a number of challenges particularly in connection with completion of testing before signature of the rollout contract. Caveats will need to be agreed in the contract to reflect the possibility of further work being required arising from the operational testing stage. As a result of the implementation considerable competence i s being developed in large scale systems implementation. It i s important that this competence is transferred into a sustainable GoU organisational infrastructurethat may be utilised to maintain and further develop the system and also utilised to support other mission critical systems such as the IPPS. The earlier recommendations regarding the transformation of the UCS and the recruitment of IFMS staff and specialist IT personnel are relevant inthis context. 97. Overall the direction of the IT Policy and institutional framework for IT support appears appropriate. What i s important now i s to ensure: 0 Early implementation of the transformation of UCS and development and implementation of the corporate plan and effective resourcing of NITA; and 0 Acceptance of budgetary provisions within MDAs to source IT support activities from NITA. The immediate priority should be to provide operational funding within the AccGen's budget for support of the IFMS. Recordsmanagement 98. The legal framework for records management i s contained in the National Records & Archives Act, 2001. The framework provides for the transformation of the Records Management Department of the MOPSinto a Records Management & InformationTechnology Agency. The legislation also provides for regulations for elaboration of policies, definition of 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 of DFID and some basic computer equipment provided by the Danish International Development Agency (DANIDA).However despite the existence of the Act and the support provided it is apparent that GoU has been unable to fund the implementation of the legislation or to find a Development Partner to further assist the implementation process. 99. As a result records management remains severely under resourced with largely inadequate temporary arrangementsfor the central storage of record and generally limited facilities available within MDAs. The primary form of 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 low level of service to their respective institutions. The perception among - 22 - Country Financial AccountabilityAssessment TheRepublic of Uganda the professional staff i s that records management i s not seen as being a priority except when a specific issue needs to be addressedand the relevant records are missing. 100.Clearly the current situation contains a number of fiduciary risks in terms of potential loss of important documentation through inadequate storage, natural causes (fire, water penetration etc), theft, negligent records management or a lack of policy and proceduraladvice on how to handle documentation. Inaddition potential efficiency lossesexist due to the manualnature of the system, duplication of records and the difficulty faced in searching for, tracking or relating information contained in documentation. The AudGen refers frequently to the lack of supporting documentation in a large number of his audit queries. Inadequate document trails also create an environment conducive to fraud and corruption. 101.With the introduction of modem IT technology the potential for improved records management exists but also increased risk of data loss as documentary information i s transferred to electronic media and stored in computer databases. There i s a need for UCS to coordinate the IT strategies between the major systems initiatives including the IFMS,IPPS and Records Management. 3.2.2 Recommendations 102.Implementation of the policy framework for IT since the CFAA, 2001 has progressed as far as institutional responsibility i s concerned but strategy formulation i s still in the early stage. However progress towards creation of the necessary IT institutional framework i s proceeding at a slower pace. Given the investments being made inthe IFMS through EFMP-I1and the urgent needs inrespect of IPPS and Records Management there i s a need to accelerate the reform process to ensure coordination, necessarytransfer of knowledge and sustainability of the new systems. Short-term (1-2 years) 0 Secure fundingfor architecture neededto roll out IFMS and future IPPS. 0 Utilise the system implementation and project management skills developed during the I F M S implementation to support the IPPS and related implementation activities. 0 Accelerate transformation of the UCS and the establishment of NITA and development and resourcing of a corporate plan. 0 Secure funding for implementation of the Records Management Agency and development of Records Management Function. 0 Review HR policy in relation to IT staff and provide for the recruitmenthetention of the IFMS Data Centre personnel inthe new Agency and recruitment of necessary (systems admin staff) ITpersonnel inMDAs. 0 Implement contractual arrangementsbetweenthe AccGen, M O W E D and NITA for maintenance and sustainability of the IT infrastructure including the Data Centre and WAN. 0 Provide for ongoing software, maintenance and development costs for sustainability of the system within the AccGen's budget. Medium-term(3-5 years) 0 ImplementNational Records & Archives Act utilisingnew IT basedsystems. 0 Develop NITA capacity for coordination of IT policy across Government and support mission critical systems. Long-term (6-10 years) 0 Consider options for outsourcing IT infrastructure to service providers who can spread the cost of hardware, communications and HR investments across multiple clients thus lowering both investment and operational costs. - 23 - CountryFinancialAccountability Assessment The Republicof Uganda 3.3 Human resourcemanagement(HRM) 3.3.1 Review and assessment of the current system Legislative and regulatory environment 103.The most important legislativeframework for HRMi 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 of other proposed changes in the field of HRM including the devolvement of HRM to LG. Several new regulations are also to be introduced in relation to retrenchment. Standing Orders will be revised accordingly when the new Act has been enacted. 104.Principal actors in all HR related issues in the Government's administration are the MoPS and the Public Service Commission (PSC). Inthis respect the MoFPED and financial management functions at line ministries are regulated by the same decision-makingbodies as far as HRMi s concerned, as all other MDAs. MOPS'Sresponsibilities include decisions about new structures including number of posts and their grade, title and salary levels. The PSC decides about individual cases of new posts or the intended manning of existing posts from a perspective of "fairness" and "equity". Decisions are taken following the submission of proposals from the concerned entity. Staffing levels 105.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 of vacancies i s lower and there are more qualified staff at both offices. However, the large number of unqualified senior staff, especially at the OAG, continues to constitute a fiduciary risk and the lack of independence of the AudGen with respect to HR issues increasesthe risk further (refer to Section 4.1 inthis regard). Accountant General 1 0 Commissioner 3 0 Assistant Commissioner 2 2 Principal Accountant/Intemal Auditor 7 2 Senior Accountantlhternal Auditor 23 1 AccountantlIntemal Auditor 39 2 Senior Accounts Assistant 7 7 Senior Inspector 0 6 Accounts Assistant 3 0 Total 85 20 Total, qualified 39 l1Inthis report all Acts promulgated prior to 2000 will be referencedby their relevantChapter of the Laws of Uganda Revised Edition, 2000. The relevant Volumes are shown in the Bibliography list in Appendix 2. - 24 - Country Financial AccountabilityAssessment The Republic of Uganda Auditor General 1 0 Directors of Audit 4 0 Assistant Directors 0 4 Senior Principal Auditors 0 8 Principal Auditors 9 11 Senior Auditors 16 10 Principal Examiners 5 0 Senior Examiners 13 1 Auditors 52 20 Examiners of Accounts I 42 7 Examiners of Accounts I1 125 9 Total 267 70 106.There are more than 600 accounting staff inCentral Government. The increasednumber of qualified staff (and following from this, less vacancies) i s due to a number of recent initiatives and macro economic conditions. Salaries have increased slightly for a group of accountants on the upper scale of the salary code. There i s no shortage of supply of trained accountants on the labour market (as reflected by the number of 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 of 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 reformwork in the areas of public accounting and auditing, especially through the World Bank EFMP-I1credit. Training 107.Reform initiatives are also the main impetus behind organised training for the majority of Central Government accountants and auditors. Inthe past, Government's own resources allocated to training were very limited. Through the EFMP-I1a large number of accounting and auditing staff at both Central and Local Government level have been trained. A new Training Plan has been elaborated and approved. Table 10: Numbers of Government Accountants and Auditors who sat examinations inDec. 2003 I I I I I Auditor General I 7 12 I 39 Total 653 16 982 237 108.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 of several factors intended to be recognised inpromotion decisions. l2Sat examsof theInstituteof CertifiedPublicAccountants of Uganda(ICPAU). l3 examsoftheUKbasedAssociationofCharteredandCertifiedAccountants(ACCA). Sat - 25 - CountryFinancial Accountability Assessment The Republic of Uganda Reforms 109.The Pay Reform Strategy for the public service was adopted in 2001. Ushsl.5 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%. Inpractice however, the increase for accountants and auditors has only been about 10%, and only for a small segment of these staff. 110.This actual change in relation to the intended, i s linked to the whole structure of 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 of high ranking managers, would severely distort the balance of a system where salaries ingeneral are low. 111.There is a clear division of responsibilities between the MoPS and other MDAs inrelation to H R M decisions. MDAs can make decisions on training and training schemes, while the MoPS and the PSC decide, on the basis of recommendations received from the MDA, on all individual cases of disciplinary action, staffinghecruitment, salaries and organisation. Inpractice however, it i s understood that the ability of the MDAsto 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 inthe OAG seems to contradict this position (refer to par 136). 3.3.2 Recommendations 112.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 term should be supported by further restructuring and manpower analysis. Short-term (1-2 years) 0 Implement the proposed new organisation structure at the AGO. 0 Analyses the restructuring needs and manpower planning requirements at sector ministries and agencies. 0 Continue training in accordancewith the new Training Plan. 0 Institute the changes requiredto providethe AudGen with the necessaryautonomy over HR issues so that he i s able to fulfil his oversight role. Medium-term(3-5 years) 0 Implementrestructuringproposals 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 of devolving the control of financial staff to sector ministries. Long-term (6-10years) 0 Gradually move funding and policy responsibility for training at the AGO from DevelopmentPartner funded initiatives to Government owned programmes. - 26 - Country Financial AccountabilityAssessment The Republic of Uganda SECTION 4: PUBLIC SECTOR AUDITING 4.1 External audit 4.1.1 Review and assessmentof the current system Legislationand regulatory environment 113. Article 163 of the 1995 Constitution sets out provisions for the mandate, scope of work, appointment and removal of the AudGen. The AudGen i s appointed by the President with the approval of 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 statementsof the OAG. 114.The PFAA, 2003, Sections 33-37 and the Local Government Act, Cap 243 contain provisions for the external audit of Government Accounts. Under the Public Enterprise Reformand Divestiture Act, Cap 98 the AudGen i s responsible for auditing the accounts of Class Iand I1PES(refer to Section 6.1). The PFAA expands the scope of the AudGen's work to include any public body that has receivedmore than half its income from public funds. The new Public Finance and Accountability (Classified Expenditure) Regulations came into force on 1July 2003. These regulations require the OAG to examine and inquire into all classified expenditure and for the OAG to have full access to all relevant records. These regulations will be applied for the first time to the audit of the 2003/04 accounts. 115. A Cabinet Memorandumwas prepared in 1999 to enable the preparation of legislation to enhance the independence of the OAG particularly in terms of budgetary independence, independence in HR matters, the right of access to information for the purpose of audits and the indemnity of OAG staff. The MoFPED incorporated the recommendations into an Audit Bill. The AudGen provided comments expressing his concerns about the adequacy of the draft legislation. Due to perceived Constitutional contradictions concerning for example the release of HRM authority to the AudGen, it was agreed that new legislation would await the outcome of the CRC. However, it i s understood that Cabinet recommendations to the CRC do not include these provisions. 