Report No. 29377-UG The Republic of Uganda Country Integrated Fiduciary Assessment 2004 (In Five Volumes) Volume V: Local Government Integrated Fiduciary Assessment (LGIFA) August 2004 Poverty Reduction and Economic Management 2 Country Department of Uganda Africa Region Document of the World Bank TABLE OF CONTENTS PREFACE ............................................................................................................................................. V 1. INTRODUCTION ......................................................................................................................... 1 A. OBJECTIVES ............................................................................................................................. 1 B 2 C.. SCOPEAND METHODOLOGY STRUCTURE OF REPORT ........................................................................................................... .................................................................................................... 3 2. OVERVIEW OF LOCAL GOVERNMENT REFORMSINUGANDA .................................. 4 A DECENTRALIZATION LGs AND ................................................................................................ 4 B.. c. OVERVIEWOF LOCAL GOVERNMENT FINANCES ..................................................................... EVOLUTIONOF THELEGAL POLICY FRAMEWORK FORFINANCIAL MANAGEMENT5 AND .................6 ........5 D HUMAN RESOURCEMANAGEMENT AND LOCAL GOVERNMENT RESTRUCTURING E CONCERNS EMERGING FROMTHE FINDINGS OF THE 2003 FINANCIALMANAGEMENT STUDY 7 ........7 .. F... INITIATIVES SUPPORTINGTHE STRENGTHENING OF FINANCIAL MANAGEMENT SYSTEMS G. . THEJOINT ANNUALREVIEW OF DECENTRALIZATION ............................................................ 8 3. HIGH-LEVEL FIDUCIARY CONCERNSOF LOCALGOVERNMENT .......................... 10 A. INTRODUCTION ...................................................................................................................... 10 B 11 C.. THEREALISM OFTHE BUDGET .............................................................................................. ............................................................... ....................................................... 13 D ADEQUACY OF FINANCIALMANAGEMENT SKILLS 14 E MANAGERIAL AND POLITICALENVIRONMENT FOR MANAGING RESOuRCES ........................... 15 F CORRUPTION .............................................................................................................................. 16 G.... STRENGTHS AND WEAKNESSES THE BUDGET IN CYCLE HIGH-LEVEL AREASOFFIDUCIARY ASSURANCE AND RISK ................................................. 17 4. LINKING POLICIES AND PLANSTO THE BUDGET ........................................................ 18 A B.. OVERVIEW ............................................................................................................................. 18 LINKINGNATIONAL SECTORAL POLICIES AND PLANSTO LOCAL GOVERNMENTPLANSAND BUDGETS c. ............................................................................................................................................ 19 D . NEED IWROVESEQUENCINGINTHEPLANNINGANDBUDGETING TO PROCESS ..................20 STRENGTHENINGTHE LINKBETWEENDEVELOPMENT PLANNING AND BUDGET FRAMEWORK PAPERS 20 E INTRODUCING GREATER AUTONOMY INTO RESOURCE ALLOCATION ...................................... 21 F ANNUALBUDGET ESTIMATES ANDWORKPLANS ..................................................................... 23 G CHART OF ACCOUNTS AND THE IFMS INBUDGET FORMULATION ....................................... 23 H.... .............................................................................................................................................. KEYISSUES TOBEADDRESSED ............................................................................................ 23 5. RAISING REVENUES, DEPLOYING RESOURCES,AND UNDERTAKING ACTIVITIES ........................................................................................................................................ 25 A . OVERVIEW ............................................................................................................................. 25 B 27 C 28 D... LOCAL REVENUE COLLECTION .............................................................................................. PROCUREMENT ...................................................................................................................... PERSONNELMANAGEMENT ................................................................................................... 30 E TRANSFERS FROMCENTRAL GOVERNMENT F MANAGING CASHAND CONTROLLING FINANCIAL COMMITMENTS AND EXPENDITURES ......................................................................................31 31 G DEBTMANAGEMENT ............................................................................................................. 33 H.... DEVIATIONS FROMBUDGETS AND WORKPLANS 34 I INTERNAL AUDIT ....................................................................................................................... ................................................................... 34 6.J .. KEY ISSUES INBUDGET EXECUTION ......................................................................................... 35 REPORTING ON THE USEOF RESOURCESAND ACHIEVEMENT OF RESULTS 37 ... A . OVERVIEW ............................................................................................................................. 37 B 38 C.. ACCOUNTINGANDRECORDKEEPING ................................................................................... IN-YEARFINANCIAL AND PERFORMANCE REPORTING ......................................................... 38 D.MONITORING, ANALYSIS. ANDFOLLOW-UP WITHIN LGS ................................................................. 39 E FINAL ACCOUNTS PERFORMANCEREPORTS AND ..................................................................... 40 F.. KEYISSUESAND REPORTING INACCOUNTING ......................................................................... 41 7 . HOLDING LGS TO ACCOUNT FOR PERFORMANCE ..................................................... 42 A.. OVERVIEW ............................................................................................................................. 42 B TRANSPARENCY AND ACCO~JNTABILITY c. ............................................................................... 42 MONITORING, INSPECTION, AND PERFORMANCEASSESSMENT CENTRAL GOVERNMENT BY .. 43 D PUBLIC EXPENDITURETRACKINGSTUDIES ........................................................................... 44 E EXTERNALAUDIT ...................................................................................................................... 45 F... .............................................................................................................................................. LOCAL GOVERNMENTPUBLIC ACCOUNTS COMMITTEESAND COUNCIL SCRUTINY OF PERFORMANCE 45 G PARLIAMENTARY LGACCOUNTS COMMITTEE ..................................................................... 46 H.. ................................................................................................................................... KEY ISSUES TO ADDRESS ....................................................................................................... 46 8 . PROPOSEDACTION PLAN: IMPROVING FINANCIAL MANAGEMENT INLOCAL GOVERNMENT .................................................................................................................................. 47 A 47 B.. PROPOSED ACTION PLAN ....................................................................................................... 48 C 48 D.. COORDINATING IWLEMENTATION OF THEACTION PLAN APPROPRIATE CENTRAL SUPPORTTO LGs ............................................................................ .................................................... 49 E. UPGRADING POORPERFORMERS ........................................................................................... SUPPORTFORNEW CENTRAL INITIATIVES ................................................................................ 49 ANNEXES ............................................................................................................................................ 59 ANNEX 1 SUMMARY OF BENCHMARKING~ I N G S 59 ANNEX 2 APAC DISTRICT INTEGRATEDFIDUCIARYASSESSMENT 2004 68 ANNEX 3 JINJA DISTRICT INTEGRATED 79 ANNEX 4 KABALEDISTRICTINTEGRATED ANNEX 5 MASAKA 103 ANNEX 6 TORORO 115 ANNEX 7 IMPACTOF LAWS, ....... F ...................................................................... ........................................ FIDUCIARY ASSESSMENT 2004 ........................................ FIDUCIARY ASSESSMENT 2004 ................................... 92 MUNICIPALITYINTEGRATED FIDUCIARYASSESSMENT 2004 DISTRICT INTEGRATED FIDUCIARY ASSESSMENT 2004 ................................. ....................... POLICIES, SYSTEMS, GUIDELINES, AND REFORMS ONFINANCIAL MANAGEMENT INLOCAL GOVERNMENT 125 ANNEX 8 ........................................................................................................................................ ........................................................................................ 130 LIST OF REFERENCES .................................................................................................................. 148 iii LISTOF TABLES TABLE 1. ONGOING AND PLANNED INITIATIVES IN LOCAL GOVERNMENT FINANCIAL ............................................................................................................................................ TABLE 3.KEY FISCAL PERFORMANCEINDICATORS TABLE 2. BENCHMARKING RESULTS(ALL FIGURESEXPRESSEDAS A PERCENTAGE)..................10 MANAGEMENT 8 ............................................................................... TABLE 4. PRIMARY OUTTURNS 11 12 TABLE 5 .FINANCIAL ..................................................................................................................... .............................................. ....................................... 14 TABLE 7. MEDIUM-TGERMPLANNINGAND BUDGETFORMULATION TABLE 6. PERCEPTIONOF CORRUPTIONINDIFFERENTLG INSTITUTIONS MANAGEMENT CAPACITY AND ENVIRONMENT 16 18 TABLE 8 26 TABLE 9 ACCOUNTING AND REPORTING ..BUDGETEXECUTION...................................................................................................................... ................................................ .HOLDING ....................................................................................................... .................................................................................................. 37 TABLE 11. LINKING POLICY AND PLANSTO THE BUDGET TABLE 10 LGS TO ACCOUNT 43 .................................................................... ......50 TABLE 13. REPORTING ON THE USEOF RESOURCESAND ACHIEVEMENT OF RESULTS TABLE 12. RAISING REVENUES,DEPLOYINGRESOURCES,AND UNDERTAKING ACTIVITIES 55 TABLE 14 HOLDING LOCAL GOVERNMENTTO ACCOUNT . ................52 .................................................................... 58 LISTOF FIGURES ............................................................................. FIGURE2. COORDINATINGIMPLEMENTATION OF THE ACTION PLAN FIGURE 1. TIERS OF LCAO GOVERNMENTINUGANDA ............................................... 4 47 LISTOF BOXES .................................................................. 22 BOX 2 INITIATIVE TO IMPROVE LOCAL REVENUEINJINAJA DISTRICT............................................ BOX 1. CONTESTINGRESOURCESINMUBENDEDDISTRICT 28 BOX 3 CASHMANAGEMENT AND COMMITMENT CONTROL INKABALE DISTRICT ...................................................................................................... ....................... 32 BOX 4 IFMS AND BUDGETEXECUTION 33 BOX 5 THE IFMS, LOGICS, AND LOGFIAS .... ................................................................................................... BOX 6. TRANSPARENCYAND ACCOUNTABILITY INKABALE DISTRICT........................................... 38 44 iv PREFACE The LGIFA and the CIFA Process Given the paucity of public resources in Uganda, it is critical to the delivery of basic services to the poor that local government be highly efficient in its management of those resources. This Local Government Integrated Fiduciary Assessment (LGIFA) assesses the public financial management (PFM) of local government and makes recommendationsas to ways in which it might be improved. The assessment draws from a quantitative benchmarking of the PFM practices of five LGs: Jinja, Tororo, Apac, andKabaleDistricts, andMasakaMunicipality. The LGIFA is part o f the Uganda Country Integrated Fiduciary Assessment (CIFA). The CIFA is a joint effort by the Government o f Uganda (GoU) and its development partners (DPs) to devise an integratedand holistic approachto the assessment of PFM. Inadditionto the LGIFA, the CIFA draws on three further Bank diagnostic processes: the Country ProcurementAssessment Report (CPAR), the CountryFinancialAccountability Assessment (CFAA), andthePublicExpenditureReview(PER). The CIFA work spanned a nine-monthperiod.The PER process was conductedover the course of the entirenine months, with the three other assessments eachtaking two to three months. The LGIFA was carried out betweenJanuary and March 2004, supportedfinancially by the EuropeanUnion's Public ExpenditureandFinancialAccountability (PEFA) Trust Fund. LessonsLearned InUganda, where an increasingproportion of pubic resourcesare being allocatedto and managedby local governments in the delivery of services, the assessment o f the systems of PFM within local governments is crucial. The LGIFA exercisehas revealedthe wide variations inthe qualityof PFMin LGs, and highlighted the need to address the specific challenges faced by LGs in conjunction with those facing central government. It has also shown the value of includingprocurement inthe context of a holistic assessment of financial management processes. The institutionalarrangementsto support an upgrading of PFM at the local government level are the responsibility o f central government. PFMsystems need to be more consistent and to reinforce local accountability mechanisms rather than those to central government. It is important that the central government and its development partners support the capacity building that is necessary to meet the specific needs of the individual local government and to address the weaknesses that are common across all LGs. V Acknowledgements The authors would like to express their gratitude for the cooperation afforded to them by the local governments studied in this LGIFA. Specifically, we would like to thank the chief administrative officers and chief finance officers o f Jinja, Tororo, Apac, and Kabale Districts and the town clerk and treasurer o f Masaka Municipality. We would like to thank also the Ministry o f Local Government, in particular Permanent Secretary Mr Vincent Ssekkono and the Commissioner, Local Government Inspectorate Department, Mr Thomas Nkayarwa, for their cooperation and for the assistance o f their staff. Our thanks go also to Mr. C. M. Kassami, Permanent Secretary o f the Ministry o f Finance, Planning, and Economic Development and to Mrs.M.C. Muduuli, Deputy Secretary to the Treasury. LGIFA Team The Task Team Leader for the LGIFA was Sudharshan Canagarajah. The study was carried out by a team o f consultants led by Tim Williamson o f the Center for Aid and Public Expenditure at the Overseas Development Institute (ODI), and that comprised Paolo de Renzio o f ODI, Emmanuel Ssewankambo o f Mentor Consult, Wilson Baryabanoha o f Kebu Consultants, and Charles Mugenva o f Jasper-Semu andAssociates. vi 1. INTRODUCTION A. OBJECTIVES 1.1 The Local Government Integrated Fiduciary Assessment (LGIFA) is the local government component of the Country Integrated Fiduciary Assessment (CIFA). The CIFA aims to identify and address the budgetary, financial accountability, and transparency challenges that face Uganda. It i s a first step toward the eventual implementation of a standard assessment for Uganda's public financial management (PFM) systems at all levels of government. It incorporates the Public Expenditure Review (PER), the Country Financial Accountability Assessment (CFAA), and the Country Procurement Assessment Review (CPAR). 1.2 The LGIFA assesses the state o f public financial management systems and practices in Ugandan local government. It identifies the progress made and proposes actions for the hrther improvement ofthese systems. The ways inwhich Uganda's LGs (LGs) planfor the use o ftheir public resources, use those resources, and account for their use are becoming increasingly important, particularly as the local government share of public expenditure has increased from 17 percent of the national budget, excluding statutory and interest payments, in 1997/98 to 39 percent in2003104. Local governments are responsible for many o f the key services identified inthe Poverty Eradication Action Plan, including primary education, primary healthcare, and water and sanitation services. Local government grants furthermore account for more than 70 percent o f expenditures made under the Poverty Action Fund (that is, that part of the national budgetthat the Government o f Uganda allocates to poverty reduction measures). 1.3 The term "fiduciary risk" was first used inthe context of the provision of direct budgetary aid to developing countries, when government financial management systems were assessed for their ability to ensure that aid would be used effectively and as intended. This early understanding o f fiduciary risk, being o f interest primarily to development partners, has since changed, as it i s now widely recognised that sound PFM is o f critical importance to all stakeholders, including taxpayers, members of parliament, councillors, the private sector, service beneficiaries, and central government itself (in relation to.transfers to local government). The term i s therefore used here in its broadest possible sense, as the riskthat public expenditure (a) will not be properly accounted for; (b) will not be used for its intended purposes; and (c) will not represent value for money (VFM). 1.4 Key to the success of decentralization is the enhancement of the accountability of service providers to their beneficiaries. Service beneficiaries-the electorate-should be better able to hold their LG to account; and councils in their turn should be better positioned and equipped to deliver those services. Intrinsic to the realization of these objectives i s the raising o f revenues and allocation of public resources by LGs to local priorities on behalf of the local population, and the spending of those resources to deliver services. For decentralization to work, local, democratically elected councils and their institutions must be capable o f using public resources inthe way that best responds to local needs. And should they fail to do this, appropriate mechanisms must be in place to ensure that hose local councils may be heldto account for their decisions. 1.5 Assessing fiduciary risk in the L G context has another dimension, as central government, through the provision of grants to LGs, i s in effect a major donor to local government. As well as identifying whether or not local PFM systems are working well, it i s important to establish also ifLGs are deploying their resources in a way that contributes to the achievement o f national priority objectives. This study seeks to assess whether or not the potential developmental benefits of - 1 - maintaining or increasing funding to LGs outweigh the risks that finds will not deliver the desired benefits. It also sets out an action plantargeted at mitigating the most significant risks. B. SCOPEAND METHODOLOGY 1.6 A detailed study of local government financial management, the LGFMS, was carried out in 2003 under the auspices o f the Public Expenditure Management Committee (PEMCOM). The analysis in this LGIFA builds on the LGFMS by providing a quantitative benchmarking of the financial management performance of five LGs. It also proposes an action plan for the improvement of local government financial management. 1.7 The benchmarking of public financial management is at the core o f the LGIFA. With the assistance o f the Ugandan Ministryo f Local Government (MoLG), a sample was agreed o f four o fthe 56 districts nationwide and one municipality of the 13. These are Apac, Tororo, Jinja and Kabale Districts and Masaka Municipality. These LGs represent a spectrum of capacities, geographical locations, and involvement innew initiatives inPFM. 1.8 Using the questionnaire developed for the 2003 FMS, and drawing on assessment instruments being developed internationally,' a benchmarking tool (see Annex 2) was developed to measure the performance o f individual LGs against intemational good practice in financial management.' The tool examines financial management in the areas of primary budget outturns, medium-termplanning and budget formulation, budget execution, accounting and reporting, and external accountability. As far as possible, it uses questions that require either a negative or affirmative response, to eliminate subjectivity, but in some instances an element of qualitative judgement was unavoidable in the response. Inaddition to gathering scores against each benchmark through the review o f budgeting and financial documentation, the exercise also sought the opinion o f key officials withinthe LGs to gain a qualitative impression o f how the different systems finction. The officials were also asked how L G laws, policies, and systems affect their financial management. 1.9 The benchmarking information was collected between 20 January and 5 February 2004. Approximately three days were spent with each LG. Reports were prepared that presentedthe scores for the L G against the benchmarks o f good practice, and that presented also a qualitative description and assessment of performance against each benchmark. Specific recommendations were made for improvements in each LG. The findings of the benchmarking exercise finally were compared across the districts. The benchmarking reports for each LG and a summary of the results are presented in Annex 2. 1.10 In addition to the results of the benchmarkingexercise, this LGIFA reports the conclusions drawn from a series o f central interviews and a review o f LG reforms. The findings of the benchmarking reports and this synthesis report have been discussedwith the five sample LGs andtheir central stakeholders, including notably at a stakeholders workshop on 15 March2004. 1.11 The combination o f quantitative benchmarking and qualitative analysis provided a rich source o f information on local government practices. While the sample o f local authorities assessedhere was small, the identification of numerous common strengths and weaknesses in their public financial management-this despite a large variation in their performance in the benchmarking exercise- suggests that the sample size was adequately representative. As a result, rather than broadening the sample future benchmarking exercises might gain the greatest benefit from more closely analyzing individual LGs, to gain a deeper understanding of the root causes o f the problems that are evident in ' Includingthe guidelines for highly indebtedpoor countries (HIPC) tracking and a draft standardizedPFM diagnostic tool that is beingdevelopedby the PEFA Secretariatat the World Bank. This is broaderthan the assessment of adherenceto the legalframeworkthat is the focus ofthe Annual Assessment of MinimumConditionsand PerformanceMeasures andthe new compliance inspectionsystem that has is usedby local governmentinspectors.(The annual assessment i s conductedeach fiscal year under the Local Government DevelopmentProgram.) financial management. This would be of particular importance inthose LGs for which the political and managerial environment may undermine public financial management practices. Analysis o f the ways in which the laws, policies, systems, and practices of central government actors play out within local government i s likely to be key to achieving an understanding ofthe common strengths and weaknesses of LGs that are apparent from the benchmarking results. c. STRUCTUREOF REPORT 1.12 This report matches the structure o f the CIFA report. Chapter 2 presents an overview of the legal and policy framework governing financial management and sets out ongoing and planned reforms. Chapter 3 provides an assessment of high-level fiduciary concerns, including concerns about the realism of the budget, financial management skills, the political and managerial environment, financial management, and corruption. Chapters 4 through 7 present a detailed assessment o f each stage o f the budget cycle, comparing the findings o f the benchmarking exercise with initiatives being carried out at the center. The final chapter highlights the key issues requiring attention and proposes a plan for action. The annexes contain the detailed benchmarking reports from each LG and the benchmarking tool itself. - 3 - 2. OVERVIEW OFLOCALGOVERNMENTREFORMSIN UGANDA A. DECENTRALIZATIONLGS AND 2.1 The decentralization of public service delivery in Uganda was implemented on the premise that it would increase the efficiency and effectiveness of public expenditure and the responsivenessof public services to the needs o f users. Prior to the 1990s the centralized delivery of services was ineffective, ridden with problems ranging from high-level corruption to simple bottlenecks in service provision. The 1993 Resistance Council Statute and subsequently the 1995 Constitution provided a legislative foundation for a new systemthat would make local government responsible for the delivery ofkey basic public services. This systemwas put into operation by the 1997Local Government Act. 2.2 Ugandahas multiple tiers of local government (see Figure 1). The uppermost tier comprises 55 district administrations, with an average population of 441,000, and one city administration (Kampala), with a population of 1.2 million. These are the higher-level LGs. At the next level rural Uganda i s divided into 857 subcounty local governments(LGs), with an average populationof27,000; urban areas are divided into 13 municipalities, with an average population of 59,000, and 69 towns, with an average population of 19,000. The municipalities and the city are divided into divisions. The subcounties, towns, and divisions are consideredto be lower-level LGs. The next tier comprises 5,225 parishes and wards (the lowest-level administrative unit) and 44,402 villages, cells, and zones. Councillors are elected at the district, subcounty, and village levels in rural areas, and at the city, municipality, town, division, and cell levels of the urban authorities. Figure 1. Tiers of Lcao Government in Uganda Rural Urban - 4 - B. OVERVIEW OF LOCAL GOVERNMENT FINANCES 2.3 The decentralization o f authority to local government is not everywhere followed by the necessarytransfer also of resources.This i s not the case in Uganda, where an increasing proportion of public revenues i s allocated to the LGs. In fiscal 1997198, government grants to LGs represented 18 percent of the national budget. In2003104 that proportionwas 39 percent. Over this period the national budget furthermore doubled in real terms: transfers to LGs rose from USh2.24 billion in 1997198 to USh742 billion, or nearly US$400 million, in 2003104. As central revenues have increased local revenues have fallen, however. This decline was steepest in 2000 and 2001 when local taxation became a key political issue during the presidential and local governmental election campaigns. 2.4 Districts and municipalities, as central "votes," receive grants directly from central government. In 2002103 these grants made up 87 percent o f LG revenues, representing a substantial vertical fiscal imbalance. The budget of a typical district council is UShlO-15 billion, of which 95 percent comes in the form o f central transfers. The budget of a subcounty typically is o f the order of UShl00 million, approximately half of which is collected locally. Urban authorities typically are less reliant on central transfers than are rural LGs. 2.5 Uganda has a strong national agenda for poverty reduction. The national Poverty Eradication Action Plan (PEAP) gives priority to primary education, primary healthcare, rural roads, water and sanitation, and agriculture, all of which are services that LGs are mandated to deliver. The Government o f Uganda (GoU) is committed to ensuring that LGs deliver on these national priorities, and accordingly has increased its disbursementsto the local level. It also has increased the proportion of funding that i s tied to specific sectors, with conditional grants rising as a proportion of central grants from 70 percent in 1997198 to 80 percent in 2003104, In 2003104, 37 separate conditional grants were transferred to LGs. 2.6 While LGs have the funding to deliver services on a larger scale, however, the use of conditional grants means that local choice increasingly is diminishing. This is a key contradiction of the decentralization process. By limiting the discretion that LGs can exercise in the disbursement of funds, the central government is reducing short-term, high-level fiduciary concerns that resourcesmay not be committed to national poverty reduction priorities, but at the same time it risks undermining the evolution o f local mechanisms that would promote fiduciary assurance among the beneficiaries of services. The GoU's Fiscal Decentralization Strategy (FDS) accordingly aims to advance local autonomy by permitting flexibility in the allocation of recurrent grants, while mainstreaming discretionary development grants under the Local Government Development Program. This is crucial ifLGs are to become truly accountable to their localpopulations, and ifthey aer to develop efficient, effective public services that are fully responsiveto the people who use them. c. EVOLUTIONOF THE LEGAL POLICY FRAMEWORKFINANCIAL AND FOR MANAGEMENT 2.7 Financial management, in its broadest possible sense, encompasses the mechanisms for planning and allocating public resources to the achievement o f government objectives, the systems o f spending and accounting for the use o f those resources, and the results achieved. The legislation that primarily governs L G financial management is contained in the 1997 Local Government Act (LGA) and the 1998 Local Government Financial and Accounting Regulations (LGFAR). This act and regulations set out an elaborate and comprehensive legal framework for L G development planning, budgeting, revenue collection, expenditure, accounting, and audit. They are supported by an increasing number of manuals and guidelines and technical support. In 1999 the Ministryo f Finance additionally required of LGs that they follow a budget framework paper (BFP) process. The BFP process sought to replicate at the local level the national medium-termexpenditure framework (MTEF) process, aiming to improve the strategic nature o f local planning and budgeting, and specifically to reorient it to the achievemento fresults. - 5- 2.8 As conditional grants to LGs have risen, concerns have emerged over the lack of accountability associated with grants channelled to PEAP priority sectors via the Poverty Action Funde3 2000, the Ministryof Finance, Planning, and Economic Development (MoFPED) prepared In guidelines for planning the use of conditional grants andreporting on that use, and made the receipt of grant transfers conditional on submission to accountability rules. The different sectors also developed their own policies and planningand reporting guidelines. These often have included conditions for the use o f grant inputs, restricting the autonomy o f the recipient LG; through the imposition of multiple planning and reporting systems they also have increasedthe administrative burdenonthe LG. 2.9 The FDS aims to increase the autonomy of LGs and to streamline the system of central government transfers to the local level. The FDS was finalized in 2002 and piloting approved by the cabinet. Under the FDS the number o f central grants will be significantly reduced, and LGs will be given the flexibility to reallocate recurrent conditional grants within and between sectors. The local development grant, createdthroughthe LGDP, additionally has been mainstreamed as a national grant, providing discretion in the development budget. Budget preparation and implementation guidelines were prepared in 2002/03 to put into operation the provisions o f the FDS; these have been piloted in 15 LGs and are due to be scaled up countrywide in 2004105. The interface between sector policies, financing mechanisms, and guidelines is another key area of concern. A Local Government Budget Committee, formed under the auspices o f the FDS, has been overseeing the agreement o f sector policies betweencentral and local government. These are due to be implementedinfiscal 2004105. 2.10 The legal status of local government financial management is for now in a state o f flux. In 2003 the Public Finance and Accountability Act (PFAA) was passed, shifting the focus of the legal framework from financial control to financial management. The Local Government Financial and Accounting Regulations also are due to be revised during 2004/05 to bring them into line with the PFAA; this will provide an opportunity for the LGFAR to reinforce the provisions of the FDS and other initiatives, and for the policy reforms to be embedded in law. Local government procurement regulations developed in 2001 in the meantime have been put on hold, because they are not in line with the PFAA nor the 2003 Procurement Act. Revised procurement regulations are due to be published in2004105. D. HUMAN RESOURCE MANAGEMENT AND LOCAL GOVERNMENT RESTRUCTURING 2.1 1 Staff are appointed, promoted, and paid locally, and the LGs have full autonomy inhiring and promoting. Most LG staff, however, are on a centrally administered payroll and are paid via conditional grants. The Ministryof Public Service is seeking to improve human resource management in local government through the introduction of results-oriented management and staff performance appraisal. 2.12 The agreement and approval by central government o f a new establishment structure for LGs has been delayed and has yet to be fully resolved. This has major implications both for the costs of government and for the ability o f LGs to perform their functions. It remains unclear as to how much freedom LGs will be given to interpret the new structure, when agreed, to their own needs. 2.13 Inthe last four years the number ofdistricts has increasedfrom 45 to 56. While the creation of these districts may be politically justifiable it has increased the administrative overheads of decentralization and has firther brought into question the economic viability o f some LGs. The PAF was establishedin 1998 to channelHIPCand other donor budget supportto PEAP priority areas in the MTEF. The PAF now i s that part ofthe budgetwhich represents the highest-priorityPEAP areas. - 6 - E. CONCERNSEMERGING FROMTHE FINDINGS THE 2003 FINANCIAL OF MANAGEMENT STUDY 2.14 The 2003 Financial Management Study was conducted in response to concerns about the quality of financial management at the L G level. These concerns in particular include the ability of LGs to account for their funds ina timely manner andto adhere to local laws andregulations; the lack o f control over spending by service units; and the quality o f work carried out by LGs. Despite these problems the 2003 FMS was positive about the efforts that have been made to improve financial management and about improvements made in planning and budgeting, procurement, accounting, and reporting. The study identifieda set o f common problems: lack of realism inbudgeting (inparticular inrespectof local revenue projections); weak or nonexistent cashflow management and commitment control; weak or absent follow-up on internal and external auditor reports and PAC recommendations; weak information systems and little involvement of citizens in planning and inthe day-to-day monitoring o f activities; haphazardsystems for reporting within LGs; lack o f coordination and use of performance and output measures and o f analyses o f past, current, and expected performance, control, and influence on the financial management position o fLGs (downwards accountability); problems in the political culture that harm financial management performance, especially in terms of revenue mobilization and compliance with the LGFAR; and lack of incentives for staffto improve their performance. Many o fthese challenges remain. The benchmarking exercise quantifies some o fthe problems observed and enablesthe prioritization o f areas that needattention. F. INITIATIVES SUPPORTINGTHE STRENGTHENINGOF FINANCIAL MANAGEMENT SYSTEMS 2.16 A large number of initiatives, both planned and ongoing, are in place to improve public financial management and to operationalize the new legal and policy framework (see Table1). These reforms address many o fthe major weaknesses identified inthe 2003 FMS. 2.17 The Fiscal Decentralization Strategy, in addition to its higher-level objectives, has been used as a pIatform to introduce cash management and commitment control systems, to strengthen internal systems for reporting, and to improve accountability to council. Budget implementation guidelines are being developed underthe FDS to deal with these issues. 2.18 Two computerized database systems have been developed to facilitate local decision-making and to improve the flow o f information within LGs and between local and central government. These are being piloted by the MinistryofLocal Government (MoLG). The first ofthese systems is the Local Government Information and Communications System (LOGICS), a monitoring and evaluation database that will capture sector performance information and financial information. The other, the Local Government Financial Informationand Analysis System(LoGFIAS), i s a financial database that will capture revenue and expenditure information and that should enable better tracking of revenues and expenditures within LGs. LoGICS has been supported at the central level by the introduction of a new compliance inspectionsystem for the MoLG's LGinspectorate. - 7 - 2.19 MoFPED additionally is developing an integrated financial management system (IFMS), with the purpose o f automating many of the new provisions of the PFAA. A unifiedchart of accounts has been developed that the whole o f government is now using, and around which the IFMS i s based. During the course of this LGIFA study the IFMS has been put into use, and the experience has been encouraging. The IFMS i s being piloted in five LGs and in all central government ministries. The IFMS also incorporates modules for budgeting, procurement, cash management, and commitment control and should facilitate the timely reporting, reconciliation, and submission o f accounts. The IFMS and LoGICs are potentially complementary, as LoGICs can add a performance dimension to the purely financial, Oracle-based IFMS. Discussions are underway on how best to ensure that LoGICs and the IFMS can interface with each other and with LoGFIAS. Table 1. Ongoing and Planned Initiatives in Local Government Financial Management Ongoing Initiatives PlannedInitiatives FiscalDecentralizationStrategy Budget Formulation Harmonizationof CentralandLocal Guidelines Government ProcurementRegulations Local Government Information andCommunicationsSystem Roll-out of HarmonizedParticipatory Planning (LOGICS) Guidelines Local Government Compliance InspectionSystem Roll-out of FDS Budget Implementation IntegratedFinancialManagementSystem(IFMS) Guidelines Local Government FinancialInformation andAnalysis System Revisionof DistrictDevelopmentPlanning (LoGFIAS) Guidelines Local Government FinancialManagementTrainingMaterials Revisionof Local GovernmentFinancialand EFMF'II activities, includingtraining of accounts staff Accounting Regulations Reviewandrevision of LGrevenue legislation 2.20 The MoLG and the Local Government Finance Commission are making significant efforts to improve the administration o f local revenues. Guidelines o f best practice in revenue collection have been prepared and reviews and revisions ofthe L G tax legislationare underway. 2.21 New approaches to capacity building are also being developed. MoFPED is supporting the upgrading o f the accounts cadre within government through the sponsorship o f professional accountancy training, and the second Local Government Development Program (LGDPII) is developing a demand-driven approach to capacity building. This will involve the use o f a standardized set o f training modules and training materials developed by the MoLG, which also will certify a set of service providers. Local government units will pay for the assistance o f these service providers through capacity building grants. The MoLG also has prepared a set o f mentoring guides to support specific elements o f L G affairs, including financial management. 2.22 Many o f these initiatives are too new to evaluate, but iti is clear that their effective implementation will require full coordination ifthey are to reinforce rather than undermineeachother. This report identifies where these initiatives are likely to add value to financial management, where there i s a need to coordinate different initiatives, and where there i s a risk o f inconsistency and confusion occuring. G. THEJOINTANNUALREVIEWOFDECENTRALIZATION 2.23 A key opportunity to achieve the coordination of those policies and systems that impact decentralization, including those targeted at improving public financial management, will come with the planned Joint Annual Review Decentralization (JARD). The first of these reviews, which will be supported by LGDPII, is scheduled for October 2004. The stated purpose o f the reviews i s "to review the status of the overall process of decentralization ... to ensure coherent, mutually supporting initiatives and crosscutting (sectoral) learning and c~ordination."~ It is intendedthat these reviews will result in central and local government stakeholders and development partners agreeing sets of actions that will result in an "iterative process toward better coordination o f donor and government activities LGDPII ProgramAppraisal Document, World Bank, May 2003. - 8 - supporting decentralization." The JARD process could become the lynchpin for improving the effectiveness o f central government support to and interaction with local government. - 9 - 3. HIGH-LEVEL FIDUCIARY CONCERNS OF LOCAL GOVERNMENT A. INTRODUCTION 3.1 This chapter identifies the high-level fiduciary concerns o f LGs and compares the findings o f the benchmarking exercise. Central to the exercise is analysis o f the budget, and specifically of its ability to deliver on LG priorities and objectives and on national policies. For the budget to reflect local priorities it must follow a fixed cycle o f systems at the local level to ensure the effective allocation, deployment of, and accounting for resources. This chapter discusses the relative strengths and weaknesses o f each stage o f the budget cycle, which were revealed by the benchmarking results summarised in table 2 below. Important cross-cutting issues are also identified that affect financial management, including the management capacity at the LG level, the political environment, and the incidence of corruption , Table 2. Benchmarking Results (all figures expressed as a percentage) PRIMRY BUDGETOUlTuRNS 33 78 56 33 0 40 MEDIUM-TERMPLANNINGAND BUDGETFORMULATION 46 41 70 54 41 50 1. Planningandbudget formulationprocess 30 50 80 40 40 48 2. Local governmentdevelopmentplans 63 25 63 88 38 55 3. LGbudget framework paper 57 43 43 43 14 40 4. Annual workplans andbudget estimates 42 42 83 50 58 55 BUDGETEXECUTION 74 71 82 71 50 69 1, Local revenuecollection 70 80 90 60 10 62 2. Procurement 67 62 76 16 52 61 3. Payrollandpersonnelmanagement 89 100 100 89 56 87 4. Cashflow management, commitment, and expenditure control 70 55 75 55 50 61 5. Intemalaudit 75 75 83 75 67 75 7. Deviationsfrom workplans andbudgets 100 100 75 100 75 90 ACCOUNTINGAND REPORTING 74 70 89 81 56 74 1, Accounting andrecord keeping 73 82 91 82 55 76 2. In-year financial andperformancereporting 100 78 100 100 67 89 3. Follow-upof monitoringactivities 60 40 80 60 40 56 4. Finalaccounts andperformancereports 0 50 50 50 50 40 EXTERNALACCOUNTABILITI: AUDIT AND SCRUTINY 59 59 71 53 41 56 1, Transparency and accountability in financialmanagement 40 40 80 20 0 36 2. LocalgovemmentPAC scrutiny of audit reports 100 100 100 100 100 100 3. Councildiscussionof LGPAC, LGAC, andperformancereports 33 33 0 33 0 20 4. Councildiscussionof sector performance 33 33 67 33 33 40 FINANCULMNAGEMENT CAPACITYANDENVIRONMENT 64 73 55 64 55 62 1. Qualityof budgetingand financial management skills 83 100 67 83 83 83 2. Use ofIT 40 40 40 40 20 36 AVERAGE SCORE 58 65 70 59 40 59 -10 - B. THEREALISMOFTHEBUDGET 3.2 The performance o f any public financial management system may be most readily assessed through examination o f revenue and expenditure outturns relative to the budget. These measures provide in particular an indicator o f the realism o f the budget and the extent to which it i s an authoritative tool o f policy. They also give an indication o f whether the LG's objectives, as presented inthe budget, are being achieved. Significant deviation from budget allocations can point to one or a combination o f factors: revenue projections inthe budget were overoptimistic, either intentionally or unintentionally; the LG may not have the administrative capacity to spend the revenues it receives in accordance with the budget and its desired objectives; the budget, either intentionally or unintentionally, did not adequately represent the priorities and policies o fthe LG, resulting inchanges inthe allocation o f expenditures; during implementation personal interests superseded the objectives o f council as set out inthe budget; andlor external factors, such as the late release o f funds from central government, drought, or political changes, have made it difficult for the LGto adhere to the budget. 3.3 Budgeted and actual central and local revenues, aggregate and departmental expenditures, and arrears were analyzed using the final accounts o f the LGs. Table 3 shows the best and worst performances among the benchmarked LGs. Table 3. Key FiscalPerformance Indicators Average Poorest Percentage Best Outturn Outturn AverageBudget Outturnin SampleLGs,2002/03 (percentage) Outturn Performance Performance Total expenditure (percentageof budgetedexpenditure) 87 97 Jinja 67 Masaka Total revenue received(percentageofbudgetedrevenue) 91 99 Jinja 83 Masaka i 1 Localrevenuereceived(percentageof budgetedlocalrevenue) 76 88 Masaka 68 Kabale Localrevenue received(percentageoftotal revenue collecteda) 3.3 Jinja 2.0 Tororo Averagedepartmentexpenditure deviationfrom budget (percentage) 10 Kabale 50 Apac Average level of arrears` (percentage of total expenditure) I1 Apac I13 Masaka a Excludes subcounty and division revenues. Subcountiesretain 65 percentand divisions 50 percent of revenuescollected intheirjurisdiction. ExcludesMasakaMunicipality, which had local revenues o f 24 percentoftotal revenues. Urban authorities ingeneralhave higher tax collections than do districts. Arrears are here defined as financial commitments outstanding at the end o f the financial year. 3.4 Overall, budgets in Ugandan LGs tend to be unrealistic, with outturns tending to deviate significantly from budgeted amounts. On average, aggregate LG expenditures are 87 percent o f program and aggregate revenues are 91 percent. Local revenue averages 76 percent o f projection. With the exception o f Masaka Municipal Council, which spent only 83 percent o f revenues received, the LGs inthe sample spent their revenues infuL5This indicates unreliability inthe LGbudget estimation of central and local revenues rather than speaking to the ability o f LGs to spend the funds they receive. In 2002/03 Masaka's sectoral spendingwas seriously below budget, implying that it had problemsin spending its conditional grant transfers. The municipality also accumulatedsignificant arrears: it was unable to meet salary paymentsfrom local revenueandthe unconditional grant and was obliged to take on a large bank loan. - 11- (It should be noted that the Ministry of Finance typically disburses in full its budgeted grant allocations to LGs.). 3.5 Unpredictability in budget implementation is especially evident at the sector level, where all LGs find it difficult to adhere to departmental budget allocations. Most sector departments underspend against budget due to revenue shortfalls, a problem that is particularly evident among those sectors fundedby local revenues. 3.6 Although inaggregateterms arrears are small relative to expenditures, when compared to local revenues they are large. This i s a significant problem in two o f the five LGs studied. Given the conditionality attached to most central government revenues and the fact that the unconditional grant usually is spent on salaries, the only source of funds that can be usedto pay arrears is local revenues. This problem was most evident in Masaka, which did not spent its conditional grants in full but nonetheless accumulated significant arrears. Few o f the LGs have plans to clear their arrears, and most particularly those arrears due to pensions and salaries. Table 4. Primary Outturns Average proportionof benchmarksmet:40 percent PerformanceArea and Benchmark I I Ratingand Summary Statement Primarybudget outturns Average: 40% I Highest: Jinja, 78% Lowest: Tororo, 0% Budget estimatesrealistic and implementedas planned Budget estimates are often unrealistic. Sectoral expendituresand local revenues in particular deviate significantlyfrom budgetedamounts Achievement o fresults National objectives broadly are being achieved, but there are someproblems infully implementing plans, Policy objectivesrealized andplans especially thosefundedfrom local revenue implementedas intended 3.7 The success of the budget must be judged in terms o f the results achieved from the expenditure made, and whether or not those results meet the objectives o f the LG and o f central government. This success or failure i s not readily measurable, but the widespread underspending against sector budgets implies that many annual workplans are not being implemented in full. Those sectorsthat are fundedby central government perhaps are best placed to deliver the desired results. 3.8 It is important to note that there are significant differences inthe reliability ofthe LGbudgets. For example, Jinja and Kabale appear to be in control o f their aggregate revenues and expenditures, and their sectors generally spend in accordance with their budgets. (Kabale managed this despite having the most unrealistic local revenue projections o f the five LGs studied.) Conversely, Masaka appears unable to control its expenditures, underspending significantly against some sector budgets and accumulating arrearselsewhere; this despite havingthe most reliable local revenue projections. 3.9 While the aggregate fiscal discipline o f some of the LGs i s good, their budgets are poor tools for articulating and delivering on their objectives and priorities. Correcting this is the greatest challenge for PFM at the L G level. Despite the unpredictability o f the budgets, the resources reaching the LGs are beingspent as is critical on services in priority PAF programs, such as education, health, and roads. Essential services are being delivered. It i s the link between policy, planning, and the budget that needs strengthening. -12- c. STRENGTHSAND WEAKNESSES INTHE BUDGETCYCLE 3.10 The budget cycle is the process through which public resources are allocated toward policies, objectives, and priorities and thenare spent, reported on, and accounted for. This section examines the strengths and weaknesses that are evident inthe planningand budgeting cycle and identifies the major fiduciary risks. (See Chapters 5 through 7 for an analysis o fthe stages o f the budget cycle.) 3.11 Medium-term planning and budgeting is the weakest element of the budget cycle. There is adequate technical capacity among the LGs to prepareplans and budgets, and the planning and budget documentation often is of good quality. Sector objectives typically are clearly defined and allocations to priority poverty expenditures are readily identified. The main problem is that these documents are not used effectively in local council decision-making. The linkage between medium-term plans and budget allocations is weak, due in part to an illogical sequence in the budget cycle, with the consequence that plans tend not to be resource-constrained. This problem is exacerbated by the unreliability o f indicative grant allocations provided by the Ministry o f Finance at the beginning o fthe budget cycle. 3.12 The LGs hrthermore have little autonomy other than in choosing the location of services that will receive funding and investment, and these allocation choices are not clearly presented to councillors in the budget process. Local councillors in fact have little participation in the budget process, andthe budget as a consequence i s unlikely to reflect the council's true priorities. This lack of political ownership furthermore means the budget i s unlikely to be realistic or implemented as planned. 3.13 Budget execution and accounting and reporting are relatively strong elements of the budget cycle. Many o f the processes associated with procurement, personnel management, the processing of payments, internal audit, and financial and output reporting function sufficiently well to ensure that hnds are spent once they are received and that services are delivered with a modicum of control. The local revenue situation also appears to be improving, although this progress is likely to be undermined by the uncertainty theat surrounds the future o fthe graduatedtax (Gtax). 3.14 There i s significant room for improvement, however. Inadequacies and gaps in the systems governing cashflow management, procurement planning, and commitment control must be addressed if budget execution is to be made predictable for the spending departments. The processes are appropriately geared toward the delivery o f central, conditional-grant-funded priorities and as such are controlled by the chief financial officer, heads of department, and ultimately the central ministries. However, those departments that are reliant on central transfers often suffer delays in the transfer of hnds to their operational accounts, even where the funds are transferred on time to the LG. This i s often due to the failure o fthe CFO to collect the releasenote from the treasury inKampala. 3.15 The challenge for the LGs i s to improve the management orientation o f these elements of the budget cycle. Managers at all levels must take more responsibility for their actions and hence for the achievement o f the results requiredby the budget. It i s also essential that the susceptibility o f budget implementation to the exercise o f political influence be eliminated. This weakness is most apparent in procurement and local revenue collection; while overall aggregate expenditures tend to be consistent with budgets, there is significant scope for politicians to diverge during the fiscal year from the workplan. 3.16 It is not a coincidence that the mechanisms for holding government to account for its performance are almost as weak as the planning and budgeting system. The strongest accountability mechanisms are vertical, between service providers, sector departments, and central sector ministries. The public does not demand accountability on the part o f its LGs, and councils are entirely ineffective at holding their administrations to account for performance. This may be a consequence of councils lacking ownership of the decisions made during the planning and budgeting processes, and therefore disinterested in performance against budget and less likely to be dissuaded against interfering during budget implementation. Table 5. Financial Management Capacity and Environment PerformanceArea and Benchmark Rating and Summary Statement Quality of budgetingand financialmanagementskills Average: 83% Highest:Jinja, 100% High-quality staff carrying out budgeting andfinancial Lowest: Kabale, 61% management There appears to be adequate budgeting and financial managementskills within LGs Use o f information technology Average: 36% Highest:Apac, Masaka, Jinja, andKabale, 40% IT is used in budgetary andfinancial management Lowest: Tororo, 20% Use of IT infinancial management is limited to some aspects ofplanning budgeting, and reporting 3.17 There were large differences in the performance o f the LGs in the sample, but also many common strengths and weaknesses (see Table 2). Across the LGs the strongest performance areas were budget execution and reporting. The weakest were planning and budgeting, and holding government to account. These findings are consistent with an observation that runsthrough this report, that the systems used at the local government level are oriented toward central government. These systems are characterized by central control over inputs and by reporting and accounting to the center rather than to council or the public. This environment provides little incentive for councils to take an interest in the decision-making processes of the budget or to hold local administrators to account for performance. The fact that these weaknesses are common across the LGs means that central intervention should be able to support the development of new systems that promote local choice and accountability, however. 3.18 Finally, it is important to note that the financial management performance o f the sample LGs varies widely. Kabale, for example, met 30 percent more of its benchmarks than did Tororo. D. ADEQUACY OF FINANCIAL MANAGEMENT SKILLS 3.19 The higher LGs have substantial budgets, and it is important that they employ staff with the technical skills necessary to manage their finances. The public service structures set out established and reasonablestandards, and finance staff are required to have certain academic qualifications. These requirements broadly are met6Many LGs additionally are actively recruiting professional accountants or are training their existing staff. 3.20 With the exception o f Apac, which did not have a financial planner on staff, the LGs studied appear to have adequatenumbers o f qualified staff intheir finance and planning departments. This i s a significant improvement from the early years o f decentralization, and may in part be due to the high priority given to the employment of qualified personnel by the Annual Assessment of Minimum Conditions and Performance Measures. (It is only by meeting the requirements o f this assessment that an L G qualifies for a local development grant under the Local Government Development Program (LGDP).) Sectors such as education additionally are increasingly emphasizing the importance of financial management capacity. Overall, there was little variation across the LGs in the technical qualifications o ftheir staff. 3.21 The 2003 Local Government Financial Management Study identified as a problem the inadequate financial management capability o f headso f department, who are vote controllers under the local government financial and accounting regulations (LGFAR). Heads o f deparatment typically have finance department staff seconded to them, but to be able to effectively manage their resources they CFOs are required to be graduates in Commerce or an equivalent. Accounts assistants mustbe a diploma holder in accounts, business studies or a similar discipline. - 14 - must have a background inplanning, budgeting, financial management, and procurement. These skills should not be the preserve ofthe finance and planning departments alone. 3.22 The use o f manual systems predominates, and the lack of computer literacy among accounts staff may hinder the roll-out o f the integrated financil management system (IFMS). The LGs in which the IFMS is being piloted have made significant efforts to resolve this situation, and the training of higher-level accounts staff broadly has been successful. It remains to be seen whether the lower cadres of accounts staff, particularly those who have been inthe service for a longtime, can be trained. 3.23 Another major problem afflicting all LGs is the lack o f capacity building or the use of inappropriate capacity building measures for the specific financial systems that they employ. Central government typically was blamed for failing to provide adequatetraining and support at the time that new systems were introduced to the LGs. While it provides numerous financial guidelines and manuals, staff training provided by the center typically may be no more than a one-day workshop for a few staff, There i s a clear need for extensive training on site, supported by follow-up visits as systems are implemented locally. Computer-literate professional accountants have been deployed to all of the pilot IFMS implementations, and existing staff have received intensive training in the system. Initiatives such as the fiscal decentralization strategy (FDS) and the Local Government Information Communications System (LOGICS)will require similar support if their deployment countrywide is to be successful, but such support i s expensive. E. MANAGERIALPOLITICAL ENVIRONMENT MANAGING AND FOR RESOURCES 3.24 There is significant variation inthe level o f fiduciary assurance o f the LGs. The benchmarking exerciserevealed a strong correlationbetween the quality o fthe managerial and political environments and the level of fiduciary assurance, but the objective measurement and quantification o f these factors i s extremely difficult. 3.25 Qualitative comparisons are possible, however. The key difference between Tororo and Kabale districts, the poorest- and best-performing districts o f the sample, lay in their relative political and managerial environments. Kabale exhibited a constructive relationship betweenthe administration and politicians, and was the most transparent and accountable of the LGs. Politicians were willing to publicly defend their local administration's performance, and there was mutual trust between politicians and technocrats. In Jinja, the Secretary for Finance and the Finance Department similarly had a constructive relationship that enabled the CFO to exercise strong control over expenditures. In Tororo there was in contrast a constant tension between politicians and technocrats, and the council showed little or no interest indiscussing the administration's performance. 3.26 Complaints of political interference in tendering, in large part attributable to the fact that tender board members are appointed by politicians, were common across all o fthe LGs. This situation would tend to reinforce the linkages between politicians, LG managers, and the local business community, and creates an environment in which there is explicit use o f local preference in procurement. 3.27 The managerial environment also has an important bearing on fiduciary assurance. With the exception o f Masaka, the sample LGs operated an open managerial culture. In Kabale the CAO and CFO provided strong leadership, the CFO delegating responsibility to his staff and sanctioning those who fail to adhere to the guidelines provided. The L G also has permittedthe evolution, independent o f central government, of innovative systems for cashflow management and commitment control. In Tororo, in contrast, there was little innovation in the way that problems were addressed, and staff typically seemed content to merely follow rules and regulations. 3.28 These managerial and political factors emerged as key fiduciary concerns, but shortage of time made fuller investigation o f these issues impossibe. Greater understanding clearly is needed o f how - 15 - political and managerial relationships can strengthen and undermine financial management. Investigationalso would be valuable of the types of initiative that can strengthenperformance. F. CORRUPTION 3.29 The incidence of corruption in local government i s an important factor to consider when assessing the fiduciary assurance provided by LGs in the delivery o f services. It is likely that corruption also i s strongly linked to the managerial and political environment. 3.30 The National Integrity Survey (NIS), completed inMarch 2003, provides an important insight into corruption in different services and institutions. The survey extended nationwide, but its findings are not disaggregated by district. In addition to the general public, government officials and individuals specifically from the private sector were interviewed. Table 6 summarizes the findings as to the perception o f corruption among different local government services. 3.3 1 Few respondents rated local government institutions as being extremely corrupt, and satisfaction with the delivery o f all local government services was high across all sectors. While the health sector was considered the most corrupt, it nonethelessrecorded a high satisfaction rating for the services delivered. All LG services compared favorably with the police, the main centrally delivered service, which was rated by 46 percent of respondents as being corrupt. The local government service that received the most complaints in 2002 was education, with 170 complaints; in comparison, 201 complaints were received about the police. 3.32 The types of corruption cited as being most common are bribery and informal charges. Health services nominally are free, but a large proportion of users claim that they are forced to pay for treatment, with receipts seldom issued. The same is true in primary schooling. The leakage of school funds has been greatly reduced, but embezzlement by headteachers o f funds allocated to universal primary education and the collusion of teachers with school management committees persist as a common problem. Table 6. Perception of CorruptioninDifferent LGInstitutions Source: NIS2003 3.33 With regard to the higher levels o f local government, the N I S revealed it to be a commonly held belief that councillors seek to earn back through corrupt practices the money that they spend to win election. Tender boards in particular were identfied as being very corrupt, with much o f the claimed corruption in education and health centering on the construction o f facilities, both inthe areas of the award of tenders and the certification o f completed works, payments allegedly being effected before completion has occurred. 3.34 The NIS identified a range o f corrupt practices beyond simple bribery. Collusion between central and local government agencies allegedly is common, for example, and can take various forms. The survey cites instances o f the payment o f salary arrears on the payroll, the sharing o f revenues for workshops and seminars that do not take pace, and the provision of kickbacks from project funding. Corruption at the district level includes the falsification o f documents related to LG works and to the receipt of goods and services. - 1 6 - 3.35 The study nonethelesssuggests that the situation i s improving. The NIS reports that proportion of respondents paying bribes in their contact with LGs fell from 39 percent in 1998 to 16 percent in 2002.' A ranking of different institutions, based on interviews with government and private sector workers, found that 37 percent of respondents cited district councils as being the most corrupt, 34 percent identifiedL G administrations and subcounty councils as most corrupt, and 21 percent felt that village councillors were most corrupt. The government institutions with the worst reputation include the police and the Uganda Revenue Authority; those with better reputations include the Bank of Uganda and the post office. G. HIGH-LEVEL AREASOF FIDUCIARYASSURANCE AND RISK 3 -36 The existing L G financial management systems generally permit revenues received to be spent in fillon the delivery of basic poverty r-educing services. This is true for both strong and weak LGs. There appears to be little risk o fthis situation deteriorating, given the apparent reductions incorruption and the strengthof the budget execution, accounting, and reporting processes. 3.37 There nonetheless are several key fiduciary concerns that if not addressed will hinder attainment o f more efficient, more effective local government expenditure. These include the following: 0 LG budgets will remain weak tools for translating L G priorities and objectives into effective resource allocations unless LGs are given greater autonomy in resource allocation. Revenue estimates bothfor local revenues and for central grants also must be made more reliable. 0 Inthe absence of effective cash management and commitment control systems, weak control and unpredictability in budget execution will continue to undermine the ability o f spending departments to implement budgets as planned. 0 Local accountability will remain weak unless the systems for external accountability are oriented away from central government institutions andtoward local councils andthe public. 0 The poor managerial and political environments of some LGs must be improved. This cannot be achieved through conventional capacity-building techniques. 0 Poor coordination in the implementation o f new initiatives, combined with inadequate and inappropriate technical support, is undermining the capacity o f such initiatives to strengthen PFM. 0 A lack of understanding of the levels and types of corruption within LGs risks the use of policies that will permit corruption to persist. Where it does, it will continue to undermine efforts to realize value for money in service provision. This may, however beexplainedby a change inthe measure - 1 7 - 4. LINKINGPOLICIESAND PLANSTO THE BUDGET A. OVERVIEW 4.1 It is essential for the efficient and effective allocation of resourcesthat there be a strong link between policies, plans, and the budget. At the center the Poverty Eradication Action Plan( PEAP) and long-term sector development plans are linked to the budget through the medium-term expenditure framework (MTEF), with sector budget strategies set out in the budget framework paper. The planning and budgeting process at the local government level should in principle be as strong as that o f the center, but in practice the medium-termplanning and budgeting formulation here i s the weakest part o f the budget cycle. This weakness is central to the problems that are evident in primary outturns: it is difficult to implement a plan or budget as intended if it i s based on unrealistic resource projections. Table 7. Medium-Tgerm Planningand Budget Formulation Average proportion ofbenchmarks met: 50 percent ~~~ PerformanceArea and Benchmark Rating and Summary Statement Planning and budgetformulationprocess Average: 40% Highest:Kabale, 80% Lowest:Apac, 30% A credible, coherentplanning and budgetprocess is in Poliiicians, civil servants and civil society allparticipate in theplanning place, with clear definition of events and responsibilities and budgetingprocess. Inconsistencies in the timing ofpreparation of and the meaningtirlparticipation ofpoliticians, civil plans and budgets mean that there is no clear sequence of decisions, and society, and civil servants, ensuring that local needs and this undermines the value of engagement priorities are represented Local government developmentplans Average: 55% Highest:Masaka, 88% Lowest:Jinja,25% A realistic, achievable district developmentplan, with Some developmentplans represent coherent strategies, reflecting clear objectives and strategies, reflecting both national national and localpriorities. However,plans are often unrealistic, and local needs andpriorities involving limited analysis and costings, and oftenfail to take into account the availability of resources LG budgetframework paper Average: 40% Highest:Apac, 57% Lowest:Tororo, 14% A BFP inplace with realistic medium-ierm revenue Objectives and outputs are clearly identified in the document, and projections and sector budget strategies, and clearly medium-term allocations presented. However, BFPs tend to bepoorly identij?edobjectives and ouputs understood, incorporatinganalysis of variable quality and including medium-term projections that are not based on theprevious year's projections Annual wolkplans and budgetestimates Average: 40% Highest:Kabale, 83% Lowest:Apac andJinja, 42% Balanced, comprehensiveannual budget estimates, Not all districts prepare balanced and comprehensive budgets, andsome clearlypresented and supported byfitfly consistent are dfficult to understand. Workplansareprepared by thefitnding annual workplans that set out activities and outputsfor source and do not explicitly support the budget thefinancial year Likelihood of improvements inplanningandbudgeting Improvements are likely to continue in thoseLGs where there is good coordination across the administration - 1 8 - 4.2 The Local Government Act requires the districts to prepare comprehensive, three-year integrated development plans that incorporate the plans o f lower-level LGs. Specifically, the law requires that the annual budget estimates "take into account"8 the development plans. The effort to comply with this requirement has focused primarily on the introduction of the budget framework paper (BFP), an attempt at the local levelto replicate the MTEFprocess o f central government. 4.3 Guidelines for the preparation of L G development plans were publishedin2000. Harmonized participatory planning guidelines also have been produced to ensure the effective engagement of the public. L G plans are supposed to provide "a long-term view of district development in terms of objectives (five to 10 years) and a mediudshort-term (three to five years) view specifying programs of action and timing o f their implementation."' Although provided for under the local government financial and accounting regulations (LGFAR), comprehensive budgeting guidelines were only developed in 2003. These incorporate the provisions o f the Fiscal Decentralization Strategy (FDS) and earlier guidance notes for the preparation o f the BFP. The FDS assigns greater autonomy to the LGs, affording them the flexibility to reallocate conditional grants across and within sectors. For fiscal 2003/04 the higher LGs have used the new budget guidelines for the first time. The flexibility that the guidelines in theory afford has in practice been undermined by the unreliability of budget ceilings proided by central government, however. 4.4 With these development plans, BFPs, workplans, and budgets now in use most LGs should have at least one good planning or budgeting document. The fact that this document remains the weakest element of the budget cycle in all districts is due to the poor linkage between development plans, budget framework papers, and the budget. It i s due also to the fact that participation in the budget process is not combined with engagement in real decision-making. The planning and budgeting process itselfclearly i s flawed. B. LINKING NATIONAL SECTORAL POLICIESAND PLANS TO LOCAL GOVERNMENT PLANSAND BUDGETS 4.5 Uganda historically has used conditional grants to ensure that central policies and plans are implemented at the sectoral level. As the number o f such conditional grants has risen, the autonomy of the LGs in the area o f service delivery has decreased. The allocation formulae for grants furthermore have evolved in an unsystematic manner, and have not necessarily been equitable. This situation has been confused by a lack o f coordination and o f central interaction with the L G budget formulation process, giving rise to the issuance by the center o f conflicting and confusing budget ceilings, formats, and information regarding plans and budgets. 4.6 The Government o f Uganda (GoU) has acknowledged the need to move away from the control o f inputs and toward the agreement o f common policies and objectives. The provision of autonomy to LGs is essential to achieve this. Efforts are underway to make this change, led by the Local Government Budget Committee, established under the FDS. This committee, which is chaired by the Secretary of the Local Government Finance Commission, has overseen major negotiations between LGs and sector ministries that, if followed through, should result in the situation improving significantly. Agreement has beenreached on the reduction inthe number o f conditional grants to one per sector, the development o f allocation formulae for these grants, and on sector policies, conditions, budget lines, and output indicators for budgetingand reporting purposes. 4.7 The agreement to reduce the number o f conditional grants in particular is significant, and the compromises on policies and conditions that have been reached in some sectors represent further progress. The health, education, and roads sectors appear also to have reached suitable compromises LGA section78 Guide on DevelopmentPlanning in LGs, pl. - 1 9 - on budget lines and performance indicators, but it may be necessary to further reduce the number of performance indicators to a more realistic level. It i s reasonable to expect, however, that over time coherent sets o f policies and performance measures should evolve that promote stronger decentralized service provision. 4.8 The new allocation formulae represent significant progress toward the equitable distribution o f resources across the country, and toward grant allocations that are transparent and easy to understand.A recent decision that no local government should lose out due to the introduction o fthe formulae means, however, that they will be introduced only gradually over a number o fyears. c. NEEDTO IMPROVE SEQUENCINGINTHE PLANNING AND BUDGETING PROCESS 4.9 All of the LGs studied used a thorough planning and budgeting process that involved a wide range o f stakeholders. The sequencingof the preparation and approval o f different documents broadly speaking was illogical, however, and the budget projections producedtypically were unrealistic. 4.10 The timeline for the planning process requires that the development plans and the budget be prepared at about the same time and approved together around the statutory deadline o f 15 June. The BFP, which sets out the medium-termbudget strategy and is intended to link the budget to the long- term development plan, i s finalized in January or February, four months prior to the June deadline. It thustakes no account ofthe longer-term, visionary element ofthe district development plan(DDP). 4.11 The DDP should be preparedand approved at the latest by the end of December, so that it can feed into the BFP. The BFP in turn should feed into the preparation o f the detailed workplans and budgetsthat are presentedto council inJune. 4.12 The guidelines for LGs in the past have centered on the preparation o f individual planning documents. They have not given enough emphasis to the relationship between different planning documents and the way in which these documents should be usedto facilitate decision-making in the planning and budgeting cycle. The 2002 budget preparation guidelines prepared under the FDS attempt to address this issue, setting out the budgetary process. The guidelines focus on the link betweenthe BFP and budget, however, andthe references madeto planning lack detail. D. STRENGTHENING THE LINKBETWEENDEVELOPMENT PLANNING AND BUDGET FRAMEWORK PAPERS 4.13 The development plans produced by the sample LGs were comprehensive, and in some cases presented coherent objectives and strategies, backed up by sound analysis. The plans produced by Apac and Kabale alone were costed and linked to resource constraints, however, and the other plans as a result were likely to be unrealistic. Generally there was little prioritization o f investments, andthe plans thus may be broadly characterized as wish lists rather than as strategies to achieve realistic objectives. The rolling-over o f plans each year as a result degenerates into a meaningless exercise, with projects that were not initiated and completed as planned reappearing year after year-it i s common practice for districts merely to change the fiscal year in the column header for those investments that are not completed. A new phenomenon at the community level, termed "planning fatigue," i s starting to emerge; communities are tiring o f being consulted over projects that are never funded nor implemented. For the planningprocess to be meaningful it must deal with actual resources andwith activities that actually take place. 4.14 The role of the BFP is poorly understood within local government, probably because the sequencing of the planning and budgeting cycle does not allow the paper to linkthe development plan to the budget as intended. This undermines the quality o f the BFP as a prioritization tool and limits its - 20 - influence inthe budgeting process. The paper plays a valuable role at the sectoral level, and provides a useful tool to aid departments inthe review o fpast performance and the setting out of medium-term budget strategies, in line with conditional grant allocations. The lack of autonomy and hence contestability in sector budget allocations means that there is little incentive, however, to use the BFP as the basis for informed, intersectoral allocation decisions. 4.15 The new FDS modalities are expected to redress this situation. The 2003 budget guidelines requiredthe LGs to follow the new structure of the BFP, but most failed to do so and the guidelines hrthermore were interpreted differently by each LG. The Local Government Finance Commission i s reviewing the BFPs for their adherence to the new structure, and i s advising the LGs o f improvements that must be made. This feedback system i s confirming the benchmarking findings that there is almost universally no linkage between the DDP and BFP. The LGs are being advised to provide concrete references to the DDP in the BFP, and also are being advised to prepare their DDPs such that they reflect accurately the availability o fresources. 4.16 It is unusual inthe international context, and somewhat redundant, to require two medium- term planning and budgeting instrumentsto be prepared each year. This does not happen at the center in Uganda, and may at the local level be an unnecessaryadministrative burden. Over the longer term the BFP and the DDP should be integrated into a single document that provides a detailed medium- term budgetary plan, separately identifying individual projects. 4.17 In addition to a three-year rolling plan and budget strategy, the GoU should consider introducing a longer-term local government plan, with a horizon o f five years or so. This could be updated every three years, in line with the PEAP revision exercise, or at the beginning o f every electoral cycle. The latter option would increase political interest in the plan, and in theory should ensure stronger linkage with central practice. The combined DDPBFP would in these circumstance provide the three-year rolling budget strategy and plan that would put into operation the strategy of the longer-term plan. E. INTRODUCING GREATER AUTONOMYINTORESOURCEALLOCATION 4.18 A secondary problem, and one that compounds the poor sequencing o f events in the budget process, is the lack of autonomy and hence contestability o f resourceallocations. Ifresourcesare to be allocated effectively and efficiently, different policy proposals needto be evaluated against each other to produce a fully informed decision on the optimum allocation of those resources within and across sectors. This means that L G resources must be contestable-that is, that the LGs must have the autonomy to allocate their funds to different activities within and across sectors based on the merit of the budget proposal andthe priorities ofthe local government. 4.19 Budget allocations, including conditional grants, tend however to be seen by LGs as entitlements rather than as expenditure allocations that must be justified in terms of their expected results. To date the only real contested resource i s the LGDP's local development grant (LDG), a discretionary development grant that is shared between higher and lower LGs and that usually is allocated to small-scale investments. Most unconditional grant and local revenue allocations go to salaries, with the balance going to the operational expenses o f those spending departments that do not receive conditional grants. -21 - Box 1. ContestingResourcesin MubendedDistrict Mubendedistrict showed significantinitiative in its use ofthe recurrent grant flexibility bestowedunder the FDS. On the recurrent side, sector departments were required to budget to no more than 90 percent of the grant ceiling for recurrent grants. The district pooledthe 10 percent recurrent flexibility from recurrent grants with the local development, and asked sector departments to identify and prioritize all unfunded activitiesin their sectors. These were then discussedat the budget conference.Those unfundedactivities to be funded from the development budget (LDG) and those from the recurrent budget (pooled 10 percent flexibility) were identifiedand agreed. Source: Discussions with Kevin Curnow, technical advisor to the LGFC, and elaborated in a draft letterfrom the Secreatry, LGFC, to the CAO, MubendeDistrict 4.20 Technocrats and politicians evidently take considerable interest in the question o f L G autonomy. In Apac, for example, the district technical planning committee demonstrated far more interest in debating the LDG indicative planning figures than in reviewing plans. At its budget conference the Jinja council similarly was more interested in ranking the projects to be implemented in the following fiscal year than in the overall DDP. This is despite the fact that the LDG usually accounts for less than 10 percent of L G revenues. Spending departments generally are not required to defendtheir resource allocations, (nor, it should be said, do councillors have much to decide on during the budgetprocess). Ineffect, conditional grant allocations are seen as entitlements. 4.21 The FDS is addressing the sequencing o f the budget cycle and the contestability o f revenue resource allocations, in part by granting LGs 10 percent flexibility to reallocate recurrent grant allocations within and across sectors. Spending departments are required to justify their existing budget allocations and to provide arguments as to why allocations should be maintained or increased. Councillors will have the opportunity at the budget conferenceto decide how to use this flexibility, 4.22 T.his increased flexibility was made available for the first time this fiscal year, but there is little evidence o f it having been used. Mubende has taken advantage o f the change (see Box 1), but it is apparent that most districts will require assistance to do likewise. Support in particular may be required to aid the prioritization o fthe budget debate and decision-making across sectors. 4.23 There i s additionally a fundamental flaw inthe extension to LGs o f this flexibility, as became apparent during the budget cycle for 2004105. The 2004/05 national budget ceilings are significantly different from the indicative grant ceilings provided by the Ministry o f Finance, with the implication that the basis on which budget reallocations have been made i s no longer relevant. It is essentialthat the ministry improve the predictability ofgrant ceilings ifthe process is to have credibility; at the very least, the allocation formulae must remain stable throughout the budget cycle. The Local Government Finance Commission (LGFC) has suggested also that the Ministry of Finance commit to a minimum level ofgrant allocations nationally, to provide a stable basis for reallocations. 4.24 There also i s concern that the extra flexibility in recurrent grant reallocations will not be permitted for development grants, and that the proliferation o f sector planning guidelinesand formats will not be addressed. The integration o f sector planning modalities with the development planning process at lower levels, and the assurance o f complete flexibility within sector development grants, also are key to ensuring the adequate contestability o f resources. Revision o f the L G development planning guides represents an important opportunity to introduce real contestability into development resources. -22 - F. ANNUALBUDGETESTIMATES WORKPLANS AND 4.25 The preparation o f budget documentation and workplans is not done well. Budgets are of variable quality and often do not balance, with projected revenues differing from expenditure allocations. Allocations furthermore seldom accurately reflect the medium-term allocations set out in the BFP. This is in part due to the unreliability of central grant ceilings; in the case of the 2004105 budget, however, the final national grant allocations were provided to local government after the statutory deadline of 15 June. The LGs typically read and approve their budget estimates on the same day; those that had done so by the statutory deadline for 2004105 would as a result have passed wholly unrealistic budgets. 4.26 Budget estimates usually are little more than a complicated set o f tables, inadequately explained or justified. The budget i s the primary legal document for the allocation o f resourcestoward policy priorities, but most councillors would struggle to understand the implications of the budget allocations presented by their LG. It is critical that budget estimates be comprehensible to the councillors who must approve them. Budgets should have clear summary tables o f the allocations to different departments and should be supported by adequate narrative explanations, justifying inter- and intradepartmental budget allocations. 4.27 The budget estimates additionally should be supported by workplans describingthe proposed allocations in terms o f their objectives, outputs, and planned activities. The practice among LGs has tended to be to prepare workplans by hnding source, however, with the aim either of meeting the requirements o f the central government or for departmental administrative purposes for the chief administrative officer. The workplans typically are not discussed by council. This issue is addressed inthe new budget guidelines, which provide for the preparation and presentation of a comprehensive annual workplan alongside the budget. This should be entrenched in the revised LGFAR, which should clearly specify also that budgets and workplans be easily understandable and that they be presentedto council together. G. CHART OF ACCOUNTS AND THE IFMS INBUDGETFORMULATION 4.28 The countrywide introduction of the new unified chart o f accounts has complicated the presentation o f budgets. The LGFARprescribes codes to directorates and departments, but has not yet done so for the new chart o f accounts. An initial effort to do this was made in the new budget guidelines but has not been formalized. If future reporting is to be based on performance against the budget rather than by conditional grant, as proposed inthe FDS, it is essential that the budget structure be standardized for all LGs. The budget modules inthe IFMS additionally need to be programmed so that the system can generate clear, easily understood budget estimates, 4.29 Training inthe use o fthe new chart has been extended only to senior accounts staff within the districts. As vote controllers, heads of department are responsible for the departmental budget estimates and for the expenditures incurredwithin their departments, making it imperative that they also be conversant with the chart. There is a clear needfor the provision o f on-the-job support to assist LGs generally inthe application o fthe new coding system. H. KEYISSUES To BEADDRESSED 4.30 The LGs have significant technical expertise inplanning and budgeting, but this advantage is undermined by weak political engagement and a poorly sequenced process. Four key issues in planning and budgeting needto be addressedifplanning and budgeting are to improve: Development plans remain unrealistic because they do not take into account the availability of resources and because they are inadequately linked to the BFP and the budget. This means - 23 - that they are unlikely to be implemented in full and that L G objectives are unlikely to be achieved. Budgets continue to be inadequate tools for implementing local government policies due to their lack of realism and the lack of autonomy on the part of the LG to reallocate resources during the budget process. Central government continues to undermine the credibility o f the L G budget process, including efforts to introduce greater flexibility under the FDS. It is essential that the center provide reliable budget ceilings to LGs at the beginning oftheir budget cycle. Plans and budgets are weak decision-making tools for council, as they continue to be presented as technical rather than political documents, with little in the way o f supporting explanation. - 24 - 5. RAISINGREVENUES,DEPLOYINGRESOURCES,AND UNDERTAKINGACTIVITIES A. OVERVIEW 5.1 Budget execution-the collection of revenues, deployment o f resources, and performance of activities-is the most crucial stage of the budget cycle and determines the results that are achieved from the allocation of public resources. The benchmarking exercise showed that this is a relatively strong element of the budget cycle. Central government grants are predictable (if central budget allocations, rather than local budget projections are used), and local revenues are increasing. Goods and services are being procured, and staff recruited as needed.B y and large funds are spent where and as intended. Services are being delivered, largely in line with established plans and budgets, although not always in full. In sum, the financial management systems in LGs allow the delivery of basic services inhealth, education, roads, and water and sanitation. -25 - Table 8. BudgetExecution Average proportiono fbenchmarksmet: 69 perce PerformanceArea and Benchmark Ratingand Summary Statement Local revenuecollection Average: 79% Highest:Kabale, 90% Lowest: Tororo. 10% The LG has a credible strategyfor local revenue enhancement, backed up by eflective systemsfor There are some encouraging signs of improvement in collecting and accountingfor local revenues local revenue collection, sometimes supported with innovative ideas and strategies. Problems remain in collecting and accounting for revenues; political interference in assessment also is aproblem Average: 67% ~Procurement Highest: Kabale and Masaka, 76% Lowest: Tororo, 52% The procurement process follows established A transparent, accountable and eflcient procedures and is transparent to a degree, although procurementprocess there is inadequate procurement planning and monitoring of contracts. There is also signifcant room for political interference in the tenderingprocess Payroll and personnelmanagement Average: 87% Highest: Jinja andKabale, 100% Lowest: Tororo, 56% LGs recruit and manage staff openly and eflciently, The LG recruits and manages staff effectively but there are problems in some LGs in the payment of and efficiently manages thepayroll salaries and the accumulation of arrears Cashflow management, commitment, and Average: 61% expenditure control Highest: Kabale, 75% Lowest: Tororo, 50% Cash inflows and outflows are managed such that the LG is able to meet current payments There are established, functioning systems for promptly and in accordance with its financial initiating and approvingpayments, ensuring that these commitments, while maintaining adequate are in line with budgets. Cash management and liquidity and not accumulating arrears or debts commitment controls are weak, and the use of ad hoc systems results in late payment of bills and the accumulation of arrears Internal audit Average: 61%?? Highest: Kabale, 83% The internal audit effectively monitors the Lowest: Tororo, 67% internalfinancial controls of the LG All districts appear to have in place the basic requirements for internal audit. They lack independence, however, their work varies signijcantly in quality, and some apparently regard the internal audit as apre-audit Deviations from workplan and budget Average: 90?% Highest: Apac, Jinja, and Masaka, 100% Effective procedures are in place for the Lowest: Kabale and Tororo, 75% applicationfor and approval of deviationsfrom workplans and budgets, enabling managerial Most LGs have adequate systems for processing and flexibility and oversight approving virements, but these are not always reflected infinancial statements Likelihoodthat budget execution will improve Most local governments have new initiatives to address key problems and are likely to continue to improve. Political interference remains the most likely hindrance toprogress - 26 - 5.2 There nonetheless exist significant areas o f weakness. Tax collection and procurement are open to significant political influence. Budget execution, from the perspective of spending departments, is unpredictable. Finance departments often focus on the control o f revenues and expenditures, underminingthe ability o fheads of departmentto managetheir resources efficiently and effectively and to implement activities when they want. Weak cash management and commitment control systems, a lack o f advance planning for procurement, and delays in tender board meetings mean that heads of department can take planned activities forward with confidence only when cash i s in their accounts and contracts have been signed. Departments that rely on local revenues, the collection o fwhich tends to be unpredictable, face a particular problem. 5.3 A shift is neededtoward the promotionof financial management systems capable of enabling spending departmentsto implement workplans and budgets predictably and as planned. B. LOCAL REVENUE COLLECTION 5.4 Local government revenues have in recent years beenundermined by proclamations made by national politicians on local taxes and by local political interference in the enforcement of tax collection and assessment, During the 2000 presidential and parliamentary election campaign, candidates discouragedthe payment o f graduatedtax (Gtax); council elections in2001 further reduced the payment by and collection of Gtax from the electorate. Since 1998 there additionally have been large increases in central grants flowing to local government, with the result that LGs have found that they can deliver key services without beingtoo rigorous about collecting taxes from their citizens. 