116.The OAG i s a member of the International Organisation of Supreme Audit Institutions (INTOSAI) and the African Organisation of Supreme Audit Institutions (AFROSAI). As a member of INTOSAI, it is expected to apply auditing standards promulgatedby that body. 117. INTOSAIhas also established a code of ethics intended to serve as a foundation for the operations of 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 of interest. Chapter I1section 5 of the "Lima Declaration of Guidelines on Auditing Precepts" states that, "Supreme Audit Institutions can accomplish their tasks objectively and effectively only if they are independent of the audited entity and are protected against outside influence." Functions and responsibilities 118. Under the Constitution, the PFAA and other enabling legislation, the AudGen has the statutory responsibility to report to Parliament on the propriety and regularity of the way in which Governmenb`taxpayers monies have been spent. In particular the Constitution requires the AudGen to "audit and report on the public accounts of Uganda and all public offices .. and any public corporation or other bodies or organisations established by an Act of Parliament". 119. In accordance with the Constitution, the AudGen is required to conduct both financial and VFh4 audits. Reports on Central and Local Government should be available for submission to Parliament within 9 months of year-end and are submitted annually. In accordance with the PFAA, state enterprises and - 27 - CountryFinancialAccountabilityAssessment The Republic of Uganda statutory authorities are required to submit audited financial statements to their responsible Minister within four months of their year-end. It is then the responsibility of the responsible Minister to present within 42 days, the audited accounts together with any observations to Parliament. Whilst 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 of the Local Government Public Accounts Committees (LGPAC) are submitted by the Minister responsible for LG in accordance with the LGA.All audit reports are sharedwith the Inspectorate of Government (IG). 120.Under Section 33 of the PFAA, the AudGen i s also required to satisfy himself that the accounts conform to the requirements of the Act and regulations that govern them and for the reporting of fraud and corruption identified during audits to the appropriate authorities. Other legislation, for example Section 82 of the LGA also requires the prior approval of the AudGen or his representative before withdrawal of funds from any district bank account. This i s one example of legislationthat gives the OAG responsibilities, which potentially compromise its independence. Progress towards improvedcompliance 121.The OAG currently employs approximately 30014audit staff and 66 administrative and support staff or 0.15% of the Public Service. Over half of the technical staff are employed inthe 10regional offices. As required by the Constitution, the AudGen i s a professionally qualified accountant. Recent capacity buildinginitiatives have resulted inthe OAGnow having 32 qualified accountants (including 15 who are not full members). .Afurther 75 auditors are at various stages of their professionalexams. 122.A technical advisor funded under the EFMP-I1 i s working with the OAG to update audit methodologies and to implement new financial audit manuals so as to improve the quality of 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 is planned for FY2004/05 to test the procedures inthe field. 123.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 (WE). This report was presented to the Speaker of the House in mid 2003. There are plans to carry out 2 VFM assignments in the near future, but these plans have been disrupted by the departure of a key member of the VFM team. VFM manuals will be developed on the basis of practical country specific experience. 124. The introduction of the sophisticated ORACLE based IFMS poses significant challenges for the OAG as staff need to acquire the specialised skills required for conducting audits in such complex IT environments. IT systems are vulnerable to technical failure, unauthorised access and computer fraud and therefore the OAG will need to review the integrity, security and availability of the IFMS system. In responseto this challenge, the OAG with support from a specialist advisor funded under the EFMP-I1has secured an online audit facility to the IFMS allowing OAG to access all GoU transactions and activate an audit trail. OAG has also participated in user acceptance testing and recommended the development of a number of user controls. 125.A capacity buildingaction plan has also been developed and an active and an enthusiastic specialist IT workgroup established. Technical training has been provided for all workgroup members. Audit software has beenacquired and training commenced. Audit management software is also being evaluated. l4 CorporatePlan.AlsoseeTable9 OAG l5 secondVFMstudyonUPEwasconductedbyprivatesectorauditors.Thisreportshowedevengreaterlossesas A a different valuation methodology was used. - 28 - CountryFinancial AccountabilityAssessment The Republicof Uganda 126.Annual reports to Parliament in respect of Central Government have been produced within the specified 9-month period (by the 31 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 of the accounts for audit. However for 2001/02 accounts audited duringfinancial year 2002/03,46% of 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 LocalGovernment Accounts (excluding sub counties) Financial yr 1997198 1998199 1999100 2000101 2001102 2002103 I 105 I 107 I 108 I 120 I 129 129 I Accounts Completed(a) 97 105 108 118 124 129 (by Audits June 2004) % Completed 92% 99% 100% 98% 96% (a) It is assumed that the difference relates to the non-submission of accounts for audit. 127.Efforts have also been made to improve information on the total number of audits to be carried out by the Office and information on entities to be audited by the AudGen i s now considered to be reasonably comprehensive. Table 12 shows the trend inthe number of accounts audited by the OAG. Source: OAG Corporate Plan 2003-2006 (a) Volume o f work in for example 2001102 refers to the number o f 2000/01 accounts to be audited. (b) The total number of sub-counties expectedto produce accounts for audit is 900,however for the financial year ending 2000/01, only 113 sub-counties produced auditable accounts. Decentralisation increasedthe 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. (c) The number o f accounts to be audited is projected as work i s ongoing. (d) This figure includes State Enterpnses, Statutory Authorities and Comssions. 128.The majority of donor funded projects and statutory corporations are outsourced to private audit firms.Privateaudit firms are also auditing the 2002/03 accounts for subcounties with assistancefromthe LGDP. It i s understood that the accounts for a number of statutory authorities and state enterprises are not up to date and responsible Ministers need to follow up and ensure compliance with the relevant legislation. 129.Inorder to tackle the problem of sub county audits, an Audit Strategy has been finalised and funding secured from the World Bank. 130.An audit of the OAG itself, was completed in May 2002 for the period 1 July 1995 to 30 June 1998 by an independent auditor appointed by Parliament. The audit report made several recommendations - 29 - Country FinancialAccountability Assessment TheRepublicof Uganda aimed at improving the accountability and transparency of the OAG. In response to these recommendations, the Office i s developing an Internal Financial ProceduresManual, a Code of Conduct and i s in the process of implementing audit management software designed to improve the scheduling of audits and the use of resources. Constraintsand challenges 131.The lack of independence of the OAG remains the most critical factor in the modernisation and development of the Office. As noted in the report of the INTOSAI task force on the independence of SAIs, "in these days of 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." 132. Unless the Cabinet has made appropriate recommendations to the CRC to improve the independence of the OAG and facilitate the development of appropriate audit legislation, there remain significant concerns about the accountability of public funds, fiduciary risk remains high and the ability of the AudGen to carry out his role as public watchdog i s severely restricted. Furthermore, his ability to play an active and effective role inthe fight against corruptioni s significantly diminished and the sustainability of current support initiatives is threatened. 133.The GoU through voted expenditures by Parliament funds the OAG. Table 13 below shows the trend inOAGfunding from the GoU. Despite a significant increase inworkload 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 of audit resources, audit riskcontinues to increase. Source: OAG Comorate Plan2003-2006 (a) Figuresbased on draft estimates as per PER (b) Assumed not to have altered frompreviousyear 134.The OAG's budget i s approved by Parliament via the Annual Appropriation Act but the MoFPED controls the actual releases. The 23% budget cuts imposed in 2002/03 affected all ministries including the OAG. Whilst the OAG i s part of the PAF programme and thus protected from cuts in releases, the OAG still has to seek permission from MoFPED to re-allocate funds according to identified priorities. For 2002/03 performance of outturn against budget for the OAG was wages - 67% (due to vacancies), non- wage recurrent - 100%and development - 100%. 135.The rapid increase in the number of professional accountants in the OAG i s impressive but the majority are at the bottom of 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 of service. Currently, there i s no requirement that senior staff are qualified accountants and recent promotion results appear to have been basedon length of service rather than appropriate qualifications. - 30- Country Financial AccountabilityAssessment The Republic of Uganda 136.The current organisational structure of four distinct directorates is outdated and neither facilitates inter directorate communication nor reflects the technical or administrative requirements of a modem audit office. The AudGen has no powers to hire, fire or even transfer or rotate senior staff internally, thus providing them with broader experience. The MOPS gave permission for the introduction of four Assistant Directors, eight Senior Principal Auditors and additional Principal Auditors to help improve the management and quality of 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. 137.The AudGen can recommend to the PAC that action be taken in instances where it considers that public funds have been wasted or lost. However, inthe past, the lack of seriousness on the part of auditees has been highlighted. The effectiveness of Section 34 (a) of the PFAA still has to be tested, but experience suggests that the recognition of the importance of the AudGen role in minimising fiduciary risk and ensuring accountability of public funds is not widely acknowledged. The AudGen is planning a public education and awareness programme to sensitise relevant stakeholders including AOs on the role of external audit and implications of new legislation. 138.The poor quality of audits (poor documentation of audit files, lack of standard audit progammes/level of supervision) is recognised by the AudGen and as noted above there are a number of ongoing initiatives to address many of these issues. However the operationalisation of many of these initiatives and the effectiveness of training is limited whilst the AudGen has no ability to motivate staff through pay, promotion, incentives or discipline or fire staff contravening the internationally sanctioned principles of a SAI. Improvements in the quality of audit work undertaken also need to be reflected in the quality of audit report presented to Parliament. Material issues needto be clearly separated from detailedfindings. 139.Although, contracting processes have been reviewed and standards raised, there still remains some concerns about the quality of work carried out by private sector audit firms 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 still lack of clarity of roles and reporting mechanisms between the AudGen and the Public Procurement and Disposal of Assets Authority (PPDA) on the issue of value for money (vfm) /procurement audit. 140.Lack of 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 of the external auditor's independence from the day-to-day working of the organisation being audited. 141.The AudGen has set out his strategy for carrying out sub county audits, however the effective audit of LGaccounts at all levels remains a significant challenge given the state of regional audit offices both in terms of manpower, physical infrastructure, poor communications and inadequate facilities. However as 35% of the national budget i s sent directly to LGs and approximately 50% of line ministry expenditure is spent at the local level, the materiality of local expenditure cannot be ignored. In addition, financial management capacity and local oversight is also limited in many districts, a risk analysis would also indicate a high-riskscenario. 142.Whilst the AudGen i s producingtimely reports on Central Government activities, the presentation of the associated PAC reports to Parliament i s now way behind schedule as discussed in section 5.1, thus compromising the cycle of accountability. 4.1.2 Recommendations 143.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 - 31 - Country Financial AccountabilityAssessment The Republic of Uganda 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 of some of these actions may be required, particularly in support of training programmes being developed. However it i s noted that support to an oversight body such as the AudGen within a programme designedprimarily to support an implementing body can be problematic. Short-term (1-2 years) 0 Enact appropriate legislation to ensure the independence of the AudGen (preferably promoted by Minister of Ethics and Integrity) so that OAG has: (i) its own budget approved by Parliament in accordance with the recommendations of a professional and independent Audit Board; and (ii) the ability to manage effectively its own staff. 