5.5 Compounding these problems, LGs have when budgeting persistently overestimated local revenue collections. Spending departments that are reliant on local revenues as a result have not received their full budget allocation. Local revenues represent a major proportion of income for subcounties and urban authorities in particular, neither o f which receive significant conditional grants fromthe center. 5.6 Local and central government are beginningto realize the importance of local revenue and are improving its administration. Much low-level political interference nonetheless remains. The Local Government Finance Commission has undertaken studies to examine good practice in revenue generation, and has produced best practice guidelines. The Ministry o f Local Government has supported this through the development o f a local revenue module in the new capacity-building curriculum. The second Local Government Development Program has a component devoted to enhancing revenue collection, and efforts to improve revenue are now a more prominent examination point inthe annual assessment process. 5.7 With the exception o f Tororo, all of the LGs studied inthe benchmarking exercise had made significant efforts to improve their tax administration (many o f these initiatives were recent and had not borne fruit). Their efforts were not limited to Gtax: other innovations such as the privatization of the collection oftrading licenses and market fees inJinja district were also yielding results. 5.8 LGs continue to be heavily dependent on Gtax as their main local revenue source, and are improving administration o f the tax. They have made progress, but the significant danger remains of local and central political interference in the tax system. For example, the chief o f the Buyengo subcounty in Jinja district noted that politicians have the power to influence the assessment o f Gtax payers (see Box 2); political incentives suchas this are difficult to overcome, but an incentive must be found that is strong enough to drive the enforcement o f local taxation. Another problem with Gtax is that deductions are made from government and other salaried employees over only three months of the fiscal year; while the predictability o f this collection is helpful to LGs, its lateness in the year (January to April) is not. From the next fiscal year the LGFC budget committee will require LGs to -27 - collect Gtax in 12 equal instalments, thus assisting theh cashflow management relatedto local revenue (see Section 5.4.) I Box 2. Initiative to Improve LocalRevenue in Jinaja District Jinja District is employing new administrativemethods to improve the assessmentand collection of graduatedtax. For example, parishassessmentcommittees,comprising the village chairpersons,now assess taxpayersintheir homes. This has yielded immediate results. Within the first month of deploymentofthis system the district assessed23,000 taxpayers ofthe estimated 46,000 taxpayers of the district. Inthe whole of fiscal 2002/03 only 27,000 taxpayers were assessed. The system also placesgreater responsibility onthe village chairpersonsto ensure revenues are collected. The incentives driving this are unclear, as the chairpersonsthus are required to collect taxes from their electorate. InBuyengosubcounty, the risk inherent inthe system ofpolitical interference resulted inthe vast majority of collections being made at the minimum rate of USh3,OOO. Jinja also is piloting the privatization of the collection of trading licences. Collections inthe pilot areas have improved significantly, but this practice is unlikely to yield significant revenues in remote subcounties.The district's searchfor new revenue sources additionally has led it to claim a share of the revenuefrom electricity generation. The rate is being negotiatedinthe courtsand implementation of the chargei s likely to come infiscal 2004/05. 5.9 Since the benchmarking was carried out, talk o f abolishing Gtax has reemerged as a national political issue. This debate i s likely to undermineany progress made inimproving Gtax collection and should be silenced until a planned study to identify a viable replacement has been undertaken by the MinistryofFinance and the Ministryof LocalGovernment (MoLG). 5.10 Finally, little property tax i s collected in Uganda. This potentially is an important source o f revenue for urban authorities, and could represent a viable alternative to Gtax for rural authorities. The Local Government Act empowers LGs to raise property tax, but collection has been hindered by an inefficient centralized valuation system. The M o L G is inthe process o f finalizing a new ratings bill that will decentralize the valuation function, and this should enable LGs to accelerate the valuation of properties and the collection o f property tax. 5.11 The property tax proposals limit taxation to urban and commercial properties, and exclude rural land. This limits the potential o f property tax to replace Gtax. There additionally is the problem that the section of the population that would be liable for property tax would include most politicians and many o f the local business owners with whom those politicians are connected. The impetus for the enforcement o fproperty tax collection as a result would likely be weak. C. PROCUREMENT 5.12 The 2003 FMS noted that significant improvements in tendering had been made since the start o f decentralization. The benchmarking exercise confirmed this finding. In the LGs studied procurement tended to follow a standard set o f procedures, based around the framework set out in LGFAR, and at a basic level procurement is hnctioning: goods and services are being procured and contracts are being implemented. All districts have tender boards constituted according to the law, supported by technical evaluation committees that assess individual bids and that recommend action to the tender board. There is some basic provision for transparency that is adhered to, including the publishing o f tender notices inthe press and the posting o f tender board minutes, including the award o f tenders, on public noticeboards. Bidding documents are securely stored and bid openings are held inpublic. - 2 8 - 5.13 There nonetheless are problems o f timeliness, value for money, and the quality o f goods and services procured. The evaluation process often is not transparent and there i s significant scope for political influence in the process. Tender boards frequently overrule the technical evaluation committees, contract monitoring is weak and separate from the procurement process, and there is little evaluationo fthe procurement processes themselves. These problems arise because of shortcomings in the legal framework, a lack of detailed regulations regarding the framework for procurement, and a lack o ftechnical expertise. These problems resolve into six key issues: e The tender board is appointed by the council, which as a result means that the political interests o f council members tend to be represented on the board. Although the CAO can reject the advice of the tender board, it is practically very difficult to do so; in contrast, the tender board can readily deviate from the advice of the technical evaluation committee and does not have tojustify its reasons for so doing. e The lack o f procurement planning among LGs means that the award o f tenders tends to be haphazard and unlinked to workplans or cashflow budgets. Tender boards hrthermore sit irregularly, often because no cash i s available to reimburse members for their attendance.This makes it difficult for heads o f department to plan in advance any activities that require the contribution o f the tender board. Would-be bidders similarly cannot prepare themselves for tendering for upcoming projects. e There is no requirement to publish the criteria by which bids are assessed. As a result it is difficult for tenderers to prepare an appropriate bid; it also is possible for the tender board to select the bid it wants rather than the one that best fits the criteria for thejob. e There i s little feedback to the tender board after the award o fthe contract; contract monitoring additionally remains weak, and separate from the procurement process. e There are no effective mechanisms for enforcing procurement requirementsor through which bidders might appeal against procurement decisions. Political influence in the procurement process as a result i s unchecked. e The explicit use o f local preference underminesvalue for money inthe procurement process. 5.14 In conclusion, procurement is opento political interference and manipulation. This is perhaps the major areas of concern with regard to corruption in local government. The wealthy, educated community within most districts-including councillors, civil society, and the local business elite- tends to be small and in large part closed. Conflicts of interest inprocurement are inevitable, and it is inevitable also that local preference will operate, with the result that profits from locally tendered goods and services remain within the local elite. The jobs associated with the tender also will be retained locally. 5.15 The existing legislation does little to address this problem. The Local Government Act and the LGFAR set out a framework for local government procurement, but this framework does not constitute detailed regulation. A set o f local government tendering regulations was drawn up in 2001 but was overtaken by the passing o f the PFAA and the 2003 Procurement Act and never published. (The Public Procurement and Disposal o f Assets Agency (PPDAA) and the MoLG are now developing procurement regulations for LGs that will be consistent with the Procurement Act and the PFAA.) 5.16 Local government procurement is unlikely ever to be free from politicking or conflict of interest, but the situation in Uganda can and must be improved. The appointment o f members to the tender boards in the first instanceshould be depoliticized; the replacement o f the district tender boards with contracts committees, in line with central legislation, also might improve the situation. The benefit of any such initiatives will only be filly realized when the regulations, guidelines, and - 29 - technical expertise for procurement are improved, however. Mechanisms to ensure that the tendering process is procedurally transparent and sound also are needed and must be adhered to. At the heart of these requirements are the following: e The procurement regulations that are being drawn up must be kept simple, and comprehensible to contractors as well as government officials. e The regulations must be easily monitorable and enforceable, and must specify clear sanctions for those who breachthe rules. e The compliance inspection and LGDP assessment should include criteria for monitoring adherence to the regulations. The PPDAA should have a role in assessing the procurement practices o fthe LGs. e The introduction of new procurement guidelines should be followed up with on-the-job support of the procurement bodies. e Greater emphasis should be put on contract monitoring. The link between monitoring and the procurement process should be made clear. 5.17 The temptation to recentralize procurement through regional tender boards should be denied, as this would underminethe accountability o f local administrations to council and the electorate. The establishment of regional tender boards furthermore would tend to worsen the corruption that i s associated with procurement and would exacerbate the delays that already occur, further undermining thetimeliness andvalue for money ofprocurement. D. PERSONNEL MANAGEMENT 5.18 The L G structures date back to 1994195 and the Resistance Councils Statute. The expanding nature of L G service delivery, evolving sectoral policies, and the differing sizes o f districts and municipalities has since made a review o f the L G structures unavoidable. The Ministry o f Public Service accordingly commissioned a restructuring study; completed in 2003, the study recommended three models for district and urban LGs and further models for subcounties. At the time o f writing these proposed structures were awaiting cabinet approval. 5.19 The FDS proposed that the new structures be used as the basis for calculation of the wage element of unconditional grants, and proposed that LGs be free to choose their own staffing structure. It is unlikely that these proposals will be implemented. To begin with, they are expensive: it is estimated that the new structures would require an additional 2,600 staff, adding USh30-50 billion to the L G payroll, increasing it to nearlyUSh200 billion. Central government would be unlikely to meet this cost, even ifthe structures were to be approved (there are no corresponding increases in allocations to the unconditional grant in the MTEF for 2004105 to 2006107). Second, the consultancy report recommends that any alterations made to the structure by LGs would need the endorsement of the Ministryof Public Service, further undermininglocal autonomy. 5.20 Despite these structural problems, personnel management at the LG level functions well. Most staff are paid via conditional grant payroll, administered at the central level by the Ministry of Public Service and Uganda Computer Services, but responsibility for the hiring, promotion, and disciplining of staff rests crucially with the district service commissions. The commissions are becoming more active in the disciplining o f staff and many headteachers have been disciplined for misappropriating UPE funds. Numerous subcounty staff members additionally have been disciplined for embezzling tax revenues. - 3 0 - 5.21 Many o f the historical problems o f payroll management, such as delays in the payment of newly recruited staff and delays in the processing of pay changes, have been solved. In most of the districts studied, salaries were paid regularly and promptly (Masaka, however, reported problems paying staff, especially those not on the central payroll, because o f an obligation to repay a bank loan). Oversized establishments and poor cash management nonetheless make the accumulation of salary arrears a continuing risk. Some LGs fail to update establishment registers or to maintain salary arrearsregisters. 5.22 Apac, a remote district, reported that it was experiencing difficulties recruiting staff with the necessarytechnical expertise. While patronagemay affect recruitment in some areas, the staff inplace tend to have the requisite qualifications. The lower cost of living in LG areas than in the central government areas mean that low pay i s less of an issue for LGs than it i s in Kampala. It could be argued that the payroll should be managed locally, and this probably should be a long-term objective, but the first priority should be for central government to approve an affordable set o f L G structures and to ensure that these structures are properly funded via unconditional grants. As proposed in the FDS, the LGs should be given some latitude to amendthe structures chosen. The next priority should be the implementation o f initiatives to improve staff management at the local level. These should include staff appraisal systems, linkedto results-oriented management, and internal reporting systems. E. TRANSFERS FROMCENTRAL GOVERNMENT 5.23 LGs tend to receive their central government grant allocations in full over the fiscal year, provided they adhere to reporting requirements.The timing of disbursements and the amount of each i s unpredictable, however. A major complaint from LGs concerns the time that it takes for the director o f budget to issue the release letter and for grants to be received in the LG bank account. A tracking study completed in May 2004 found the average delay between issue o f the letter to receipt o f funds to be 10 days. There often are delays inthe issuance o f release letters, however, commonly due to the LGs failing to meet reporting requirements. There also have been delays in the release of specific, often donor-funded, grants, suchas the local development grant and equalizationgrant. 5.24 Cash also tends to move slowly through the bank accounts o f an LG, and payments once cash has beenreceived also are slow to be made. Salaries appear to be paid the most promptly, on average within eight days o fthe receipt o f central government funds. It takes an average o f nine days for non- wage recurrent releases and eight days for development releases to be transferred from the grant collection account to operational accounts, often because when the money arrives the CFO or town treasurer will not know what it i s for. This problem could easily be overcome through the simple expedient o fposting LGreleaseson the Ministryo fFinance website. 5.25 Finally, problems can arise when the first and last releases o f the fiscal year arrive late. The late arrival of the first funds o f the year can delay the start o f programmed activities, but if the late arrival o fthe last releases means that they cannot be spent within the year they mustbe returnedto the treasury. The release study as a result recorded a rush in spending and fbnd transfers at the end o f the year as LGs seek to exhaust their bank accounts and avoid having to forfeit funds. Allowing LGs to enter into financial commitments in advance o f the receipt o f cash released from central government would largely eliminate both o f otheseproblems. F. MANAGING ANDCONTROLLINGFINANCIALCOMMITMENTSAND CASH EXPENDITURES 5.26 There is an absence of proper cash management and commitment control within the sample LGs. Kabale alone had developed, on its own initiative, a system for managing cash and commitments. - 3 1 - I Box 3. Cash Management and Commitment Control in Kabale District Kabale has developedits ownsystem for cash managementand commitment control. The district operates a cashflow budget that sets out for a two-monthperiodthe expected timing of inflows from different revenue sourcesand department expenditureceilings.This is endorsed by the executive. The administrationalso makes quarterly cash projectionsand disbursement schedules to its spending departments. A commitment controlsystem ensuresthat averagecash outflow does not exceed cash inflow. Processesare in place for the approval of commitments against cashflow forecasts; vote books also are maintainedandregularlyupdatedto reflectbothcommitmentsand expenditures. 5.27 Proper cash planning involves projecting the timing of the collection of revenues during the financial year, and planningthe timing of expenditures accordingly. LGs typically do not do this, but instead wait for cash to arrive and then choose how to spend it. A conditional grant usually will be transferred promptly to the appropriate sectoral account, and an unconditional grant will be used to pay salaries. Local cashrevenues will be disbursedon receipt, usually on an ad hoc basis. InApac this cash was disbursed in proportion to the departmental budget allocations for local revenue. InJinja, in contrast, the CFO had a pile of approved payments in a drawer and selected from these which payment to make when cash arrived. 5.28 Most districts hold regular meetings to discuss priorities for payment, but the budget seldom provides the basis o f these discussions. In such circumstances spending departments will submit speculative claims for local revenue each month in the hope o f receiving something, for they know that ifthere is no claim madethey will receive no cash. 5.29 The cash disbursed to spending departments reliant on local revenue clearly i s unreliable. Local revenues represent a small percentage o f total LG revenues, but district and municipality departments inparticular are exposedto fluctuations inthe availability o f local revenue, as conditional grants usually are transferred in fillto service providers. The situation i s exacerbatedby the fact that most local revenues are received toward the end o f the fiscal year, and for the first six months few activities take place. While district finctions such as community services or primary school inspection may be idle, however, primary schools are running and health centers are providing services. The initiative to spreadGtax deductions over the financial year should help alleviate this problem. - 32 - Box 4. I F M S and Budget Execution The integrated financial management system has the potential to improve budgetary control by ensuring that commitments and expenditures are in line with the budget. In LGs the IFMS implementation i s limited to the issuanceand approval of LPOsand other financial commitments, andthe approval of payments. The system does not allow overcommitmentsand payments in excess of budget amounts. This will help ensure that commitments and expenditures are only made if there is sufficient commitment or cash balance available against the budget. The IFMS could help provide discipline to those LGs that have weak fiscal control; it will however require also apolitical commitment to adhereto the budget. One problem highlighted by the Jinja CAO was that the new chart of accounts prescribes codes for directorates but not for departments, with the result that it will be impossible to control expenditures at the departmental level through the IFMS. This problem should be addressedas a matter of priority (see also Chapter 3). The IFMS additionally has been installed inthe finance department, internal audit, and CAO's office. Heads of departmentmust still manually requisition for funds, and as vote controllers need to be brought into the system. The IFMS as it stands risks being seen as centralizing fiscal control rather than decentralizing financial management to the spending departments. Heads of department also must be educated about commitment control, as there is otherwise a danger that they may not understandwhy payments are rejected when there appears to be enough cash in their bank account (this cash already having been committed to other expenditures). Without training and without the involvement of heads o f department,the IFMS may come to be resentedby the spendingdepartments. Fainlly, the IFMS includes a module for cash management and procurement that should be brought into operationby LGsas soon as possible. 5.30 Established manual systems for are in place for initiating, approving, and effecting payments. These provide a degree o f control to ensure that expenditures are incurred properly and in line with approved budget allocations, and most LGs have at least ad hoc systems for ensuring that they do not overcommit themselves. Commitments increasingly are recorded in the vote book alongside expenditures, and contracts and local purchase orders usually are signed only if the cash is fully available. Giventhe unpredictability o f central transfers this often results indelays, but it does control commitment. 5.3 1 Some LGs inevitably overcommit themselves. Tororo, for example, lacks the cash to clear its utility bills and instead allows them to accumulate; and poor debt management inMasaka has resulted inthe municipality being unable to meet its salary bills (see Section4.7). 5.32 The 2003 FMS similarly noted instances o f weak cash management and commitment control. In response, the existing commitment control system is being combined, under the auspices of the FDS, with a new cashflow management system. The IFMS also has modules for cash management and commitment control, but these are not in use with the first pilot LGs. These modules are important to the effort to improve the predictability o f budget implementation, but their introduction will require extensive training o f the accounts cadre and the commitment o f management to a more forward-looking system o f managing cash, commitments, and expenditures. G. DEBT MANAGEMENT 5.33 Masaka's inability to meet its salary bill was founded in a loan that it took out to buy an office block. Over the fiscal year as a whole the municipality may collect sufficient local revenue to meet both its loan repayments and its salary bill, but the irregularity o f local revenue inflows has meant that it often does not have enough cash to pay salaries. The law permits LGs to take out loans amounting to no more than 25 percent o f local revenues, and requires the prior approval o f the minister. It also states that the executive should provide "a guarantee to the effect that repayment o f the loan shall not - 33 - adversely affect the operations of the local government council; and inparticular meeting the statutory obligations including salaries" (LGA Schedule 5, para, 20). Masaka evidently has failed to ensure this. The guarantee to the minister should be supported by the evidence of the cash receipts of the previous fiscal year; the L G also muse present expenditures listed by item, including salaries, and an annual cashflow budget, incorporating loan repayments, for the forthcoming year. 5.34 All o f the other sample LGs also had stocks of arrears, and none o fthem had formal plans to clear these arrears. There evidently i s a belief among the LGs that central government will help them clear their arrears-to the extent that the L G typically will put them to one side. This is especially common with salaries and pensions arrears. 5.35 The policy on L G arrears needs to be clarified. The LGA and LGFAR are silent on arrears; arrears quite simply should not be incurred, but when they are there needs to be a clear statement o f budget priority intheir clearance. H. DEVIATIONSFROMBUDGETS WORKPLANS AND 5.36 The law provides adequately for the processing o f virements, reallocations, and supplementary expenditures. Local government expenditures tend to be within budget, and overexpenditures are rare. Supplementaries consequently also are rare. Reallocations and virements are more common, but LGs tend to follow the regulations, obtaining the required approval from the CAO, town clerk, or the executive. 5.37 As underexpenditure against budget is common, due to revenue shortfalls, the decisions that LGs are required to make usually come down to what not to spend on rather than where to reallocate from. The ad hoc disbursement o f local revenues-the urgency of individualpayments tends to be the overriding criterion, rather than the budget or workplan-means that the levels o f underexpenditure are random. 5.38 More difficult to enforce i s the processing o f the alteration o f workplans. The new Public Finance and Accountability Act broadens the definition o f overexpenditure from monies expended"in excess o f the amount appropriated" to monies expended "for a purpose for which no monies have been voted and appropriated."" Taking the annual workplan as the document that describes the purpose of an expenditure, this means that the system o f expenditure control must ensure that all commitments and expenditures are consistent with those workplans approved by council alongside the budget. Any new activity not in the workplan therefore would need to be appropriated. It was difficult, however, to establish whether LGs were using systems for approving alterations to activities carried out in established workplans, or were following the procedures set out in the guidelines for PAF conditional grants. If such procedures are not followed, and as observed there are no comprehensive workplans presented alongside the budget, this gives considerable latitude for spending departments and politicians to change activities without consequence. Inpracticalterms this means that politicians may during the fiscal year be able to change the planned location o f a water point, classroom, or roadwithout first seeking approval or otherwise beingheldto account by council. It is important therefore that the revisedLGFAR include strong provisions for the administrative and political approval o f alterations to workplans. I. INTERNAL AUDIT 5.39 The work of internal audit departments comprises in large part approving the transactions made by LGs at the district and municipality and at lower levels, usually before the payments are made. The department also must produce quarterly audit reports to the executive. Internal audit loPublic FinanceandAccountability Act, 2003, Part 2, Paragraph17 - 34 - reports are o f variable quality, and tend to focus on fault finding rather than on the evaluation of financial management systems.Few internalauditors infact see such evaluations as being part o ftheir work. 5.40 The independence of the audit function firthennore is questionable. The internal audit department inthe first instance i s involved also in pre-audit, and as it is thus involved inthe approval of transactions it is difficult for it to provide an objective analysis o fthe financial system. Second, the internal audit team typically will work better with a department with which it is in close proximity than with a distant department. For example, the Jinja internal audit department seemed more effective in the audit o f subcounty systems than in auditing district systems; where follow-up actions were often taken in the subcounty the district-level accounts appeared to be put under less scrutiny. Third, most internal audit departments lack transport facilities, making it difficult for the audit team to carry out its functions. 5.41 For internal audit to play an effective role in evaluating systems and ensuring compliance with the legal framework, a number o f changes must be made. Most important, internal audit needs to be taken out o f its role in pre-audit and the audit function within local government needs to be clearly articulated and understood. Proper financing o f the internal audit department also should be enforced through the creation o f minimum financing requirements, to ensure that it i s able to carry out its role effectively. Internal audit falls within the administration department, and it additionally may be worth establishing it as a separate vote, to underline its independence. 5.42 These changes would significantly affect the direction o f internal audit staff work, and would require the provision of extensive retraining in systems and compliance audit. The move from transaction testing to systems audit could be readily demonstrated and tested in one or more of Uganda's better-managed councils. J. KEY ISSUES INBUDGET EXECUTION 5.43 Budget execution is a relatively strong element of the budget cycle. The sample LGs generally are able to spend the resources they receive in full, deliver the services mandated to them, and undertake the necessaryinvestments. Fundsalso are generally spent in line with central priorities. However, the budget i s not usedeffectively as a guide to managethe deployment o f resources and the implementation o f services. Budget execution would benefit greatly if the following risks were addressed: The accountability of LGs to their citizens continues to be undermined by a narrow, unpredictable local revenue base. Politicians are able to undermine tax revenues without recourse, and realistic projections cannot be made. Procurement processes are inefficient. Inadequate technical expertise and political interference means that procurements typically are o f poor quality and deliver goods and services that represent low value for money. A lack o f procurement planning and irregular tender board meetings makes it difficult for sector departments and bidders to plan activities inadvance. Unpredictable cash management and commitment control means the sector departments are unableto implement activities as planned. The involvement of internal audit in pre-audit undermines its ability to perform the objective audits of financial management systems. It consequently cannot fulfil its role as a credible, independentcontrol ofL G financial systems. - 35 - Local councils are able to alter workplan activities without redress. This undermines the credibility o f the planning and budgeting process as a means of identifying local council objectives and priorities. - 36 - 6. REPORTINGONTHE USE OFRESOURCESAND ACHIEVEMENTOFRESULTS A. OVERVIEW 6.1 Reporting on the use o f resources is a relatively strong element o f the LG budget cycles. A culture o f bookkeeping, reporting, and monitoring is evolving within the LGs, and financial information increasingly is available in a timely manner. Performance information in sectors such as health is being generatedand used. 6.2 The vertical nature of the reporting mechanism is a concern, however. Reporting systems are fragmented by funding source and often fail to comprehensively capture LG performance. Generally the motivation to report tends to be the compulsion to comply with the requirements of a higher authority. Now that the culture o f accounting and reporting i s evolving it is important to emphasize the management value of reports, as tools for tracking performance against workplans and budgets and for directing managerial effort toward areas of underperformance. Table 9. Accountingand Reporting Averageproportionof benchmarksmet: 74 percent PerformanceArea and Benchmark Ratingand Summary Statement Accountingandrecordkeeping Average: 76% Highest:Kabale, 91% Lowest:Tororo, 55% A clear andfunctioning system to ensure that allfinancial transactionsand balances are recorded and Accounting andrecord keeping isfunctioning well, although in appropriately reported in thefinancial statements some LGs bank reconciliations are not carried out on time or recordedproperly. Stores management is adequate, but imprest management is universally inadequate In-year financialandperformancereporting Average: 89% Highest:Apac, Kabale, andMasaka, 100% Lowest: Tororo, 67% Regular reporting onfinancial andperformance information provides managers with appropriate, timely There is regular reporting onfinancial andperformance information on budget and workplan implementation information in thefiscal year, but this tends to be oriented toward vertical compliance rather than management In-year monitoring, analysis, andfollow-up Average: 56% Highest: Kabale, 81% Decision-makersregularly monitor progress and take Lowest: Tororo andJinja, 40% follow-up actions which improve budget and workplan implementation Monitoring and analysis is weak,although less so at the sectoralthan at other levels.Activities are motivated by vertical compliance rather than through commitment to improveLG performance Final accounts andperformance reports Average: 40% Highest: Kabale, Tororo, Jinja, andMasaka, 50% Lowest:Apac, 0% Comprehensivefinal accountsand report on annual performanceagainst workplans areprepared soon after Final accounts are mostlyprepared on time. LGs are not yet the end of eachfinancial year preparing annual performance reports Likelihood that monitoring and accountability will Improvementsare likely to continue, although more slowly than improve in recentyears - 3 7 - B. ACCOUNTINGAND RECORD KEEPING 6.3 The Local Government Financial and Accounting Regulations (LGFAR) define the books o f account that LGs are required to maintain. The 2003 FMS noted that bookkeeping had improved significantly, and inthe LGs benchmarked this report found that almost all o f the requiredbooks were kept and up to date. Vote books, abstracts, ledgers, and cashbooks were all being maintained by the LGs.Financial transactions, inconclusion, are being adequately recorded by LGs. 6.4 It is a common concern that LGs have too many bank accounts and pay high bank charges. This situation has evolved inpart as a result o fthe rising number o f conditional grants, each o f which require a separate bank account. Among the sample LGs Jinja maintains 33 bank accounts and Apac 56. Implementation o f the FDS should enable LGs to reduce this number to a more manageable 20 or so accounts, but a further reduction would be desirable to reduce the delays inthe movement o f cash within the LG and to help dispel the perception that bank accounts are instruments o f financial control. The crucial discipline o f timely reconciliation o f bank accounts has been improving, and the benchmarking confirmed that most bank accounts were reconciled on time. Imprest management was weak throughout, with no imprest register kept nor petty cash vouchers prepared, and should be given special attention. c. IN-YEAR FINANCIAL PERFORMANCE REPORTING AND 6.5 In-year reporting by LGs is improving, and is becoming a routine exercise in most districts. This improvement has been largely driven by central requirements on funding, however, rather than by management or political needs arising within the LGs.For example, it took a presidential directive in 2001, issued after education donors raised concerns about accountability, for LGs to start submitting monthly accountability statements. Box 5. The IFMS,LoGICs, and LoGFIAS The time-consuming manualsystem of accountingis beginning to function adequately,but the Ministry of Finance andLocal Governmentis inthe processof introducing a computerizedsystemthat should make accountingmuch easier. The IFMS, LoGICs, and LoGFIAS together provide a powerful managementtool for planning, budgeting,and in-year reporting. The IFMS shouldmake the financial accountingand reporting process far easier. Books of account will be postedautomatically, and the generationof financial reports will be instantaneous. LoGFIAS m d LoGICs should collate detailedfinancial andperformance information from managers. The two systems also can be configured to generatedstandardfinancial and performancereports for FDS reporting. LoGICs additionally shouldassist inthe developmentof planning databasesand the setting ofperformance targets, and ultimately should link planning and budgeting. Bothdatabasesrely for their functioning on the comprehensivecollection of data. Indistricts inwhich it is employedthe IFMS will provide the financial information that LoGFIAS requires; elsewhere,this will be derived from the books ofaccount. Colating performanceinformation will bemore difficult, but efforts are underwayto ensure that LoGICs will be able to draw its information from the sectoral management information systems. 6.6 The reporting requirements placed on LGs by the central government, through the Poverty Action Fund (PAF), represent a substantial administrative burden. The LGs are required to submit quarterly reports for every PAF grant, in addition to monthly accountability statements, but these - 38 - reports rarely serve a management or accountability function for local councils. This system has been inplace since 1999 and is scheduledbe replacednext fiscal year by a unifiedreporting systemunder the FDS. LGs will be required to submit one consolidated monthly report, comprising a financial statement; reporting on revenues, commitments, and expenditure against the budget in aggregate; and performance against key indicators for each department. 6.7 Different sectors have different systems of internal reporting. The health sector functions better than most, all health units preparing monthly returns usingthe health management information system. In many LGs the subcounties report regularly (usually monthly) to the CAO on local revenue collections and expenditures. The sector departments in some LGs was also report regularly to the CAO or town clerk. 6.8 The key challenge facing the LGs i s to change the emphasis on upward reporting to instead focus on the horizontal and downward functions o f reporting. The FDS budget implementation guidelines stress that reports required by central government must be presented also to the executive and council, and are in fact most useful to managers and politicians. The guidelines also underscore the point that central government reporting is for information only (although in the case of the UgandanLGs regular reporting i s a prerequisitealso to accessingcentrally distributed funds). 6.9 It should be noted also that narrative explanations of progress and problems often have more impact than do statistics. Properly presented, they are for example easier for politicians and managers to comprehend. The internal reporting system o f the FDS emphasizes the need for both narrative and quantitative reporting. D. MONITORING, ANALYSIS,AND FOLLOW-UP WITHIN LGS 6.10 The vertical nature of reporting by LGs to the center means that analysis of the information provided tends to be weak. The term "monitoring" almost universally is interpreted by LGs as implying visits to service providers and construction sites to examine what is on the ground. Most LGs carry out regular visits of this nature, funded through the PAF conditional grant for monitoring and accountability. In some cases checklists are used, and in most cases monitoring reports are preparedthat document the findings o fthe visit. 6.11 Monitoring visits can be valuable exercises, but they should be linked to analysis o f the reports prepared by service providers and departments. There also is a need for stronger contract monitoring, and this should be linked closely to the procurement process. In particular, the works department needs to be better supported in its supervision of construction contracts outside the roads and water sectors that fall directly under the engineer. These include works in the education and health sectors, or those that are implementedby lower-level LGs. 6.12 Monitoring and evaluation is strongest at the sector level. The health management information system (HMIS) provides a good example of how performance information can assist managers in service provision; an indicator that health workers find the HMIS useful is the preponderance o f charts in health centers that track outpatient attendance and the incidence of different diseases. Structured schools inspections also can play a valuable role in helping schools identify areas o f weakness in service delivery. Sector committees typically also are active in discussing reports and sector performance. 6.13 On the technical and political levels, however, there appears to be little cross-sectoral analysis of performance. Cross-sector monitoring is weak in large part because o f the orientation of reporting and monitoring systems toward central government. Discussions at technical planning committee meetings tend to focus on administrative issues rather than on analysis of financial or performance reports. The Local Government Information Communications System (LOGICS) and Financial Information and Analysis System (LoGFIAS) have been designed, like the HMIS, to enable LGs to - 39 - analyze and use financial and performance information to make better decisions within and across sectors. Ifthey are successful inthis, and if local authorities are provided with the support necessary to make these databases functional, they should improve cross-sectoral analysis. Efforts are underway to ensure that these databases are compatible with the IFMS and sectoral management information systems, to facilitate implementation. 6.14 The district administration center can be a long way from the rural service providers, and the monitoring o f these remote service providers can play only a limited role in ensuring that resources are used well. User committees such as school and health management committees are potentially powerful allies in examining budgets and ensuring that funds are spent efficiently and effectively. Sometimesthey are, as was the case inKabale. For these bodies to be effective they must have access to all relevant information and must have the skills to analyze and discuss this information. If the requirements for public notices at service units and the reporting requirements are not enforced, however, there can be no local accountability. The UgandaDebtNetwork has tried to establish district and community-based monitoring committees in some districts, but inthe LGs studied there was little or no civil society monitoring evident. It may inconclusion be better to focus what are usually limited resources on trying to build the capacity of management and user committees, linked to a specific service. 6.15 The potential role o f the subcounty in monitoring and assisting the management of service provider finances has not been fully explored. Subcounties often regardschools and healthservices as district services, as district funds are transferred directly to the implementation unit, but a case could be made for subcounty councillors to sit on management committees in their areas. Sub-accountants also could monitor the financial transactions of schools and health centers, and could support headteachers and school managementcommittees. E. FINALACCOUNTS AND PERFORMANCE REPORTS 6.16 The preparation by LGs o f final accounts has improved. The study found that all 2001/02 accounts had been submitted and audited, and although only 14 districts had submittedtheir 2002/03 draft accounts to the Auditor General by the end of November (a month after the statutory deadline), by the end o f January most accounts had been received. Four of the five LGs studied had submitted their accounts by this time. The task o f preparing final accounts has been eased by improvements in bookkeeping, but the prevalence o f manual accounting systems means that it continues to be demanding. 6.17 Comprehensive annual performance reports are not prepared either by sectors or by the LGs as a whole (the absence o f comprehensive annual workplans is a problem in this regard). The only real analysis o f performance is carried out inthe budget framework paper, but the FDS guidelines will in future require the preparation of annual performance reports, bringing the LGs into line with the Public Finance and Accountability Act, as follows:" 6.18 "The following accounts shall be submitted to the Accountant General by accounting officers: (0 a statement of performance providing each class o f outputs provided during the year signed by the accounting officer that (i)comparesthatperformancewiththeforecastoftheperformancecontainedinthe estimates laid before parliament under sub-paragraph (iii) paragraph (b) o f sub- of section (1)of section 15; and (ii)givesparticularsoftheextenttowhichtheperformancecriteriaspecifiedinthat estimate inrelationto the provision o fthose outputs were satisfied.. ." Paragraph2, Third Schedule, PublicFinanceandAccountability Act - 4 0 - 6.19 The LGFAR should be amended to reflect this. The regulations also should emphasize the reporting o f the chief accounting officer or town clerk to council and to the Accountant General. LG annual performance reports furthermore should be public documents, providing an entry point for citizens to hold local councils to account for their performance. F. KEY ISSUES AND REPORTING INACCOUNTING 6.20 The improvements made by the LGs inbookkeeping and reporting should be applauded. The reporting systems, however, have failed to foster the accountability o f LG administrations to council and to the public. Three key issues needto be addressed: 0 Reporting retains its vertical nature and through the nature o f its presentation continues to be inaccessible to the public and politicians. By focusing on funding sources it furthermore underplays the importance that LGs adhere to expenditure allocations against the budget and workplans, and hence undermines council decisions inthe budget. 0 The absence of statutory requirements for annual reports o f performance against the budget and workplans means that there is no comprehensive instrument for reviewing L G performance. 0 Monitoring processes are ad hoc and poorly focused, a fact that limits their usefulness in ensuring adherenceto workplans and budgets and in identifyingareas for improvement. -41 - 7. HOLDINGLGS TO ACCOUNT FOR PERFORMANCE A. OVERVIEW 7.1 This is one o f the weakest elements of the budget cycle. It is especially so in terms of the accountability o f the administrationto council, and o f council to the public, despite this being one of the most important reasons for decentralization. This poor accountability is due to a combination of a lack of demand from local people and from councllors for accountability, and to less than transparent local government administrations. B. TRANSPARENCYACCOUNTABILITY AND 7.2 Initiatives that promote transparency can dramatically improve accountability. The decision to publish universal primary education (UPE) receipts on school noticeboards greatly increased the amount of UPE funds that reach schools, for example, as has been widely quoted outside Uganda (Mackinnon and Reinikka 2000). Among the sample LGs, Kabale stood out for publishing newspapersand encouraging localcouncillors to appear regularly on local radio. 7.3 Few LGs are secretive, but nor are they open, transparent, and accountable. The main reasons for the absence o f transparency are a lack o f commitment to becoming transparent and an apparent ignorance about how to achieve transparency. Incases where corruption exists at a high level there i s likely alsoto be a lack o f enthusiasm for beingopen andtransparent. 7.4 Transparent practices typically evolve unsystematically, and usually as a response to conditions and activities at the center. The districts have no set communications strategies inplace, for example; while many LGs post plans and releases on noticeboards and advertise for recruitment and procurement, central requirements to post PAF quarterly reports are not enforced. Budgets are published, but often are difficult to understand. Public information generally is not presented ina way that is meaningful and accessibleto the public or councillors, and as such does not encouragethem to demandaccountability. 