0 Clarify any contradictions in the legislation (Constitution and supporting legislation) on roles and responsibilities between the AudGen and PPDA on vfdprocurement audit. Establish appropriate communication strategiesto ensure the best use of limitedresources. 0 Increase funding to OAG to reflect its additional workload. 0 Review other legislation e.g. LGA that could compromise independence. 0 Develop short-term plans for retentionof qualified staff. 0 Develop the Code of Conduct and Internal Financial Procedures to improve the transparency and accountability of the organisation. 0 Review the format of part one of the AudGen Report to highlightmaterialdiscrepancies. 0 Establishtelephone linksbetween all regional offices and head office. 0 Ensure that line ministers follow up on the audit of all bodies under their respective ministries and report to Parliament on the reporting status of 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 of the institutional separation between MoFPED and OAG. 0 Upgrade facilities at regional offices and establish more "sophisticated" communication (e.g. e-mail) linksbetween headoffice andkey regional offices. 0 Ensure that OAG has sufficient funds to enable hidher to fulfil all statutory obligations and to develop procedures that would enhance future effectiveness. Long-term (6-10 years) 0 Complete the implementationof a countrywide informatiodcommunicationsnetwork. 4.2 Internalaudit 4.2.1 Review and assessment of the current situation Legislation and regulatory environment 144.The Internal Audit function has undergone significant development since the 2001 CFAA. Whereas at that time its mandate was derived from MoFPED's Policy Statement of June 2000, the IAD's role within Government has now been further clarified and strengthened within the new PFAA, as well as the accompanying PFAR, 2003. The MoFPED Policy Statement of June 2000 specified the IAD's role as beingto review, appraise, and report uponthe following: 0 The soundness, adequacy and application of internal controls; 0 The extent to which the Government's assets and interests are accounted for and safeguarded; and 0 The sustainability and reliability of financial and other management data developed within the ministries. - 32 - Country Financial AccountabilityAssessment The Republicof Uganda 145. The policy statement obviously did not have the strength of an Act of Parliament, and thus did not offer the protection afforded by such an Act. No guidelines had been developed at that time to assist the audit department deliver on its mandate, and its independence was questionable (IAD reported to the A0 of the ministry or agency, as well as a Commissioner inthe AGO). 146.The Government enacted the PFAA 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 is appropriate to the needs of the organisation concerned' as well as conforming to internationally recognised standards in respect of its status and procedures. The recently completed study on the re- organisation of the AGO also sets out the need to devolve the internal audit function to MDAs. In support of this process, a number of key guidelines are under construction. These include: 0 Government Internal Auditing Guidelines; and 0 Ethical Guidelines for Internal Auditors in Government. 147.They are both at draft stage. A detailed Internal Audit Manual (draft) has also been prepared to guide the auditors intheir day-to-day work. 148.A further development has been the introduction by the PFAA of the need for audit committees to enhance the independence of the function. Internal auditors for each ministry will now be responsible to the A0 for the ministry as well as an audit committee (for that ministry) established to assist the A0 in carrying out his `oversight responsibilities relating to financial practices, internal controls, corporate governance issues, compliance with laws, regulations, ethics, and all audit matters'. The duties and responsibilities of the audit committees are specified in the PFAR, as well as in a newly developed Charter for Audit Committees, and an additional Charter for Internal Audit in Government (both still at draft stage). According to the current regulations, the audit committee's duties include: 0 Approval of annual work plans for the audit department; 0 Working closely with the AudGen, IGG, Director of Public Prosecutions (DPP), and the Police among others, when necessary; 0 Reviewing and reporting on overall quality of internal audit services, adherence to professional standards (inparticular independence), and reporting arrangements; 0 Ensuringthe internalauditbudget is adequate; 0 Facilitating risk assessmentfor the ministry or agency; 0 Discussing internal audit findings and recommendations with the AOs and monitoring implementationof the recommendations; and 0 Reviewing arrangements in place to ensure compliance with regulatory and financial reporting requirements. 149.Clearly therefore, the new PFAA and the accompanying PFAR are going to entrench internal auditing within the Government's accountability framework, as well as boost its independence. Indications are that requirements of the new Act will be implementedduring 2004/05. 150.The Uganda Chapter of the worldwide Institute of Internal Auditors was affiliated in December 2003 after a humble beginning in December 2002. This Institute i s intended to improve the professionalism of the Internal Audit function in the country. Plans are underway to establish legislation to legalise its activities. During an Internal Audit Consultative Forum hosted by the World Bank in Nairobi in early March 2004 Ugandan stakeholders developed a set of key proposals to address various Internal Audit initiatives. Complianceand capacity 151.Since June 1999, the International Institute of Internal Auditors (1IA)'s approved definition of internal audit has been as follows: - 33 - Country Financial AccountabilityAssessment The Republic of Uganda "Internal audit refers to an independent objective assurance and consulting activity designed to add value and improve an organisation's operations. It helps an organisation accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes." 152.From the foregoing, it i s apparent that the expectations for internal audit under the new Act fully comply with the above definition: the function will be independent as well as capable of adding value to the organisation. What remains to be done i s to realise on the ground the ambitious plans that the Act lays down. Currently, the internal audit function within Government i s not sufficiently independent. It i s headed by a Commissioner in the MoFPED, with staff seconded to ministries. Within the ministries, internal audit staff report to the A0 of 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 this top position i s too low in the Government structures to be able to effectively advise somebody at PS level. 153.The IAD's current duties still contain a large `pre-audit' component, although there has been some movement towards internal control (system) review and other advisory services. No technical and VFM audits are carried out as the department does not have the necessary skills. Inthe longer term, there will need to be appropriate strategies for the co-ordination of system's audit work with the work carried out by the PPDA. 154.The staffing profile of the IAD will obviously need to change to match its new structure. Currently the full establishment of 45 professional staff i s available, comprising twelve qualified accountants (11 ACCA and one Certified Public Accountant (CPA)) and 33 frst-degree graduates (mostly registered as ACCA and CPA students). There has been negligible staff turnover in the department since 2001. Nine additional staff members qualified with the ACCA qualification during that time (previously only one ACCA and one CPA were the qualified members of the team). 155.The Government i s in the process of installing its IFMS. This will lead to changes in the audit approach and will require revisions of the draft InternalAudit Manual. 4.2.2 Recommendations 156.It i s important to note that the area of 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 of the changes: Short-term(1-2 years) 0 Develop a formal implementation plan for the proposed changes to the system requiredby the PFAA that came into force on 1July 2003 including recent proposals from the Internal Audit Forumheld in Kenya. 0 Elevate status of internal audit at both headquarters and ministry level to enable them to advise senior managementeffectively. 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 ina computerised environment. Medium-term(3-5 years) 0 Inconjunction with the newly established IIA Uganda Chapter, arrange more audit specific training for staff ineach of traditional auditing, VFM auditing, and auditing in a computerised environment. 0 Finalise the process of establishing legislation to legalise the Ugandan Chapter of the IIA. - 34 - Country Financial Accountability Assessment The Republic of Uganda SECTION 5: LEGISLATIVESCRUTINY, ACCESS TO INFORMATIONON PFM, ETHICS AND INTEGRITY 5.1 Legislative scrutiny 5.1.1 Review and assessment of the current system Legislative environment 157.Uganda has a unicameral Parliament with 303 members, 214 directly elected by popular vote, 81 nominated by legally established special interest groups'6. and eight ex officio members. The Cabinet is appointed by the President. Members of Parliament (MPs) serve five-year terms. There i s a Movement political system. The President i s both Head of State and Head of Government, the Prime Minister i s leader of Government business. 158. There are 12 Standing Committees of which five are directly concerned with financial matters: (i) Committee on Budget; (ii) (iii) Committee on Commissions, Statutory Authorities and State PAC; the 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 of loan agreements. Each Standing Committee with the exception of the Budget Committee has 15 members, who are nominated and subsequently elected by MPs. In addition to the elected members, all Chairpersons of the other Committees are ex-officio members of the Committee on Budget. 159.There are 10 Sessional Committees including one for Finance, Planning and Economic Development. The Sessional Committee on Legal and Parliamentary affairs reviews the report of the IG amongst others. All Sessional Committees comprising of not less than 15 and not more than 25 interested members are responsible for examining critically Government recurrent and capital budget estimates relating to their specific ministry. 160. According to Rule 134 of the Rules of Procedure of Parliament of Uganda17,the remit of the PAC is the examination of the audited accounts showing the appropriation of the sums granted by Parliament to meet the public expenditure of the Central Government and the Judiciary. The functions of COSASE are set out in Rule 147 and include the examination of the reports and audited accounts of statutory authorities, corporations and PESor other bodies or organisation established by an Act of Parliament, and the monitoring of the operations of any of these bodies. The LGAC, which was established in 2001/02 i s assigned the examination of the audited accounts in relation to the report laid before Parliament by the Minister18 under Section 88 of the LGA, 1997 showing the appropriation of 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 is expected to hold a debate on the AudGen's reports within six months of their receipt. The Committees are open to the media and members of the public. Although the press always exercisesthis right, members of the public do not attend becausethey are unaware of this right". 161.The functions of the Budget Committee are to (i)focus on preliminary estimates and the macroeconomic plan and programs and submit recommendations to the Speaker; and (ii) consider the national Budget and compile amendmentsand refer them to the relevant Committees. l6Women56, army 10,persons with disabilities 5, youth 5, workers 5. l7RulesofProcedureofParliamentofUganda, 30" April2002 Minister for Local Government l9 Other reasonsfor 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 its Committees. - 35 - Country Financial Accountability Assessment The Republic of Uganda Current situation 162.As shown in Table 14 below, the PAC has managed to eliminate a considerable amount of the backlog. However the requisite time has not been allocated by the Business Committee to allow Parliamentto debate the outcomes of the reports. Whilst recognisingthe burden on Parliament, the failure to allocate appropriate time to the reports undermines the scrutiny process and the whole cycle of accountability. Central Government Accounts a. Refersto the year of the accounts b. W.1.P-Work inProgress 163.Procedurally following the submission of the PACfindings to Parliament, a Treasury Memorandum (TM) is issuedby MoFPEDto informParliament of what action has beentaken on each recommendation. Only when the PACreports have been tabled to Parliament do they become publicly available. Since the presentation of the PAC reports are so behind, the issuing of the TMs are also way behind schedule, therefore undermining the effectiveness of the process. The PAC can advise the Minister of Finance to take appropriate action against public officers who have contravened any Act or abused their position, but constitutionally the legislature has no executive powers. In addition, the PAC i s supported by a special unit from the Criminal Investigation Department, which can take forward criminal investigations, if required. 164. In 2003, some PAC members participatedin overseas visits to observe the operations of other PACs. Inaddition, some training was provided and limited computer facilities installed inParliament for use by all MPs. It i s recognised however that only a few of the members have the necessary expertise to review part two of the AudGen report which sets out the financial statements of all the Central Government votes. 165. It i s understood that COSASE has a significant backlog of work and information on 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 71 entities, which should submit reports to the Committee. Review of these reports in addition to the specific review of the operations of particular 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 of 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. 166.Unlike PAC members, COSASE members have received no special training and only a few of the members have specific expertise in financial management issues. The Committee is supported by only one Secretary. LGAC members have been quite active in reviewing the reports of the LGPACs and associated audited accounts. However it i s understood that there i s some debate as to the relevant authority of the LGAC vis a vis the LGPACs. 167.Whilst 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 of work and available funds. Whilst funds are allocated by the Executive to the Committees, it is - 36* Country Financial AccountabilityAssessment The Republic of Uganda generally regarded as insufficient to enable the Committees to carry out their work effectively. Work carried out by the PAC 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 of expenditure. 168.In recent years, a number of Commissions of Inquiry have been set up to deal with issues of serious public concern where there are alleged breaches of standardsof accountability and where it is considered inappropriate to rely on the normal systems of auditing and investigations. Commissions of Inquiry report to their appointing authority who will take the necessaryaction. 5.1.2 Recommendations 169. In order to improve the effectiveness of legislative scrutiny and enhance the overall cycle of accountability, it i s recommendedthat consideration be given to the following recommendations. Short-term (1-2 years) 0 Eliminate remaining backlog of PAC reports and ensure that all outstanding reports are presented to Parliament within the next twelve months. 0 Establish a comprehensive list of all entities to be reviewed by COSASE and the status of all associatedaudit reports. Develop a costed plan for the elimination of the backlog. 0 Develop a programme of training2' for all Committee members and relevant Commission staff on financial management issues. 0 Raise public awareness of their right of access to committee meetings. This would assist in minimisingthe politicisationof certain recommendations. 0 Develop a regional forum of PAC/COSASE (or equiva1ent)LGAC members to facilitate exchange of ideas, knowledge and experiences. 0 Develop procedures for the review of VFM reports and required actions. e Ensure that reports of Commissions of Inquiry are made available to the public. Medium-term(3-5 years) 0 Develop capacity of all MPs to contribute to discussions on financial and economic management issues. 0 Continue the improvement of technical support, library and information facilities available to Parliament and associatedcommittees to carry out their assignedresponsibilities. 0 Review the funding mechanism of parliamentary committees. 5.2 Access to information on publicfinancial management 5.2.1 Review and assessmentof the current system Legalframework and actual practice 170.In international human rights legislation, freedom of information is part of the fundamental right of freedom of expression. A key statement on human rights i s the Universal Declaration of Human Rights which is by customary international law binding on all states. Article 19 of the Declaration guarantees everyone the "right to freedom of opinion and expression" that includes the right to "seek, receive and impart information". The Commonwealth Law Ministers endorsed the Freedomof Information Principles 2o 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. - 37 - Country Financial AccountabilityAssessment The Republic of Uganda inMay 199921,and these were approved by the Commonwealth Heads of Government in November22of the same year. These principles, to which Uganda i s bound, as a member of the Commonwealth, recognise the "importance of public access to official information, both in promoting transparency and accountable governance and inencouraging the full participation of citizens inthe democratic process"23. 171. Article 29 of the Constitution of the Republic of Uganda, 1995, provides "protection of freedom of conscience, expression, movement, religion, assembly and association" to every person. Subsection (1) (a) of Article 29 guarantees the right to "freedom of speech and expression, which shall include freedom of the press and other media". These fundamental rights of Article 29 may not be restricted in any way. Article 41 (1) of the Constitution guarantees the right of access to information except where "the information is likely to prejudice the security or sovereignty of the State or interfere with the right to privacy of any other person". 172.Uganda, in line with other democratic societies, has made some progress towards ensuring the public has access to financial information. Article 155 of the Constitution requires that budget estimates be laid before Parliament "not later than the fifteenth day of the commencement of the financial year". Article 163 (4), without setting a time limit, requires the AudGen to submit to Parliament annually an audit report of the Government accounts for the financial year immediately preceding. Then, Article 163(5) of the Constitution requires Parliament to debate, consider and take appropriate action on the report of the AudGen on the annual accounts within six months of its submission to Parliament. These Articles guarantee that budget estimates and audited annual accounts of Govemment come to the public domain through Parliament, whose sittingsare open to the public. 173.The deliberations of the PAC are open to the public.The approved budget reports, the Government's annual accounts and AudGen's report thereon, and reports of the PAC are available in public libraries for public scrutiny. Civil society is engaged in the public sector budget preparation process through the budget framework workshops, which are conducted at all levels of 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 engagedinthe budget execution process. For example Chapter 6 of the UPEguidelines, December 2002 requires that schools mustpublicly display pupil enrolment and attendance, budgets and expenditures, UPE capitation grant received, names of 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 on the usage of funds for efficiency and effectiveness. 174. Similarly, citizens should be empowered to take charge of 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 of secrecy that fosters corruption. It i s one of the most powerful ways of demanding accountability from decentralized governance units and therefore needs to be institutionalised inUganda at the community level. 175.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 of the press and other media, that is, the Press and Journalist Act, Cap 105 and the Electronic Media Act, Cap 104 may limit how much information the media can publish.For example, Section 4 of the Press and Journalist Act allows "access to official information subject to any law in force relating to national security, secrecy or confidentiality of information". 21 Communique`, Meeting of Commonwealth Law Ministers, Port of Spain, 10 May 1999,para. 21. 22The Durban Communique`,Commonwealth Heads of Government Meeting, Durban, 15 November 1999,para. 57. 23 Communiqut, Commonwealth Functional Co-operation Report of the Committee of the Whole, Commonwealth Heads of Government Meeting, Durban, 15 November 1999,para. 20. - 38 - Country FinancialAccountability Assessment The Republic of Uganda 176. However, it i s recognised that despite the provisions in these laws that potentially control the freedom of the press, the Government has been relatively tolerant of press criticism. In addition, Sections of the Press and Journalist Act provide some protection by not compelling journalists to disclose the source of their information except with the consent of the person who provided the information or by an order of 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 of the Government has negative implications on the proper functioning of the media and free flow of information. Instead, the media should be required to establish a non-statutory media council and a code of ethics that will advance media self-regulationpractices. This will help balance and protect the interests of boththe Government and the media practitioners. 177. In addition, gaps in law exist that may limit access to information. Article 41(2) of the Constitution require Parliament to enact "laws prescribing the classes of information" that citizens have a right to access under Article 41( 1)and the "procedure for obtaining access to that information". Provisions of this Article of the Constitution have not yet been implemented. The Access to Information Bill, No. 7 of 2004 i s currently with Parliament 5.2.2 Recommendations 178. Uganda has a sound legal basis on which to build a robust public access to 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 of the Access to Information Bill. 0 Review of any legislation, which might contradict the Access to Information Bill, Medium-term (3-5 years) 0 As part of the implementation of the Access to Information Act, MDAs should provide training for their employees. This training should address the culture of lack of openness and secrecy within Government and ensure that civil servants are familiar with their obligations to disclose information. 0 Building upon the provisions of the Access to Information Act, the Government should launch a nation-wide public education programme to raise awareness of the constitutional provisions that guarantee public access to information. This will be a programme of two to three years and should include programmes to empower civil society to be able to actively participate in debates on the utilisation of public financial and economic resources. 0 Develop the capacity of the business media to report on financial and economic management issues. Long-term (6-10 years) 0 Launch public hearing initiatives (form to be defined) to bring into focus the need for citizens to take charge of governance and development issues at community level. Organized by civil society public hearings should be attended by beneficiaries of development projects, concerned officials, NGO activists, the media and the public. 5.3 Ethicsand integrity 5.3.1 Reviewand assessmentof the current system Legislationand regulatory environment 179.In July 2000, the President launched the "Government Strategy and Plan of Action to fight corruption and rebuild ethics and integrity in Public Office: Fiscal Years 2000/1-2002/3." In the - 39 - Country Financial AccountabilityAssessment The Republic of Uganda intervening period a number of Acts have been updated and changes in legislation proposed. A second three-year plan is currently being developed and i s expected to be completedby April 2004. 180. The two most significant pieces of legislation were the Inspectorate of Government Act, 2002 and the Leadership Code Act, 2002. The IGAct provides for the powers and procedures required by the IGto fight corruption. The IG is a Constitutional Office and its functions include: (i) supervision of the the enforcement of the Leadership Code; (ii) the promotion and fostering of strict adherence to the rule of law; (iii)public awareness programmes; and (iv) investigations. I t 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 of leaders assets. It i s understood that the publishingof this information received a mixedresponse from some political leaders and that a recent Constitutional Court ruling means that the IGGhas no powers to investigate officers appointed by the President. 181.Proposals for a revised and updated Prevention of Corruption Act are at the point of completion and were to be submitted to Cabinet in March 2004. The purpose of the revised legislation is to provide a more effective legal framework for combating corruption and misappropriation of public resources. It 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 of assets as well as dealing with issues such as conflict of interest. 182.Public consultations are planned on proposed Whistleblower ProtectiodQui Tam legislation. There are practical difficulties of implementation of such legislation in the Ugandan context but it i s seen as an important step in encouraging and protecting members of the public in divulging information. Principles of 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. GoU recently signed the United Nations Convention against Corruption (December 2003). A Memorandumfor the ratification of 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 is seen to be a key piece of legislation on the pathto more open Government. 183.The Uganda Government Standing Orders were designed to check on the conduct of public officers and are currently implemented by the various service commissions. However, it i s generally acknowledged that these are out of date. The URA,Ministry of Healthand the MOPShave developed new codes of conduct for staff and there i s a plan to update the Government Standing Orders. 