7.5 The districts employ information officers but fail to support them with the necessaryauthority and resources. These officers should be the focus o f transparency and accountability efforts by the LGs, andthe development and implementationo fcommunications strategies, including the publishing of newsletters, should be made a legal requirement. For any such program to be successful, the support of central government would be necessary intraining and the provision o f resources. Internal and external audit would also be required to ensure compliance with any requirements made for reporting and transparency. - 42 - Table 10. HoldingLGsto Account Average proportion of benchmarksme1 56 percent Performancearea and Benchmark Ratingand Summary Statement Transparencyand accountability in Average: 36% financial management Highest:Kabale, 80% Lowest: Tororo. 0% Key budgetary information ispublished, accessible, and user-friendly Withthe exception of Kabale, the districts publish little budget information. The information that ispublished ofien is diBcult both to obtain and to understand Local government PAC scrutiny of audit Average: 100 % reports (All 100%) Effective external scrutiny ofLG accounts There is effective external scrutiny of all LG internal and external audit reports.These,however, vary in scope and comprehensiveness Council discussionand follow-up of Average: 20% LGPAC and LGAC reports Highest: Apac, Jinja, and Masaka, 33% Lowest: Kabale and Tororo, 0% Council discussesandfollows through Councils show little interest in discussing LGPAC reports. the actions recommendedby the LGPAC Discussionsandfollow-up actions, when, taken, tend to be andLGAC initiated by the executive and the CAO Council discussiono f annual sector Average: 40% performance Highest:Kabale, 67% Lowest: Apac, Jinja, Masaka, and Tororo, 33% Council discusses annual sector Sector committeesrather thanfull councils tend to discuss performance and agreesfollow-up sector performance. There is little evidence offollow-up actions There appearslittle momentumfor improvement in this area audit, and scrutiny will improve c. MONITORING, INSPECTION, AND PERFORMANCE ASSESSMENT BY CENTRALGOVERNMENT 7.6 There are multiple institutions in Uganda to monitor and inspect LGs, but their work is disjointed and uncoordinated. The Treasury Inspectorate, Inspectorate General o f Government, local government inspectors, and sector ministries all perform monitoring activities, but their efforts are duplicated to the extent that LGs often complain o f "inspection fatigue." Rather than mentoring, the monitors typically make the mistake also o f focusing only on fault finding. 7.7 The new compliance inspection system developed by the MoLG's inspectorate is an important departure from this situation. LG inspectors have been given an inspection manual to guide the collection of data on all aspects o f administrative performance. This information will be entered into a central database for analysis that will then inform the targeting o f support and follow-up work. As this systembecomes operational the other institutions should end their routine inspections, moving instead to targeted monitoring based on the compliance inspection data. - 43 - Box 6. Transparency and Accountability in Kabale District The Kabale council does not have aformal information and communication strategy, but its efforts at disseminating information nonethelessare notable. Jointly with three neighboring districts, the council publishes a quarterly newsletterthat is distributedthroughoutthe region. It also makes wide use of radio programsto disseminateinformation on its programsand activities, to discuss comments and complaints, andto address other issues relevantto the district's development. Information on district and subcounty finances additionally is described in a clear and understandableway and posted on noticeboardsin all schools. Ingeneral, both at the district and at the LLGlevel, peopleseemto bewell-informed andare active in demandingaccountability from their 1oca1government institutions. 7.8 Over time the compliance inspection system i s intended to replace the LGDP assessment, which has been a valuable tool inthe upgrading o f LG capacity. The centrally directed assessment o f LGs against key elements o f the legal and policy framework has proven effective in identifying weaknesses and facilitating their strengthening. Where the LGDP assessment uses financial incentives and penalties to encourage better performance, however, this i s not always necessary. The health sector, for example, has developed a system o f ranking district performance against a few key indicators. The Ministry o f Health publishes these results in its annual sector performance report and in the press. In 2002/03 Jinja was found to be the best-performing district nationwide, and reported this to be a huge motivationto maintain performance. 7.9 There i s a strong argument that routine sector monitoring should be replaced by a more structured annual system o f sector performance measurement or benchmarking. Such a system would feed into annual performance reports at the LG and sectoral level, and in turn could lead to targeted technical support for those LGs that perform poorly. This in theory would reduce the transactions costs between central and local government by reducing the frequency o f visits from sectoral representatives; it also would improve the mentoring value o f central government monitoring. The publication o f league tables o f performance also could encourage LGs to improve their performance, and ignite local demands for accountability. D. PUBLIC EXPENDITURETRACKINGSTUDIES 7.10 Public expenditure tracking studies (PETS) are increasingly being used by sector ministries to examine the expenditure performance o f LGs in sectors where sector-wide approaches have evolved. These include notably the health, education, and water sectors. 7.11 Inthe education sector, a PETS was set upto assess the status o funiversal primaryeducation; teacher recruitment and deployment and payroll management; and the value for money realized by the school facilities grant. The cost-effectiveness and efficiency o f education spending will be assessed this year. Each PETS concludes with the formulation o f an action plan, the implementation of which is ensured through its integration into sector workplans. Several PETSs also have examined the health sector, tracking the performance o f funds under the primary healthcare conditional grant; drugs; and the conditional grant for shared services. A health sector public expenditure review additionally analyzed the efficiency o f 2002/03 public spending at the district level. In2002 a PETS was requested by MoFPED to conduct a technical audithalue-for money study for a rural water and sanitation conditional grant. 7.12 PETSs are valuable tools for assessing specific issues o f central concern with respect to the performance o f LGs toward the achievement o f national objectives, but they are carried out on a sample basis, by consultants. They can inform the development of policies and guidelines and can be - 44 - used to establish good practice, but they should be seen as complementary to, not replacements for, a systemofmonitoring and assessing L G performance countrywide. E. EXTERNAL AUDIT 7.13 The Office o f the Auditor General (OAG) i s mandatedto audit the accounts o f all higher and lower LGs each financial year. Under the auspices of the PAF it also carries out half-yearly audits of PAF programs. These are largely carry compliance audits, although the PAF audit also considers value-for-money issues. The Auditor General has 10 regional offices, each with 15 members of staff. The regional offices are headed by senior auditors, but are to be upgraded to principal auditors. This staffing situation equates to just two members of staff per district. Compounding the difficulties faced by these offices, the inadequacy o fthe development budget means they also lack transport. 7.14 Given this staffing situation, it i s probably advisable that the AG concentrate on ensuring a high quality and timely statutory audit o f L G accounts. As PAF funds make up nearly three-quarters o f L G budgets there i s little point in auditing them separately. Sector tracking studies and performance assessment should be the entry point for assessingvalue for money. 7.15 There have been in the past significant backlogs in the audited accounts of higher LGs, but the timeliness of audit at this level has improvedmarkedly. The external audit has beencompleted for fiscal 2001/02, and by the end o f 2003104 the OAG expects to have completed 70-80 percent of audits for 2002/03. The main delay remains the late submission o f final accounts by LGs. 7.16 The problem o f auditing lower LGs remains, however. Supported by the World Bank under the Local Government Development Program, the AG outsources this audit to private public accounting forms. This arrangement i s not sustainable. The capacity, size, and funding o f the OAG directorate responsible for LG audits needs to be expanded significantly if the OAG i s to be able to fulfil its mandate. F. LOCAL GOVERNMENT PUBLIC ACCOUNTS COMMITTEES AND COUNCIL SCRUTINY OF PERFORMANCE 7.17 The L G Public Accounts Committees (PACs) are mandated to examine internal and external audit reports and their recommendations, and to provide their own recommendations for follow-up. Generally they function well, but the scope o f their work is constrained by the content o f the audit reports, and these tend to focus on faults rather than on systems. The PAC reports as a consequence vary in quality, and their recommendations tend to focus on taking disciplinary action against individuals, as recommended by the audit reports, rather than on correcting underlying faults in the system. 7.18 There is an almost total absence o f council scrutiny o f accounts or LGperformance, however. Innoneofthe sample LGs did council discussPAC reports, and inmost the work ofthe PAC was not even mentioned. The executive and sector committees o f council scrutinize performance, but do so from a position of close proximity to the administration. The absence of annual performance reports means as a consequencethat there is nothing concrete for council to discuss. 7.19 The scope o f the LGPAC, and therefore its usefulness, could be expanded by mandating it to scrutinize annual and quarterly financial and performance reports, and by authorizing it to require the CAO, CFO, and heads o f department tojustify their performance. Any such meetings could be held in public, in line with the policy o f the central government PAC to require line ministry accounting officers to discusstheir performance. - 45 - 7.20 The LGPAC is made up council appointees, rather than councillors. This may inpart explain the lack of interest on the part of council. In most multi-party democracies a member of the main opposition party chairs the PAC, but Uganda has a nonparty system. In Uganda's local government context the appointment to the committee of external technical experts is probably sound, but requiring members o f council to also sit on the LGPAC would likely increase interest in the committee's work. G. PARLIAMENTARY ACCOUNTSCOMMITTEE LG 7.21 Parliament is increasingly involving itself in L G accounts, as concern rises at the center regarding local government finances. The Parliamentary L G Accounts Committee (LGAC), comprising 15 members o f parliament and technical staff from the OAG, MoLG, and Ministry of Finance, was set up inJuly 2001 to scrutinize local government accounts 7.22 The LGAC receives reports from the Auditor General and district PACs, examines them, and calls CAOs and their staff to respond to any questions that arise. It is requiredto report to the house twice a year. LGAC investigations have resulted in numerous prosecutions, demotions, and recommendations for withdrawal of the status of accounting officers. The committee clearly has provided a wake-up call for accounting officers; however, it should be noted that it tends to reinforce upward, rather than horizontal and downward, accountability. H. KEYISSUES TO ADDRESS 7.23 Local councils are not holding their administrations to account for performance, nor i s the public demanding the accountability of local politicians. The strongest demands for better L G performance tend to come from central government. Local accountability systems will remain weak unless the reporting systems highlighted in the previous sections are not reoriented toward councils and the public. The following key issues mustbe addressed: 7.24 Requirements that LGs be more actively transparent institutions must be developed, publicized, and enforced. There otherwise will remain little demand for local accountability from the public or councils. Structured external assessment of L G performance in sector service delivery is necessary to enhance the communication o f poor performance to local councils and to provide an incentive for LGs to improve. The active commitment o f councils to review LG performance and to scrutinize reports and accounts must be encouraged. It i s difficult otherwise to see how LG services can be made accountable and responsive to the local population. A sustainable means o f auditing subcounty council accounts must be developed to reduce the misspending o f resourcesat lower levels o f government. - 4 6 - 8. PROPOSEDACTION PLAN: IMPROVINGFINANCIAL MANAGEMENT INLOCAL GOVERNMENT A. PROPOSED ACTION PLAN 8.1 The preceding sections identified the major issues that need to be addressedto improve local government financial management. Many o f these issues are to some degree already being addressed, but there are gaps. Greater emphasis must be given to planning and budgeting, and inparticular to the integration o f planning and budgeting processes. There also appear to be few activities aimed specifically at the strengthening o f local accountability, to increasing council involvement in key decision-making, and to enhancing the transparency of LGs. Much work also needs to be done to move away from the present reliance on vertical processes. Figure 2. Coordinating Implementation of the Action Plan 8.2 The action plan set out inthe table at the end o f this chapter i s oriented toward addressingthe r - Joint Annual \ 7 Decentralization - g J Review 0 \ t r +-------------- PEMCOM +---------------- + z2 U c I B 0 B f > * LGBudget LGReleases& LGRevenue 28' Committee +b Operations 4-b Enhancement 4-b $ L J \ Committee Committee L issues identified in this study. The actions form part of the overall CIFA action plan. The plan includes many activities that are ongoing or planned, and that have already secured funding. It is hoped that the findings of this study will help focus these activities on the key issues o f financial management. For each issue the desired outcome is identified and short-term and medium-term activities are identified. The parties responsible for these activities and means o f verification are also listed. - 47 - B. COORDINATING IMPLEMENTATION OF THE ACTION PLAN 8.3 One o f the most important elements of any initiative designed to upgrade local government public financial management i s its coordination with other initiatives at both the policy level and a technical level. The action plan proposed here i s in part intended as a starting point for assisting the coordinated strengtheningo f public financial management. 8.4 Three major technical committees are working on different aspects o f local government financial management. These are the Local Government Budget Committee; the Local Revenue Enhancement Committee, chaired by the Secretary of the Local Government Finance Commission; and the Local Government Releases and Operations Committee, chaired by the Director of Budget, Ministry of Finance, Planning, and Economic Development. These committees should be made responsible for coordinating the implementation o f different aspects o f this action plan at a technical level. The chairpersons of the relevant committees accordingly should be represented on the Public Expenditure Management Committee (PEMCOM). 8.5 The L G capacity building policy i s coordinated by the Ministry o f Local Government. It i s important that the activities o f the three committees work closely with the MoLG to ensure that their capacity-building efforts are aligned with the policy initiatives being developed. Officers from the capacity-building unit should be represented on the three technical committees. It is also important that donor initiatives are coordinated with these efforts. A representative o f the donor subgroup of decentralization should be assigned to each of the three committees and should be charged with ensuring that donor support is aligned toward government initiatives. The chair o fthe donor subgroup on decentralization should also be representedon PEMCOM. 8.6 PEMCOM should oversee the overall implementation o f the CIFA action plan, incorporating the central actions as well as those for central government. This will ensure the coordinated implementation of PFM initiatives across the board. PEMCOM should report on progress achieved in aspects of LG financial managementto the Joint Annual DecentralizationReview, the first o fwhich is due to take place in October 2004. This process represents an important opportunity for high-level coordination of PFM and other policy initiatives. 8.7 The findings o fthis study and the proposed action plan, once the latter has been discussed and actions prioritized by the technical committees and PEMCOM, should be presented to the review workshop in October 2004. An undertaking should be secured at the workshop on those elements of the action plan that will be implemented. This will help ensure that there is high-level political commitment to implementation. C. APPROPRIATECENTRALSUPPORT TO LGS 8.8 One key issue that cuts across the action plan is the need for capacity-building among local authorities. The new capacity-building policy is bringing forward the preparation o f training materials and certification o f service providers. There are also now various diagnostic instruments, including the one outlined here, that can enable LGs themselves and central government to identify areas of poor performance. Using the capacity-building grant provided through the second Local Government Development Plan (LGDPII), LGs will be able to build capacity in the areas that they identify as weak, including financial management. This approach should result in better, more appropriate capacity-building for most LGs. 8.9 Two issues remain to be addressed. These are the questions o f how to correct weaknesses in persistently poor performing LGs, and how to provide better capacity building in support o f new systems and initiatives. -48 - D. UPGRADINGPOOR PERFORMERS 8.10 The weakest performers often will not be able to address their problems unaided. The incentives provided by the performance assessmentprocessunder the LGDP are not sufficient to help the weakest LGs improve. The MoLG inspectorate has just 12 inspectors to collect the annual compliance inspection information from each LG, and has little spare capacity to provide technical assistance to poorer performing LGs. The ability o f central government to help these poor performers clearly i s inadequate, and requires attention. It is likely that weak LGs, such as Tororo District, will remainweak. 8.11 Clear modalities needto be developedto help weak LGs to upgrade their performance. There also needs to be a clear, credible threat that central government will take over the administration of a local government, as provided for in the Local Government Act, when performance is persistently poor. E. SUPPORT FOR NEW CENTRAL INITIATIVES 8.12 The initiatives that are introduced by central government seldom are backed up with sufficient, targeted capacity-building support. This weakness needs to be addressed. Donor capacity- building support for new government policies and systems also is fragmented and uncoordinated. Where the capacity-building grant is best supported through the government budget, donor projects are better suited to the support of new policy initiatives. Donor support historically has focused on specific geographical areas, however, and while this type o f assistance is beneficial to the recipient LG, it i s less appropriate when a system is being introduced nationwide. 8.13 The Local Government Finance Committee (LGFC) recently has been lobbying to ensure that USAID's second Strengthening Decentralization inUganda project will support FDS implementation countrywide. This is just one central initiative o f many that are due to start. Without adequate capacity-building support these new initiatives will not achieve their full potential. The proposed institutional arrangements for implementing local government PFM reforms should aim to ensure that adequate support is available. - 49 - a i i 0 P I 3 t- ~ CI a .E 4 4 I .+I , 3 e 5 m e, M V-l I e h h w I m m 4 h v k u 4 5, i- .-M h h v e 3 w I h+ a, r a, I 00 10 I ANNEXES A"EX 1. SUMMARY OFBENCHMARKING FINDINGS BenchmarkingMethodology The aim o f the benchmarking was to measure the performance o f individual districts against international good practice infinancial management.This aim is broader thanthe simple assessment of adherence to the legal framework that is the focus of the LGDP assessment and the compliance inspection systems o f the MoLG. If the LGs are all performing poorly in a certain area because of weaknesses and gaps in the legal and policy framework, it is hoped that the benchmarking tool will reveal this. The benchmarking tool (Annex 2) was derived from the questionnaire used inthe 2003 FMS, and was restructured so that it was more consistent with assessment tools being proposed by the World Bank. The themes assessed, which are described in the benchmarking tool and which form the structure of the benchmarking reports set out inthe following sections, are as follows: Primary budgetary outturns Budget cycle Medium-termplanning andbudget formulation Budget execution Accounting and reporting External audit, accountability, and scrutiny Financial management capacity and environment Impact o f laws, policies, systems, guidelines, and reforms on financial management in local government The benchmarking tool starts with a statement o f good financial management practice under each performance area. The next column lists the guiding questions and detailed benchmarking principles that are necessary for good performance against the statement in that performance area. These principles were verified as either being true or false during the assessment process, and were scored accordingly. The benchmarking tool also sets out the information sources that might be used to verify the score. As far as possible, the benchmarking principles are objective, easy to measure, and easy to verify. A few, however, were difficult to measure specifically and required the judgement o f the consultants. One detail that proved difficult to quantify was the likelihood that the situation would improve. Rather than score the LGs on this point, the exercise used narrative descriptions. Information was collected through a combination of stakeholder interviews with local government officials involved in financial management and a review o f key budgeting and financial reports and information. The aim was not simply to gather scores against each benchmark, but to gain also a qualitative impression o fhow the systems are functioning. The benchmarking reports therefore include a qualitative assessmento f performance against eachbenchmark. The reports conclude by making recommendations for improvements. - 59 - Choosingthe Sample LGs The Ministry o f Local Government assistedthe teaminselectingthe LGs that would be assessedinthe assignment. The sample sought to provide an even geographical distribution. The following LGs were selectedto be visited: Jinja District - Piloting the IFMS Tororo District -Piloting the FDS, and a relatively poor performer inLGDP assessment Apac District-Relatively poor performer inthe LGDP assessment Masaka Municipality -The sole municipality inthe sample Kabale District -Relatively good performer inthe LGDP assessment The benchmarking tool was tested and refined in Jinja between 21 and 23 January. This provided an opportunity for the whole team to use the tool, understand it, and refine it. The remaining LG assessments were conducted between 27 January and 6 February, with three days being spent in each LG. Two sub-teams carried out the assessments in these four LGs. The teams involved a combination of consultants and counterparts from the Ministry of Local Government, the Local Government Finance Commission, and the MinistryofFinance, Planning, and Economic Development. Calculating Benchmark Scores The table below shows the scores for each local government in each o f the benchmark areas. The overall results for each local government are averaged using an equal weighting for each benchmark area. It was felt that this provided a more representativepicture of performance than did an aggregate of the individual benchmark areas, as some areas had more individual benchmark statements to score than others. The aggregate score for each local government i s not the most important datum; it is the relative performance of the LGs in each of the benchmark areas and the average scores in each of the benchmark areas that best indicate the relative health of the different elements of local government financial managementperformance. Table 1A. Local governmentscores againstvarious benchmarks BenchmarkArea Apac Jinja Kabale Masaka Tororo Mean A Primary budget outturns 33% 78% 56% 33% 0% 40% B Medium-term plan and budgetformulation 46% 41% 70% 54% 41% c 50% Budget execution 74% 71% 82% 71% 50% 69% D Accounting and reporting 74% 70% 89% 81% 56% 74% E External accounts audit scrutiny 59% 59% 71% 53% 41% 56% F Financial management capacity 64% 73% 55% 64% 55% 62YO Average BenchmarkArea Score 58% 65% 70% 59% 40% 59% Summaryof BenchmarkFindings It also is important that these scores are seen in the context of the qualitative assessment. The table below shows performance gives justifications to the overall ratings against the benchmark statements provided in the main body o f the report, summarizing and comparing the situation in the LGs benchmarked. - 60 - Table 1B. Summary ofPerformance againstBenchmarks PerformanceArea and Rating and Summary Justification Benchmark Statement Primary Outturns Overall Rating:40% Primary budget Average: 40% Althoughaggregate fiscal discipline insome LGs, suchas Kabale outtums Highest: Jinja, 78% andJinja Districtsis good, there was asignificantlack ofrealism Lowest: Tororo. 0% inall five LGbudgets.With the exceptionofJinjathe LGswere significantly overoptimisticintheir projections of localrevenue. Budget estimates are Aggregaterevenueprojections were more realistic, as revenues realistic and implemented Budget estimatesare often unrealistic; sectoral from centralgovernmenttendto be realizedinfull.There is a asplanned expenditures and local major problem inthe ability of LGsto adhere to departmental revenues inparticular budgets. Inall LGs the variation insectoralexpendituresagainst deviatesignificantly fom the budget was large. Some LGs were unableto spendtheir budgetedamounts conditional grant allocations infull. Arrears are amajorprobleminsome, but notall LGs.This reflects the fact that some districts are unableto effectively control their financial commitments. Local revenue collections remainsmall relativeto central grants at the district level. National objectives OverallnationalPEAPpriorities fundedthrough the PAF tend to ~ Achievementofresults broadly are being be implementedand services delivered as intended.Absorption Policy objectives are achieved, but there are problemsexist in some LGs, notablyApac andMasaka. realized andplans someproblems infully implemented as intended implementingplans, The weak linkbetweendevelopment plans, BFPs, and budgets especially thosefunded observed inall five LGsmeansthat activitiesbudgetedfor are less from local revenue likely to fully reflect the medium-termpriorities ofthe LGandto be implementedas planned.The erratic natureof expenditure againstbudgetmeansthat plans also are unlikely to be implementedin full as intended, especially iffundedby local Medium-Term Planning Overall Rating: 50% and Budget Formulation Planningandbudget Average: 40% The sequencing of the planningandbudgetingprocessinall formulationprocess Highest: Kabale, 80% districts does not allow for the developmentplanto influencethe Lowest: Apac, 30% budgeteffectively. The BFP shouldprovidethe linkbetweenthe A credible, coherent DDP andbudget, but in all districtsthe DDP andbudgetwere planning and budget Politicians, civil servants, preparedand approvedafter the LGBPFP, insome instances after process is in place, with and civil society the statutory deadline of 15 June. Only inKabalewas a budget clear definition of events participate in theplanning call preparedfor 2003/04 inline with the new budgetguidelines, and responsibilities and and budgetingprocess. but even there the DDP hadnot been preparedbeforethe BFP. the meaningful Inconsistenciesin the This undermines the value ofthe BFP, the role of which participation of timing ofpreparation of apparentlywas unclear to L Gofficers. InKabalethere at leastwas politicians, civil society, plans and budgets means astronglinkbetweenthe budget and DDP, althoughthe links with and civil servants, that there is no clear the BFPwere less evident. ensuring that local needs sequence of decisions, and andpriorities are this undermines the value The level of participationinthe planningandbudgetingprocessof represented of engagement technocrats, politicians, and civil society varied acrossthe LGs. Thetechnical planningcommittee inApac notably was more interestedin allocatingindicativeplanningfigures across sectors than inreviewingthe overallDDP.Therewas evidenceinallLGs of politicalengagement, with sector committeesmost active in discussingplan andbudgetproposals, but the level of engagement varied significantly. At the budget conferenceinJinjapoliticians were involved inrankingprojects, butthe focus of the debatewas primarilythe comingfmancialyear.Debatesby council onbudget issues typically were not substantive, although the executive tended to bemore active. Annual workplans largely were prepared for centralgovernmentconsumption andto trigger funding, and were not discussed or approvedby council.Civil society involvementgenerally was weak. The plannertendedto beresponsible for the preparationand compilationof the DDP andBIT, with responsibilityfor the budget falling to the CFO. There was aclear lack ofcoordination and communicationbetweenthe members o fthe budgetdesk, most notably in Jinja, thus underminingthe linkagebetween budgetdocuments and decisions. InTororo, however, the budget deskmet regularly and this was felt to bevaluable. 61 - I Performance Area and Rating and Summary Justification Benchmark Statement Submissionsfrom lower LGs oftenwere not made on time (Jinja), underminingthe comprehensivenessofdecisions. Apac hadan effectivesystemto ensure that recurrent costs ofinvestmentswere taken into account. InKabalethere was acomplaint of participationfatigue at the lower levels, with communities getting tired of goingthroughthe planningprocessyear after year without visible return. Local government Average: 55% The quality ofdevelopmentplansvaried significantly, ranging developmentplans Highest: Masaka, 88% from a comprehensive, coherent set of strategies inMasakato a Lowest:Jinja, 25% list of various sectoraland lowerLGsubmissionsinJinja that was A realistic, achievable provided with little analysis. Districtplans occasionallywere district development plan, Some developmentplans incomplete; aspecific problemwas their failure to incorporatethe with clear objectives and represent coherent submissions of lower LGs, the consequence of deadlines for the strategies, rejecting strategies, rejlecting approvalof lower-levelplans beingthe same as those for the national and local needs national and local center. andpriorities priorities. However,plans are often unrealistic, The structure of plans inApac providedaclear distinction involving limited analysis betweenthe overall outlineof LGobjectives, priorities, and and costings, and do not strategies. Subsequentvolumes dealt with specific projects and take into account the providedthe medium-termaction plans andannualworkplans. 7 availability of resources Plansneedto be realisticand achievable,and only inKabale and Apac were they fully costed and linked to the availability of resources. LGbudget framework Average: 40% There is awidespreadlackof understandingof the role of the Highest: Apac, 57% budget framework paper inthe planning andbudgetingprocess. Lowest: Tororo, 14% The understandingof the BFP typically does not extendbeyond A BFP in place with awareness that it is a document that is requiredby the center, and realistic medium-term Objectives and outputs are that thus shouldbepresented as required. The linkagewith the revenueprojections and clearly identijied in the DDPwas found to bepoorly understoodin all LGs(given that the sector budget strategies, document,and medium- BFPis preparedbeforethe DDP andthat the DDP thus cannot and clearly identified term allocations influence the BFP, as required, this confusion is understandable). objectives and outputs presented. However, BFPs tend to bepoorly The quality ofanalysisvaries. Most LGs set out clear objectives understood, and contain andoutput targets andanalyze past performance, but few balance analysis of variable revenues andexpenditure allocations inthe BFP. The medium- quality and unreliable term budget framework, although clearly set out inmost BFPs, is medium-termprojections notwell understood, as evidencedby the fact that there is noclear that are not based on rollover from year to year inany district. Only in Apac and prior-year projections Masakawere the recurrentimplications of capital investments highlightedandprojected. Annualworkplans and Average: 40% Budgetsrangedfrom beingclear and easy to understand(the budget estimates Highest: Kabale, 83% Kabaledocumentfor example including summarytables and Lowest: Apac andJinja, supportingexplanations) to documentsthat comprisednothing Balanced, 42% more than tables, that are not balanced, andthat haveno comprehensive,annual supportingexplanations (Apac). Some districtshadmade an budget estimates clearly Not all districtsprepare attemptto linkthe DDP andbudget, but only in Kabalewas there presented, supported by balanced and an evident linkbetweenallocations inthe BFP andthose inthe fully consistentannual comprehensivebudgets, budget. workplans that set out and some are dflcult to activities and outputsfor comprehend, Workplans Workplans tendedto be preparedby funding source, thejkcal year areprepared byfunding correspondingto requirements komthe PAF, LGDP, andothers. source and do not They were preparedfor compliance with central requirementsand explicitly support the were notpresentedinaway that is consistentwith budget budget estimates. Improvements are likely to There has beensignificantimprovement insome elements of improvementsin continue in thoseLGs planningandbudgetingwithin LGs,facilitated by improvements planning andbudgeting where there is good inthe guidelines andsupportprovidedby centralgovernment.In coordination within the LGssuchas Apac andKabale, whereprocessesare well- administration coordinated, the situation is likely to improve.Inthose suchas Masaka andJinja, where coordinationis lacking withinthe budget desk, improvement is unlikely. Overall Rating: 69% Average: 19% Local revenues are low, at an average of 7 percent of higherLG - 62 - Performance Area and Rating and Summary Justification Benchmark Statement Highest: Kabale, 90% revenues. There is some evidence o f a recovery intax collections, The LG has a credible Lowest: Tororo, 10% especially inApac, Jinja, andMasaka. rtrategvfor local revenw enhancement, backed up Thereare encouraging Most o f the LGs were working to improve local revenue by effective systemsfor signs ofimprovement in collection. Apac and Jinjahad new Gtax assessment strategies and collecting and accountin> local revenue collection, Jinja had also begun contracting out collection o f trading licences. for local revenues sometimes supported with Kabale district officials held regular discussions on the local radio innovative ideas and station about tax. There was little analysis o fthe cost efficiency o f strategies. Problems such strategies. persist in collecting and accountingfor revenues, The systems for accounting for revenues were variable. The and in terms ofpolitical systems used inKabale andJinja appeared efficient, butother interference in assessment districts failed to bank collected revenues in a timely manner. Most subcounties failed to reportregularly on revenues collected. Kabale was the only district publishing revenues collected each month; officials inMasaka, incontrast, regarded the amount o f local revenue collected to be a confidential matter. Some subcounties inTororo were spending revenues at source, but in Jinja follow-up action after internal audit and the PAC has reduced the incidence o fthis happening. Political interference remains a concern. This emanates both at the national level and from local politicians, who try and ensure that taxpayers are assessed at the lowest level. Procurement Average: 67% Tender boards were inplace in all LGs, and there was a clear Highest: Kabale and delineation o f roles between the tender board and technical Transparent, Masaka, 76% evaluationcommittee. Budget authority was requiredbefore xcountable, and eflcieni Lowest: Tororo, 52% inviting bids, standard bidding documents were used, andtenders wocurementprocess were published inthe press. There appeared to be good Theprocurement process mechanisms to ensure secure storage o f bidding documents and follows established public openings, and technical evaluation committees tended to procedures and is carry out thorough evaluations. The management o f contract transparent to a degree, implementation seemed fair, with contracts only signed when but there is an absence of funds were available. Most LGsmaintained contract registers and procurement planning and most contracts were completed on time. monitoring of contracts. There is also substantial A major weakness inall local authorities was the absence o f roomfor political procurementplanning (although Kabale was inthe process o f interference in the preparing this). This makes it difficult for spending departments to tenderingprocess know when their tenders will be considered and hence to planin advance for activities. Officials inmany districts mentioned that there is significant political interference inthe process, due to the fact that district tender board (DTB) members are political appointees. One indicator o f this is that most DTBs did not follow the recommendations o f the TEC, and explanations for this deparature were not apparent inthe DTB minutes. Another possible indicator o f the scope for political interference i s that the criteria by which tenders are assessed are not included in tendering documents, meaning that it i s difficult for prospective tenderers to prepare responsive bids. Bidpayment securities are not always required, even if appropriate. Another area o f weakness is contract monitoring after tenders are awarded. Although there are general monitoring activities and services under PAF, these appear weak. There appears to be little feedback regarding the quality of contracts awardedto the TEC andthe DTB. Other weaknesses included the lack o f market surveys, the absence o f pre-bid meetings, and the absence o f mechanisms to clarify queries. - 63 - Performance Area and Rating and Summary Justification Benchmark Statement Payroll andpersonnel Average: 87% InallLGsadistrictservicecommission(DSC) wasinplace, and management Highest: Jinja andKabale, there was an openrecruitment process, with regular advertisement 100% of newposts. Apac, however, found it difficult to recruit inmany LG recruits and manages Lowest: Tororo. 56% positions, afactor either of its locationor of the politicalpressure staff effectively, of thejob. Inall other districts officials tended to be promptly eficiently managing the LGs recruit and manage appointed. InJinja there hadbeenproblems ofunconfmed payroll staffopenly and teachersaccessingthe payroll, but this hadbeenresolved. eficiently, but there are problems in thepayment Most DSCstake disciplinaryactionon afairly regular basis. of salaries and KabaleandApac DSCshaddismissedseveral headteachers for accumulation of arrears misappropriationofUPE funds. by someLGs The managementof the payroll inmost districts was efficient, and the paymentof salaries prompteverywhere except Tororo and Masaka. BothTororo andMasakahave significantproblemswith salary arrears, yet Tororo does nothaveasalary arrears register nor an up-to-date establishmentregister.Masakahas failed to reduce staff levels, despite contractingout many services. Cashflowmanagement, Average: 61YO Kabalewas the only district with an annual cashflowbudget.In commitment, and Highest: Kabale, 75% all other LGs cashis managedinareactivemanner (although expenditure control Lowest: Tororo, 50% Apac distributeslocal revenuesreceivedinproportionto budget allocations). The LGsappear to receivecentral government Cash inflows and There are established transfers regularly,and transfers are madepromptly to sectors and outjlowsare managed functioning systemsfor lower councils. All districtsexceptTororo report regularlyon such that the LG is able initiating andapproving their cashposition. to meet currentpayments payments, ensuring that promptly according to its these are in line with All LGs have establishedmechanisms for approvingfmancial financial commitments, budget. Cashmanagement commitments and processingpayments.Commitmentsusually are while maintaining and commitment controls enteredinto only when cashis available, andmost LGsrecord adequate liquidity and are weak,with the result commitments inthe vote book. This does not amount to control of not accumulatingarrears that ad hoc systems commitments, however.Only Kabale had an effective systemof or debts develop toprevent controlling commitmentsinwhich commitments were approved arrears, bills cannot be against cashflows and outstandingcommitments.Inmost LGs paidpromptly, or arrears cash inflows were inadequateto meet bills, which often are not accumulate paidpromptly. Tororo andMasakahave problems meetingsalary payments.InJinja the CFO keepsoutstandingbills and claims that have beenapprovedfor payment, and decideswhich ones should be paidonly as andwhen cash arrives. Tororo andMasakahadsignificant salary arrears. Tororo also had substantialnon-salaryarrears.The other LGs hadsome inherited salary andpensionarrears. No LGhadany formal plansor strategies to clear existingarrears. Intemalaudit Average: 61% All intemal audit departmentsreviewedreportedto council, had Highest: Kabale, 83% establishedwork programs, followed written standards, reviewed Internal audit effectively Lowest:Tororo, 67% systems of compliance, procurement, and rcvenue collection, and monitors the internal preparedquarterly audit reports.However, there was significant financial controls of the All districts appear to variation inthe quality of reports.Most audit departments do not LG have in place the basic have adequatebudgetsandtherefore cannotwork independently requirementsfor internal of the district. audit. Most however suffer from a lack of All intemal audit departmentsare involved inpre-auditing independence and their transactions,presentinga conflict of interestwherethose work variessignificantly departmentsare required also todo systems audits.InMasakathe in quality auditor general's local office is involved also inwarranting all transactions. - 64 - Rating and Summary Justification I Benchmark Statement Average: 61% There appear to be adequate safeguards for the processingand workplans andbudgets Highest: Apac, Jinja, and approvalo fdeviations from budgets andworkplans. Officers Masaka, 100% appearedawareof the procedures and inmost LGsthere was Efective procedures are Lowest: Kabaleand evidence invote books ofreallocations andvirements.It was in placefor the Tororo, 75% difficult to verify ifthe same was true for workplans. application and approval of deviationsfrom Most LGs had adequate Virements were notreflected inthe financialstatements of Kabale workplans and budgets, systemsfor processing nor Tororo. allowing managerial and approving virements, jlexibilig and managerial although these were not oversight always reflected in financial statements Likelihoodthat budget Most LGs are likely to Centralgovernmentinitiatives such as the FDS, IFMS, and executionwill improve continue to improve, with procurementregulationsare likely to addressthe key problemsin new initiatives addressing budgetexecution, andthis shouldhelplocal authoritiesto keyproblems. Political continue to improve budgetexecution. interference remains the most likely hindrance to Two major obstacles exist. First is the continuedunrealismof i; progress plans andbudgets, as it is impossible to execute abadbudget well. Secondis political interference, which is present inall LGs andmost particularlyinTororo. Accounting and Overall Rating: 74% Re ortin Accountingand record Average: 76% All districts maintainthe requiredbooks of account, although keeping Highest: Kabale, 91% these notalwaysup to date. Control ledgeraccounts are kept up to Lowest:Tororo, 55% date. A clear andfunctioning system is in place to Accounting and record Bank accounts are maintainedas required(butrequirementsresult ensure that allfinancial keeping isfunctioning inexcessivenumbers of accountsbeingheld). All LGshadregular transactions and well, although in some bankingarrangements, butin some districtsnot all accounts were balances are recorded LGs bank reconciliations reconciled.Insome casesthe CFO did not initial reconciliations; and appropriately are not carried out on these also sometimeswere carried out outside the cashbook. reported in thefinancial time nor recorded statements properly. Stores Store managementappeared adequate, although some LGs management is adequate, appearednotto haveproper proceduresfor writing offor but imprest management disposingof stores. Boardsof survey are carried out annually in is universally inadequate all LGs except Tororo. The one areathat was weak across all local authorities was imprestmanagement.Inno LGswere proper imprest registersor petty cashvouchers used. Average: 89% Lower-levelLGsregularlyreportexpendituresto districts and performancereporting Highest:Apac, Kabale, municiualities.Soendingunits inall sectors exceot education andMasaka, 100% submit-monthly ipendinireturns.97 percentof &e monthly Regular reporting on Lowest: Tororo, 67% returnsrequired ofhealthcentersby the HMISwere submittedon financial and time. performance information There is regular reporting provides managers with onfinancial and Insome butnotall districtsdepartmentsreportedregularlyto the appropriate, timely performance information CAO. Sectors inTororo havebegunto use the FDS guidelines, information on budget in thefinancial year, but preparingmonthly andquarterly reportsto the CAP andplanning and workplan this reporting tends to be units.Quarterly reportscoveredbothperformanceandfinancial implementation oriented toward vertical information, giving aclear ideaof progresstowardworkplan compliance rather than implementation. management The LGspreparemonthly financial statements and quarterly progress reportsregarding each conditionalgrant These are submittedto central government.This reporting, as withmost other reporting, is motivatedby central complianceratherthan by adesire to improvemanagement decisions. Average: 56% All LGscarry out monitoring activities, usuallyfundedvia the analysis, and follow-up Highest:Kabale, 81% PAF. Recentmonitoringreports tendedto includethe verification Lowest: Tororo andJinja, ofperformanceagainst workplans. Decision-makers 40% regularly monitor Some departmentsare more active inmonitoringthanothers.In progress and takefollow- Monitoring and analysis is Apac the district educationofficer was reportedby communitiesas relatively weak, although beingvery active inchecking school performance.The health 65 - I IIPerformanceArea and Rating and Summary Justification Benchmark Statement budget and workplan more active at a sectoral MISinJinjawasusedto improvedecision-making,Sector implementation level.Activities are committeesalso are active indiscussingreports, butthe general motivated by vertical impressionremainsthat sectoralmonitoring andanalysis is compliance rather than by carriedout to comply with centralrequirements. the improvementofLG performance Cross-sectoralmonitoringand analysisis weak. Inmost LGs the technical planningcommittee rarely discussesfinancial performanceor monitoringreports. Insome sectors, such as healthandeducation, andsomedistricts regularmeetingsareheldwith end-users. Otherthan inApac, civil society otherwise appearedto be little involved inmonitoring activities. Final accounts and Average: 40% With the exception of Apac all LGs hadsubmittedtheir f i a l performancereports Highest: Kabale, Tororo, accountswithin two monthsof the endofthe previous fiscal year. Jinja, andMasaka, 50% As of 4 February,four monthslater than the statutory deadline, Comprehensivefinal Lowest:Apac, 0% Apac hadfailed to submit its accounts. Final accounts are accountsand report on preparedto comply with the LGFAR and are not supported by annualperformance Final accountsare mostly explanations as to why deviations inrevenues and expenditures against workplans are prepared on time, but LGs have occurred. prepared soon after the do notprepare annual end of eachjkcal year performance reports Noneofthe districts preparedannualperformancereports.This meansthat councilshaveno comprehensive informationon LG performance againstplans (although central governmenthasthis on asectoralbasis). Likelihood that Improvementsare likely to Monitoringand accountability processesneedto be changedfrom monitoringand continue, although not as simple vertical complianceto becomemanagementtools that accountability will quickly as in recent years support decision-makersintheir effortsto improveperformance. improve Achieving this change will be difficult but is becoming increasingly important.New initiatives,such as those o fthe IFMS, LOGICS,and FDS, are better orientedtoward management, andthis shouldhelpthe process. External Overall Rating: 54% Accountability,Audit, and Scrutiny Transparency and Average: 36% Most LGspublishIPFs and post other releaseson noticeboardsat accountability in Highest: Kabale, 80% headquarters and in subcountyoffices.This is also common at financialmanagement Lowest:Tororo. 