184.The Directorate for Ethics and Integrity (DEI) i s under the Office of the President and is headedby a Minister of State for Ethics and Integrity. It represents the political voice of anti-corruption action in Uganda. It is charged with: (i)the responsibility for developing policies and legislation to fight corruption; (ii) co-ordinating the activities of the anti-corruption agencies; (iii) monitoring and reporting on the implementation of anti-corruption programmes; and (iv) the establishment of ethical codes of conduct for public sector employees. Progressto date, challengesand constraints 185. Corruption is generally recognised as both a major barrier to sustainable development and a potential cause of social unrest. Whilst there i s a general recognition of 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. It i s also acknowledged that there i s a need to improve detection, investigation and prosecution of corruption cases. 186.All stakeholdersunderstand the difficulties and dangers associated with the successful prosecutionof grand corruption cases. The existence of the political will at both the Central and Local Government level to tackle corruption is the key factor in determining whether these issues will be addressed successfully. Given the lack of a social contract between the Government and many members of the public, there - 40 - Country Financial AccountabilityAssessment The Republic of Uganda appears to be little incentive for the public to become actively involved in ensuring that the Government uses public funds appropriately. 187. As shown in Table 15 according to the Transparency International (TI) report the perception of corruption in Uganda remains high.The report showed a slight improvement in rating between 2002 and 2003 which is encouraging. 188.According to the Second National Integrity Survey conducted in2003, some progress has been made and although admittedly based on a small sample size, there has been a decline inthe reportedpercentage levels of bribery since the initial survey in 1998. The comparative situation i s set out inTable 16. 189.However the report also notes that corruption remains a significant problem, and adversely affects the poor in a number of instances. The Police were cited as the most corrupt institution with Health services as the second most corrupt. Whilst institutions rated Traffic Police as the worst offenders, Tender Boards second and URA third. It also demonstrates an increasing tolerance of corruption, particularly petty corruption. Whilst the IG's public awareness programmes have greatly increased the public's knowledge and understanding of its own activities, it appears to have had limited effect on disseminating the costs of corruption to the nation and to the poor inparticular. 190.Both DEIand 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 of the issues. The ability of both institutions to retain highly qualified and experienced staff i s limited by pay and terms and conditions of service. Unlike other countries, employees of both these institutions share the same pay, terms and conditions of service as other public sector employees. The DEI has a professional staff of just three people currently and the position of PS has been vacant for over a year. 191.Despite staffing constraints, DEI has advanced the process of getting new legislation approved including anti-corruption legislation and whistle blower protection. The twice-yearly IG's reports show the type of work being carried out, although the latest available report i s only for the period June - December 2002. Following receipt of the information on leaders assets, the IG's leadership directorate has, with DANIDA support, completed analysis of the returns received from Government Ministers (65), and is now due to commence the verification process for this group. 24 The ranking from the bottom shows the actual position from the bottom interms of scores and ignores the fact that there is sometimes more than one country with the same score. -41 - CountryFinancialAccountabilityAssessment TheRepublicof Uganda 192.Table 17 shows the volume of work being handled by the IG, it should be stressed that a lot of work i s carried out in conjunction with the Police and the DPP and therefore the numbers of prosecutions and court cases will not includethose handed over to these authorities. Table 17: Caseshandledby the IGG Source:Second Integrity Survey 193. 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. It i s worth noting that the IG has had difficulty in enforcing the implementation of many decisions at a local level because of the autonomy and independence of LG conveyed under the Constitution. These and many other aspects are subject to the current constitutional review process. 194.The DEIarranges an Inter Agency Forum25on a monthly basis and this facilitates improved working relationships, however it i s understood that there i s some debate bothwithin and outside the forum on the respective roles of some of the agencies and the lack of 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 of common good and joint action. It is also understood that there i s considerable concern as to how effective MOPEDcan be in carrying out oversight as well as implementationactivities. 195.Recent Cabinet proposals to the CRC to dilute some of the powers of the IG appear to be in contradiction to the President's statement on zero tolerance of corruption. Proposals include removing the power to prosecute, to dismiss personnel and suspend the possibility of receiving complaints in the tendering process. It would seem more appropriate to obtain greater clarity on the respective roles and responsibilities of various players to ensure that there are the appropriate checks and balances. 196.The importance of the Public and Civil Society in the fight against corruption cannot be underestimated and therefore the increasing tolerance of society to petty corruption i s of concern to many Ugandans. 5.3.2 Recommendations 197.Whilst it i s recognised that many issues need to be addressedto 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. Short-term(1-2 years) 0 Finalise the development of the second national anti-corruption plan including the development of appropriate measurementindicators. 25 Membership of this forum includes representativesfrom DEI, OAG,IG,Police (Criminal Investigation Department), DPP, PAC and the MoFPED. - 42 - Counfrv Financial AccountabilitvAssessment TheRemblic of Uaanda Enact legislation on anti-corruption and anti-money laundering and assess the institutional implications of the introduction of new legislation. Continue awareness programmes conducted by civil society with growing emphasis on the opportunity cost of corrupt practices (e.g. although a new road has been built, money allocated should have built a road, hospitaland school). Clarify roles of some of 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 of IG at the local level and develop civil society forum for discussion on practical solutions to the issues. Present recommendations to Cabinet on the Whistle Blower ProtectiodQui Tam legislation including practical recommendations. Based on the results of 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 fundingfor the relevant institutions. DPs should share with eachother and the GoUinformation on `banned' companies and individuals. Medium-term (3-5 years) Develop regional forums and networks on anti-money laundering, anti-corruption issues further and explore the feasibility of exchange of personnel. Review the terms and conditions of service of personnel in anti-corruption agencies in other countries and assesstheir relative effectiveness e.g. Hong Kong, Botswana, South Africa. Implement the institutionalchangesrequiredto carry out the requirements of any new legislation. Long-term (6-10years) Improve the professional capacity of personnel at district level institutions. - 43 - Country Financial AccountabilityAssessment The Republic of Uganda SECTION 6: PUBLIC ENTERPRISES(PE's) 6.1 Review and assessment of the current situation Legal and regulatory framework 198.The overarching law covering PESin Uganda i s the Public Enterprises Reform and Divestiture Act, Cap 98, as amended. The objective of the Act i s "to provide for reformand divestiture of PES,to establish the Reform and Divestiture Committee charged with implementing the Government's programme on the matter, and for relatedmatters." The Act also specifies Government's intention as being to: 0 Reduce the direct role of Government in Uganda's economy and to provide a correspondingly greater role for the private sector; and 0 Improve the efficiency and performance of those PESremaining under the ownership and control of Government. 199.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 well as the Minister of State responsible for Privatisation, among others. 200. Individual PESare also govemed by the Acts of Parliament establishing those enterprises, where applicable. For example, the NSSFi s governed by the National Social Security FundAct, Cap 222 which i s the primary Act establishing the fund. 201. PES'accounting and reporting is also covered by the new PFAA. As will be noted below, the PFAA super-cedes the requirements of the other acts in so far as the reporting i s concerned. Lastly, those PES that are limited liability companies also need to comply with the requirements of the Companies Act, Cap 110. Public enterprise reformand divestiture 202. The Minister responsible for Privatisation within the MoFPED has established a Parastatal Monitoring Unit (PMU) to exercise the strategic economic monitoring role in relation to the PESwhile liasing with the relevant line ministry. This involves reviewing operational plans before implementation, and monitoring performance against those plans. To guide and facilitate the unit's operations, the Government has categorised PESinto five different classes. The categorisation is in terms of what the Government believes i s the way forward for each of the enterprises, and is 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, Civil Aviation Authority, Cotton Development Organisation, NSSF, Uganda Tea Authority, Uganda Tourism Board, Uganda Coffee Development Authority, and any regulatory agencies formed as a result of sectoral reform; 0 Class I1-representing PESin 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 New Vision Printingand Publishing; 0 Class I11- representedPESin which the Government was required to retain a minority shareholding. This category was successfully revokedby Statutory Instrument 14 of 1997 hence there are no more enterprises in this class; 0 Class IV - represents PESin which the State i s required to fully divest. There are approximately eighty enterprises inthis category; and 0 Class V -representsPES,which the Government should liquidate. 203. The PMU has good working relationships with the majority of enterprises in classes 11, IV and V. This ranges from representation on the Board, to participation in key management decisions, especially - 44 - CountryFinancialAccountability Assessment TheRepublicof Uganda 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 its monitoring role on behalf of the MoFPED with respect to these enterprises. Most of their annual audited financial 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 of fundingfor their budgets. 204. The PMU i s however thinly staffed, hence if all PES were to comply with their reporting requirements, the unit would have serious HR capacity constraints. 205.In order to control outputs and outcomes of PES, PMU plans to introduce Results Oriented Management (ROM) were performance contracts are agreed with the management team and used as a basis of measuring their performance. Accounting, internal control and audit 206. The Acts of Parliament establishing the individual PES impose accountability and reporting requirements. Continuing with the example of the NSSF, the National Social Security FundAct gives the Fundsix months inwhich to produceand presentto the line Minister audited financial statements. 207. Most PEShave an accounting and finance department headedby 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 inothers, the department still falls under Finance. The tendency however i s towards giving the department greater authority and direct access to the Chief Executive. 208. According to Section 39 of the PFAA, external auditing of PESi s the responsibility of the AudGen. However, he may appoint a private audit firmto carry out the audit on his behalf and report on it to himin a form determined by him. 209. Most PEShave a financial management manual and have an established system of internal controls. Weaknesses are normally highlighted in the reports of both the internal auditors and external auditors. A few PEShave independent bodies, such as `audit committees', to oversee implementation of internal and external audit recommendations. 210. The Public Enterprise Reform and Divestiture Act 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 financial statementsfor the enterprise as well as a report of its operations for the year. The new PFAA,on the other hand requires PESto produce their annual audited financial statements within four months of the end of the financial year, unless allowed a longer period by resolution of Parliament. Since the PFAA super-cedes the previous legislation on these matters, hence there i s no conflict. 211.As noted above, most of the PEShave their own IADs. The effectiveness of 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 of Finance). The situation appears to be under review in a number of enterprises since the advent of the PFAA, with efforts being made to upgrade the post of Head of Internal Audit to full managerial grade, and reporting directly to the Chief Executive. Audit committees may also be introduced as required by the Act. 212. The role of internal audit i s also being developed from a predominantly pre-audit approach to a more value adding post audit and internal control bias. - 45 - CountryFinancial AccountabilityAssessment TheRepublic of Uganda Corporate governance 213. 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. To help the various sectors cope with the demands of modem corporate governance, an Institute of Corporate Governance of Uganda has been established. The Institute has produced a Manual on Corporate Governance to highlight the recommended guidelines for Uganda. However, the P M U plans to ensure that PEScomply with corporate governance principles by requiring a statement of compliance of corporate governance regulations to be included inthe published accounts. 214.The framework highlights the rights and responsibilities of all stakeholders, from shareholders, management and the Board (including audit committees), and the requirement for timely and accurate disclosure of information through annual budgets and financial reports. Elements such as the newly introduced audit committees are obviously not yet in place in the majority of the PES,but their need has been recognised and entrenched by the PMU and new PFAA. In addition, the Public Enterprise Reform and Divestiture Act also specifically requires each enterprise to issue, within three months of the end of 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 of assets of the enterprise, and their compliance with those responsibilities. 6.2 Recommendations 215. It i s apparent that the legislation necessaryfor improving both the control and performance of PESi s already in place. What may still be lacking is its full implementation. Also, as mentioned in Sections 4 and 5, the problem of non-submission of accounts for audit and the lack of oversight by the COSASE reduces accountability. Short-term (1-2 years) 0 Include all class Ienterprises under the ambit of the PMU.This would ensure all PESare subjected to scrutiny by the Government unit set up for the purpose. 0 Improve HR capacity at the PMUto enable it to more effectively participate inthe monitoring of all PES. 0 Implement ROMinPESby use of performance contracts. 0 Implement the requirement to have audit committees for each enterprise. This will enhance the independence of the audit function, as well as facilitate monitoring of the implementation of audit recommendations. Medium-term (3-5 years) 0 Improve internal audit capacity within PES.This includes bothtraining of audit staff, equipping them with the necessarytools and resources, as well as the audit committees (to be formed). 0 Improve on corporate governance within PESthrough ensuring that a statement of compliance with corporate governance regulations is part of the published accounts. - 46 - Country Financial Accountability Assessment TheRepublic of Uganda SECTION 7: NON-GOVERNMENTALORGANISATIONS (NGO'S) 7.1 Review and assessment of the current situation Legislative and regulatory environment 216. NGOs are governed under the NGO Registration Act, Cap 113 and the NGO Regulations, 1990. NGOs are registered by the National Board of NGOs, which issues them with a Certificate of Registration. There are about 4,800 registered NGOs in Uganda, although most are very small. In Uganda, the majority of NGOs are almost entirely dependent on public fundingfor their activities. 217. 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 of NGOs. In addition, the National Board of NGOs does not receive any data on the annual monetary value of NGO revenue (grant receipts). This lack of 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. 218. The National Board of NGOs has a Secretariat based at the Ministry of Internal Affairs (MoIA) whose main responsibility i s to register and supervise the activities of 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 of NGOs) seconded from the Immigration Department inthe MoIA 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. 219. 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 its budget allocations to carry out its functions. In other countries there i s a move towards the establishment of a more autonomous co-ordinating and regulating body with the responsibility of registeringand monitoring NGOs. 220. There is an NGO database but it i s not being updated due to manpower constraints. In order to improve on the information inthe database, NGOs will have to be re-registered. Financialmanagement 221. 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 of the small NGOs lack the capacity to prepare accounts and therefore require training to improve on their accountability function. 222.Most of the small NGOs do not have internal audit units or audit committees to ensure either effective internal control systems or support the principles of good corporate governance. Reforms 223. A Non-Governmental Organisations Registration (Amendment) Bill, 2001 was drafted several years ago to replace and amend the NGO Registration Act. The main objective of the Bill i s to include monitoring of NGO operations and development of policy guidelines for Community Based Organisations as part of the function of the NGO Board. However, the requirement for NGOs to submit annual audited accounts to the NGO Board or any other independent body is not included in the Bill and hence the high fiduciary risk remains. To address this risk, an NGO Policy document i s retrospectively - 47 - CountrvFinancialAccountabilitvAssessment The Republic of Uganda being developed that will provide operational guidelines to NGOs hence facilitate the monitoring of their activities. 7.2 Recommendations 224. Improving NGO accountability is critical for maintaining and strengthening the sector's role as an effective mechanism for alleviating poverty. In order to strengthen the financial accountability of the NGO sector without compromising their independence,the following is recommended: Short-term(1-2years) 0 The process of registering NGOs needs to be updated and supported. 0 The NGO policy that i s being developed should take into account the requirement that all NGOs shouldprepare and submit annual audited accountsto the NGOBoard. 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 preparingfinancial statements. Medium-term(3-5 years) 0 Consideration should be given in the new legislation to the establishment of a more autonomous co- ordinating and regulatingbody with responsibility for the registrationand monitoring of NGOs. 0 NGOs operating at national level should advertise the release of audited accounts in the local press, and provide the public with access to the information. 0 Consideration should be given to the establishment of a pooled accountancy resource within the overall NGO 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. - 48 - Country Financial Accountability Assessment TheRepublic of Uganda SECTION 8: THE ACCOUNTING AND AUDITING PROFESSION 8.1 Review and assessment of the current situation Legislationand regulatory environment 225. The Institute of Certified Public Accountants of Uganda (ICPAU) was established by the Accountants Act, Cap 266. The Institute is governed by a Council that comprises eight elected members, three ex-officio members (the AudGen, the Commissioner TOA and the Commissioner of Education) and one member appointed by the Minister of Finance. The main functions of the Institute, as outlined in Section 5 of the Act, are to regulate and maintain the standards of accountancy in the country and to prescribe and regulate the conduct of professional accountants in Uganda. The detailed unctions of the Council are stated in Section 14 of the Act. The Institute was admitted as a member of the Eastern, Central and Southern Africa Federation of Accountants (ECSAFA) in 1996 andjoined IFAC in 1997. 226. The Accountants Act is being revised under a new Accountants Bill, 2003. This draft Bill clarifies the issue of membership of the Institute, limits the associate members26who can be granted a license of practice to only those who were inpractice prior to 1992, and changes the Registrar of Accountants from the AudGen to the Secretary of the Institute. The draft Bill gives the Council authority to amend the Statutory Instruments with the approval of the Minister of Finance and will repeal the Accountants Act. .It 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. 227.The Council meets regularly and is assisted by a number of committees including Education, Examinations Board, Member Services, Accounting and Auditing Services, Disciplinary and Ethics, Finance and Marketing. Staffing of 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. 228. The Institute has occupied its own premises since April 1999. There are plans to acquire more spacious premises in order to accommodate the demand for study facilities from the large number of students and members. Currently the Institute i s self funding with tuition and examination fees representing a significant proportion of its income. Recent developments 229. Significant progress has been made by ICPAU in regulating and developing the accountancy profession since 2001. The number of professional accountants registered with the Institute has increased from 222 in 2001 to 365 in2004, while registered associate members have fallen from 20 in2001 to 16 in 2004. The distribution of the membership throughout the economy i s shown inTable 18. Parastatals 10 Government 5 Total 100 26 Associate membership is granted to persons without a professional accounting qualification but who have international professional qualifications such as The Institute o f Chartered Secretaries and Administrators and The Institute of Chartered Managers and Administrators, who were in public practice when the Act was enacted in 1992. The Institute issues Associate members with a License of Practice. 27 The recent Enronand Parlamat sagas triggered this change. - 49 - Country Financial AccountabilityAssessment The Republic of Uganda 230. The Institute has established, with the assistance of the Institute of Chartered Accountants of Scotland, an examination scheme/syllabus consisting of five levels with a total of 15 papers. A Public Accountants Examination Board oversees this process. To date nine professional accountants and 29 accounting technicians have qualified. Professional education and continued professional development training 231.The Institute's number of students for the professional accounting course, the Certified Public Accountant of Uganda - CPA(U), has increased to 2,200 from 292 in 2001 while the accounting technician course, which began in 2001, Accounting Technician of Uganda - ATC(U), now has 1650 students. This increase is mainly due to the EFMP-I1project sponsored by the World Bank and the FAP sponsored by DFID. 232. The Association of Chartered Certified Accountants (ACCA) has the largest number of students being trained in professional accounting in Uganda. While ACCA has been active in Uganda since the sixties, a Uganda country office was opened in September 1999 to support its students and members. The Uganda branch o f ACCA has a membership of 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. Most of the ACCA professionals eventually become members of the ICPAU.Approximately, four out of every five members of ICPAUare also members of ACCA. 233. The minimumlevel of 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 of 2 principal passes. The minimum entry requirement for the Institute's accounting technician course is an Ordinary level certificate with at least passes in English and Maths while for ACCA, anyone can apply although an Ordinary level certificate is recommended. 234. The Institute, according to the Accountants Act, has three categories of 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. Fullmembership of the Institute, which i s open to all nationalities, can be achieved through either: 0 A student passing the qualifying examinations conducted by the Examination Board and completing practical training of three years; or 0 The Council granting membership to a member of a Society or Institute of Accountants approved as being a society or institute with a status equivalent to that of the Institute. 235. Certificates of Practice are offered to full members of the Institute who intend to practice accounting and auditing in Uganda. At the moment, there is no specific requirement to have auditing experience in order to acquire a Certificate of Practice but the Institute has plans underway to make auditing experience a requirement for acquiring a Certificate. 236. The Institute and ACCA carry out Continuous Professional Development (CPD) Programmes for their members regularly during the year mainly through seminars. The Institute and ACCA recommend CPD of 35 and 40 hours respectively. This CPD is voluntary but highly recommended although FAC plans to ensure that in 2005, their member institutions make CPD compulsory. The Institute also produces quarterly technical news letters. 237. 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 of these institutions are located in -50- Country FinancialAccountabilityAssessment The Republicof Uganda Kampala. A major challenge i s to have training centres in the mainupcountry towns. The cost of training i s high in the best institutions and this i s a major constraint for students who are not sponsored by organisations. 238. The Institute does not publish its own manuals/textbooks for its examinations but issues approved reading lists for its students. The ACCA does publishits 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. 