0% schools.This practice is motivatedby compliance with central guidelines; there generally is little motivationto achieve Key budgetary informatior With the exception of transparency nor is there any understandingthat transparency can is published, is accessible, Kabale, little budget improve accountability. None ofthe LGshad anestablished and is user-friendly information ispublished. informationandcommunicationsplan. although district That which ispublished is informationofficersare in place. only sometimesaccessible and is usually not user- Noticeboard announcementsoften are difficult to understand, and friendly are not updatedregularly. Plans, budgets, and reports also tend to be complicated. This obstructs communicationof the practical implicationsof the information beingpresented,and thus makesit difficult to holdthe LGadministrationto account. Kabale alone publishesa quarterly newsletter, andmembersof the council andadministrationregularlyappear on radioprograms discussingpopularconcerns and complaints.Peopleinthe district generally appearedbetter informedandmore active indemanding accountability than inother LGs. Local governmentPAC Average: 100% All ofthe LGPACsreviewedwere functioning, andproducing scrutiny of audit reports (All 100%) good qualityquarterly reports for considerationby council. LG PACs are facilitatedthrough the PAFconditionalgrant, andwhile EfSective external Effective external scrutiny lackingtheir own transportation otherwise appearedto have the scrutiny ofLG accounts of LG internal and facilities necessaryto carry out their work. external audit reports, but varying in scope and The scope of theLGPAC is constrainedby a reliance on intemal comprehensiveness andexternalaudit reports, and the requirementto follow up the queries andrecommendationscontainedinthese reports. Jinja, for 66 - PerformanceArea and Rating and Summary Justification Benchmark Statement example, appeared to focus primarilyon lower-level LGs, because that i s where the internal audit reports tend to focus. ~ ~~ Council discussion and Average: 20% Despite the good work being carried out by the LGPAC and the follow-up o f LGPAC and Highest: Apac, Jinja, and Parliamentary LGAC, the discussion and follow-up by council is L G A C reports Masaka, 33% weak. Lowest: Kabale and Council discussesand Tororo. 0% The LGPAC and LGAC recommendations typically are discussed follows through the by the executive only. Councils tendnot to discuss reports, and actions recommendedby Councilstend not to be only inApac and Masaka does the executive inform council o f the the LGPAC andLGAC interested in discussing activities undertaken by the LGPAC or LGAC. InTororo the clerk LGPAC reports. to council hadtried several times to get LGPAC reports onto the Discussionsandfollow-up agenda buthad failed, indicating a lack o f interest on the part o f actiom when they are the council. taken are initiated by the executiveand the CAO Follow-up actions are taken insome districts, usually by the CAO andDSC, on the recommendation o fthe executive. The LGPAC does not always get feedback on follow-up actions. Council discussion o f Average: 40% There seems to be little interest on the part o fthe council in annual sector Highest: Kabale 67% discussing sectoral performance. Only in Kabale is this discussed performance Lowest: Apac, Jinja, by council. Masaka, and Tororo, 0% Council discussesannual Sector committees are more active indiscussing sectoral sectorperformance and Sector committeesonly, performance, but there was little evidence o f any sector agreesfollow-up actions rather thanfull council, committees or council agreeing follow-up actions. discuss sector performance. There is little evidence offollow-up Likelihood that extemal There is little momentum There appears little demand from council or the public for greater accountability, audit, and for improvement in this transparency. Administrations appear unconvinced o f the merits scrutiny will improve area o f openness andtransparency, or even o fpresenting information ina way that is accessible to council and the public. Absent concertedefforts to stimulate this area, initiatedalmost certainly from the center, the situation is unlikely to improve. Financial Management Overall Rating: 55% Capacity and Environment Quality o f budgeting Average: 83% Jinja alone had a full complement o fstaff inits finance and and financial Highest: Jinja, 100% planningdepartments. Inmost other districts the major posts were management skills Lowest: Kabale, 67% filled by appropriately qualified personnel. Masaka's accountant didnot hold an appropriate degree qualification. High-quality staff There appear to be carrying out budgeting adequate budgeting and All LGswere providingprofessional accountancy training to andfinancial financial management finance staff. management skills within LGs One area o f concem is that staff are not properly trained to comply with new initiatives introduced by central government. Inadequate IT skills also is a concem. Use o f information Average: 36% Most districts use computers inplanningandbudgeting and inthe technology Highest: Apac, Masaka, preparation o f reports. Automated accounting packages are not Jinja, and Kabale, 40% used. IT is used in budgetaly Lowest: Tororo, 20% andfinancial Planning databases are not yet used, although LOGICSwas being management Use ofIT infinancial set up in Jinja. Jinjawas also about to start using the IFMS, and managementis limited to some key staff hadhad substantial training inpreparation for the some aspects ofplanning, launch. Some accounts staff claimed that they were able to use the budgeting,and rqorting appropriate software. - 67 - A"EX 2. APACDISTRICTINTEGRATEDFIDUCIARYASSESSMENT2004 Background Apac District is innorthern Uganda. Its headquartersare approximately 280 kilometers from Kampala. The district covers 6,683.4 square kilometers and comprises four counties, 22 subcounties (including one town council), 134 parishes (including two wards), and 1,887 villages (including 11 cells). According to the provisional results of the 2002 populationcensus, the population o f Apac is 676,244. 98.7 percent o f the population is rural, with most people engaged in subsistence agriculture. The northern part o f the district, bordering Gulu and Kitgum Districts, has been insecure due to the sporadic influx o f rebels of the Lord's Resistance Army (LRA) from northern Uganda. This has adversely affected the productive capacity of local communities, has lowered incomes, and has constrained access to social services. The district was sampled by the study as a representativeo f northernUganda. The total score for Apac returned by the study was 115 out o f a possible 176. The averagebenchmark score was 58 percent. Primary Outturns Primary outturns are the principal data o f the Public Financial Management system, recorded in terms of actual expenditures (inaggregate and composition), central and local revenues, and arrears, assessed by comparison to the budget. They provide a measure of the realism o f the budget and the extent to which the budget is an authoritative tool of the LG's policy. Ultimately, however, the success of the budget must be judged in terms o f the intended results of the expenditure and therefore of the adherence to workplans. This i s difficult to measurequantitatively, but the primary outturns establish a valuable overall impression. Table 2A. Apac District: Budgetand Outturns for 2002/03 Budget Outturn YOPerf Totalexpenditureallocation2002/03 (Ush) 21,98 1,064,376 20,041,629,072 91 Totalrevenue 2002/03 (Ush) 18,973,785,510 16,929,020,698 89 Localrevenue 2002/03 (Ush) 607,111,670 442,298,347 73 Local revenue (percentageo f total revenue) 3.2 2.6 Averagedepartmentexpendituredeviationfrom budget (percent) na 50.3 Arrears (percentage oftotal expenditure) 0.9 0.9 Overall Rating: 33 percent(3 out of 9) The overall budget has been fairly unpredictable over the last three years. Outturns are improving, however, and the budget is becoming more realistic, Apac recording 91 percent expenditure against budget in 2002/03. From a sectoral perspective the budget is very unpredictable, with departmental deviations averaging by more than 50 percent. This means that it i s unlikely that workplans will be implemented in full, even if funded from central government. The localrevenue situation appears to be improving from a low base, although revenuesdeclinedin2001/02 due to electioneering politics. - 68 - Table 2B. Apac District: Benchmarking Results-Budget Outturns PerformanceArea ActualRating and Summary Comments andBenchmark Statement Primary budget 33% (3/9) For each o f fiscal 2001/02 and2002/03 Apac underspent on outtums budget estimates by more than 10 percent. In2000/01 it underspent by 5 percent. The local revenue as a percentage o f LG Budget estimates are Some improvements have been total revenues is low, at 2.6 percent actual, but Apac has a high realistic and recorded in revenues and central government allocation due to its relatively large population implemented as expenditure projections in andlandarea andlow revenue potential. Arrears are low, at 1 planned 2002/03, butfrom a sectoral percent o f total actual revenue, but this corresponds to a high perspective the budget is vey percentage (42 percent) when compared to local revenue unpredictable collected. Local revenue performance deteriorated by 15 percent between 2000/01 and 2001/02, declining from USh379 million to USh323 million. It reboundedby 37 percentto USh442 million in 2002'03. The deterioration o frevenue in 2001/02 is mainly explainedby the electioneering politics advocating the abolition o f or reduction in minimumthresholds o fGtax. Notwithstanding the insecuritythat affects the northem part o f the district, the significant increase in local revenue collected in2002'03 i s evidence that concerted efforts by the district to enhance local revenue can yield tangible positive results. Achievement of results Not applicable The district workplans reflect national sectoral priorities as outlined inthe PEAP. The conditions for accessing central Policy objectives are government transfers stipulate adherence to these PEAP priorities, realized andplans There are significant negative however, implying that compliance may be more centrally driven implemented as variances onplans that are than locally initiated. intended dependent on local revenues Many plans, especially those dependent on local revenues, were not implemented in full. Inthe area of gender and community development, for example, only 8 percent o f the budget was realized in2002/03. Assessmentof the BudgetCycle The second area of the benchmarking exercise provides an assessment o f the performance o f the key systems, processes, and offices within the LG budget cycle. These are planning and budgeting, budget execution, accounting and reporting, external scrutiny, and accountability. The information for the benchmarking exercise was gathered through a combination o f stakeholder interviews and review of documentation. A Medium-Term Planningand Budget Formulation OverallRating: 46percent (17 out of 37) The planning and budgeting process is improving but is not yet a coherent, well-sequenced process. The DDP is particularly strong, and ifits preparation were brought forward the DDP could form the basis of the BFP and subsequently of budget allocations. The BFP has some positive elements, but budget documentation i s weak and difficult to comprehend. - 69 - Table 2C. Benchmarking Results MTEFand BudgetFormulation - ActualRating and ~~Comments ~ Summary Statement 30% (3/10) The 2003/04 district developmentplandidnot informthe BFP as formulationprocess required.The BFPwas infact prepared and approvedaheadof the Other than the allocation DDP. A credible, coherent of lPFs acrosssectors, planning and budget DDPformulation issues in The council approved the DDP andbudget in its sessionof 9-1 1 process is inplace, with the TPCminutes are July 2003, after the statutory approvaldate of 15June.Nobudget clear definition of events scarce.LLGs and NGO callwas prepared. and responsibilities and plans are not integrated in the meaningfir1 the DDP. Elected leaders The subcounties(LLGs)submittedtheir approvedSDPs to the participation of are however involved in district butthey hadnotearlier submittedtheir prioritiesto the politicians, civil sociey, theformulation and district for consideration.Itwas observed that the subcounties and civil servants, approval of the DDP and request prior approval from the district for investmentsthat have ensuring that local needs budget recurrentcost implicationsto the district, however;this is agood andpriorities are practicethat is likely to supportthe sustainableoperationof these represented investments. The TPC was active inthe allocationofIPFs across sectors for the LGDP, EDFIMPP, andNUSAF, as evidenced inthe minutesof 5 June 2003. The TPC was notably inactiveinthe formulationof the DDP, as revealedby the lack of minuteson discussionofthe DDP. The executive, standing committees, andcouncil are involvedinthe DDP formulation, as evidencedby their participationinthe budget conference, discussionof sectoralpriorities inthe sector committees, andapprovalof the DDP incouncil. NGOplansare notexplicitlyincorporatedinthe DDP.The activitiesof governmentand donor supportprograms andprojects suchas the PAF, LGDP, NUSAF, AIM, EDF, UNICEF, andPMA are clearly indicatedandthe DDP is fairly comprehensive. Local government 63% (5/8) The DDP is presentedin three volumes. Volume 1outlines sector developmentplans me DDP is goals, objectives, strategies, activities, inputs, outputs, and assumptions. These are describedindetail inVolume 2 (action A realistic, achievable comprehensive and has a plan) andVolume 3 (annualworkplan). There is alogical linkage in district developmentplan, logical vertical linkage the DDP acrossthe three volumes. The DDP analyzes poverty in with clear objectivesand between goals, objectives, Apac andhighlightsdistrict-specificdevelopmentchallenges.Itdid strategies, rejecting rrnd strategies. Somegaps not, however, completethe SWOT analysis cycle, omitting analysis national and local nee& exist, including incomplete of strengths, opportunities, andthreats. andpriorities SWOTanalysis Volume 2 includedadetailed costing of plannedactivities, describingthe activity, estimated cost, andsource of funding. In addition, the DDP clearly outlines some performanceindicators and targets. The DDP was rolledover butthere was nomajor adjustmentinstrategies, outputs, activities, and costs. LGbudget framework 57%(417) The BFPfor 2003/04-2005/06 is in place, and includes projections of revenues and expendituresover &e mediumterm. Itrifldcts the f i e BFP is inplace but is strategies andinvestmentsof the DDP and includes objectives and A BFP is in place with rot balanced, and in output targets.The BFP includesprojectionsof the operationaland realistic medium-term slaces omits explicit recurrent costs o f some capitalinvestments.For example, repair of revenueprojections and kstijkationfor boreholesis budgetedfor funding from the equalization grant; the sector budget strategies, zdjustments in strategy LGDP andthe resultantmaintenancecosts were budgetedfor under and clearly identified md allocations the promotiono f community ownership, management, and objectives and outputs maintenanceofwater supply facilities. The projections are comprehensivebut are not always balanced. While the medium-term allocations between sectors are clearly indicated androlled over, changes inthe sector allocations are not exolicitlv iustified. 12%(5/12) The budget estimatesinsome instancesare not balancedand budgetestimates assumptions underlyingthe budget figures are not explicitly :omprehensive budget providedinthe budgetdocument. The budget documentdoes not Balanced, comprehensive ?stimatesarepresented, flow smoothly and is difficult to comprehend. Sector allocationsdo annual budget estimates jut are dij7cult to not appear to be consolidatedanddo not capture all revenue are clearly presentedand mderstand. Wor$lans are sources.There appears to be no stronglinkbetweenthe BFP and supported byjidly nplace but areprepared budget. iccording to revenue 70 - PerformanceArea Actual Ratingand Comments and Benchmark Summary Statement workplam, setting out sources Sector workplans exist as requiredinsector guidelines.As the activities and outputsfor workplans are apre-conditionfor the release of centralgovernment thejnancial year transfers, they are presentedby revenuesource. Inthe education sector PAF/SFGactivities are not includedinthe LGannual worlcplan(Volume 3) even though the SFGworkplan exists at the sector level. Likelihood of Although not realistic nor Officials indicatedthat there has beenan improvementinthe budget improvementsinplanning predictable, the process andthat this is likely to continue. For example, parish andbudgeting developmentplanning and developmentcommittees(PDCs) havebeen formedunder the budgetingprocess has UNICEFprogramandwere they exist are likely to spearheadthe been improving and is participatory planningprocess. likely to continue to do so The district i s receivingsupport for development planning from a numberof donors andprograms, including the LGDP, PMA, EDF/M'P, and SDU. The developmentplanningandbudgetingprocess is also likely to improve through following the centralgovernment guidelinesand assessments.Most of the staff inthe finance andplanning department additionallyare undertaking formal academic and professionaltraining. Recommendations The coordination o f the planning and budget process should be improved by encouraging discussion o f planning and budgeting issues in TPC and integrating all sector workplans and LLGpriorities into the development plan. The preparation o f the DDP and BFP should be harmonized to ensure that they are consistent and that they feed directly into the preparation of the budget. This objective is set out in the new budget guidelines, published by the MoLG, that include the FDS modalities. A budget call should be prepared by the budget desk at the beginning of the budget cycle, showing the timing o f events inthe cycle, deadlines for the preparation o f key documents, and the roles and responsibilities ofdifferent actors. There needs to be greater clarity in the linkage between the DDP and the BFP. All hnded projects should be identified inthe DDP and clearly reflected inthe BFP. They should also be clearly identifiable inthe annual workplan and budget. Comprehensive workplans should be prepared for the benefit o f council and not for line ministries alone. These should be presented for approval by council alongside the annual budget. (This again is set out inthe new budget guidelines.) B BudgetExecution OverallRating: 74percent (57 out of 76) Overall, Apac successfully follows established procedures for collecting revenues and incurring expenditures. There are encouraging signs also o f improvement in local revenue collection and efforts are being made to ensure local revenue is disbursed in accordance with the budget. Cash management remains weak, however, and this i s exacerbated by overoptimistic budget allocations. Spending departments have problems spending their budgets in full as they are often overestimated. - 71 - Table 2D. Apac District: Benchmarking Results-Budget Execution PerformanceArea and Actual Rating and Comments Benchmark Summary Statement Local revenue collection 70%(7/10) Apac hasinplaceinnovativestrategies for enhancinglocal revenues.These includeidentification ofpotentialrevenue sources TheLG has a credible Therewasa decline in (suchas parkingfees, fishing licenses,bicycletax, andcouples strategyjbr local revenue local revenue collected in separationfees), tax assessment and collectionstrategies enhancement, backed up 2001/02, but significant (privatizationthrough tendering), andthe maintenance of up-to-date by effective systemsfor improvements in revenue tax registers at the subcounty level. collecting and accounting were recorded in 2002103, for local revenues the result primarily of There is no analysis of the cost-effectivenessof the variousrevenue innovative local revenue sourcesand strategies, however, andthis may affectthe netrevenue oractices realized.Assessment and collectionefforts are oftenthwarted by politicalinterference; this was particularlythe case during and immediately after the electionyear of 2000/01. There is a lackofregular monthly reportingby the subcountiesto the district. The delayed reportingof localrevenues, coupled with lack ofpublicationof local revenues collected, may encourage pilferageof public funds and inhibit public accountability. This problemhas beenhighlighted ininternalaudit reports andhasledto disciplinaryaction against subcounty chiefs andsub-accountants. Procurementprocess 67%(14/21) The tender boardwas only approvedby council on 13 October 2003. The boardcomprisesfive members, all of whom have the Transparent, accountable Theprocurement process minimum qualificationsas requiredby the Local GovernmentAct. and eflcient procurement isprocedurally process transparent, accountable, There is a clear definition of roles of the technical evaluation and generally eflcient, but committee, tender board, and council.The TB considers the there are corroborative recommendationsof the TEC. The TEC is composed of 10 concerns that theprocess members, mainly representingheadsof department. The secretary is generally affected by to the TB is not amember of the TEC, which may inhibitthe oolitical interests synergybetweenthe TEC andDTB. The principal internal auditor andsenior internalauditor however are members of the TEC, which riskscompromising the independence of the audit function. Funds for monitoring are providedunder the PAF, EDFMPP, and LGDPprograms, andare usedby the headsof departmentandthe executiveto monitorprogress inthe executionofprojects.Projects often are not completedon schedule, however, as aresult of the fact that some contractorsare overextendedand others lack capacity. Items for procurementmustbe inthe approvedbudgetbeforebids can beinvited, and contractsare signed only when funds are availableon account andpayableon demand. This practice is followed to avoidaccumulatingdomesticarrears. Bidsreceivedare placed inthe bidbox housed inthe CAO's office (this box lacksadual-key system). Bids are opened in the presence of the TEC, TB, andany bidderswho wish to attend. The following points were noted: The district does not support (through training) local suppliers inthe preparationofbids andthere are no pre-bidmeetingswith suppliers. Contractnegotiationsnormally are heldwith the successfulbidder, particularly where quotedprices exceed the reserveprices. There is no procurement plan inplace. This meansthat there is little scheduling ofprocurementactivitiesin advance of the fiscal year. The criteria for bid assessment are not published inthe bidding documents. BoQs are preparedfor works but terms of reference are not normally developedfor the procurementof services. Prequalificationof suppliers is done only once eachyear. The tender awardnotificationis displayedonthe public noticeboard and includesa column of contract sums. This may facilitate public accountability. - IL - PerformanceArea and ActualRating and Comments Benchmark Summary Statement A cross-section o finterviewees stated that political interests strongly affect the tendering process. On takingoffice the newly elected political replacedthe entire complement o fDTB, DSC, and LGPAC members. This was done legally, butthis overhaul o f district boards and commissions was cited by manyrespondents as underlining the importance that political leaders attach to the control o f procurementprocesses. Payroll and personnel 89% (8/9) The DSC was approved on 10 January 2003. It comprises seven management memberswho all possessthe required minimumqualifications. The Apac pays salaries on advertises all vacant positions innewspapers, receives applications, TheLG recruits and time, but the district shortlists qualified candidates, conducts interviews, and recruits the manages staffeffectively, service commissionhas most suitable candidates. The district has struggled to fill some key and eflciently manages not confirmed a significant positions, however, and notably those o f CAO and district planner. thepayroll number of staffand has Some respondents claim that qualified people are reluctant to apply experienceddificulties in for these positions because o fthe political pressures that they attracting qualified staff anticipate the job to attract. The DSC has not confirmed a large number o fstaff who have completed the probationperiod. This omission is attributed mainly to short-staffing inthe personnel office, which as a result has focused on recruitment rather than on confirmations. The DSC has taken disciplinary action against numerous members o f staff. At the time o fthe study many headteachers were facing the possibility of disciplinary action. The establishment register is maintained, updated monthly, and reconciledwith the payroll. The district maintains a separate bank account for salaries, andpays these through direct bank transfers, on time. Cashflow management, 70% (14/20) Cash, especially central government transfers, is remitted promptly commitment, and on receipt to the subcounties, departments, and service units. Vote :xpenditure control Apac maintains noformal books generally are maintained, but some are not up-to-date and the cashflow forecasts nor the commitments column is not always filled. Other than utility Cash inflows and outjlows projections,but local payments (electricity andtelephone), the district only approves zre managed such that the revenues are disbursed in commitments against the availability o f cash. Supporting documents CG is able to meet current proportion with the for purchases (LPOs), stores (delivery notes, GRNs), and payments qvments promptly budget. Outstandingbills (checks and check dispatchregisters) are inplace and properly zcording to itsjnancial and other debts are not a maintained. Tommitments,while signcjkantproblem rzaintaining adequate There is no cashflow budget nor formal regular monitoring o f liquidity andnot cashflow positions, mainly because these are not emphasized and xcumulating arrears or enforcedunder the existing inspection and monitoring procedures. It z'ebts may be inferred that cashflow management is more reactive than proactive. Apac is atypical inthe sense that it has a formally established procedure for allocating and disbursing cash inflows proportionately against approved budget figures. These ratios are computed upfront and form part o fthe budget document. This is not the ideal allocation and disbursement system, but it is an interesting innovation for the allocation and disbursemento f limitedcash. Most financial commitments are entered into against the availability o f cash. The district also has an innovative, formal cash allocation and disbursement procedure against sectoral budget proportions. The district has salary and nonsalary arrears o f 1 percent against total revenue; this is insignificant mainly as the district receives large sums through central government transfer. Outstanding bills are also insignificant compared to total revenue, andusually are paidpromptly. Utility bills are not large as the district infrastructure is poor. District headquarters, for example, has no runningwater. Salary and nonsalary arrears are 42 percent against local revenue, -73 - PerformanceArea and Actual Rating and Comments Benchmark Summary Statement but as these salaries andpensionsare notpayable from local revenuethe arrears are notsignificant. Internalaudit 75% (9/12) The internalaudit sectionis adequately staffed, and incontrast to many districts has its owntransport, amotorvehicle andtwo Internal audit effectively Tne internal audit section motorcycles.The internalaudit staff have accessto informationand monitors the internal exist and isfunctional. It is are independent intheir work andreportingstructures. The section financial controls in the reuired to handlepre- has an annual workplanandproducesand submits quarterly quality LG audits of transactions, reportsto counciland the Auditor General. These reports are of which is an inherent relativelypoor quality. procedural weakness Staffhavethe minimum requiredqualificationsas stipulated inthe LGA, butnone has aprofessional accountancyqualification.Two membersare pursuingprofessional training courses supportedby EFMP 11. The internalaudit departmentis responsible for pre-auditing. The staff did notrecognize aweakness inthis practice.Two membersof staff additionallyare members of the TEC, which may compromise their independence.The pre-auditpractice may compromisethe independenceof the auditors inthe eventof downstreamqueriesof pre-auditedtransactions Deviationskom 100% (414) Consistentwith the regulations, procedures are inplace for workplans andbudgets preparingand approving applications for virements, reallocations, Proceduresfor deviations andsupplementaries.The proceduresare followed on the rare Effectiveprocedures are from workplans and occasionswhen deviations are experienced. inplacefor the budgets are in place and gpplicationfor and are complied with on the clpprowl of deviations rare occasions when from workplans and deviations are eqerienced budgets,and that allow managerialJexibili@ and managerial oversight Likelihoodthat budget - Some elements of budget Performanceinlocalrevenueis likely to improve.The district executionwill improve execution, such as the emphasizesthe use ofbestpracticesandthe finance departmentand processing ofpayments tax section are planningto conductexposure visits to Masindiand and local revenue, are MukonoDistricts. likely to improve. However, the success of There is ahighprobability that budget executionwill improve.The budget execution relies on district hasrecently recruitedaprofessionallyqualified accountant the creation of more as CFO, andnumerous staff in finance andplanningare undertaking realistic sector budgets professionalandacademic training courses. The DSC and LGTB havebeenconstitutedand are active. Continuityintenure andperformancemay be disruptedby achange inthe electedleadershipregime. Recommendations for Improvement The tender board should draw up a procurement plan at the beginningo fthe financial year, on the basis ofsubmissions from sector departments, consistent with the annual cashflow budget. Significant improvements in cash management must be made if Apac is to improve the predictability o f budget execution. The IFMS has a cash management module, and the district should use this fully. The FDS budget implementation guidelines also give guidance on cash management that the district should follow At the beginning o f the year the budget desk should prepare an annual cashflow budget. This should reflect the expected timing o f cash inflows from local revenue and government grants over the year, and disbursements to different departments for recurrent and development expenditures. - 74 - Disbursements should be made periodically, probably on a monthly basis, against this disbursement schedule. The cashflow budget should be reviewed each quarter on the basis o f actual receipts and disbursements, as reported inmonthly cashflow statements. C Accounting and Reporting Overall Rating: 74percent (20 out of 27) Apac maintains the required books of account and undertakes appropriate financial and performance reporting. However, some accounting controls were not functioning, some cashbooks were not current, and bank reconciliations were not initialled by senior officers. As of February 2004, final accounts for fiscal 2002103 had not been submitted. Table 2E. Benchmarking Results-Accounting and Reporting PerformanceArea Actual Ratingand Comments and Benchmark Summary Statement Accounting and record 73%(8/11) Journals, abstracts, and ledgers are maintained as required. The keeping district has regular banking arrangements with which it generally Apac maintains appropriate complies. A clear and functioning books of account. However system is in place to some cashbooks were not Some cashbooks were not current, however. The capitation grant ensure that all financial current and bank cashbook, the subcounty retention account cashbook, and the transactions and reconciliations were not UNICEF cashbook were last updated in September 2003. Failure to balances are recorded initialled for checking by update cashbooks was attributed to understaffing in the finance and appropriately senior officers department. This recently has been redressed by recruitment o f the reported in the financial CFO. statements There are no imprest registers and the imprest management system i s not developed. Bank reconciliation statements are prepared and were up-to-date, but no reconciliations in finance and at Chegere subcounty had been initialled for checking by senior officers. There were no bank reconciliations in the cash books at the education department; it was claimed that reconciliations are prepared outside the cashbook for submission to the Ministryo f Education. In-year financial and 100% (9/9) Sub-counties submit monthly returns on funds spent to the performance reporting respective executives on behalf o fcouncil. The CFO also prepares In-yearjnancial and andsubmits monthly financial statements to the CAO. Apac Regular reporting on performance reporting submits sector performance and financial reports to central financial and procedures are complied government mainly as a trigger for releases o f central government performance information with transfers. provides managers with appropriate, timely information on budget and worblan implementation In-year monitoring, 60% (3/5) Monitoring reports exist andverify performance against workplans. analysis, andfollow-up There was evidence inthe minutes o f the executive and sector Monitoring analysis and committees regarding discussion o fthe monitoring reports, but Decision-makers follow-up is carried out there was no evidence inthe TF'C minutes regarding the same. regularly monitor within the district and NGOs are not regularly involved inmonitoring activities by the progress and takefollow- sector departments,but district. However, in the education sector communities were upactions that improve seemingly to meet vertical reported by the DE0 to be active in checking performance in the budget and workplan reporting obligations schools sector, mainly reporting questionable activities inthe implementation construction o f classrooms andteachers' houses under the SFG and LGDP. Final accounts and 0% (012) Apac hadnot submitted the draft final accounts for 2002/03 to the performance reports Auditor General by February 2004, contravening the deadline o f 30 Final accountsfor 2002/03 October 2003. This could be a spillover o fthe capacity gap that Comprehensivefinal had not been submitted by formerly existed inthe finance department. Previously the district accounts and report on February 2004. Thedistrict had tried to bridge this capacity gap by engaging a consultant to annualperformance has neverprepared an prepare final accounts, but this didnot help. The district has since against workplans are integrated annual recruited a professional accountant as CFO, but his impact has not prepared soon after the performance report yet been felt interms o f improvement infinancial reporting. 75 - PerformanceArea Actual Rating and I Comments andBenchmark Summary Statement end of eachjnancial II year Annualperformancereports are preparedat the sector andprogram levels, but there is no integrateddistrict annualperformancereport. This confirms the observationthat most of the reportingis driven by sector- andprogram-specific guidelines andrequirements.The integratedannualperformancereportis not arequirement, butits completionis agood fiduciary managementpractice. Likelihood that With improvements in Accounting andreportinghasimproved, andthese improvements monitoring and stajing,jnancial are likely to continue, possibly at a faster rate. Five stafffrom the accountability will management accounting finance department and audit are undertakingprofessional improve and reporting is likely to accountingtrainingcourses financedby EFMP11, andthe use of improve computers inthe preparationof final accounts is increasing.A professionally qualifiedaccountantalso has been appointedto the positionof CFO. Thesedevelopmentsare likely to result into improvedrecordkeeping, accounting, andreporting.Inaddition, the ongoing LGperformanceand compliance assessment exercises are likely to result into sustainedimprovement inaccountingand reportingat the LGlevel. Recommendationsfor Improvement 0 There is a need for greater managerial discussion o f sector reports, both within and across sectors in the DTPC. These discussions should include the agreement o f specific follow-up actions. 0 There should be greater emphasis on reporting to council rather than merely reporting as required by the center. Subcounty chiefs should report first to their executive, and then to the CAO. 0 Apac must submit final draft accounts to the Office o f the Auditor General by 30 October as required. 0 The district should initiate the preparation o f annual sector performance reports, through which sectors report to council on achievements against the budget and workplan. 0 The distrit should implement an improved system o f imprest inline with the LGFAR. D ExternalAccountability, Audit, and Scrutiny OverallRating: 59percent (10 out of 17) Apac is working to publicize budget transfers to lower levels, the LGPAC is functioning, and there is some discussion of PAC reports and performance reports by the executive and sectoral committees. The full council is little engaged in reviewing the administration's finances, but a more proactive executive may improve the situation. There i s no formal communication and information strategy. - 76 - Table 2F. Benchmarking Results ExternalAccountability, Audit, and Security - PerformanceArea and Actual Rating and Comments Benchmark Summary Statement Transparency and 40% (21.5) The districtpublicizes transfers to the subcountiesandto service accountability in delivery units such as healthunits. It alsopublicizesLGDP IPFs financialmanagement Apac lacks a andreleases, andpostsinformation suchas workplans andbudget communication and summaries onpublic noticeboards. Key budgetary informatior information strategy, but ispublished, is accessible, publicizes information to The district does nothaveadocumentedinformationand and is user-Piendly thepublic including communicationsstrategy, however. This is partly attributableto the through IPFs and other fact that acommunications strategyis not arequirement of central releases government. Localgovernment PAC 100%(6/6) The LGPAC has beenrecently constituted followingthe expiry of scrutiny o f auditreports the term of office of the previous LGPAC. It is composedo f five TheLGPAC is members, all newly appointed, and all havethe requiredminimum ESfective external appropriafely composed qualifications. The LGPAC meets often to discuss auditreports, scrutiny of LG accounts and is eflcient in its work andsubmitshigh-quality reportswith recommendedfollow-up actions to the district council. The committeereceivesfunding from central government,which partly explains its performance. However, itwas notedthat the outgoingpoliticalregimewas slow indiscussingandacting onthe recommendationsofthe LGPAC. Councildiscussionand 33%(1/3) The district executivehasrecently startedto discuss the reports follow-~pofLGPAC and compiledby the LGPAC. Itdoesnot give formal feedback to the LGAC reports The executiveis active in LGPAC on follow-up actions taken. discussing the LGPAC Council discussesand reports but does notprovide Itwas notedthat the LGAC raisedthe question inparliamentof the follows through the formal feedback to the more-thanUSh390millionof advances that are unaccountedfor, in actions recommended by LGPAC on actions taken some cases for more than five years. There was no evidence in the LGPAC and LGAC councilminutesthat this issuewas followed up. Councildiscussionof 33% (1/3) Discussionof annualperformancereportsis limitedto the sector annualsector level. Integratedannual performancereports are notproducedat performance Preparation and discussion the LGleveland hence are not discussed. of annualpe$ormance Councildiscussesannual reports is limited to sector sectorperformance and committees agreesfollow-up actions Likelihood that An active executive is likely The executive i s becoming more active in discussingLGPAC monitoringand to help council more reports, andas suchis likely to improvethe effectivenessof accountability will effectively hold the remedial actionsto enhance fiduciary accountability. improve administration to account Recommendationsfor Improvement The district should consider a more proactive information strategy, providing up-to-date information on funds transferred and spent by LGs and service units. Information to beneficiaries should be presentedina way that is easy to understand. Following discussion o f LGPAC reports, the executive should provide formal feedback to the LGPAC and council on actions taken to compIetethe accountability and scrutiny cycle. - 77 - FinancialManagementCapacityand Environment This category attempts to capture the financial management capacity of staff inthe L G and the overall environment for effective financial management. OverallRating: 64percent (7 out of 11) Overall, the quality of staff responsible for budgeting and financial management has improved and is now good. There also is an open managerial culture. However, working relations between the elected leaders and technical staff have not yet settled. Computers are used for budget and accounting reports preparation, but are not usedfor automatedaccounting nor for the approval and audit o f payments. Table 2G. BenchmarkingResults-FinancialManagementCapacity and Environment Performance Area and Actual Rating and Comments Benchmark Summary Statement Quality of budgeting and 83% (5/6) The district recently recruitedaprofessionally qualified accountant financialmanagement as CFO, andmost ofthe staff inplacehave the requiredminimum skills Overall, the quality of staff academic qualifications.Five staff members are undertaking responsiblefor budgeting professionalaccountancy courses with support from EFMP 11. High-qualily staff carry andfinancial management out budgetingand is good. Stafing gaps exist The positionof districtplannerhas notbeenfilled, andthe senior financial management in developmentplanning statisticianis on atwo-year study leave.The populationofficer as a result is runningthe planningunit unaided. Use of information 40% (2/5) Most staff have basic computer skills anduse computers inbudget technology preparation,butthere are no accountingpackages inuse. Computersare usedfor Computers arenotusedinpayments approvalnor auditing. IT is used in budgetay budget and accounting andfinancial reportspreparation, but are management not usedfor automated accounting Staff andmanagerial The managementculture is fairly open. For example, bidawards culture publicizedonnoticeboardsincludecontractsums; and heads of departmentand subcountyofficers were fairly open andwillingto discuss their weaknesses. Political culture and The newly electedleaders were seeminglyuncomfortableworking behavior with the outgoing DSC, LGPAC, andDTB. This ledto the total overhaulofthese commissions andboards, andthe appointmentof an entirely newmembership. Likelihood of More than 10staff are undertakingprofessional accountancy improvementsin courses, andifthey qualify andare retainedthey are likely to crosscuttingissues contribute to the continuedenhancementof financialmanagement capacity. The anticipated introductionofIFMS, ifrolled over to Apac, is likely to enhance the use of IT inbudgeting and financial managementandto leadto improvementsintimeliness andthe quality of financialoutputs. Recommendationsfor Improvement The district needs to fill the vacant positiono f district planner. General skills are adequate, but capacity-building will be needed in areas such as cashflow management and commitment control when the new systems are implemented. - 78 - ANNEX 3. JINJADISTRICTINTEGRATED 2004 FIDUCIARY ASSESSMENT Background Jinja District is in eastern Uganda. It has a population of about 400,000 and an area of 734 square kilometers. The district surrounds Jinja Municipality, once the main industrial town in Uganda, 87 kilometers from Kampala. It comprises seven subcounties and one town council, Jinja. Most of the area's industry is concentrated within Jinja town; the district's economy otherwise is largely agricultural, although tourism i s developing. Jinja grows a variety o f food and cash crops. About 85 percent of farmers are engaged in crop production as their main activity, 12 percent are engaged in mixed farming, and a small percentage are engaged in livestock keeping and fishing. The main cash crops are sugar cane and coffee. The district was selected for the sample due to its central location and because o f its involvement in the IFMS pilot. It also was one of the original beneficiaries of the district development program, the precursor to the LGDP. Jinja performed best of the sample districts in primary outturns, scoring 78 percent. This indicates that it i s on a financially sound footing. Overall, the district scored 112 out of 176. The average score for each benchmark area was 65 percent, making Jinja the second-best performer. Primary Outturns Primary outturns are the principal data o f the Public Financial Management system, recorded in terms of actual expenditures (inaggregate and composition), central and local revenues, and arrears, assessed by comparison to the budget. They provide a measure of the realism o f the budget and the extent to which the budget i s an authoritative tool of the LG's policy. Ultimately, however, the success of the budget must be judged in terms o f the intended results of the expenditure and therefore of the adherence to workplans. This i s difficult to measure quantitatively, but the primary outturns establish a valuable overall impression Table 3A. Jinja District: Budgetand Outturns 2002/03 Budget Outturn YOPerf Total expenditure allocation2002103 (Ush) 12,752,844,000 12,432,591,735 97 Totalrevenue 2002103 (Ush) 12,722,494,000 12,554,482,380 99 Local revenue 2002/03 (Ush) 348,335,000 416,494,209 120 Local revenue (percentage o f total revenue) 2.7 3.3 Average departmentalexpendituredeviationfrom budget (percent) na 10.7 Arrears (percentage oftotal expenditure) 4.2 4.3 Overall Rating: 78 percent (7 out of 9) The overall picture in Jinja is good. The L G is in control o f its aggregate expenditure and revenues, and the budget i s increasingly predictable. The district has been in a stable financial situation for the last three years, with no significant accumulation o f arrears. This masks significant uncertainty in revenues and expenditures for the spending departments, however, and there i s also a lack o f discipline in keeping to department budget allocations. The linkage between policy, planning, and budget outturns is weak, indicating a significant risk that activities are not being implementedin line with the district council's stated objectives and priorities. - 79 - Table 3B. Jinja District: BenchmarkingResults Budget Outturns- PerformanceArea and Rating and Summary Justification Benchmark Statement Primary budget outturns 78% (7/9) The overall expenditure outtum against the budget was 97 percent in2002/03, andhas exceeded90percent ineach ofthe lastthree Budget estimates are Budgetaryprojections are years. Jinja's arrears are small relative to the budget, and have not realistic and implemented in aggregaterealistic.7"nis been increasing. as planned means that the overall financial position of the Local revenue collections are small, at 3.3 percent of the budget. LG is healthy, but there This limits the district's ability to deliver services outside the remain significant priorities set by central government. The conservatism and realism variations in sector o f local revenue collections improved between 2001 and 2003; outturns and the LG has however, the district may have been overoptimistic inthe 2003/04 limited local revenue budget as revenue projections were significantly higher than 2002/03 collections. The main area o f concern is the inconsistency between sector expenditure allocations and outturns, which average 11percent. Health and gender departments underspent against the budget by nearly 20 percent, and finance and planning overspent by 19 percent. Achievement of results There is a weak link The weak linkage between the DDP, BFP, annualworkplans, and betweenplans and budget budget outtums means that some planned activities are unlikely to Policy objectivesare outturns, with the be implemented.Variations insector budget outturns meanthat realizedandplans consequence thatplanned annualworkplans are unlikely be carried out infull, and that it is implementedas intended results are unlikely to be possible also that activities outside workplans will be implemented. realized infull It is also possible for activities to be funded that are not inline with district objectives andpriorities. Ultimately this means that district council objectives are less likely to be achieved infull.Workplans funded by conditional grants are most likely to be implemented, in line with central guidelines. Assessment of the Budget Cycle The second area o f the benchmarking exercise provides an assessment o f the performance of the key systems, processes, and offices within the LG budget cycle. These are planning and budgeting, budget execution, accounting and reporting, external scrutiny, and accountability. The information for the benchmarking exercise was gathered through a combination o f stakeholder interviews and review of documentation. A Medium-TermPlanningand Budget Formulation OverallRating :41percent (15 out of 37) Planning and budgeting is the weakest area o f financial management in Jinja. While budget documentation is reasonable it lacks consistency, and there is no clear linkage between the strategies and allocations o f the DDP, BFP, and the budget. The budget cycle also appears logical and well- defined, but the timing o f DDP preparation means that it cannot influence budgetary decisions. There is a lack of coordination between the finance and planning departments within the budget desk, and this hrther means that the different stages inthe budget process do not result in decisions that reflect the true priorities o fthe LG.This is borne out inbudget implementation. - 80 - Table 3C. Jinja District: BenchmarkingResults -MTEF and BudgetFormulation Actual Ratingand Comments Benchmark Summary Statement 50% (5/10) There is no schedule for the planningandbudget formulation formulationprocess process, but it nonethelessappears to follow a fairly logical Theplanning and sequence. The district receivesthe first IPFs from central A credible, coherent budgetingcycle, although government inDecember.At the budget conferencethe BFP is planningandbudget consistently implemented, discussed, projects and activities are ranked, andsector shares are process is inplace, with lacks coherence and agreed. (The focus of the debate is, however, always the next fiscal clear defmition ofevents significant inputs@om year, which makesthe outer years inthe BFP atheoreticalexercise.) andresponsibilitiesand politicians, civil society, Sector committees discuss the actualexpendituresto be covered in the meaningful and lower-level the fiscalyear ineach sector, and the finance department compiles participationof government.A lack of the submissions eom the sector committees inthe budget and politicians, civil society, coordination within the preparesthe budgetestimates. andcivil servants, budget desk means that ensuringthat local needs decisions made at diferent The decisionsmadeat eachstage often are changed, andthis is andpriorities are stages are not adhered to bome out ininconsistenciesthat appear inthe BFP, budget, and represented DDP.The budget desk does not meet regularly, and ageneral lack of coordinationbetweenthe CAO, CFO, and district plannerhas preventedthe regularflow and sharingof information,leavingmost ofthe important decisionsregardingbudgetmattersinthe hands of the CFO. The DDPs andBFPs, which are compiledby the planning department, are thus reducedto amere collation of material producedby the single sectors.There are as aresult significant differencesbetweenthe BFP andbudgetestimates. A serious inconsistencywas notedinthe timing of approvals for DDP, BFP, andbudgetestimates that denies the DDP the opportunityto guide the BFP andbudget formulation processes. There are significantdifferenceswith the DDP and sector contributions to the BFP, as sector planningprocessesoften runin parallelto the districtwide process. Oftenthe participatory bottom- upplanningprocess that is supposedto leadto the formulationo f developmentplansis carriedout inahaphazardway, without meaningfulparticipationfrom stakeholders. There also is no substantivedebate at the council levelof the content of developmentplans andbudgets.Politiciansare often given scanty and abridged information,preventingthem from holding any meaningfuldiscussionon budgetpriorities.At the technical level, the collapsingofthe technical planningcommittee into the headsof departments committee also has limitedthe level of discussionon DDP andbudget formulation. The headsof departmenttend to discuss mainly administrative matters. Finally, there is little dialoguenor ongoing consultationwithNGOs andcivil society ingeneral, and little incorporationof their concerns andactivitiesinto the developmentplan.The district planner noted that there are few resources availablefor the promotionof meaningfulbottom-up planning. 