239. The Institute grants exemptions to graduates, accounting technicians and diploma holders who want to pursue the professional accounting course, based on an assessment of the student's qualification and its accreditation of the institutioduniversity at which the qualification was acquired e.g. a Bachelor of 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 of any other UgandanUniversity. Professionaland technical standards 240. With effect from January 1, 1998, the Institute adopted both LASSand International Standards on Auditing for use in Uganda. Additionally, it has developed one local accounting standard dealing with Value Added Tax. A Code of Ethics was also developed in 1997 for its members. 241. There i s no quality control or peer assessment programme to monitor local auditing firms to ensure that they comply with minimumstandards and maintainhightechnical standards. Challenges 242.A number of issues impact on the performance and effectiveness of ICPAU. Firstly it has been embroiled in a legal wrangle since its establishment regardingthe list of international accountancy bodies whose members may be admitted as full members. This dispute i s not resolved after eight years and it has had a damaging effect on the Institute's capacity to discharge its mandate. 243. Secondly, the Institute lacks the capacity and resources to monitor and enforce compliance of accounting and auditing standards amongst practicing firms. Plans are in progress to solve this issue regionally with ECSAFA but they are limited by financial resources. However, the Big284 firms do carry out their standard internal quality reviews to ensure they are complying with the accounting and auditing standards. 244. Finally, while the Institute has reciprocity arrangements with the Institute of Certified Public Accountants in Kenya and the National Board of 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 of Uganda can practice inthese countries. Reforms 245. The Institute is overseeing the development of the Association of Accounting Technicians of 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 inthe long term and will prescribe and regulate the conduct of accounting technicians in Uganda. ** They are PricewaterhouseCoopers, KPMG, Ernst and Young and Deloitte and Touche. - 5 1 - CountryFinancial AccountabilityAssessment TheRepublic of Uganda 8.2 Recommendations 246. The accountancy profession inUganda plays an important role inenhancing 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 of 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 passedby Parliament. 0 The Institute plans to use ECSAFA's resources to monitor and enforce compliance of accounting and auditing standards amongst practicingf m s . However, ECSAFA needs to be supported financially to carry out this activity inits member countries which include Uganda. 0 The Institute should continue overseeing the establishment of the Association of Accounting Technicians of Uganda inorder to become an independent body. 0 The Institute should implement its plans to make audit experience a requirement for a full member to be granted a Certificate of Practice. 0 CPD should be made mandatory. Medium-term(3-5 years) The feasibility of introducing training loans to students who have financial constraints should be explored. The accountancy profession should consider practical ways of how training can be provided in the main upcountry towns. The Institute should have more reciprocity arrangements with other countries so that its members' qualifications become more internationally recognized. Stakeholders in the accountancy profession in Uganda should consider the relevance of recent international developments on how the profession should be regulated which basically advocates for the creation of a strong national independent regulator to which the accountancy profession contributes expertise but which it does not control. - - + + - 52 - , CountwFinancial AccountabilitvAssessment TheRemblic of Uaanda APPENDIX 1: STATUS MATRIX OF 2001 CFAA ACTION PLAN ILegaland Institutional 1. Further scrutiny and final revision of the Implemented draft Public Finance Bill, and resentation to Parliament. 2. Finalize the Draft Treasury Accounting Implemented Financial Regulations had been promulgated. Instructionsromulgate theandnewFinancialset. Regulations & Treasury Accounting Instructions still indraft as discussed in par. 58. 3. Incorporate provisions in the Public Implemented Finance Bill defining the mandate and role o f MFPEDin ensuring the efficient and effective use and accountability by Local Governments of centrally funded programs. 4. Draft constitutional changes for an Inprogress Constitutional Review Commission report has enhanced public accountability been issued but has not yet been discussed by framework, and seek approval by Government. This action is inrelation to the Parliament. independence of the Auditor General. Refer also Section 4.1. Budgetand Expenditure Control 5. Improving on recent milestone developments: 0 Pursuit o f completeness of the budget Under imple- Projections captured. No mechanism as yet for framework by capturing all donor funds mentation the timely reconciliations o f outturn. To be for programming under the MTEF; operationalised as part o f IntegratedProject ceilings. 0 Measures to enhance budget execution; Under imple- PFAA 2003, CCS implemented and IFMS in mentation progress to ensure budget discipline and feasible output. Measures to improve performance in Inprogress More tax sources identified and collection by domestic revenue mobilization; URA instituted. NTR management being improved further. 0 Enhancing the transparency o f the Implemented Through consultative process, performance budget process. reports, Citizen's guide and budget at a glance. 6. Consolidating and sustaining recent Inprogress 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. - 53 - Country Financial Accountability Assessment The Republicof Uganda 7. Mitigating highrisksinthe short term: 0 Regularize material non-reconciled Not achieved Being discussed in current Parliamentary items inthe Public Accounts; session. 0 Ensure timely monthly reporting by Implemented ministries; 0 Introduce quarterly consolidated Implemented financial reports; 0 Establish a representative Financial Implemented PEMCOM. Management Committee to reinforce internal oversight; 0 Surcharge or censureerrant public Implemented Treasury Memorandum advises Parliament on officers who are charged with the action which government has taken. Parliament responsibility of managing and can sanction government re defaulters e.g. controlling public funds; withholding o f budget approval. 0 Developing a Pay Reform Strategy Inprogress Implementation to be achieved over a 5 year -Reducing should be prioritized. periodeffective 200112. 8. risks inthe short to medium- term: 0 Improve the quality o f Public Accounts; Implemented Accounts for FY2002103. 0 Recruit, develop and retain better Implemented Now more than 60 professionally qualified qualified staff; staff inservice. 0 Enforce financial discipline and Implemented PFAA2003, IFMS and strengthening of CCS. minimize non-compliance with set procedures, rules and regulations; 0 Eliminate 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. InspectorateIInternal Audit Depts; 0 Reinforce management and Implemented PEMCOM set up. coordination of internal oversight. 9. Mediumto long-term: Implement IFMS; Partially Inprocess of piloting and rollout. achieved Complying with IFAC promulgations. Implemented Required by PFAA. 10. Enhance OAGindependence by 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 revisiono f 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 in line with international practice. 12. Salary issues: development o f a Pay Partially Pay reform is being implemented through Reform Strategy should be prioritized. achieved salary increase and a single spine salary introduced inJuly 2003 inline with the job evaluation recommendation. 13. Measures to strengthen quality assurance [mplemented and other capacity building in OAG, including T A and establishing a Technical Services Dept. - 54 - Country Financial Accountability Assessment The Republic of Uganda and financial support Partially Study t o r w e r e undertaken to enhance to enable the PAC to discharge its achieved capacity. Still lack of resources. mandate effectively. 15. Mobilize technical and financial support Not achieved Facilitation required. Refer also to footnote 20. to enable COSASE to discharge its mandate effectively. 16. Update accounts, clear the backlog of Implemented audits and address accounting weaknesses incommissions, statutory authorities and state enterprises. 17. Institute procedures to empower the OAG Implemented PFAA regulations, 2003. with rights of access to all public bodies for audit purposes. 18. Arrears of project audit reports should be IImplemented DRICset up chairedby the Minister of State for Finance (privatisation) to over see divestiture process. PFAA 2003 requiring reporting on a monthly basis, quarterly inspections to verify status being done. LGA to be revised. IFMS to be introduced in some Local Governments. MOPSto review structures and implement pay- reform strategy. Training ongoing for t and retain relevantly qualified accounting cadre. funding o f their operations. 24. Implementationof LGDP. IImplemented resource gap especially inEthics and Integrity management of public resources. department which curtails process of - 55 - CountryFinancialAccountability Assessment TheRepublicof Uganda APPENDIX 2: BIBLIOGRAPHY A. Books, Reports, Statutes and Articles 1. Crown Agents. Draff Final Report on Business Processes of the Payroll and Pension Systems in the Central Government of Uganda. December 2003. 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Republic of Uganda. The Local Governments (Public Accounts Committee) Regulations, 2000. 1lth April 2000. Statutory Instruments2000, No. 10. UgandaPrinting andPublishingCorporation, Entebbe. 33. Republic of Uganda. The Local Governments Internal Audit Manual, 2000. January 2000. Ministry of Local Government, Kampala. 34. Republic of Uganda. TheReport of the Public Accounts Committeefor the Year Ended June 30, 2000. Printedby the UgandaPrinting andPublishingCorporation, Entebbe. 35. Republic of Uganda. GovernmentStrategy and Plan of Action to Fight Corruption and Build Ethics and Integrity in Public Ofice: Fiscal Years 2000/1 -200213. July 2000. Directoratefor Ethics andIntegrity., Office of the President, Kampala. 36. Republic of Uganda. The Non-Governmental Organisations Registration (Amendment)Bill, 2001: Bill No. 26. 151h December2000. UgandaPrinting andPublishingCorporation, Entebbe. 37. Republicof Uganda. The BudgetAct, 2001 (asamended). UgandaPrinting andPublishingCorporation,Entebbe. 38. Republic of Uganda. The Local Governments Book-keeping Manual, 2001. May 2001. Ministry of Local Government, Kampala. 39. Republicof Uganda. BudgetSpeech (Economic Growth and Structural Transformation). 14'hJune 2001. Minister of Finance, Planning and Economic Development, Hon. Gerald M. Ssendaula. Delivered at the Meeting of the 51h Sessionof the 6'hParliament of Uganda. 40. Republicof Uganda. TheNational Records and Archives Act, No. 12 of 2001. 15'hJune 2001. UgandaPrinting and PublishingCorporation,Entebbe. 41. Republic of Uganda. National Agricultural Advisory Services (NAADS): Memorandum of Understanding among the Government of Uganda (Ministry of Finance, Planning and Economic Development & Ministry of Agriculture, Animal Industry and Fisheries) and Participating Partners. October2001. 42. Republicof Uganda. The CompaniesBill, 2002. 2002. 43. Republic of Uganda. Report on Tracking Studyfor Primary Health Care (PFC) Conditional Grants: 1999/2000and 2000/2001. March2002. Preparedfor the Ministry of Healthby Horizons InternationalLtd, Kampala. 44. Republic of Uganda. The Report and Opinion of the Auditor General to Parliament on the Public Accounts of the Republic of Ugandafor the Year Ended 30'hJune 2001. 281hMarch2002. Office of the Auditor General. 45. Republic of Uganda. Report on The National Consultative Workshop on Coalition Building for Anti-Corruption. April 2000. Directoratefor Ethics andIntegrity., Office of the President, Kampala. Reportwritten by Anne Musisi. 46. Republic of Uganda. The Public Enterprise Reform and Divestiture (Vesting of Undertaking of National Insurance Corporation) Instrument, 2002. 26'h April 2002. Statutory Instruments 2002, No. 25. Uganda Printing and PublishingCorporation, Entebbe. 47. Republic of Uganda. Draft Charter for lntemal Audit Functions. August 2002. MoFPED: Accountant General's Office. 48. Republic of Uganda. Draft Government Internal Audit Guidelines. August 2002. MoFPED: Accountant General's Office. 49. Republicof Uganda. Draft Ethical Guidelinesfor Internal Auditors. August 2002. MoFPED: Accountant General's Office. 50. Republicof Uganda. Draft Charterfor Audit Committees. August 2002. MOWED:AccountantGeneral's Office. 51. Republic of Uganda. Ministry of Works, Housing and Communications: Financial Statements 2001/2002. 13'h September 2002. 52. Republic of Uganda. Annual Budget Performance Report FY 2001/02. November 2002. Ministry of Finance, PlanningandEconomic Development. - 5 7 - Country Financial AccountabilityAssessment TheRepublicof Uganda 53. Republic of Uganda. Universal Primary Education (UPE) Capitation Grant: Planning and Implementation Guidelinesfor District and Urban Councils. December 2002. Ministry of Education and Sports. Uganda Printing and Publishing Corporation, Entebbe. 54. Republic of Uganda. Brochure: The Integrated Financial Management System (IFMS). 2003. Treasury, MOWED. Printed by LithoConsult. 55. Republic of Uganda. TheProposed Accountants Bill, 2003. 2003. 56. Republic of Uganda. Financial Management Team Progress Report: October - December 2002. January 2003. MoFPED, EFMPII/World Bank Project. 57. Republic of Uganda. The Public Procurement and Disposal of Public Assets Act, No. 1 of 2003. 17'hJanuary 2003. UgandaPrinting and Publishing Corporation, Entebbe. 