25% (2/8) The Jinja DDP is notvery clear inthe way it links overallobjectives andpriorities with activities and availableresources.The limited %e DDP is situational analysisprovideddoes not providefor aclear pictureof A realistic, achievable comprehensive but not how priorities are decidedupon interms of poverty targeting, nor district developmentplan realistic or achievable. how they fit with the district's overall strategy. The DDP reads like is inplace, with clear Analysis is limited and is a collation of sectoralandLLGsubmissions, anddoes notprovide objectivesand strategies, rlot based on the the necessaryconsistency and coherence.Analysis changes little reflecting national and mailability of resources from year to year, andthere is littlejustificationmade for the local need andpriorities inclusionofnew projects and activities. Only two out of eight LLGplans are includedinthe latestDDP, anc there are inconsistenciesbetweenworkplans andprojectprofiles. Again, the problemmay lie inthe timings for the submissionof plansby LLGs (LLGplans and the DDP are supposedto be /paper approvedby mid-June). LGbudget framework 43% (3/7) The budget frameworkpaperspreparedby the district planningunit present comprehensivesummary information about projected - 81 - Performance Area and Actual Ratingand Comments Benchmark Summary Statement TneBFP is a usefl revenues andbudgetestimates for the mediumterm, but the BFP A BFP is inplace that hm summary document, but is does not look like auseful tool for intersectoral coordination and realistic medium-term incomplete and is overallexpenditure planning. There are inconsistenciesinthe revenueprojections and inconsistent in linking figures presented, andthe links betweenthe DDP andthe BFP are sector budgetstrategies, plans and budgets weak. Sectoralallocations are clear; however, there is no and clearly identijied informationonNGO activitiesor funding. objectives and outputs Some sectors (agriculture, education) present analysis o fpast performanceindescriptive terms. There is ageneral needto strengthenthe analysisof pastperformance and its linkage with future plans, expenditures,andtargets. The disaggregationby sector is clear, butthe breakdownby geographicalarea is not. The BFP also does not cover the recurrent implicationsof new investments. Annual workplans and The summary tables inthe budget estimates give the overall budgetestimates revenue and sector expenditure situation, andare relatively easy to Budget estimatesare understand. Balanced, comprehensive comprehensivebut are annual budget estimates presented without The detailedestimates are more confusing, andthere is no clear are clearly presented, adequate explanation, linkageto workplans. There is no narrative describingthe structure supported by&lly differ signiJicantlyfrom andcontent of the estimates, andno assumptionsbehindthe consistent annual BFP allocutions, and are estimates. All sources of revenueare integratedinto the budget, workplans, and set out not explicitly supported by althoughthe levelof donor funding appears unusually low at 3 activities and outputsfor the annual workplans that percentof the budget.NGO activities are not reflected, andsector thejnancialyear arepreparedfor line allocations do not reflectthe true allocations. District-level staff ministries salaries for the line departments and fuel bills for those departments are brought together arbitrarily under the administration budget, makingit difficult to see the true sector allocations.n e decisionto do this may havebeenmade to keepbookkeepingsimple, but it underminesthe ability of sector departmentsto managetheir own resources to deliver results. There is atenuous linkbetweenthe 2002/03budget estimatesinthe BFP andthose inthe budget.Although the size of the budget, in aggregate, is similar, the projections for local revenues inthe budget were inflatedto USh608million fkomUSh366million inthe BFP, with noreasongiven. The sector allocations similarly diverged significantly betweenthe BFPandthe budget-for example, in administration the budget estimates were 43 percenthigherthan in the BFP.This underminesthe legitimacyof the BFP as atool to prioritize and agree sector allocations. Sectors mostlyproduceworkplans, costed and linked to performance indicators.These are most often preparedby funding source for sectoral purposes and are communicatedonly to the relevant line ministries, however. Theplanningunitseldom receives these plans for incorporationinoverallplans andbudgets. Likelihood of The planningandbudgetingprocess is weak, but ithas been improvementsinplanning improvedinrecent years. The introductionof the FDS revised and budgeting guidelines, alongwith exposure to best practicesinother districts, shouldhelpproduce further improvement. Communication andcoordinationbetweenthe CAO, sectors, the CFO, andthe planningunit needurgent improvementto createthe basis for acoherent budgetprocess. Recommendationsfor Improvement The planning and budget process would benefit from better coordination. In particular there needs to be greater coordination between the CAO, the district planner, and the CFO on the budget desk. -82 - 0 There needs to be better intersectoral dialogue and coordination in the preparation of development plans across the planning and budgeting process. The budget desk specifically needs to foster better coordination and dialogue between sectors. This should be done through a revival o f the TPC, or at the minimum through heads o f department meetings devoted to technical matters, especially around DDP and BFP formulation. 0 Timings for the approval of LLG plans should be harmonized to permit their inclusion inthe DDP. The timings o f the preparation of the DDP and BFP similarly should be harmonized, to ensure that they are consistent and that they feed into the preparation of the budget. This requirement is set out inthe new budget guidelines published by the MoLG and which include the FDS modalities. A budget call should be prepared by the budget desk at the beginning of the budget cycle, to includethe timing of events inthe cycle, deadlines for the preparation of key documents, and the roles and responsibilities ofdifferent actors. 0 There needs to be greater clarity in the linkage between the DDP and the BFP. All finded projects should be identifiedinthe DDP and clearly reflected inthe BFP. They should also be clearly identifiable inthe annual workplan and budget. Comprehensive workplans should be prepared for the benefit o f council rather than for the line ministries.These should be presented for approval by council alongside the annual budget. This point again is set out inthe new budget guidelines. The district needs to establish a common planning database (LOGICS may assist inthis). This should improve the linkage betweenthe DDP, BFP, workplans, and the budget. 0 The district should carry out an inventory o f CSOs, NGOs, and NGO projects. The executive and council need to be involved in decision-making at key moments in the cycle. They should be involved inthe approval of the BFP and DDP (including medium-term sectoral allocations) at the end o f December, and should be involved again in the approval of the annual workplan andbudget inJune. B BudgetExecution OverallRating: 71percent (53 out of 76) Budget implementation is open and transparent but is unpredictable. This undermines the ability of spending departments to implement activities in their workplans as scheduled and to spend in accordance with the budget. There i s insufficientplanning in advance for budget execution within the fiscal year, especially in procurement and cash management, and there also is weak control of commitments. As a result, spending departments are unable to plan in advance when activities will take place. Those departments that are reliant on local revenue are worst hit, as local revenue collections are erratic. The district i s making significant efforts to improve revenue collection, and with political backing it should be able to improve budget execution and cash management. The IFMS also should support the introductiono f robust systems o f cash management and commitment control. Personnelmanagementworks effectively, and internal audit is comparatively strong. - 83 - Table 3D. Jinja District: BenchmarkingResults BudgetExecution - Rating and Summary Justification Statement 80% (8/10) The proportion o f local revenue inthe district budget was 3.3 percent in2002/03. Jinja hasintroduced some innovative methods TheLG has a credible Jinja has several to increase local revenue, andappears keen to expand collections strategyfor local revenue innovative initiatives to from existing sources andwiden the sources o f revenue. enhancement, backed up improve revenue collection by effective systemsfor and theseareyielding Graduated tax provides 80-85 percento f local revenue. N e w collecting and accounting somepositive result. There administrative methods to enhance Gtax assessment and collection for local revenues is a danger, however, that include the transfer o f assessment responsibility to parish the underlyingpolitical assessmentcommittees, comprising all the village chairpersons. incentivesfor poor This has yielded immediate results. Withinthe first month o f revenue collection will applying this system the district assessed 23,000 taxpayers, persist compared to 27,000 inthe whole o f the 2002/03 fiscal year. There are an estimated 46,000 taxpayers inthe district. The new system has placed the responsibility for ensuringrevenues are collected onto the elected village chairmen, butthe incentives to complete this task are unclear, as the taxpayers are also voters. Buyengo subcounty was pessimistic about the prospects for local revenue collection under the new arrangement, reporting that political interferencemeant that the most taxes were assessed at the lowest rate o f USh3.000. The district also is piloting the privatization o f the collection of trading licences, and has found that collections inthe pilot areas have improved significantly. Inremote subcounties such as Buyengo trading licenses will never yield significant revenues, however. Jinja has also been looking for new revenue sources, including demanding a share o f revenue from electricity generation. The rate is being negotiated through the courts, andthe charge is likely to be instituted inthe next financial year. Gtax registers were current in Buyengo, and collections were documented andbanked intact. N o tax registers were maintained fo1 other revenues such as markets, butreceipts were issued. Subcounties overall report irregularly on revenues, despite being required to submit monthly returns. The incidence o fsubcounties spending money at source has reducedsignificantly, as internal audit has beenable to detect this andrecommend punitive action against transgressors. An inspectorate desk also has been set up in the district finance department to ensure compliance with revenue collection procedures, butthis is little more than a duplication o ft h e role o f internal audit. The procurement process broadly follows general guidelines that seem appropriate to guarantee minimum standards o f transparency A transparent, The procurement process andaccountability. Some concerns were expressedabout the accountable,and eficient exhibits the minimum political appointment o fDTBmembers; many interviewees claimed procurementprocess is in permissible procedural that political influence exists, but it is difficult to pinpoint specific transparency and cases without further investigation. The rationale behind the accountability. There is composition o f the TEC is unclear. Some inefficiency may also be weak advance planning caused by lack o flocal government procurement regulations. and monitoring of L contracts Inefficiency inprocurement stems from the fact that the board meets on anarbitrarybasis, often waiting untila large number o f contracts have accumulated for awarded(the September 2003 meeting deliberatedon 60 contracts across numerous sectors). In some cases board decisions seem not to be based on objective criteria, as TEC recommendations are unclear. Delays in hnding fo TB sittings and lack o fprocurement planningoften result inthe process being unpredictable. This means that sector departments cannot plan inadvance for the implementation o f activities, as they do not know inadvance when contracts will be awarded. Contract monitoring and follow-up is not done ina consistent manner. - 84 - PerformanceArea and Ratingand Summary Justification Benchmark Statement Payroll andpersonnel 100% (919) The general impressionof the personnelsystem is positive. The management DSC is inplace andmeets on aregular basis, takingprompt action Personnel management on disciplinarymeasuressuggestedby sector departments.A The LG recruits and generally is well problem of abacklog of unconfirmedprimary teachers is gradually manages staff effectively, finctioning beingresolved.The recruitmentprocess is open andtransparent, and eficiently manages andanew performanceappraisal system is being introducedthat is thepayroll more transparent and interactiveandthat will be usedas abasis for personneldecisions. The payroll systemis functioningwell, anddirect transferpayments are made inatimely mannerfrom aseparatebank account to employee bankaccounts. Salary advance registersare maintained, as is arecordof pensionand salary arrears (a probleminheritedby the district). Cashflow management, There is an absence ofadvance planningfor cashflow, with no commitment, and annual or quarterly cashflow projections made. This meansthat expenditurecontrol Cashflow management and cashmanagementis reactive andunpredictable. commitment control are Cash inflows and outflows weak, making it difricult Controlover financial commitmentsis weak and financial are managed such that the for spending departments commitments are often entered into without considerationof the LG is able to meet current toplan in advancefor cash available.Although there is an establishedprocess for oaymentspromptly activities. As a result there approvingLPOs and claims, this appearedto be linked to the according toJinancial are substantial deviations availability of funds against the budgetrather thanthe availability commitments, while between budget and of cash for payments. maintaining adequate outturns liquidity and not Centraltransfers arereceivedregularly on about the 15thof each accumulating arrears or month. Conditionalgrants are transferredto sector departments and debts spendingunitsin atimely manner, althoughthis was not always the case inthe past. It is the responsibilityof headsof department to ensure that they only contract when cash is available to pay the contractor. The distribution o f localrevenueandreceipt of the unconditional grant is unpredictable.This has adisproportionately highimpact at the district, because the grant funds manykey district administrative functions. There is alwaysalarge accumulation of unpaidbills and claims onthe CFO's desk. When cashcomes inthe CFOdecides which of the bills are to be paid anddisburses funds accordingly. This meansthat it is the CFO's assessment of the urgencyof the claim rather thanthe budget that determineswhat payments are made. The procurement processes nonetheless are administered in a relatively open way. The CFO prepares a monthly cashflow report that is discussed at heads of department and executive meetings. The report also shows a list of unpaid claims, and the priorities for payment are discussed. Evenwhen cashis available, it cantake up to three weeks for a paymentto be effected. This timing depends on the availability of staffauthorizedto approve payments, andis compoundedby the 20- minutedrivebetweenthe CAO's andCFO's offices. These factors ultimately affect the ability for spendingdepartments to carry out activities inaccordance with establishedworkplans and budgets.A headof departmentwho is reliant on localrevenue will only haveachanceofreceivingfunds ifhe has aclaim on the CFO's desk. Similarly, aheadof departmentmust submit all ofhis tenders to the DTB simultaneouslv andhone that one or other of them will be considered. - 85 - PerformanceArea and Ratingand Summary Justification Benchmark Statement Intemalaudit 75% (9/12) The audit department appears to have too few staff andlacks transportfacilities, but it nonethelessproducesgood-quality work. Internal audit efectively Given the constraints upon The principleintemal auditor is well-versed in his responsibilities, monitors the internal it, the internal audit but felt constrainedinhis ability to be objective given his role in financial controls in the department appears to be pre-audit.Inaddition to compromisingthe department's objectivity, LG jiinctioning well this dual role meansthat intemal audit has insufficienttime to performed a detailedaudit of individual departments and local government. (The intemal audit reportstend to be mostcritical of lower LGs, which may indicate adifference inapproachto district matters.) The Buyengosubcounty chief interviewedvaluedhis interaction with intemalaudit, stating that the department'swork enables him to achieve compliancewith the LGFAR. Deviations fi-om 100% (4/4) There was some evidence that appropriateprocedures are usedfor workplans andbudgets approving virements, reallocations,and supplementaries. Adequateprocedures are Supplementarieswere rare, althoughone hadbeenprocessedduring Effectiveprocedures are in operationfor the the current financial year becauseo f anew donor project coming in. inplacefor the approval ofdeviations in Reallocationsand supplementariesrequirethe approval o f council, applicationfor and workplans and budget while virementsrequirethe approval of the CAO. approval of deviations from workplans and budgets, enabling managerialjlexibili@ and managerial oversight Likelihood that budget - Given the introduction of Revenuecollectionis likely to continueto improve. The success o f execution will improve theIFMSin Jinja, there Gtax collectionsnot only rests on administrative reforms, however, are likely to be some but also on creatingthe necessarypoliticalwill locally. Central improvements.However, politics couldunderminethese efforts. success ultimately will require that thefinance The introductionof the IFMS has the potentialto improvecashflow department movefrom managementandcommitment control, as it includes software control to administration modulesfor both. The CFO doubtedthat it is possibleto predict ofthe system localrevenue flows ex ante. but hedid concede that mostlocal revenue is collectedbetween Februaryand June. Recommendationsfor Improvement The tender board should draw up a procurement plan at the beginning o f the fiscal year, based on submissions received from sector departments, that is consistent with the annual cashflow budget. There should be more frequent DTB meetingsto ensure that contracts are awarded ina timely manner. Contract awards should take into account the likelihood o f delays in the release of funds, and should take account also ofthe annual procurement plan. Contract monitoring practices needto be changedto improve quality control and to ensure the realizationo f value for money from contracts that have been awarded. Cash management must be improved if Jinja is to improve the predictability of its budget execution. The IFMS includes a cash management module that the district should use. The FDS budget implementationguidance on cashmanagementalso shouldbe followed. The budget desk should prepare an annual cashflow budget at the start o fthe year. This should reflect the expected timing o f cash inflows of local revenue and government grants, and should reflect the disbursements to different departments for recurrent and development expenditures. Disbursements should be made on a regularly monthly basis against this disbursement schedule. -86 - 0 The cashflow budget should be reviewed quarterly on the basis o f actual receipts and disbursements,as reported inmonthly cashflow statements. The district needs to institute a more rigorous system o f control of its financial commitments. This must be done in conjunction with more predictable cashflow management. Given the uncertainty facing expenditures financed by local revenues, the district should wait until cash i s receivedby the spending department before it takes up i t s scheduledcommitments. C Accounting and Reporting Overall Rating: 70percent (19 out of 27) The finance department and accountants posted to sector departments operate a well-functioning manual bookkeeping system. This i s soon to be replaced by the computerized IFMS. In-year financial and performance reporting is regular, and in sectors such as health i s working particularly well. The motivation for reporting continues to be vertical accountability and compliance, however. Jinja has a major weakness in the haphazard nature o f monitoring, analysis, and follow-up. Heads of department and executive meetings rarely involve discussions o f sector reports. Some systems are in place at the sector level, but there generally is a lack of the crosscutting systems for monitoring and analysis that could help improve management decisions. The implementation o f LoGICS should address this weakness. Table 3E. Jinja District: Benchmarking Results Accounting and Reporting - PerformanceArea and Ratingand Summary Justification Benchmark Statement Accountingandrecord 64% (9/11) All thejournals, abstracts, and ledgersreviewedwere currentand keeping were beingoperatedinlinewith the LGFAR. Commitmentswere Jinja maintains its books of recordedinthe vote book, but it was sometimes difficult to A clear andfinctioning account well. All of the key ascertainbalancesagainst the budget andthe cash availablefor system is in place to books of accounts and new commitments.The district was holding 33 bank accounts, ensure that allfinancial reconciliations are current which is excessivebut inline with guidelines. Bankreconciliations transactions and and correctlyposted, but reviewedwere upto date (for the previousmonth) andhadbeen balances are recorded there is some roomfor initialled by the CFO. Impresttransactions were recordedbut and appropriately improvement in imprest controlswere inadequate, with no registerskept. The IFMS was reported in thefinancial management beginning to take effect, with the trial balancefor December 2003 statements already produced. Stores appearedwell managed, andthere was evidence of boards of survey havingbeen carried out at the end ofthe previous fiscalyear inthe district andsubcounties. In-year financialand 78% (7/9) Some internalin-yearfinancialandperformancereportingis done, performancereporting but the regularity and quality ofthis varies across departments. For Reporting isperformed example, the healthM I S was working well, with 97 percentof Regular reporting on regularly within the LG, but monthly returns from healthunitsbeingsubmittedon time (it financial and is oriented toward vertical shouldbenotedthat financial reportinginhealth is separatefrom performance information compliance and performancereporting).Heads of departmentallpreparemonthly provides managers with accountability rather than reports andthe CFO prepares financial statements for monthly appropriate, timely in support ofmanagerial HODmeetings. information on budget decision-making and wor$lan The motivation for muchreportingat the district is vertical implementation compliance, ratherthan orientationtowardmanagementdecisions. For example, the district preparesmonthly financial statementsfor the Ministry of Financebut these do not appearto be discussed withinthe district. Similarly, the subcounty chiefofBuyengo preparedmonthly progressreports for the CAO, but didnot submit them to the subcounty council. Reports arenotusually made available to the planningunit, which shouldbe responsible for overallreporting.There is no integrated system for collectingandreportinginformation on sector delivery performancethroughout the district, but some improvementmay come as LoGICS is installed. - 87 - Ratingand Summary ~PerformanceArea and Justification Benchmark Statement In-year monitoring, 40% (2/5) Discussions at heads o fdepartment meetings, although regular, analysis, and follow-up tend to focus on administrative issues rather than sector Monitoring analysis and performance. At best one sector is discussed at each meeting. Nor Decision-makers follow-up, especially across do executive meetings involve discussions on sectoral regularly monitor departments,isweak.It is performance. This means that there is little systematic monitoring, progress and takefollow- stronger, however, within analysis, or follow-up o f overall budget and workplan performance. up actions that improve departments,such as health There also is little peer pressure to improve from within the district budget and workplan and water ifaparticular department's implementation is weak. implementation Monitoring and analysis o f performance against workplan is more effective withinthe healthand water sectors, the two sectors reviewed. Sector monitoring reports were inexistence. The health sector regularly draws on information inits MISto target its activities, andhad come top inthe 200U03 district league table for performance. Sector committees were more active than the district executive indiscussing sector performance. There was no evidence o fregular meetings with communities or o f involvement o f civil society inmonitoring activities. Final accounts and 50% (112) Final accounts were preparedon time, andappear comprehensive. performancereports For reasons similar to those affecting budget documentation, these Final accountsare do not reflect true sector expenditures. The final accounts include Comprehensivefinal orepared on time, but no no analysis to identify how budget implementation mightbe accountsand report on annualperformance reports improved. annualperformance areprepared against workplans are Annual performance reports are not prepared, and sectoral prepared soon after the performance is analyzed only inthe BFP and DDP. The preparation endof eachfiscal year o f the BFP, however, starts long after the end o f the fiscal year. Likelihood that Accounting and monitoring needs to move from information monitoring and generation toward a form inwhich it can assist management accountability will decision-making. This will require the improvement o f improve coordination and communication within and between sector departments. The introduction o f LOGICS and the IFMS may improve the timeliness and quality o f information, but the managerial culture also mustbe changed to realize the potential value-added. There appears to be no specific impetus for this to Recommendationsfor Improvement 0 There needs to be greater managerial discussion of sector reports, both within and across sectors. These discussions should include the agreement o f specific follow-up actions. 0 There should be greater emphasis on reporting to council rather than on vertical, compliance reporting. Subcounty chiefs should report first to their executive, thento the CAO. 0 The district should initiate the preparation of annual sector performance reports in which sectorsreport to council on achievements against the budget andworkplan. 0 The district should implement an improved systemo f imprest, in line with the LGFAR. - 88 - D ExternalAccountability,Audit, and Scrutiny Overall Rating: 59percent (10 out of 17) Some elements o f the external accountability chain are working satisfactorily, including the LGPAC. However, council is not filfilling its role of holding the administrationto account for its performance, either in financial terms or in terms of results achieved by expenditure. Jinja i s overall an open administration that does not hide information. This does not mean that it proactively disseminates information. Information is not always presented in a comprehensible way, and the district does not actively seek to engage and inform civil society or council, relying instead on standard internal and upward accountability mechanisms. Table 3F. Jinja District: BenchmarkingResults-ExternalAccountability, Audit, and Scrutiny Performance Area and Rating and Summary Justification Benchmark Statement Transparency and 40% (2/5) Jinja District appears to be relatively open andtransparent accountability in (informationwas readily made available for this study). There is financialmanagement Little information is made however no strategy for the communicationof information, and available to thepublic in a there i s little evidenceof any effort to disseminateinformationon Key budgetary informatioli timely and accessible financialmatters. ispublished, is accessible, manner and is user-l$.iendly There were largenumbersof notices publishedat district, subcounty, andservice unitsgiving details of workplans, disbursements, andso on. These oftenwere difficult to understand. There also is atendency for old notices to be left onnoticeboards, renderingnewer ones difficult to find. Councillors complainedaboutnot havingaccess to the information necessaryto enable fully informeddecisions. Budgetinformation also was noteasily comprehensible. Local government PAC 100% (6/6) PAC reports are preparedregularly on the basisof intemaland scrutiny o f audit reports externalaudit problems.The focus tends to be on irregularities in ThePACprovides some lower-levelLGfinancial management, andinsome cases the Effective external valuablefollow-up to district evidentlyhastaken the recommendedfollow-up action. scrutiny ofthe LG internal and external audit accounts queries, but only as a Most LGPAC membershaveaccounts qualifications or reaction to the information experience, butthis does not always relate to LG-specificissues. given by the internal audit Althoughrelatively well-equipped, the LGPAC lackstransport thatfocuses on local facilities, which hinders its ability to follow upaudit queries inthe government field. 33%(1/3) LGPAC reports are discussedby the executive, butnot specifically follow-up o f LGPAC and by the council, although the district chairmanmay mentionthe LGAC reports Theexecutive discusses the activities undertakenby the LGPAC. Actions recommendedby the LGPAC and LGAC reports LGPAC havebeen followed throughby the CAO and DSCwhen Council discussesand on beha(fofcounci1, but irregularitieshave beenobserved. follows through the council itseudoes not actionsrecommendedby engage inprolonged the LGPAC and LGAC discussion of the revorts. Follow-up actions are taken Councildiscussionof 33% (1/3) Regular discussionsare heldonly by the sector committees. There annual sector i s no substantivediscussionat council level on performance performance Council does not discuss reports. annual sectorperformance, Council discussesannual although sector committees sectorperformance and do Althoughthere appear to havebeensome improvements inthe accountability, audit, and PAC, there is no apparentmomentuminthis area.This probably scrutiny will improve stems from alackof motivation on the administration side to provide better information or to engage council inthe accountability processes. There is asimlar lack of motivationfor the promotionof transparency and accountability to the public. Recommendations for Improvement -89 - The district should consider a more proactive information strategy that delivers up-to-date information on funds transferred to and spent by LGs and service units. This information should be presentedina clear, easily understood way. The full council, rather than merelythe executive, should discuss the LGPAC reports. The executive and council need to be more proactive in discussing sector performance. The administration should prepare and submitreports to council and the executive should report on district performance. FinancialManagementCapacityand Environment This category o f indicators captures those factors that influence the environment for PFM systems that cut across the budgetary cycle. OverallRating: 73percent (Wl) Jinja has an adequately qualified financial management team, a relatively open management culture, and ca onstructive political culture. A lack of IT skills inthe finance department especially may make improvements, including the implementation o fthe IFMS, difficult. Table 3G. Jinja District: BenchmarkingResults-Financial Management and Environment PerformanceArea and Rating and Summary Justification Benchmark Statement 2uality o f budgeting and 100% (6/6) Ingeneral terms, there is adequate capacity for financial financial management management inplace within the district administration, both in skills In generalfinance staff terms o f the numbers and qualifications o f staff. have adequatefinancial and High-quality staff budgetingskills Staff were not conversant with many o fthe new systems being zarrying out budgeting introduced, and are likely to need training inthese. District staff 2ndfinancial may lack the IT skills to implement the IFMS when it comes wanagement online, and it remains to be seen whether the accounts staff are retrainableto the necessary level of competence. Use o f information 40% (2/5) Computers are universally used inthe preparation o f budgeting iechnology documentation and financial reporting. There is wide use o f IT is little used infinancial spreadsheets andword processing. There appears to be little use o f TT is used in budgetaiy management. Thisshould ITinfinancial managementsystems, however. This situation is in mdfinancial changewith introduction of the process o f change, as Jinja is part o f the I F M S pilot. Inthe few management the IFMS months prior to the benchmarking the LGhad been transferring its financial information onto the IFMS, andultimately all aspects o f financial management will be automated. Staff andmanagerial A relatively open Information appears to be readily shared. The financial culture managerial cultureprevails management staff reportedly is receptive to new ideas, andthe within thefinance and stationing o f accounts assistants inthe sector departments means planning departments sector managers have ready access to financial information. A lack o f coordination inthe budget desk undermine this positive environment. The managerial environments o f different departments varied widely, but the health and water departments appeared to be relatively progressive. Political culture and Thereis afairly The relationship between the administration and political heads and behavior constructive relationship administrative staff appeared to be constructive, although some betweenpoliticians and administrative staff confessed to being skeptical about the motives administrative staff o f politicians. Likelihood of The fmancial management environment is likely to improve, given improvements in the progressivemanagement environment andthe implementation crosscuttingissues o f initiatives such as IFMS and LOGICS. Specific skills bottlenecks (such as that inIT) will need to be addressed. - 90 - Recommendationsfor Improvement 0 Ifnew initiativesare tobe successful, theweak ITcapacity ofaccounts staffmustbe improved through the provision oftraining 0 General skills are adequate, but the implementation of new systems will require capacity- building inareas such as cashflow managementand commitment control. -91- ANNEX 4. KABALE DISTRICTINTEGRATED 2004 FIDUCIARY ASSESSMENT Background Kabale District is inthe southwest of Uganda, bordering Rwanda. The district covers an area of 1,827 square kilometers, most o fwhich is hilly, arable land. Itcomprises 22 subcounties with apopulationof about 5 10,000 people. The economy i s mainly agriculture-based, with main crops including potatoes, sweet potatoes, sorghum', beans, wheat ,and bananas. Lake Bunyonyi affords also some commercial fishing and tourism opportunities. Kabale was chosen for the benchmarking exercise as a representative o f westem Uganda and because it has performed well in recent LGDP assessments. Kabale was the best-performing district in the LGIFA, scoring 135out of 176, or 77 percent. Its primary outturns, at 56 percent, were poor as aresult o fcontinued poor performance in local revenue collection. Primary Outturns Primary outturns are the principal data o f the Public Financial Management system, recorded interms of actual expenditures (inaggregate and composition), central and local revenues, and arrears, assessed by comparison to the budget. They provide a measure o f the realism o f the budget and the extent to which the budget is an authoritative tool o f the LG's policy. Ultimately, however, the success o f the budget must be judged in terms of the intended results o f the expenditure and therefore of the adherence to workplans. This i s difficult to measurequantitatively, but the primary outturns establish a valuable overall impression Table 4A. Kabale District BudgetOutturns2002/03 Budget Outturn YOPerf Totalexpenditureallocation2002103 (Ush) 19,436,673,391 .18,269,264,765 94 Totalrevenue2002103 (Ush) 18,660,735,075 18,305,967,733 98 Local revenue2002103 (USh) 600,945,400 409,946,485 68 Local revenue (percentage o f total revenue) 3.2 2.2 Average departmentexpendituredeviationfrom budget (percent) na 10.4 Arrears (percentage o ftotal expenditure) 3.9 4.1 OverallRating: 56percent (5 out of 9) Overall, Kabale demonstrates good control o f its aggregate revenues and expenditures. The district has performed well in terms o f expenditure, achieving 96 percent and 94 percent expenditure against the budget in the past two years. Most sectors receive and spend close to their full budget allocation through the fiscal year and are able to implementactivities as planned. Local revenues are a problem. Collections have declined over the past three years, and revenue projections have been consistently overoptimistic. Arrears consist only o f pension and salary items, and amount to 4 percent o f budget for 2002103. - 92 - Table 4B. KabalaeDistrict: BenchmarkingResults Primary Outturns - ~~ Performance Area and Ratingand Remarks Benchmark Summary Statement Primary budget outturns 61% (619 The overall performance o fthe district interms o frealism and Budget estimates are The budget adequately implementation of the budget was positive, andhas improved inthe realistic and implemented rejlects resources past three years, both interms o f general outturn and for local asplanned available, with the revenue collection. exception of local revenues, projections for Most departments spend within and close to their resource which are consistently envelope, with an average deviation o f 10percent in2002/03. The overoptimistic only sector with significant under spending (29percent) was production andmarketing. Local revenue collection has deteriorated inabsolute terms over the past three years. Collection performance has improved with the use o fmore realistic projections, but underperformed by 32 percent in 2002/03. In 2002/03 local revenue accounted for 2.2 percent o f total revenues. Arrears are small, at 4 percent o f total budget. This is due to the good commitment control o fthe district. Achievement o f results Mostplanned activities are The good overall performance on budget outtums reflects positively implemented in line with the implementation ofplanned activities and projects. Funds Policy objectives are objectives received from the center are immediately transferred to realized andplans implementing units andare spent accordingly to workplans. There implemented as intended are problems with the local component o f revenue, however, which finances many o f the routine operations that are essential for the effective functioning o f district administration and the monitoring o f other programs. Political interference insome cases undermines the longer-term consistency o f plans andbudgets, as politicians tend to periodically introduce new priorities inresponse to political pressures, instead o f rolling over delayed activities to the following fiscal year. Assessment of the Budget Cycle The second area of the benchmarking exercise provides an assessment of the performance o f the key systems, processes, and offices within the L G budget cycle. These are planning and budgeting, budget execution, accounting and reporting, external scrutiny, and accountability. The information for the benchmarking exercise was gathered through a combination o f stakeholder interviews and review of documentation. A Medium-Term Planningand BudgetFormulation Overall Rating: 70percent (26 out of 37) Planning and budgeting are functioning well, with events and responsibilities clearly defined and coordinated. The quality o f the documents produced i s good, with the exception o f the budget framework paper, which needs to be improved. All stakeholders are involved in the budget formulation process, including NGOs and LLGs.Councillors are active in discussing budget priorities, mostly through sectoral committees. - 93 - Table 4C. KabalaeDistrict: BenchmarkingResults-MTEF Planningand Budget Formulation PerformanceArea an'd Ratingand Remarks Benchmark Summary Statement Planningandbudget 80% (8110) The districtpreparedabudget call for the first time inearly formulationprocess December2003 for formulationof the 2004/05 budget, and seems Theprocessfor .o have a coherentprocessinplace for planningandbudgeting. A credible, coherent formulatingplans and rhereis activeinvolvement and dialogue at the technicaland planning andbudget budgets is clear and jolitical levelsthat takes into account priorities identifiedat lower process is inplace, with coherent, and includes the levels of government. clear definition ofevents participation of andresponsibilitiesand stakeholders 4 budgetconference is heldearly inthe budgetprocess, and a the meaningful yearly workshop with NGOs also is heldto incorporatetheir plans participationof inthe DDP.Issuesraisedattheses meetingsare discussedwithin politicians,civil society, thesectoralcommitteesandthen are incorporatedinthe budget, andcivil servants, within the limits ofthe IPFsgivenby central government. ensuringthat local needs andpriorities are The 2003/04 planandbudgetwere approvedwith considerable represented ielay (end of July), allegedly becausethe council felt that it needed to revisethese documents. The documents hadbeenpreparedon time by the technical staff. Sectoralcommitteesandthe TPC (which at times includesmembers o f the DEC) are heavily involved in discussing and decidingon budgetpriorities and approvingworkplans. Budgetpriorities clearly are taken from the DDP, but linkageswith the BFP are not easy to identifyandunderstand.Some difficulties arise due to conflicts inthe productiontimelines of the various documents. Local government 63% (518) The DDP is well designed, with a comprehensiveanalytical section, developmentplans povertyanalysis, and sectoralprofiles. TheDDP is a A realistic, achievable comprehensivedocument, The sectoralplans areweaker: definition of outputs i s not very district developmentplan based on sound analysis clear, and the plansgenerally are limited to listings of general is in place, with clear and incorporating local objectives.There are few linkagesto the projects identified in objectivesand strategies concerns. Someproject Volume 2. Volume 2, inturn, does not provide aclear outlineof that reflect national and proJiles lack clarity projects identified by sector, despitethe useful summary table of local need andpriorities priority projectsto be includedinthe yearly budget. Referencewas madeto participationfatigue at the local level, wheri communitiesare askedto go throughthe planningprocess and identify priorities eachyear butwithout muchvisible return.The facilitation ofthe planningprocess at the local level also is becomingmore difficult given the cuts inLGDP funding ofthis process. Some parishdevelopment committees as aresult have become dormant. LGbudget framework 43% (3/7) The purpose and format of the BFP havenot beenproperly Paper internalized. The district hastried to comply with the requirements TheBFP spells out the andsuggested formats, but the result is adocumentthat does not A BFP is in place that medium-term revenue and provide clear guidance onresourceprojectionsnor on future includes realistic medium- expenditure allocations priorities.The overall impression is that the BFP is seen as a term revenueprojections but is somewhat requirementto comply with, andnot as aQcument usefulto guide and sector budget incoherent in its policy formulation andresourceallocation. strategies,and clearly descriptions identiJiedobjectivesand The linkage betweenthe BFP, DDP, andbudget i s notreadily outputs identifiable, andthe basis for projectionsis unclear.The sectionon past sectorperformance appearsuseful, but its presentationis not clear. Some improvementwas notedinthe BFP for 2004/05, but it remainsto be seen ifit will beused as abasis for budget formulation. Annual workplans and 83%(10/12) Budget estimates are clear and comprehensive,and are supportedby budget estimates a separate document detailing sectoral annualworkplans, activities Clear and comprehensive andprojects, andtargets. Balanced, comprehensive budget estimatesand - 94 - PerformanceArea and Rating and Remarks Benchmark Summary Statement mnual budget estimates annual workplans are in Some backgroundinformation andbudget assumptions are included zre clearly presented and place inthe budget document.A shortcoming isthatworkplans are rupported byfitlly structuredaround existingprogramsandrevenue sources, but sonsistent annual linkages,synergies, andthe supportingrole of routine activities workplans that set out fundedby localrevenue are not identified. activities and outputsfor thefnancial year Likelihood of Improvements are likely to Some improvementshavebeen made inthe lastthree years, in improvementsinplanning continue terms of compliancewith newpolicies andlocal initiatives.For andbudgeting example, submissions&om sucountiesare submitteddirectlyto the planningunit insteadof beingpresentedby the subcountychief, thus avoidingthe distortionofpriorities that haspreviously occurred. FullimplementationofFDS guidelineswould bringmore improvements,especially inthe BFP. There is aneed for capacity- building,retooling, and for the introductionof acommon informationmanagementsystem to improvecoordination (LOGICS couldpossibly cater for this). Ingeneral, the district is well placed to further improveits performance. Recommendationsfor Improvement 0 The timings o f the different planning and budgeting tools are not coherent and create confusion. This is true inparticular for the BFP, which i s written inthe middleof the financial year and as a result fails to either adequately review past performance or project future resources. 0 The three-year development plan should be updated once every three or five years, to define medium-term priorities and describe changes in the situational analysis. The current annual process o fbottom-up consultation can createconfusion and frustration. 0 Local coordination between sectors needs to be improved. Sectors such as health and water s t i l l plan and report strictly on a sectoral/vertical basis, and do not provide the informationthat i s neededby the planning unit at the district level. 0 An integrated information management system should be introducedto coordinate activities at the district level, and to make information available in a comprehensive and user-friendly format. (The introduction o fLoGICS could be a possible way forward.) 0 The format o f Volume 2 of the DDP needs to be changed. Projects need to be clearly subdivided by sector and sector summary tables should be provided. 0 More resources need to be committed to facilitation o f the planning process at the local level, to ensuremeaningful inputs indistrict development plansand to avoid participation fatigue. - 9 5 - B Budget Execution Overall Rating: 82percent (62 out of 76) Most areas related to budget execution are functioning properly, and the district's financial management system generally is better than that of many other districts. There is room for improvements in the areas o f local revenue collection, procurement, and the management o f budget deviations. Table 4D. Kabalae District: Benchmarking Results -Budget Execution Performance Area and Rating and Remarks Benchmark Summary Statement Local revenue collection 90% (9110) The district has identified some potential additional revenue sources, such as a prudentdevelopment fund (1percent withholding The LG has a credible The district has a strategy charge on all payments made to suppliers, which potentially could strategyfor local revenue to improve revenue generate USh70 million annually), and a charge on billboards enhancement, backed up collection and has effective erected on district-owned land. by efective systemsfor systems to ensure collecting and accounting accountability Every Saturday there i s a two-hour radio program that addressesthe for local revenues political, social, and economic situation inthe district. Tax issues are discussed at lengthon this program; other radio programs also seek to educate the population on the payment o f taxes. Up-to-date Gtax and property tax registers are maintained at the subcounty level and the CFO's office. Some problems reportedly are experienced at the subcounty level, where village chiefs do not always cooperate inproviding the names o f new taxpayers. Some revenue also is spent at source before banking, counter to financial accounting regulations. The district administration provides subcounties with assistance and supervision intax collection; in particular, collection registers have been supplied to village chairman for the registration o f all taxpayers at the village level. Revenue ledgers are correctly maintained by the officer incharge o f local revenue. Subcounty chiefs submit statements each month, and these are reconciled with records at the district. Internal audit ensures this function. Details o f tax revenues collected by subcounties and the district generally are made publicly available. Procurement process 76% (16/21) Procurement inKabale is carried out inaccordance with laws and regulations. The DTB is in place, with appropriate composition and A transparent, The district procurement approved by the council. District technical officers appear to accountable, and eflcient processes appear to be understand the laws and regulations and try to maintain compliance. procurement process is in transparent. However, dace cases ofpolitical There i s no procurement plan inplace, but a file is kept o f interference have been procurement requests from the sector departments andLLGs. The reported district currently is working on the 2004/2005 procurementplan. Market surveys to update prices for goods andservices are carried out twice a year by the district commercial officer. The district trains local suppliers and contractors inbid preparation once a year, using local funds. This training is done before advertisement for the prequalification o f service providers. The DTB stores bids in a safe before opening. The opening of bids is done publicly. The technical evaluation committee carries out an evaluation andprepares a bid evaluation report. Innearly all cases the DTB considers the TEC report, and will also accept comments from the IGGand contractors. Security is sometimes required before advance payments are made. For small contractors payment may be made against performance andcertificates o fworks. The DTB does not have a system o fmonitoring the quantity, - 96 - PerformanceArea and Ratingand Remarks Benchmark Summary Statement quality, or timeliness o f contracts. Contracts inthe district lonetheless generally are completed intime. The DTBhas not been iandling variations and disputes with contractors, referring these insteadto the courts. At the time o f the benchmarking two cases were incourt. Political interference inthe procurement process apparently is increasing, and is likely to get worse. Payroll and personnel 100% (9/9) The district service commission functions well, butlacks management appropriate funding. PAF funds for the DSC have been steadily Staffrecruitment and declining, meaning that it has not been able to fulfill its obligations. TheLG recruits and management, andpayoll manages staff effectively, ficnctionsare working The recruitment process follows adequate and open procedures. and eflciently manages effectively Disciplinary action is taken as appropriate, with about 30 cases thepqroll examined each year. There have been numerous dismissals for embezzlement o f funds; these mostly have involved school headteachers, but one district engineer also hasbeen dismissed. Establishment registers are maintained and were current for all established staff. Personnel lists are regularly reconciled with payroll. Payment o f salaries is done on time, managedthrough a dedicated bank account. About 80 percent o f district staff are paid via direct transfer; all others were expected also to be regularized before the end o fthe fiscal year. The district does not give salary advances to employees, as a new loan facility has been introduced by a commercial bankfor this purpose. A register o f salary arrears is kept. Cashflow management, 75% (15/20) A system resembling a cashflow budget exists, setting out the commitment, and expected timing o f inflows from different revenue sources and expenditure control The district is introducing department expenditure ceilings over a two-month period. These a cashflow management statements are endorsed by the executive. Cash inflows and outflows system. Commitment are managed such that the controls appear to befair Transfers are made immediately funds are received. Cash LG is able to meet current projections anddisbursement schedules for spending departments paymentspromptly and are made quarterly. according toJinancial commitments, maintaining A commitment control system is inplace to ensurethat cash adequate liquidity and not outflow does not exceed cash inflows. Other documentation is accumulating arrears or maintained as appropriate, and requisition notes are used to initiate debts the purchase o f goods and services. Vote books are maintained and are regularly updated, andreflect both commitments and expenditures. These are usually recorded monthly withthe general ledger. Appropriate processes are inplace for approving commitments against cashflow forecasts alongside outstanding commitments. Proceduresto ensure delivery before payment are adequate, with the intemal audit department ensuring this function is performed. An appropriate process is inplace to ensure payments are approved at the specified level o f authority. All payments are made by check, which must be signed by three senior officers o f the department from which the check originates. All signatories are approved by the executive committee. Check registers anddispatch books are maintained. The district has pension arrears o f about USh550million, salary arrears o f USh123 million, and arrears due to medical workers and for lunch allowances ofUSh79 million. The district does not have any other types o fdomestic arrears. Overdrafts are discouraged, and there are no significant exposures - 97 - Performance Area and Ratingand Remarks Benchmark Summary Statement or loansat local banks.Plansto clear the arrears are set out inthe budget estimates and appearcredible. Small bills such as for electricity andwater typically are paidwithin three days, but larger bills are paiddependingon cashflow, and backlogsmay accumulateover as muchas three months. A creditor ledger is notmaintained, as paymentsto suppliers generallyare notwithheld. Intemalaudit 83%(10/12) The internalaudit department lacks professionally qualifiedstaff, but has committedexistingstaff to arangeof professionalcourses. Internalaudit efectively The internaLaudit The department is underfundedas localrevenue hasdeclined,and monitors the internal departmentappears to be has no computersand lacks other facilities. financial controls ofthe competent.Lack of LG operationalfunds limits its Intemalaudit preparesquarterly reportsfor council, makingcopies capacity to effectively available also to the Auditor Generaland IGG. The reports are monitorjnancial discussedby the LGPAC and areportmadeto the council. managementin the district Recommendationsmade on the reportusually are actedupon. andLLGs, however An annualworkplan is inplace, and an internalauditmanualguides the work of the department.The departmentis responsiblefor reviewingsystems of compliance andprocurement (for example, assessingwhether or not contract awards have followed correct procedures) and following uproutinepurchasesby pre-auditing source documents such as LPOs, requisitionnotes, anddelivery notes. Revenue collectionvisits to subcountiesare usually madeto track revenues collectedand compare these with district returns.These visitshaveuncoveredsome instances of the inappropriateuse of funds at source. The departmentalso collates bookkeepinginformationon monthly releasesandtransfers, andundertakesthe monthlypre-audit of salaries. Deviations kom 75% (3/4) The district has a clear procedure for preparingand approving workplans andbudgets applicationsfor virements, reallocations, and supplementary Goodproceduresare in estimates. Vote books are amendedaccordingly. Some virements, Effectiveprocedures are dacefor the approvalof reallocations, and supplementariesare notproperlyexplainedinthe inplacefor the deviations monthly financial statements, however. applicationfor and approvalof deviations from workplans and budgets, enabling managerialjlexibili&and managerialoversight Likelihood that budget Improvementsare likely to The systems inplace for budgetexecution are good and are executionwill improve zontinue, but requiremore improving, as canbe seen inthe introductionof acashflow voliticalsupport management system andthe identification of possiblenewrevenue sources. Futureimprovementswill depend partly on the amount ofpolitical interferenceinrevenuecollection andthe procurementprocess, and partly on the capacity of district staff to implementnew FDS guidelines. Recommendationsfor Improvement The procedures for appointingDTB members should be reviewed, to eliminate undue political influence inthe procurementprocess, The cashflow management system could be improved by applying a different formula to the distribution of funds to sector departments. The new formula should be able to accommodate - 98 - different needs in the implementation of planned activities, such as setting up a contingency find, or defining a priority-settingprocess. C Accounting and Reporting Overall Rating: 89percent (24 out of 27) The district is performing well inthis area, satisfying most o f the criteria for an effective accounting and reporting system.Coordinationand informationsharing at the district level could be improved and monitoring systems made more effective. Table 4E. KabalaeDistrict: Benchmarking Results Accounting and Reporting - Rating and Remarks Summary Statement 91%(10/11) Cashbooks,joumals, the abstracts subsidiary, andledgers are well keeping maintainedand current. The district does notmaintainan imprest The district maintains its system. A clear andfinctioning books ofaccounts well and system is in place to keeps them current Accordingto the 2002/03 final accounts, the district maintains44 ensure that allfinancial bank accounts. These are all maintained inaccordancewith tramactions and guidelines, andmanyofthem are for donor funds. Cashbooks are balances are recorded kept for all accounts andbankreconciliationis done regularly. and appropriately reported in thefinancial Mostofthe district's departments havetheir own stores. Stores statements managementis generally fair, andproper records(ledgers, bin cards) are keptup to date. Stock counts andboards of survey are carriedout every year. The tender boardusuallyauthorizesthe sale of written-off stores belonging to the council. 100%(9/9) Financialandperformancereportinggenerally is good. performancereporting Thedistrict has a good Implementingunits andLLGsreportmonthly on funds spentto Regular reporting on internal reporting system councilthroughthe CAO. The CAO usuallypresents monthly financial and financialreportsto the executive committee. performance information provides managers with The district usually submits financial reportsto central government appropriate, timely ontime. information on budget and woriplan implementation In-yearmonitoring, 80% (4/5) Mostsectors submit quarterly performancereportsto the line analysis, andfollow-up ministries, copied to the CAO andplanner.Quarterlyreportsare Monitoring reports are discussed at TPC meetings,with follow-up actions takenas Decision-makers submitted and discussed by appropriate(for example, inrelationto community contributions regularly monitor sectoral committees and the for projectsor problems with contractors). Sectoral committeesare progress and takefollow- TPC. There is some active indiscussing issues arisingfrom performancereviews andin up actions that improve evidence thatfollow-up proposing corrective actions. budget and workplan actions are taken implementation Inthe educationsector, schoolmanagement committeesare active inmonitoring schoolbudgetsandactivities.Inthe agriculture sector, some projects use farmer forums to define priorities and sometimes to monitoractivities. However, there is no proper monitoring system inplace, as staff expect allowances for this work andthese are not always available. Staffmotivation as a result is low. Information on overall sector performanceusuallyis notmade availablepublicly, butthe planningunit is preparinga consolidated performancereportfor distribution to the localmedia. 50% (1/2) Kabalesubmitted its 2002/03 final accountsto the Auditor General performancereports inSeptember 2003. Final accounts are Comprehensivefinal regularly prepared and A review of sector performanceis includedinthe BFP,which is accounts and report on submitted on time. drafted about six monthsafter the end o fthe financial year. Perj%ormancereports are Information on annualperformanceas aresult is notreadily - 99 - 1 PerformanceArea and 1Rating and ] Remarks Benchmark Summary Statement against workplans are usually included in theBFP available. prepred soon after the for thefollowing year endofeach flscal year Likelihood that rfmore resourcesare The planningunit seems capable of improvingon the few issues accountingandreporting allocated to information thatrequireattention inthis area, suchas the need for acommon will improve systems, improvementsare reportingsystemandthe compilationand distributionof dataon likely to continue sector performance. Recommendationsfor Improvement The district should maintain an imprest system for small purchases o f goods and services. 0 Some areas, such as universal primary education and agriculture, need greater funding if they are to effectively carry out their monitoring activities. A detailed performance report for all sectors should be compiled at the end of the fiscal year, for submission to and discussion by council. The planning unit should devise a simple common reporting system by which the sectors can provide quarterly performance information. D External Accountability, Audit, and Scrutiny OverallRating: 71percent (12 out of 17) Civil society inthe district is active and well-informed, and keeps district officials under scrutiny. The council is committed to the wide dissemination of information about programs and about the district's financial position. Sectoral committees are active in reviewing sector performance. Audit reports are regularly discussedby the LGPAC, butthese are not discussedby council. Table 4F. Kabale District: Benchmarking Results -External Accountability, Audit and Scrutiny PerformanceArea and Rating and Remarks Benchmark Summary Statement Transparency and 80% (415) The council does not haveaformal information and accountability in communicationstrategy inplace, but its efforts at disseminating financial management The district is committed to informationare notable. A quarterlynewsletteris publishedjointly disseminating information with three neighboringdistricts, anddistributedinthe region. Wide Key budgetary injormatioli about itsflnances use of radioprograms i s made to disseminateinformationon ispublished, is accessible, programs and activities, to discuss comments and complaints, and and is user-Piendly to debate other issues relevant to the district's development, Ingeneral, both at district and at the lower levels people seemto be well informedand active indemandingaccountability from the LG institutions.Information on district and subcounty finances is made available through noticeboards,predominantly inschools, ina fairly understandablemanner. Localgovernment PAC 100%(616) The LGPAC is regularly constituted, meets on a quarterlybasis, scrutinyof audit reports andproduceshigh-quality reports from both internaland external The LGPACjunctions well audit findings, highlighting issues that need attention and Effective external andproduces high-quality recommendingfollow-up actions to be taken. scrutiny ofthe LG reports accounts The current PAC's mandate hasexpired, and anew committee needs to be appointed. -100 - PerformanceArea and Ratingand Remarks Benchmark Summary Statement Council discussion and 0% (0/3) Council does not discuss PAC reports. There is no clear reason for follow-up o fLGPAC and this, other than that they are not considered a high priority. The LGAC reports Council does not discuss clerk interestingly has tried but failed to add discussion o fthe LGPAC reports reports to the council agenda. Council discussesand follows through the Where appropriate, follow-up action has been taken by the CAO. actions recommendedby This has been done without council endorsement of the PAC the LGPAC and LGAC recommendations. Council discussion o f 67% (2/3) Sectoral committees are active indiscussing performance reports, annual sector and agree on follow-up actions to rectify problems. Some performance There is ongoingdiscussion discussion o fperformance is held at the council level, butthis is within council on sector done inless detail. Council discusses annual performance vectorperformance and Itis difficult, however, to findevidence o f follow-up actions ggreesfollow-up actions having been taken. Likelihood that Continued openness and There seems to be an open approach to accountability inthe monitoring and transparency should district, both on the part o f officials and o f councillors, with LG iccountability will producefurther performance discussed through wide use o fthe local media and improve improvements in public hearings. Civil society seems very active inthis respect, accountability demanding solutions to perceived problems and improvements in efficiency. The situation seems likely to improve further as aresult. Two suggestions for improvements came from the clerk to council. These were that the qualifications required o f councilors be increased, andthat the council be given more flexibility through an increase inthe ceiling of 20 percent o flocal revenues imposed on council budgets. Interaction with the Auditor General and LGAC The Office of the Auditor General has regional representation in Kabale District, which simplifies interaction by making it a routine daily matter. The district responds quickly to external audit queries and recommendations, and AG reports are regularly discussed by the LGPAC. Final accounts for 2002103 have beenaudited. Recommendationsfor Improvement 0 Kabale could adopt a more comprehensive information and communication strategy to further improve on its current practices and ensure a high level o f awareness and responsiveness of communities and civil society to L G programs and activities. Council should discuss LGPAC reports and agree on appropriate follow-up actions. 0 The council review o f past performance could be made more coherent, to ensure proper follow-up. FinancialManagementCapacity and Environment This category attempts to captures the financial management capacity o f staff inthe L G and the overall environment for effective financial management. OverallRating: 55percent (6 out of 11) The department o f finance and planning has adequatecapacity to deliver sound financial management. Further improvements can be expected when staff complete ongoing training. Vacant positions also need to be filled, and the introduction of accounting software would further assist the district's progress in this area. The general climate in Kabale seems conducive to proper management and political behavior, although there are some reports o f political influence having been exercised. -101 - Table 4G. Kabalae District: BenchmarkingResults -FinancialManagement Capacity and Environment Performance Area and Rating and Remarks I Benchmark Summary Statement Quality o f budgeting and 67% (4/6) fiere were staff vacancies at the district finance and planning financial management iepartment. These need to be filled. Existing staff members have skills The capacityfor sound $e required qualifications, butthe department lacks a qualified financial management is 3ccountant. Many o f the finance department staff are undertaking High-quality staff carry adequate, although some professional accountancy training. out budgetingand improvements could be financial management made The district does not have a staff appraisal system, and there is confusion about the use o f R O M appraisal guidelines. Under LGDP I1the district is training accounts staff inbudgeting and accounting. Use of information 40% (2/5) The use o f computers inthe finance department is limitedto technology producing budget estimates and accountability reports. Computers IT use is limited, despite the are not used for the approval o f payments, accounting, nor auditing. IT is used in budgetary existence of basic capacity andjinancial Many o fthe accounts staffhavehadtraining inthe use o f management computers. Staff andmanagerial The district seems to be well managed, with good general culture coordination among the sectors and strong leadership from the CAO and the CFO. The relationship between the technical staff and councillors is based on a good understanding o f their respective roles and responsibilities, except ina few areas where political interference limits the capacity o fmanagers to perform. A positive managerial culture appearsto be inplace. The CFO has delegated much responsibility to his staff, whom he holds accountable for results. An incentive system is inplace that sanctions poor performance or lack o f compliance with guidelines. Strong disciplinary action has been taken against officials found guilty o fembezzlement. Numerous dismissals havebeenmade. Political culture and Some cases o f political interference in financial management were behavior cited. Some political pressure apparently exists to include projects inthe DDP and budget, overrulingpriorities made accordingto situational analysis. Political influence is also prevalent inthe procurement process, where insome cases technical recommendations have been overlooked and contracts awarded without proper scrutiny. One respondent suggested that divisions exist within the DTB, with some members being loyal to politicians andothers respectingruler andprocedures. Likelihood o f Capacity is likely to The trainingo f officials inprofessional accounting offers a key improvements in continue to improve, opportunity for improvement, as does the future introduction o fthe financial management provided the managerial IFMS, which should enhance the district's capacity for effective capacity andenvironment andpolitical culture financial management. remains stable The management culture and working environment also are conducive to further improvements. The design and implementation o fnew regulations for procurement at the LG level inparticular could limitthe possibilities for political influence in this area. Recommendations for Improvement District staff need to be trained inthe FDS guidelines and use o fthe new chart o faccounts. The IFMS should be introduced as soon as is feasible, to enhance the use o f computerized systems inbudgeting and accounting. -102 - ANNEX 5. MASAKA MUNICIPALITY INTEGRATED FIDUCIARY ASSESSMENT 2004 Background Masaka Municipality i s one of 13 municipalities in Uganda, and is located approximately 130 kilometers southwest o f Kampala. It occupies an area of approximately 30 square kilometres and supports a population o f more than 61,300 people. Masaka Municipal Council i s divided into three divisions, six wards, and 53 cells. Masaka was selected to meet the study's requirement for a sample municipality. Its overall rating was 115 out of 176, and its average benchmark score was 59 percent, making it the third-best performer of the sample. Primary Outturns Primary outturns are the principal data o f the Public Financial Management system, recorded interms of actual expenditures (inaggregateand composition), central and local revenues, and arrears, assessed by comparison to the budget. They provide a measure o f the realism o f the budget and the extent to which the budget i s an authoritative tool of the LG's policy. Ultimately, however, the success of the budget must be judged in terms o f the intended results of the expenditure and therefore of the adherence to workplans. This i s difficult to measurequantitatively, but the primary outturns establisha valuable overall impression. Table 5A. Masaka Municipality Budgetand 0utturns 2002/03 Budget Outturn YOPerf Totalexpenditureallocation 2002/03(Ush) 2,215,690,429 1,483,060,584 67 Totalrevenue 2002103 (USh) 2,156,409,429 1,792,689,266 83 Local revenue 2002103 (USh) 512,592,000 451,981,394 Local revenue (percentageo f total revenue) 24 25 -88 Averagedepartment expendituredeviationfrom budget (percent) 36 Arrears (percentage oftotal expenditure) 8 13 - Overall Rating: 33percent (3 out of 9) Masaka's budget was unrealistic and unbalanced. The municipality failed either to collect or to spend resourcesas budgeted. There are substantial negative variances between budgeted and actual revenues and expenditures, with average sector deviations recorded at 17 percent for revenue and 36 percent for expenditure in 2002/03. There also was significant accumulation o f arrears. In each of the last two years Masaka has increased by 20 percent the absolute local revenue collected, but overall it is unable to implement its plans effectively, even those funded by central grants. -103 - Table 5B. Masaka Municipality: BenchmarkingResults-Primary Outturns Performance Area Actual Rating and Comments and Benchmark Summary Statement Primary budget 56% (519) Ineach of fiscal 2000/01,2001/02, and2002/03 Masakaunderspent outturns compared to budget by more than 30 percent. This is mainly because There are substantial o f overestimated localrevenues. 33 percent, 73 percent, and 88 8.20 Budget variations between budget percent respectively of the estimated local revenue was collected in estimates are realistic and outturnsfor revenues these years; this at least indicates a relative improvement inbudgeting and implemented as and expenditures, although and the realization o flocal revenue. Localrevenue as a percentage o f planned, with buoyant local revenuesare total revenues is about 25 percent, a consequence o f the municipality local revenues improving having higher revenue potential than manyLGs.Central government transfers nonetheless appear low relative to the expenditure needs o f the LG. Outtum deviations are greatest in sectors that do not benefit fiom central government transfers. For example, in2002/03 the deviation for gender and community services was 94 percent. Achievement o f results Masaka demonstrates The municipal council workplans reflect national sector priorities as compliance with national outlined inthe PEAP, and are implemented generally as planned. This Policy objectives are guidelines, but itsplans is mainly because the conditions attached to accessing central realized andplans tend to be only partially government transfers stipulate adherence to the PEAP priorities, implemented as implemented. Thereare which inturn implies that compliance is centrally driven rather than intended signijkant negative locally initiated. This assertion could be further underscoredby the variancesfor plans that are fact that almost no local revenues are allocatedto PEAP-prioritized dependent on local activities. The sector underspending against the budget means that revenues and central workplans cannot be implemented infull, however. transfers Assessmentof the Budget Cycle The second area o f the benchmarking exercise provides an assessment o f the performance o f the key systems, processes, and offices within the LG budget cycle. These are planning and budgeting, budget execution, accounting and reporting, external scrutiny, and accountability. The information for the benchmarking exercise was gathered through a combination o f stakeholder interviews and review o f documentation. A Medium-Term Planningand BudgetFormulation Overall Rating: 54percent (20 out of 37) Development planning, the BFP, and the budget process are poorly coordinated. The DDP is good, but it is not linkedto the BFP and budget. There are imbalances inprojected revenues and expenditure in the BFP and the budget: the budget firtherrnore is of poor quality, includes little detail, and provides little explanation o f allocations. Workplans are in place, but largely are prepared for central government compliance. -104 - Table 5C. Masaka Municipality: Benchmarking Results - MTEFPlanning and Budget Formulation ActualRating and Comments ~ Benchmark Summary Statement 40% (4/10) The DDP is supposed to inform the BFP andthe budget, but in formulation process Masaka the BFF'for 2003/04 was prepared andthe annualestimates Theplanning and o f revenue andexpenditure approved before the DDPwas 8.21 A credible, budgetingprocess starts at completed. The budgetwas approved on 5 September 2003 coherent planning and the lower levels and (statutory deadline i s 15 June) andthe DDP on 31 October. budget process is in involves elected leaders place, with clear and civil society The annual estimates do not detail specific activities to be dejnition of events and organizations. However, implemented but rather show broad budget lines; this raises the responsibilities and the DDPformulation issues question as to whether the activities inthe budget were derived from meaningfid participation are scarce in the TPC the DDP or BFF'.There is no budget call. of politicians, civil minutes,partly because of society, and civil servants, the lack ofa planning unit The divisions (LLGs) submit their priorities to the municipal ensuring that local needs in the municipal council. council for consideration, but the TPC minutes do not explicitly and priorities are Separate units handle the reveal active involvement o fthe TPC inthe DDP formulation. A represented planning and budgeting JICA-seconded volunteer and a technical facilitator, employed by processes, and there is the council, spearhead formulation o fthe DDP.This indicates that little evidence of development planning is not institutionally housed within municipal coordination council structures. Inaddition, despite the fact that NGOsoperating inthe council aredescribed inthe DDP, the NGO-planned activities are incorporated neither inthe DDPnor inthe BFP. The minutes o fthe executive and o f the council and standing committees nonetheless indicate the involvement o f elected leaders inthe selection ofpriorities to be included inthe DDP andbudget. Elected leaders inparticular actively participate inthe budget conferences, which typically are convened with the participation o f a wide range o f stakeholders, including technical staff, elected leaders, members o f civil society organizations, andthe private sector. 88% (7/8) The developmentplanfor 2003104 was rolled over, as evidenced by development plans changes inthe situation analysis, review o fprevious performance, The DDP is andthe updatingo f strategies andactivities. There is anelaborate A realistic, achievable comprehensive and SWOT andpoverty analysis inthe development plan, includingper district developmentplan strategies are based on capita service coverage, and the prioritized strategies are linked to is in place, with clear sound situation and the situation analysis through a logical vertical linkage to objectives objectives and strategies, ooverty analysis andgoals. The plan also includes a number o f priorities from the rejecting national and divisions and indications o f activities to be implementedby each local needs andpriorities sector. However, the strategies inthe planare not fully costed and only those activities to be financed from the LGDPand PAF are linked to resource availability. The quality o fthe DDP is good. This is partlydue to the technical inputof the JICA volunteer and the technical facilitator. LGbudget framework 43% (3/7) The BFP for 2003/04-2005/06 is inplace, andcontains projections o frevenues and expenditures for the mediumterm. However, these The BFP is a useful projections are neither comprehensive nor balanced. For example, A BFP is in place that has mmmary document, but the estimated revenue for 2002/03 was USh2,156 million and realistic medium-term does not seem to be used estimated expenditure was USh2,216 million, representingan revenueprojections and 6 r medium-term planning, imbalance o f almost USh60 million. The BFP does not clearly sector budget strategies, 7s evidenced in the reflect strategies and investments inthe DDP and it lacks clearly and clearly identified imbalances in theJgures defined objectives and output targets. objectives and outputs wedand the absence of L 'ustificationfor The medium-term allocations between sectors are clearly indicated zzijustments androlled over, but changes inthe sector allocations are not explicitly justified. The BFP includes projections o f operationallrecurrent costs o f some o fthe capital investments. Annual workplans and 50% (6/12) Sector workplans exist inaccordance with guidelines, primarily budget estimates because they are a precondition for the release o f central Budget estimates seem govemment transfers. Workplans accordingly are presented per Balanced, comprehensive, :omprehensive, but the revenue source: for example, in the education sector the SFG annual budget estimates xnderlying assumptions workplan under the PAF does not include education activities to be are clearly presented, ire not presented. The financed from the LGDP. supported b y j i l y Norkplans are inplace but consistent annual Tot consolidated, being The budget estimates for the 2002/03 budget do not balance, and t h e -105 - PerformanceArea and Actual Ratingand Comments Benchmark Summary Statement workplans that set out prepared according to assumptions underlyingthe budgetfigures are not provided inthe activities and outputsfor revenue source budget document. The estimates are highly aggregatedanddo not thejnancial year provide informationby lineitem. The intendedpurposeof expenditures androles and responsibilities ofdifferent departments are notmade clear. Likelihood of The developmentplanning There hasbeensignificantimprovementinthe quality of the improvements inplanning andbudgetingprocess is processand outputs ofthe DDP, BFP, and annual estimatesof andbudgeting improving and this is likely revenueandexpenditure,but there is still alongway to go. The to continue. The TPC is not hlly functional, but the levelof participationat improvement must be departmentallevelis betterthan inthe pastwhen the budget was substantial ifa realistic solely the functionofthe CFO. Interms of developmentplanning, and achievable budget is bothtechnicalstaff and elected leaderswere trained inproject cycle to be achieved, however. managementandparticipatoryplanningby the JICA volunteer who hasbeenspearheadingthe participatorydevelopmentplanning process. Budgetpreparationinthe past was done solely by the treasury, but participationinincreasing. The situation is likely to M e r improveas the central government guidelines and assessmentstake effect.The plannedintroductionof newstaff structures, which would givemunicipal councils a planningunit, shouldbring further improvement, as shouldthe trainingof finance departmentstaff under EFMP11. Recommendationsfor Improvement 0 The coordination o f the planning and budget function must be improved. This could be achieved through the establishment of a functioning budget desk and planning unit, the discussion o f planning and budgeting issues in TPC, and the integration o f sector workplans into the development plan. In the short term, development planning could be improved by drawing on the services o fthe Masaka District Planning Unit. 0 Sector workplans andNGO activities should be incorporated into the development plan. 0 The timings for approval o f LLG plans should be reviewed and changed to enable the inclusion o f the plans in the DDP. The timing o f the DDP and BFP similarly should be amended to ensure that they are consistent and feed into the preparation of the budget. This requirement i s set out inthe budget guidelines published by the MoLG, and which include the FDS modalities. B BudgetExecution Overall Rating: 71percent (54 out of 76) Masaka has recorded significant improvements in local revenue assessment and collection, but there is a problem o f the delayed banking o f collected revenues at the division level. The processes by which payments are made follow established procedures, butthe district suffers from weak cash management and commitment control, with the result that it is unable to meet its financial commitments, including salaries. Arrears in the meantime are accumulating. Procurement and recruitment appear transparent, but numerous respondnents reported that these areas are open to political influence. Overall, the situation is not conducive to the predictable implementationo fworkplans and budgets. -106 - Table 5D. Masaka Municipality: BenchmarkingResults BudgetExecution - Actual Ratingand Comments Summary Statement 60% (6/10) The municipalcouncilhas inplacenumerous strategies for enhancinglocalrevenues. These include identification o fpotential TheLG has a credible Absolute amounts of local newrevenue sources, tax assessment, and collectionstrategies strategyfor local revenue revenueand the ratio of (privatizationthrough tendering), and the maintenanceof tax enhancement, backed up local revenue collected to registersat the division level, as evidencedinNyendo-Ssenyange by effective systemsfor total revenue have division. collecting and accounting improved over time, for local revenues indicating innovativeness The lackof analysis of the cost-effectivenessof these sources and on thepart ofthe strategies may impact on the netrevenuerealized, however. municipality. SigniJicant Significantamountsof collectablerevenue are not realized, for amounts of collectable example, duemainly to defaultingby tenderers (inKatwe-Butego revenue nonetheless are division morethanUShl60 millionis inarrears for 2002103). not realized Collectioneffortsare oftenthwartedby anundercurrentof political interference. Bankingprocedures generally are notproperlycomplied with. In Nyendo-Ssenyange division Gtax revenue collected on 3 4 July 2003, for example, was bankedonly on 18August. There is also a lackofregular monthlyreportingby the divisionsto the municipality. This delayedbankingandreportingo f localrevenues, coupledwith a lackof publicationof localrevenues collected, risks encouragingthe pilferageof public funds and inhibits public accountability. Procurementprocess 76%(16/21) The tender boardis inplace andwas approved by councilon 14 March2001.All members are aualifiedas Drovidedfor inthe LG A transparent, The procurementprocess Act. The boardhas receivedtraining underlthe LGDP, andmore accountable, and eflcient appears procedurally training activities are includedinthe capacity-building. procurement process is in transparent, accountable, place and generally efficient, but There is aclear definition of roles betweenthe TEC, TB, and there are corroborative council.The TEC, composedofthe town clerk, treasurer, secretary concems that procurement (tenderboard), andheadsof department (HODS)meets and compiles is heavily infiltrated by reports for submissionto the tender board. (Membership of the political interests internalauditor on the TEC is an issue of concem, as this may impair the independencyofthe audit function.)The tender board then considerstheserecommendations. The HODS andthe executivemonitorprogress of the execution of the projects, andreports are compiledfor submissionto the full council for consideration.This monitoringhas contributedto the timely completionof most contracts. Items for procurementmustbe includedinthe approvedbudget beforebids canbe invited, andcontractsare signedonly when funds are available on accountandpayableon demand, to avoid the accumulationof domestic arrears. There is no procurementplan, however, which meansthat tenderingis notplanned for inadvance. Bids are placedinabidbox inthe town clerk's office. A dual padlockcontrol is used. Bids are opened inthe presenceof the TEC, TB, and any bidders that wish to attend. Procurementconducted below the threshold is reportedto the TB. No cases of successive contractingwere noted. The following additionalpoints were noted: The municipal council does not support (throughtraining) local suppliersinthe preparation of bids, andthere are nopre-bid meetingsheld. Suppliers are given orientationon expectedoutputs andwork modalitiesafter award of contract. Contractnegotiations are also normally heldwith the successful bidders. The criteria bywhich f m s are to be assesseddo notform partof the biddingdocumentation, which meansthat f m s do notknow in advancehow their tenders will be assessed. BoQs are preparedfor works. There are plans also to prepareterms -107 - Performance Area and Actual Rating and Comments Benchmark Summary Statement o f reference for the procurement o f services, but a skills gap has obstructed such plans. Prequalification is only applied for suppliers of foodstuffs, stationery, and medical supplies. Bid/payment securities are not a precondition for bidding, and the secretary, tender board, seemed unaware o f the purpose o f this requirement. However, when a bidder requests advance payment, the requirement is appropriately made to provide a bankguarantee to secure the advance payment. The tender awardnotification is displayed on the public noticeboard.It does not include contract sums, however, a fact that inhibits public accountability. Itwas consistently revealedby a cross-section o f interviewees that political interests heavily infiltrate the tendering process. This weakness is also manifested inthe worsening problem o f failure to collect revenue from tendered services such as parking fees. Payroll and personnel 89% (819) A DSC serving Masaka district and municipality is inplace, management comprising five appropriately qualified members. Masaka manages its 7"neLG recruits and personnel eficiently, but When the DSC receives a request for recruitment from the toen manages staff effectively, fails to achieve the timely clerk or CAO, it advertises inthe newspapers, receives applications, efficiently managing the payment of salaries Some shortlists qualified candidates, conducts interviews, and selects the aayroll personnelprocedures, winning candidate. The DSC generally confirms staff after the particularly recruitment, probation period, as appropriate, with the result that there are few firthermore are unconfirmed municipality employees. The DSC also is responsible undermined by for disciplining members o f staff as advisedby the town clerk, unverij?able, though CAO, or the IGG. The establishment register i s maintained and up- seemingly real, political to-date, and at the time o fthe benchmarking 93 o f 103 permanent interests andmachinations positions were filled and 90 o f 90 support staffpositions were filled. The council maintains a separate bank account for salaries, which it pays through direct bank transfers. Salaries are not paid on time, however. Late payment is the result mainly o f a low block grant allocation, combined with low local revenues collected. Repayment o f a loan incurred by the council to purchase an administration block furthermore has priority when cash becomes available. Given the trend to outsource services, the size o f the support staff could be reduced to reduce the wage bill andassist the timely payment of salaries. Manyrespondents noted that the personnel function is greatly influenced by political interests. Cashflow management, 55% (11120) When cash i s received, especially central government transfers, it i s commitment, and remitted promptly to the divisions, departments, and service units. expenditure control Most commitments are Vote books are maintained and are current (although the entered into against the commitments column is not filled). Other than for utilities, the Cash inflows and outflows availability of" cash,but municipality only approves commitments against the availability o f w e managed such that the Masaka has noformal cash. Supporting documents for purchases (LPOs), stores (delivery LG is able to meet current cashflow forecasts or notes, GRNs), and payments (checks and check dispatch registers) vayments promptly projections and cashflow are inplace andproperly maintained. xcording to itsfinancial management is on ad hoc commitments, while basis. The municipality There is no cashflow budget nor formal monitoring o f cashflow naintaining adequate has significant arrears that positions, mainly because these are not emphasized and enforced liquidity and not undermine itsfinancial under the inspection and monitoring procedures. It can be inferred zccumulating arrears or aosition that cashflow management is more reactive thanproactive. debts There are no formally establishedprocedures for allocating and disbursing cash inflows. Instead, the discretion to allocate cash is practically executed by the town clerk and treasurer. The council is often unable to meet its financial commitments. This situation is exacerbated by the fact that the council has a loan, taken out to purchase an administration block, and large salary bill. The remaining disbursements to departments tend to be inline with -108 - PerformanceArea and Actual Rating and Comments c Benchmark Summary Statement approvedworkplan andbudgets, butthe decision-makingprocess for the allocationof the little available cashis adhoc and suboptimal. Masakahas significant salary andnon-salaryarrears, some as old as 12months, andalarge outstanding loan. There are nocredibleplans to settle outstandingbills other thanthe bank loan, which is serviced usingcollectionsfrom parking fees. Paymentfor utilities is only madeafter the service hasbeendiscontinued. Internalaudit 75% (9/12) The intemalaudit sectionexists and is adequately staffed.The intemalaudit staffhave adequateaccessto informationandare Internal audit effectively The internal auditjiinction independent intheir work andreportingstructures.The sectionhas monitors the internal is inplace but sgfers from an annualworkplanandproducesand submits quarterlyreportsto the inherent weakness of council. These aremade available also to the Auditor General. involvement inpre-audits; the warranting of The staff possessthe minimumrequiredqualificationsas stipulated transactions by external inthe LGA, butnoneofthemhasaprofessionalaccountancy auditors is unusual qualification.Onememberof staff is pursuing aCPA with the supportofEFMP 11. Internalaudit activelyengages inthe pre-audit function, butthe SIA did notrecognizethe inherent weakness of this practice. Inaddition, the Auditor Generalwarrants allvouchers before payments are effected. Thesepractices appear contrary to the law and compromisethe ex-post independence of the auditors inthe event of downstreamqueries of pre-auditedandwarranted transactions. 