58. Republic of Uganda. Final Report: SecondNational Integrity Survey. 5'h March 2003. Inspectorateof Govemment. 59. Republic of Uganda. The Report and Opinion of the Auditor General to Parliament on the Public Accounts of the Republic of Ugandafor the Year Ended 3UhJune 2002. 31" March2003. Office of the Auditor General. 60. Republic of Uganda. Ministry of Works, Housing and Communications: Financial Statementsfor the Period July 2002 -March 2003. 291hApril 2003. 61. Republic of Uganda. Classifcations and Chart of Accounts. May 2003. Treasury,. MoFPED. 62. Republic of Uganda. ProgressReport on Government'sStrategy and Plan of Action to Fight Corruption and Rebuild Ethics and Integrity: May 2001 to March 2003. May 2003. Directorate for Ethics and Integrity., Office of the President, Kampala. 63. Republic of Uganda. Strategyfor Development of Ethical Codes of Conductfor Policy Makers and Professionals in Uganda. May 2003. Directorate for Ethics and Integrity., Office of the President, Kampala. Supportedby DFID. 64. Republic of Uganda. The Third National Consultative Workshop on Coalition Building to Fight Corruption and Build Ethics and lntegrity -Jinja Nile Resort, 271h- 291hNovember 2002. May 2003. Directorate for Ethics and Integrity., Office of the President,Kampala. 65. Republic of Uganda. Kampala City Council Accountsfor the Year Ended 3UhJune 2002 together with The Report and Opinion thereon by the Auditor General. 7'hMay 2003. Office of the Auditor General. 66. Republic of Uganda. Mbale District Local Government Accountsfor the Year Ended 3UhJune 2002 together with TheReport and Opinion thereon by theAuditor General. 7'h May 2003. Office of the Auditor General. 67. Republic of Uganda. The Public Finance and Accountability Act, No. 6 of 2003. 231dMay 2003. Uganda Printing and Publishing Corporation, Entebbe. 68. Republic of Uganda. Power Point Presentation: Implementing an External Audit Reform Program - A Country Case Study (Uganda). 24'hMay 2003. J.F.S Muwanga, Auditor Generalof Uganda. Addis Ababa. 69. Republic of Uganda. Background to the Budget: Financial Year 2003/04. June 2003. Ministry of Finance, Planning and Economic Development. 70. Republic of Uganda. Draft Treasury Accounting Instructions, 2003: Part I - Finance. June 2003. Accountant General's Office. 71. Republic of Uganda. Ministry of Education and Sports: Reports and Financial Statementsfor the Financial Year Ended 3UhJune 2003. 72. Republic of Uganda. Budget Speech (Increased Production for Increased Exports and the Eradication of Absolute Poverty). 12'hJune 2003. Minister of Finance, Planning and Economic Development, Hon. Gerald M. Ssendaula. Delivered at the Meeting of the 31dSessionof the 7'hParliament of Uganda. 73. Republic of Uganda. Financial year 2003104: District Transfers for Health Services. July 2003. Ministry of Health. Printed by Prime ConceptsInvestmentsLtd. 74. Republic of Uganda. Aid Management Manual. August 2003. Ministry of Finance, Planning and Economic Development. Printed by Printex Intemational. 75. Republic of Uganda. Budget Monitoring and Evaluation Manual. August 2003. Ministry of Finance, Planning and Economic Development. Printed by Printex Intemational. 76. Republic of Uganda. Report to Parliament of the Inspectorate of Government: July - December 2002. 1" August 2003. Office of the Inspector-Generalof Govemment (IGG). 77. Republic of Uganda. Corporate Plan 2003-2006. September2003. Office of the Auditor General, MoFPED. 78. Republic of Uganda. ThePublic Procurementand Disposal of Public Assets Regulations, 2003. 51hSeptember2003. Statutory Instruments 2003, No.70. UgandaPrinting and Publishing Corporation, Entebbe. 79. Republic of Uganda. Gulu District Local GovernmentAccountsfor the Year Ended 3UhJune 2002 together with The Report and Opinion thereon by theAuditor General. 16thSeptember2003. Office of the Auditor General. 80. Republic of Uganda. The Public Finance and Accountability Regulations, 2003. 19'h September 2003. Statutory Instruments 2003, No. 73. UgandaPrinting and Publishing Corporation, Entebbe. - 58 - CountryFinancial AccountabilityAssessment TheRepublicof Uganda 81. Republic of Uganda. The Public Finance and Accountability (Classified Expenditure) Regulations, 2003. 191h September 2003. StatutoryInstruments 2003, No. 72. UgandaPrinting andPublishingCorporation,Entebbe 82. Republic of Uganda. Ministry of Health: Reports and Financial Statementsfor the Period Ended 3ghJune 2003. 30thSeptember 2003. 83. Republic of Uganda. Ministry of Works, Housing and Communications: Financial Statements 2002/2003. 30th September 2003. 84. Republicof Uganda. Annual Budget PerformanceReport FY 2002/03. October 2003. Ministry of Finance, Planning andEconomicDevelopment. 85. Republic of Uganda. Ministly of Agriculture, Animal Industry and Fisheries: Annual Performance Monitoring and Evaluation Reportfor July 2002 -June 2003. October 2003. 86. Republic of Uganda. Paper & Power Point Presentation on Accountability Sector: PEAP Revision & Budget National Stakeholder Consultative Workshop. 28-30thOctober 2003. P.W. Mangeni, Commissioner Treasury Inspectorate, MoFPED. 87. Republicof Uganda. Presentation on Financial Managementand Accountability: PEAP Revision & Budget National Stakeholder Consultative Workshop. 28-30thOctober2003. G.O.L. Bwoch, AccountantGeneralof Uganda. 88. Republic of Uganda. Final Aide Memoirefor the TenthEducation Sector Review (ESR). November 2003. Ministry of Educationand Sports. 89. Republic of Uganda.. Report on the IT and IT Audit Consultancyfor Ofice of the Auditor General. February 2004. Preparedby IT-Consultant,Office of the Auditor General, MoFPED. 90. Republic of Uganda. Budget Circularfrom MoFPED to Sector Ministries for the Fiscal Year 2004/05. Ministry of Finance, Planningand EconomicDevelopment. 91. The New Vision. Groupscallfor info law. Tuesday, February 3,2004. By RichardKomakech. Page 8. 92. The New Vision. IIA to make auditing stronger - Ndyanabo. Friday, March26,2004. By Richard Komakech. Page 17. 93. The New Vision. Auditors get world afiliation. Friday, March 26, 2004. By RichardKomakech.Page 18. 94. The New Vision. NGOs oppose Bill. Thursday, April 22,2004. By Josephine Maseruka.Page5. 95. The New Vision. The Non-Governmental Organisations Registration (Amendment) Bill 2001: A Challenge to Constitutional Guaranteesand the Democratisation Process in Uganda. Thursday, April 22, 2004. Advertisement by CONOB. Page 34. 96. United Nations Conference on Trade and Development. Technical Assistance Mission Report: Supply and Installation of DMFAS, Uganda, 15 June 2000-11August 2003. 1lth August 2003. Preparedby Jacques Baert, Debt ManagementConsultant. 97. Williamson, D. & CanagarajahS. Is there a Placefor Virtual Poverty Funds In Pro-Poor Public SpendingReform? Lessonsfrom Uganda's PAF. DevelopmentPolicy Review, Volume 21, Number4, July 2003. 98. World Bank. UGANDA: Country Assistance Strategy. FY 2001-2003,UgandaCountryDepartment,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). FY 2002-2003, Uganda Country Department, Africa Region. 102.World Bank and InternationalMonetary Fund. Report on the Tracking of Poverty-Reduction Spending in Uganda: 2001-02. 2002. The World Bank's PovertyReductionand EconomicManagementNetwork and IMF:Fiscal Affairs Department. 103.World Bank. Aide Memoire: Second Poverty Reduction Support Credit (PRSC2) UGANDA: World Bank Appraisal Mission. January 28-February7, 2002. 104.World Bank. Fiduciary Compliance FY02: Africa Region. August 28, 2002. Africa Region,Financial Management Unit. 105.World Bank. CPIA 2003Benchmarking Country Worksheet,UGANDA. 2003. 106.World BanWInternationalDevelopmentAssociation and InternationalMonetary Fund. Update on Implementation of Action Plans to Strengthen Capacity of HIPCs to Track Poverty-Reduction Public Spending. March 7, 2003. IMF FiscalAffairs Departmentand The World Bank'sPovertyReductionandEconomicManagementNetwork. 107.World BanWInternational Development Association and International Monetary Fund. Highly Indebted Poor Countries (HIPC) Initiative-Statistical Update. April 11,2003. Preparedby Staffs of the World Bank and IMF. 108.World Bank. The Republic of The Gambia: Country Financial Accountability Assessment. June 2003. Report No. 26046-GM. Africa Region, OperationalQuality & KnowledgeServices Unit - 59 - CountryFinancial Accountability Assessment The Republic of Uganda 109.World Bank. Program Documentfor a Proposed Grant in the Amount of SDR 106 million ($150 million) to the Republic of Uganda for a Third Poveriy Reduction Support Operation. July 28, 2003. Report No. 26078-UG. PREM2, Country Departmentof Uganda,Africa Region. 110.World Bank. The Republic of Uganda: Poverty Reduction Strategy Paper - Annual Progress Report and Joint IDA-IMF StaffAssessment. August 13,2003. ReportNo. 26567-UG. PREM2, Africa Region. 111.World Bank. Fiduciary Compliance FY03: Africa Region. September 12, 2003. Africa Region, Financial ManagementUnit. 112.World Bank. The Republic of Uganda: Public Expenditure Review 2003 (Supporting Budget Reforms at the Central and Local GovernmentLevels). September 2003. Report No. 27135-UG. PREM 2, Country Departmentof 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. October27-November7,2003. 115.World Bank. Unedited input to Financial Management Component of Aide Memoire: Fourth Poverty Reduction Support Credit (PRSC4) UGANDA: Pre-appraisal Mission. October 27-November 7, 2003. 116.World Bank. Draft Financial Management Component of Policy and Results Matrix: Fourth Poverty Reduction Support Credit (PRSC4)UGANDA. January 2004. B. Responseson CFAA Checklists by Stakeholders Public Sector 117.Budgeting 118.Sector Ministries (FinancialAccountability Arrangements) 119.Public Sector Accountingand FinancialReporting 120.The Auditor General 121.Staffingof Public Sector FinancialManagementDepartments 122.InternalAudit 123.InternalControl and RecordsManagement 124.GovernmentBusiness Enterprises 125.Legislationand LegalFramework 126.DonorFundsFinancialManagement and Aid Policy Coordination 127.Non-GovernmentalOrganizations (NGO's) & CommunityBasedOrganizations (CBO's) 128.LegislativeScrutiny,Ethics and Integrity 129.Public Access to InformationonPublic Sector FinancialManagement Private Sector 130.Accounting and Auditing Standards and Accounting& Auditing Standards C. Web Resources 131.European Corporate Governance Network. Corporate Governance Codes, Principles and Recommendations. Online. Available URLaddress: http://www.ecgi.org/codes/index.htm. 132.INTOSAI (International Organisation of Supreme Audit Institutions). Auditing Standards. 1992 (revised 1995). Online. Available URLaddress: http://www.intosai.org/l-defaue.htm1. 133.Organisation for Economic Co-operation and Development (OECD). OECD online - Corporate Affairs. Online. Available URLaddress: http://www.oecd.org/department/0,2688,en~2649~33721~1~1~1~1~1,00.html. 134.The Instituteof Internal Auditors. Standards for the Professional Practiceof Internal Auditing. Online. Available URLaddress: http://http://www.theiia.org/ecm/guidance.cfm?doc~id=l499. -60- Country Financial AccountabilityAssessment The Republic of Uganda APPENDIX 3: LIST OF PEOPLE MET Title Kame DepartmenWnitlOrganisation Job Title MINISTRY OF FINANCE, PLANNING & ECONOMICDEVELOPMENT Mr I C.M. Kassami I MoFPED I PermanentSecretary/Secretaryto the Senior PersonnelOfficer Intemal Audiflolicy Mr I D.Nyende I AccountantGeneral's Office - EFMP-I1 II FinancialManagement Specialist- Budgev'FinancialManagement Mr M.Ochai Macro-economicPolicy Department PrincipalEconomist Mr C. Mugune Treasury InspectorateDepartment Principal Accountant PARLIAMENT & OVERSIGHT INSTITUTIONS Mr I I.F.S.Muwanza I Office of the Auditor General I Auditor General Mr A.Mayanja I Office of the Auditor General IIIIIIIDirector of Audit (PTA) Mr E.Obwona I Office of the Auditor General Director of Audit (LGs) Mr CLalonde Office of the Auditor General TechnicalAdvisor Mr ITAudit Consultant .vS F.CandiruSebina Inspectorateof Govemment Principal Assistant Secretary Ms 11IIIIA. Ghosh J. Safuna IIIIOffice of the Auditor General Insnectorateof Govemment Princiod InsoectorateOfficer Mr K.Kivumbi Parliament:PublicRelations Clerk to Parliament Mr II S. Emiku II Parliament(Public Accounts Committee) I Secretarvto PAC I Mr I L.M.Mpitsi I Parliament(COSASE) I SeniorClerk Assistanv'Secretary I - 61 - CountryFinancialAccountability Assessment The Republicof Uganda Ms PriscaBoonabantu FinanceandAdministration PrincipalAssitant Secretary Mr M.R. Otim PlanningDepartment Acting Headof Planning Mr G.E.Okongo HumanResourceManagement PrincipalPersonalOfficer Mr D.Kalongole Accounts Senior Accountant Mr J. Orogot Accounts Department Snr.AccountsAssistant Mr J. Kisitu ProcurementDepartment PrincipalProcurementOfficer Mr L.Semujju PlanningDepartment PrincipalHealthPlanner I I PUBLICENTITIES Mr S.D. Kabugu Bankof Uganda Acting Chief Accountant Mr K.Kalyegira ParastatalMonitoring Unit (MFPED) Headof Unit Dr A. Ssemwanga NationalInsuranceCorporation Chief Manager: Accounting Mrs J. Mpanga National Boardfor NGOs Chairperson Ms S. Kasule National Boardfor NGOs Secretary Mr P.M. Ssentongo National Boardfor NGOs (BoardMember): Asst. Commissioner:Coordination& Monitoring Department,Office of the PrimeMinister - 62 - CountryFinancial AccountabilityAssessment TheRepublicof Uganda ~ PRIVATE SECTOR INSTITUTIONS Mr I G.M. Kasanya I Instituteof Certified PublicAccountantsof I SecretaryKhief ExecutiveOfficer Uganda Ms I J. Kaleebi IIThe Associationof CharteredCertified I Manager Accountants (ACCA Uganda) Mr. A. Kateregga UgandaJournalists Association President Mr. A. Lubowa UgandaJoumalists Association CommitteeMember Ms. J. Kakeebo UgandaJournalists Association Treasurer Ms. M.Ziribaggwa UgandaJournalists Association EducationSecretary Departmentfor Intemational PublicPoiicy Group Mr I T. Djurhuus I RoyalDanishEmbassy IIDeputy Headof MissiodCounsellor - 63 -