100%(4/4) Consistentwith the regulations, there are proceduresinplace for the workplans andbudgets preparationand approvalof applications for virements, Proceduresfor deviations reallocations, and supplementaries.These are compliedwith. Effective procedures are from workplans and inplacefor the budgets are inplace and There were no instances of alterations of workplans. Inpractice, the applicationfor and are complied with unavailabilityof funds dictatesunderspendingagainst unaltered approval of deviations budgets andworkplans. from workplans and budgets, enabling managerialjlexibili@and oversight Likelihood that budget Some improvements have Effortsto improve budget execution, particularly inthe areas of execution will improve been made but there is procurement andstaff recruitment, are likely to beunderminedby little apparent impetusfor politicalinterests. the budget execution to improvefurther There are no initiatives inplaceto improveon cashflow management, andit is highly unlikely that this situation will change inthe mediumterm. Recommendations for Improvement At the beginning of the year the budget desk should prepare an annual cashflow budget that reflects the expected cash inflows from local revenue and government grants and the disbursements to different departments for recurrentand developmentexpenditures. Disbursements shouldbe made on a monthly basis against this disbursement schedule. The cashflow budget should be reviewed quarterly on the basis of actual receipts and disbursements, as reportedinmonthly cashflow statements. Masakaneedsto institute a more rigorous control of its financial commitments. (This is linked to more predictable cashflow management.) Commitments should only be entered into when cash has been received by the spending department.This is of particular importancefor those activitiesthat are fundedby local revenues. -109 - The municipal council should reduce staff numbers in accordance with the proposed L G structures. Most services are now outsourced but the wage bill remains excessive, overstretching revenues and compromising the LG's service delivery obligations The issue o f political infiltration, especially in procurement and staff recruitment, needs to be examined by the central government. This issue must be resolved but should be done so without compromising checks and balances and the autonomy of the L G that has been realized through the decentralization o f governance. C Accounting and Reporting OverallRating: 81percent (22 out of 27) Accounting, bookkeeping, and reporting are all functioning well and are undertaken regularly and promptly, in line with established regulations and guidelines. A few gaps exist in the accounting procedures. These processes are all motivated by compliance with vertical requirements, however, rather than being viewed as managementtools and controls intheir own right. Table 5E. Masaka Municipality: Benchmarking Results-Accounting and Reporting Performance Area and Actual Ratingand Comments Benchmark Summary Statement Accountingandrecord 82%(9/11) Cashbooksfor bank accounts, journals, abstracts, andledgers are keeping maintainedand current. Masakahasregular bankingarrangements Masaka maintains the andtypically complieswith these, butthere havebeeninstancesof A clear andjimctioning appropriate books of delayedbankingat the division level. system is in place to account, and these were ensure that allfinancial found to be current. It lacks Imprestregistersare not used andthe imprest managementsystem transactions and an appropriate imprest i s undeveloped.Bankreconciliationstatements are preparedand balances are recorded managementsystem. Bank are up-to-date,but are notinitialledfor checkingby the and appropriately reconciliations are in place municipality treasurer andassistanttown clerk. reported in thefinancial but transaction are not statements initialledfor checking by senior oflcers In-year financialand 100% (9/9) The divisions submit monthly returns on funds spentto the performancereporting respectiveexecutiveson behalfof councils and the town clerk. The In-yearfinancial and treasurer also prepares and submitsmonthly financialstatementsto Regular reporting on performance reporting the town clerk financial and procedures are complied performance information with, but reports are not The municipality submits performance and financialreports on provides managers with usedfor management time to centralgovernment. appropriate, timely purposes information on budget and workplan implementation In-year monitoring, 60% (315) Monitoringreportsby the executive, LGDP, andPAF exist and analysis, andfollow-up verify performance againstworkplans. The minutes of the Monitoring analysis and executiveandsector committees provideevidenceof discussionof Decision-makers follow-up within the the monitoringreports, but there i s no evidenceinthe TPC minutes regularly monitor municipality is done within of any suchdiscussion.Civil society is regularlyconsultedduring progress and takefollow- sector departments, again the planningprocessbut is notregularly and actively involved in up actions that improve seeming& to meet vertical monitoring activities. budget and workplan reporting obligations rather implementation thanfor management purposes Finalaccounts and 50% (112) Masakapreparedandsubmitted its draft final accounts for 2002/03 performancereports to the Auditor Generalontime. Final accountsfor 2002/03 Comprehensivej n a l wereprepared and Annualperformancereports are preparedat the sector andprogram accounts and report on submitted on time, but the level, but there is no integrated annualperformancereport for the annualperformance integratedannual municipal council.The absence of this reportimpliesthat most against workplans are pevformance report has not reportingis drivenby sector- and program-specific guidelines and prepared soon ajer the beenprepared requirements.Productionof anintegratedannualperformance end of eachfinancial report is not arequirement, but would be good fiduciary year managementpractice. Likelihood that The enhanced capacity of Effortsto upgradethe capacity of the finance departmentare likely -110- PerformanceArea and Actual Ratingand Comments Benchmark Summary Statement monitoring and thefinance department to resultinimprovedrecordkeeping, accounting, andreporting. In accountability will shouldfacilitate further addition, the ongoingLGperformance and compliance assessment improve improvements exercises are likely to result into sustained improvementin accountingandreportingat the LGlevel. Recommendationsfor Improvement There should be more managerial discussion o f sector reports, both within and across sectors inthe TPC. These discussionsshould include the agreementofspecific follow-up actions. 0 There should be greater emphasis on reporting to council rather than vertical reporting. The ATC should report first to the executive, then to the town clerk. 0 Masaka should initiate the preparation o f annual sector reports of performance against budget. This would enhance cross-sector performance analysis for the municipality, and enable its use as a managementtool. ExternalAccountability, Audit, and Scrutiny OverallRating: 53percent (9 out of 17) The municipal administration is making little effort to be open and transparent to the public. There are also few proactive follow-up efforts by council to hold the administration to account, despite the existence o f an adequately functioning LGPAC. Table 5E. Masaka Municipality: BenchmarkingResults Accountability, Audit, and Scrutiny - PerformanceArea and ActualRating and Comments Benchmark Summary Statement Transparency and 20% (1/5) The municipal council publicizessome information on transfers to accountability in the divisions andservice delivery units. financialmanagement Other thanLGDP IPFs and releases,the Itdoes nothaveadocumentedinformationand communication Key budgetary informatior communication of strategy, however. This is partly attributable to the fact that a is published, is accessible, information to thepublic is communications strategy i s not arequirement of central and is user-fiiendly almost nonexistent government.The council publicizesthe LGDP IPFsandreleases but does notpost information suchas workplans or budget summaries on noticeboards.The public noticeboardfurthermore is small and locatedinan area ofthe administrationblock that is not readily accessibleby the public. This greatly detractsfrom public accountability. Local government PAC 100% (6/6) An LGPAC exists andserves both Masakadistrict andthe scrutiny of audit reports municipal council. The LGPAC comprises four memberswith the TheLGPAC is minimumqualifications; arepresentative of the urban authorities is Effective external appropriately composed yet to be nominated. scrutiny of the LG and is efficient in its work accounts The LGPAC meets eighttimes each quarter to discuss audit reports, andsubmits good-qualityreportswith recommended follow-up actionsto the district andmunicipal council. The LGPAC receivesfunding from central government, which partly explains its commendableperformance. Councildiscussionand 33% (1/3) The LGPAC reports are discussed by the executive, which decides follow-up of LGPAC and on follow-up actions andpresents these to council. The executive LGAC reports The executive rather than does not give formal feedbackto the LGPAC on any follow-up the council discussesthe actions that are taken. Council discussesand LGPAC reports. It does not follows through the provideformal feedback to actions recommended by the LGPAC on actions the LGPAC andLGAC taken -111 - Performance Area and Actual Ratingand - I Comments Benchmark Summary Statement Council discussion of 33% (1/3) Discussionof annualperformance reports is limitedto the sector annual sector level. Integrated annual performance reports are not produced at performance Preparation and discussion the LGlevel. of annual performance Council discusses annual reports is restricted to sector performance and sector committees agreesfollow- up actions Likelihood that 'The disssemination o f informationto the public is not likely to monitoring and improve unless it is formally identified as a requirementbeyond accountability will LGDPactivities. There is at present only a disincentive to publicize improve information, inthe sense that it could generate public criticism o f the elected leadership. Recommendations for Improvement 0 The municipal council should introduce amore proactive information strategy that communicates current information on funds transferred and spent byLGs and service units. This information should be presentedina way that enables it to be easily understood. 0 Masaka should set up noticeboards inpublic places, suchas taxi parks, via which to communicate key informationto the public. 0 Following discussion o fthe LGPAC reports, the executive should provide formal feedback to the LGPAC and council on actions taken. This would complete the accountability and scrutiny cycle. FinancialManagementCapacity and Environment This category attempts to capture the financial managementcapacity o f staff inthe LG and the overall environment for effective financial management. Overall Rating: 64percent (7 out of 11) Overall, the quality o f staff responsible for budgeting and financial management is good. The working environment however is characterized by closed management and an uncomfortable relationship between politicians and the administration. There is some use o fI T inbudget preparation and financial reports. -112 - Table 5F. Masaka Municipality: BenchmarkingResults-FinancialManagementCapacityand Environment Performance Area and Actual Rating and Comments Benchmark Summary Statement Quality o f budgeting and 83% (5/6) The municipality has noprofessionally qualified accountants, but financial management most o f the staff inplace otherwise have the required minimum skills Overall the quality of staff academic qualifications. More than 10 are undertaking professional responsiblefor budgeting accountancy courses with support from EFMP11. High-quality staff carry andfinancial management out budgetingand is good The position o f the treasurer, currently occupied by an experienced financial management though not formally qualified person, was recently advertised. Use o f information 40 % (2/5) Most staff have basic computer skills and use computers inbudget technology preparation. There are no accounting packages inuse, nor are Computersare usedfor the computers used in the approval o fpayments and auditing. IT is used in budgetary preparation of budget and andfnancial accounting reports, but not management for automated accounting Staff andmanagerial The staff and management culture is not open. Local revenues culture performance is not publicized, for example, for the reasonthat some officials apparently regard this as sensitive information. Political culture and The political atmosphere is not conducive to the improvement of behavior performance. Technical staff are afraid to follow up local revenue defaulters (contracted-out services), for example, and political influence is believed to hold sway also inthe procurement and recruitment processes. Likelihood o f More than 10 members o f staff are pursuing a professional improvements in accountancy qualification; ifthey qualifyand are retained they are crosscuttingissues likely to contribute to the enhancement o f financial management capacity. The anticipated introduction o f the IFMS also is likely to enhance the use o f IT inbudgeting andfinancial management, thereby leading to improvements inthe timeliness and quality o f financial outouts. Recommendationsfor Improvement General skills are adequate, but capacity-building will be necessary in areas such as cashflow managementand commitment control as new systems are implemented. -113 - ANNEX 6. TORORO DISTRICT INTEGRATED2004 FIDUCIARY ASSESSMENT Background Tororo i s in eastern Uganda, bordering Kenya. It has a population o f about 560,000. It is a predominantly flat area, comprising four counties, 25 subcounties, and 99 parishes. The economy i s mainly agricultural, with major crops including millet, rice, maize, cassava, groundnuts, sweet potatoes, sorghum, beans, and others. Tororo was selected fro the sample because it is piloting the FDS and because it performed below par inthe LGDP assessment. It has had some well-publicized difficulties managing its finances. Overall, Tororo was the poorest performer of the sample, scoring 0 in primary outturns and 81 out of 117 overall, Its average benchmark score was 40 percent. Primary Outturns Primary outturns are the principal data of the Public Financial Management system, recorded interms of actual expenditures (inaggregate and composition), central and local revenues, and arrears, assessed by comparison to the budget. They provide a measure of the realism o f the budget and the extent to which the budget i s an authoritative tool of the LG's policy. Ultimately, however, the success of the budget must be judged in terms of the intended results o f the expenditure and therefore of the adherence to workplans. This i s difficult to measurequantitatively, but the primary outturns establish a valuable overall impression. Table 6A. Tororo District BudgetOutturns 2002/03 Budget Outturn % Perf Total expenditure allocation 2002103 (USh) 19,579,963,075 17,076,078,497 87 Total revenue 2002103 (USh) 20,302,842,14 1 17,104,596,458 84 Local revenue 2002103 (USh) 1,167,787,347 337,283,409 29 Local revenue (percentage of total Revenue) 5.8 2.0 Average department expenditure deviation from budget (percent) na 18.3 Arrears (percentage o f total expenditure) 10.8 12.4 OverallRating: Opercent (0 out of 9) Primary budget outturns in Tororo present a poor picture of the district's capacity to deliver on its budgetary plans. The district consistently underspends across all sectors, and the trend over the past three years is negative. It performs particularly poorly in local revenue collection, collecting less than one-third o f its budget estimate for each ofthe last two years. Arrears constitute a big problem. - 115 - Table 6B. Tororo District:BenchmarkingResults Primary Outturns - Performance Area and Rating and Remarks Benchmark Summary Statement Primary budget outturns 0% (019) Aggregate expenditureperformance has deteriorated inthe last three years. Overall outturn in2002/03 was 87 percent. All sectors 8.22 Budget Budgetaryprojections are have underspent inthe same year, with the works and economic estimatesare realistic and u realistic, causing serious sectors inparticular spending less thantwo-thirds of their budgeted implemented asplanned problemsfor the estimate. implementation ofplanned activities Localrevenues is a major problem area. Projections inthe last three years have been overoptimistic. In200Y03, local revenues constituted only 2 percent of total revenues. The district holds a large stock of arrears, amounting to 12percent of actual budget outturn in 2002/03. Achievement of results The district is unable to The weak performance o f the district toward its expenditure targets implement its plans infull indicates that full implementation of planned activities is not Policy objectives are and achieve objectives possible. This may be due inpartto a lack o f realism inrevenue realized andplans projections, but it also is due to a lack o f compliance with the implementedas intended regular reporting that is requiredto access central government funds. The weak linkage between the DDP, BFP, and budget estimates also permits activities to be included that are not inline with district priorities and objectives. Assessment of the Budget Cycle The second area of the benchmarking exercise provides an assessment of the performance o f the key systems, processes, and offices within the LG budget cycle. These are planning and budgeting, budget execution, accounting and reporting, external scrutiny, and accountability. The information for the benchmarking exercise was gathered through a combination o f stakeholder interviews and review of documentation. A Medium-Term Planningand BudgetFormulation OverallRating: 41 percent (15 out of 37) The overall planning and budgeting process seems to be understood and key activities are implemented. Relevant inputs are taken into account inthe formulation phase. However, there is little linkage between the planning cycle and the budget cycle, leading to an excessive attention to short- term activities and outputs. This may be due to the poor quality o f planning documents, in comparison to the better budget documents. -116- Table 6C. Tororo District: Benchmarking Results MTEFPlanning and Budget Formulation - Performance Area and Rating and Remarks Summary Statement 40% (4/10) The budgetprocess inTororo is well establishedand coherent, but a formulationprocess lack ofclear guidelines hasmeant that there hasbeenno local The budgetprocessfollows budgetcall (a budget call is under preparationfor 2004/05, A credible, coherent clear guidelines and however). The budgetdesk meetsregularly andapparentlyis useful planning and budget events, and includes interms ofworkplanning andgiving coherenceto the whole process is inplace, with technical andpolitical process. clear dejnition of events input and responsibilities and The technicalplanningcommittee andthe council committees the meaningfbl discussbudget priorities at various events, includingthe budget participation of conference. The two-day conferencei s held inJanuary or February, politicians, civil socieg, andcomprises presentations by headsof department andsubsequent and civil servants, discussionsto produceapriority list that then guides the draftingof ensuring that local needs wor!qlans andbudgets. andpriorities are represented A recurringproblem is the consistent delay inthe approvalof the DDP andbudget, which generally occurs after the statutory deadline. The relationshipbetweenthe DDP, BFP, andbudgetis unclear.In general, these mechanisms focus onthe yearly budget cycleand short-termpriorities andactivity plans, ratherthanonmedium-term objectives.This likely is dueto the factthat the planning and budgetingprocesstendto runparallelto each other, rather thanthe DDP feedinginto the BFP as intended. There is no evidence ofthe involvementof civilsociety andNGOs inthe budgetprocessother thanat the budget conference. 38% (3/8) The DDP conveys asense of vision andincludesclear priority development plans statements developedby the various sectors.Itis unclearhow the TheDDP lacks clari& sectoralplans fit together, however. A realistic, achievable depth of analysis, and DDP is in place, with realism The overallanalysis of the plan i s poor, with too much attention clear objectives and paidto governmentinstitutionsandnot enoughto district strategies, rejecting developmentor to explanation of howpriorities are agreed. It also is national and local nee& unclearhow the planis intendedto feed into poverty reduction andpriorities efforts. The DDP makesno attemptto link activitiesto resource availability.Most of the projects identifieddo nothave clear timeframes or fundingsources, andit is uncleartherefore how the planrelates to the BFP. yv,. The format of the planadditionally was changed for 2003/04, and as aresult there is muchless clarity inthe way informationis included. LGbudget framework 14% (1/7) The 2003/04BFP does not follow FDS guidelines. This is particularlytrue inits attemptto list sectoral expenditureprojection: Theformat ofthe BFP is andpriority activities. Critical information is missingandthe sector TheBFP has realistic confusing, it omits vital submissions lack consistency.This makes it very difficult to use as medium-term revenue information, and it lack abasis for budget formulation. projections and sector dear projections budget strategies, and Targets are clearly spelt out, butthe link betweenpastperformance clearly identged andfuturepriorities andprojectionsisnto made clear. Revenue objectivesand outputs projections also are not explained indetail, even thoughthe BFP includes some descriptionof actionsto betaken for revenue enhancement. Annual workplans and 58% (7/12) The budgetdocument is of high quality, and containsmuch budget estimates informationthat extendsbeyondrevenue and expenditure estimates. Budget estimates are clear (Some of these data would be better included inthe BFP infact, Balanced, comprehensive 2nd comprehensive,and from which they are missing.) Given the lack ofrelevant annual budget estimates w e linked to complete informationinthe BFP, it is difficult to establish clear linkage are clearly presentedand rector workplans betweenthe two documents. supported byjilly consistent annual Sector workplans includedinthe budgetestimates are clearly - 117- Performance Area and Ratingand Remarks Benchmark Summary Statement workplans that set out presented, and activities and outputs specified. Again, it is difficult activities and outputsfor to checktheir consistencywiththe BF'P. the.financia1year Poverty-relatedprojects andexpendituresare not clearly highlighted, andin some areasperformanceindicators andtargets couldbebetter identified. Likelihoodof Although some technical The poor performanceof Tororo is the continuation o f a ttend of improvementsinplanning improvementsare deterioration. This not augur well for the future. andbudgeting possible, the overall situation is more likely to The introductionof the fiscal decentralizationstrategy andother deteriorate than improve reformpoliciesprovidereasonfor optimism, butthe political environment is not conducive to positive change. This problem mustbe resolvedbefore significantimprovementcantake place. Recommendations for Improvement Tororo should review and revise the budget timeline, with the objective o f realizing the timely approval o f development plans and budget estimates. 0 The district should seek to improve the integration of the different planning and budgeting instruments with the goal of ensuring that budget estimates are drawn from the budget framework. Planners mustpay more attention to medium-termplanning 0 Formulation o f the BFP must be achieved in compliance with guidelines. The BFP must in particular includerealistic expenditure projections by sector. To increase the realism o f the DDP, the district should ensure that the costing, timeframe, and fundingsourcesare specified for all projects. B Budget Execution OverallRating: 50percent (38 out of 76) All areas related to budget execution suffer from problems and shortcomings. In particular, local revenue collection, procurement, and the internal audit need strengthening to support the effort to improve financial management in Tororo. The arbitrary arrangements for cashflow managementmean that there is no clear prioritization of expenditures and no effective system for dealing with the arrears that the district has accumulated. -118 - Table 6D. Tororo District:BenchmarkingResults BudgetExecution - PerformanceArea and Ratingand Remarks Benchmark Summary Statement Local revenue collection 10% (1/10) Local revenue amounted to just 2 percent o f the district budget in 200Z2003. This came primarilyfrom Gtax, which contributes upto TheLG has a credible Tororo does not have a 65 percent o f local revenue. No attempt is being made to improve strategyfor local revenue strategy to improve Gtax collection, however, andpolitical interference threatens enhancement, backed up revenue collection. instead to reduce the revenue collected. by effective systemsfor Systems to ensureproper collecting and accounting accounting are defective The district additionally suffers fi-om subcounties spending Gtax for local revenues revenue at source before banking, further reducing the resources available for implementation o f district-level activities. The district does not have a senior finance officer incharge o f planning and collecting revenues. No attempt has been made to analyze the cost-effectiveness o f existing sources o f revenues nor to identify potential additional sources. The finance and intemal audit departments lack the funds that would enable them to effectively supervise and support the LLGs inrevenue collection. Recording is poor. Ledgers were opened for 2002/03 but at the time o fbenchmarking hadnot yet been used. Revenue collection registers also are not maintained, andwhile the subcounty chiefs regularly submit monthly statements the district does not reconcile them. Mol0 subcounty is testing new revenue sources such as taxi p a r h andground leases. Suchlocal initiatives should be encouraged and supported by the district authorities. Procurement process 52% (11/21) Tororo clearly is trying to comply with the provisions o f the LGAct regarding procurement, but the efficiency o f the tender board i s A transparent, District procurement questionable. accountable, and efJient processes do not appear to orocurementprocess is in be transparent. lhe LGTB The district does not have a procurement plan,with the result that dace often ignores the procurement may not be consistent with existing workplm. The recommendationsof the CAO ensures the availability o f funds before contracts are signed, technical evaluation and a contract register is maintained. TORSand BoQs are prepared committee by heads o f department before the invitation o f bids, but manyo f the tenders received do not address the technical issues. Lack of funds mens that market surveys are not carried out to update the prices o f goods. The secretary to the tender board has been recently recruited, and appears to lack experience andknowledge inLGprocedures. He has not yet received any training on procurement matters. Nor have the the tender board members generally received training, other than that given inan orientation workshop in2003. The secretary to the board informed the study that the board often ignores the recommendations o f the technical evaluation committee on the award o f tenders. This may be due for political reasons or may be evidence o f croneyism. Disagreements and disputes are often handled by the political leadership. The district lacks funds to supervise and monitor contractors. Payroll and personnel 56% (519) The recruitment process seems to be functioning effectively, despiti management the facts that the DSC has received little funding and that Human resource commissioners are not paid regularly. The DSC acts promptly on TheLG recruits and management is deJcient the few cases where recommendation is made for disciplinary manages staff effectively, action, but often rejects or reduces the proposed sanctions. Ind eflciently manages thepqroll The slow confirmation o f staff is a problem particularly inthe education sector. The establishment register also is not updated on i regular basis, and while link3 with the payroll exist it is not clear how effective they are. A register is kept for salary advances. Salary arrears are large, but -119 - I PerformanceArea and i Ratingand Remarks Benchmark Summary Statement no proper register o f mars is maintained. Cashflow management, The district's accountingofficer is not also the chief administrative commitment, and officer, as mandated inthe Local Government Act. This risks giving expenditure control The district does not have rise to a situation o f unplannedspending, as it is the responsibility a cashflow management o f the accounting officer to sign district checks and authorize and Cash inflows and ouflows system. Commitment theresponsibility o fthe CAOto sign contract agreements for the are managedsuch that the controls appear to be weak district. LG is able to meet current paymentspromptly The district does not operate a cashflow budget andmakes no according to itsfinancial provision for cash projections or limits. The district has salary commitments, while arrears of about USh2 billion and significant non-salary arrears, but maintaining adequate ithas no clear planto clear these arrears. The district operates a liquidity and not system o f commitment accounting, paying current billswithin 30 accumulating arrears or days. Utility bills however are permitted to accumulate, as there is debts often insufficient cash to pey them when they arrive. It i s inevitable that the district will soon find itself unable to clear these accumulating bills. Transfers are made promptly to sectors, lower local councils, and service units. The cash position is monitored regularly to ensure that the average cash outflow does not exceed the cash inflow. This is done by examining the bank balances o f various accounts rather than through monthly cashflow statements, however. Prenumbered local purchase orders are used for all purchases o f goods and services. The LPOs are recorded invote books as commitments, and the vote books are properly maintained, reflecting all expenditures. All payment vouchers are recorded in vote books before payments are made. The vote book controller signs against each entry inthe vote book after ensuring that budget andworkplan provisions are not exceeded. Goods ordered are received and checked by a technical officer, storekeeper, and intemal auditor before payment is made. 67% (8/12) Intemal audit lacks the facilities to effectively monitor district h d s and assets. The department does not have transport and has limited The internal audit Problems of competency operational funds. efectively monitors the and lack offunds limit the internalfinancial controls abiliw ofthe internal audit The department producesregular quarterly audit reports, but these in the LG to effectively monitor are o fpoor quality. The acting chief intemal auditor does not appear financial management to be fully conversant with his institutional role. 75% (314) Tororo observes the regulations regarding virements, reallocations, workplans and budgets andsupplementary provisions. Proper procedures, authorization, Procedures are inplace anddocumentation are inplace to assess andapprove deviations. Effective proceduresare in for the approval of placefor the application deviations Vote books are amended to reflect virements, reallocations, or for and approval of supplementing provisions. deviationsfrom workplans and budgets, enabling managerial flexibility and oversight Likelihood that budget Improvementsare likely to The accounts staff appear to understand their roles inbookkeeping, executionwill improve be limited andthere is likely thereforeto be some improvement inthis area. Tororo is piloting FDS, butthe accounts staff clearly do not fully understand the requirements o f the system. The chart o f accounts that has been recently introduced similarly is not well understood. - 120 - Recommendations for Improvement The district is advised to adopt cashflow budgeting. The accounts staffneedtraining inFDSrequirements and withthe new chart of accounts. Internal auditors must be given adequate finding and better working conditions. C Accounting and Reporting OverallRating: 56percent (15 out of 27) The minimum systems are in place for accounting and reporting, but there is considerable scope for improvement. Inparticular, stores management and the use o f financial and performance reporting as a managementtool could be improved. Table 6E. Tororo District: BenchmarkingResults-Accounting and Reporting PerformanceArea and Rating and Remarks Benchmark Summary Statement Accounting andrecord 55% (6/11) The districtbooks of accounts are allup to date, in line with the keeping LGFAR. Tororo maintains its books A clear andfitnctioning ofaccounts well and keeps The district maintainscurrentcashbooks, abstracts, andledgers.All system is in place to them current the cashbooks are bank-reconciledeachmonth.Tororo does not ensure that allfinancial have animpredpetty cashsystem. transactions and balances are recorded The district maintains33 bank accounts, many of which were set and appropriately up to complywith the requirementsof donor accountability. There reported in thefinancial are regular bankingarrangements inplace andbankreconciliations statements are carriedout for all accounts. The district properlymaintainsits stores andkeeps ledgers current. The existingstores are too small to handle all district purchases, however. The stock count also is not performedregularlyandthe reconciliationof store ledgers is irregular.The district also lacks an appropriatesystem for selling offwritten-off stores belongingto council. In-year financialand 67% (6/9) The district intemal reportingsystem is operatedmainly for performancereporting accountingpurposes. Thedistrict has a Regular reporting on reasonable internal The lower LGs inthe district report monthlyto their councils and financial and reportingsystem, but the CAO on funds spent. The implementingunits do not regularly performance information reportingprocess is more of report to sector departments, however, nor do the sector provides managers with an accountingtool than a departments regularly prepare comprehensivemonthlyreports for appropriate, timely management aid the CAO. information on budget and worhplan The CFOpreparesmonthly financial reports for the CAO, who implementation presentsthem to council for discussion. The district at timeshas beenunableto submit its financial reportson time to the central government. Inaccordancewith FDS guidelines, the sectorsnowsubmit monthly and quarterlyreportsto the CAO andthe planningunit. The quarterly reports provideboth financial and performance information, and give aclear idea of progress towardworkplan implementation. In-yearmonitoring, 40% (2/5) There is no evidenceofdiscussionwithin the technicalplanning analysis, andfollow-up committee of these reports. The council sector committees, There is a regular reporting however, analyze some reports andin some cases recommend Decision-makers system, but noproper follow-up action. regularly monitor follow-up action -121 - Performance Area and Ratingand Remarks Benchmark Summary Statement progress and takefollow- Delays inimplementation often result simply inthe rollover o f up actions that improve plannedactivities to the following year, without any corrective budget and workplan actions to speed up implementation andto preventthe same implementation problems recurring. There i s no apparent involvement of communities, civil society, nor NGOsinmonitoring activities. 0% (012) Comprehensive draft final accounts are preparedregularly, and last ~Final accounts and performance reports year were submitted within deadline. Final accounts are Comprehensivefinal regularly prepared but There was no evidence of comprehensive performance reports accounts and report on sometimes submitted late. covering implementation o f workplans for all sectors. (This annualperformance Performance reports are information is usually presented inthe BFP.) Under FDS against workplans are not available guidelines such reporting should become more readily available. prepared soon after the end of eachJinancial year Likelihood that Some improvements are There is some potential for improvements in accounting reporting. accounting andreporting likely, if"FDS The FDS inparticular should help Tororo move toward a system o f will improve implementation is supported regular financial andperformance reporting by the sectors; it may also help resolve the vertical accountability problem that often is present at the district level. Recommendationsfor Improvement e The technical planning committee should conduct regular discussions o f the quarterly sector reports, and should suggest corrective action where appropriate. Specific reasons for delays should be identified, and solutions sought. e The planningunit should prepare a consolidated performance report at year-end. e The district should maintain an imprest system for small purchaseso fgoods and services. D External Accountability, Audit, and Scrutiny Overall Rating: 41 percent (7 out of 17) Tororo performs poorly inthis area. The achievement o f transparency, interms of making information available to stakeholders, is not seen as a priority, and there i s little analysis and follow-up o f internal and external audit reports or o f performance reports. Table 6F. Tororo District: Benchmarking Results External Accountability, Audit, and - Scrutiny PerformanceArea and Ratingand Remarks Benchmark Summary Statement Transparency and 0% (015) The council has no coherent information strategy in place. The accountability in publication of a quarterly newsletter has been suspended due to financial management Little information is made lack of PAF funding. available in an accessible Key budgetary informatioi manner Plans andbudgets are made available to councillors, but often they ispublished, is accessible, are not presented ina user-friendly manner, and little information is and is user-fiiendly made available throughnoticeboards. Ingeneral, there seems to be little attention paidto the necessity to make information available to stakeholders. At subcounty level, however, there seems to be more openness andtransparency. Local government PAC 100% (6/6) The LGPAC regularly discusses intemal and extemal audit reports. scrutiny o f audit reports The PACfunctions well and The LGPAC reports are produced regularly with recommendations -122 - PerformanceArea and Rating and Remarks Benchmark Summary Statement There is effective external in accordance with the L G to the council. scrutiny of LG accounts Act Councildiscussion and 0%(0/3) The councilhas never discussedPAC reports, despite repeated follow-up of LGPAC and attemptsby the clerk to putthe topic onthe agenda. LGAC reports Council has never discussed PAC reports Council discusses and follows through the actions recommendedby the LGPAC and LGAC Councildiscussionof 33% (1/3) There i s evidence that sectoralcommittees discuss sector annual sector performancereports, butthere is no evidence that the council performance Sector committees discuss discussesthem.The discussionat the sectoral levelseldom sector performance, but producesspecific follow-up actions, however. Council discusses annual there is littlefollow-up sectorperformance and agreesfollow-up actions Likelihood that Improvements are unlikely There i s little likelihood of improvement in externalaccountability, monitoring and given theprevailing audit, and scrutiny. Transparency, either interms o f making accountability will political tensions informationavailableor interms ofrespondingpromptlyto issues improve raisedby external auditors, i s not seen as apriority. Political tensionseems to be underminingperformance inthis area. Recommendations for Improvement The council urgently must review the LGPAC reports from internal and external auditors, and decide on follow-up actions. FinancialManagement Capacity and Environment This category attempts to capturesthe financial managementcapacity of staff inthe L G andthe overall environment for effective financial management. OverallRating :55percent (6 out of 11) The capacity in financial management is minimally sufficient, but is likely to improve in the short to medium term. The use of informationtechnology is very limited. Table 6G. Tororo District: BenchmarkingResults-OverallRating: 55 per cent (6 out of 11) PerformanceArea and Rating and Remarks Benchmark Summary Statement Qualityof budgetingand 83% (5/6) The district has adequate capacity inplacefor financial financial management managementinplace, interms both ofthe quantity andthe quality S k i l l s The districtfinance of staff.While the staff are all appropriately qualified, however, department staff have they are not fully conversant with the new chart of accounts and High-quality staff carry adequate budgeting and FDSrequirements, andneedtraining inthese areas. out budgeting and accounting skills financial management The fmance andplanningdepartmenthas vancies inkey positions, andmust fillthese. The district does not have any qualified accountants, but many are beingtrained. Use of information 20% (1/5) Tororo does notuse any accountingsoftware. Computersare only technology usedinbudget preparation. The use ofIT is limited to I T is used in budgetary budgetpreparation. There Without the use of computers for accountingpurposes, the district andfinancial are limited ITskills in the finds it difficult to produce financial managementreports. management finance department The finance departmentusedaspreadsheetto handle its accounting requirements,but this is no longer appropriatewith the introduction -123 - Ratingand Remarks Summary Statement o f the new chart o f accounts. At the technical level, there seems to be a positive attitude and a culture fairly open managerial culture that promotes dialogue and cooperation among sectors. There is a lack o f initiative and inventiveness within the district, however, and staff and managers tend to be satisfiedmerely to adhere to the rules. One o fthe main obstacles to innovation isthe tension that exists betweenthe technical and political levels. This apparently has persisted for years, and i s amajor demotivating influence for staff. Political interference apparently has created numerous problems foi behavior financial management inTororo. Local revenue collection (especially o f Gtax) and procurement inparticular have suffered. More generally, political tension may have obstructed the achievement o f improvements such as those that might have been gained through follow-up o f the intemal and extemal audit reports. Likelihood of Financial management The ongoing training for accountants andthe prospective improvements in capacity will improve, but recruitment o f additional staff inthe finance department should Jinancial management any improvements may be enhance the financial managementcapacity inthe district. Use o f capacity and environment undermined bypolitical IT also may increase and bring associatedimprovements when the issues problems IFMSsystem is implemented inTororo. L The general environment otherwise is not likely to improve inthe short term, however-and certainly not untilthe political tension is dissipated. Recommendationsfor Improvement Councils must be given training appropriate to their roles in financial management, including inprocurement and localrevenue. The district should seek assistance in handling financial software, specifically to enable it to manage the new chart of accounts in advance o f the IFMS implementation. The introduction o fLoGFIASmay help inthis regard. -124 - ANNEX 7. IMPACTOFLAWS, POLICIES, SYSTEMS, GUIDELINES, AND REFORMS ON FINANCIAL MANAGEMENT GOVERNMENT INLOCAL Generic Issues The laws, policies, and guidelines prepared by central government, and the interactionbetween central government agencies and LGs, significantly affect the way in which LGs manage their finances. This section sets out some initial observations on the functioning of the legal framework at the local level, highlighting apparent problems and identifying gaps that may need to be filled. It also discusses the new issues that are arising with the large number of new initiatives that are being introduced. Many o f the issues discussed here are common across several LGs. These are presented together, I rather than separately for each LG. Some o fthe key issues are: inadequate capacity building following the introduction of new systems; inadequate feedback from central government institutions; inconsistent formats and approaches, thus creating a burden on LGs; the needto foster intersectoral coordination and collaboration within each LG, to replace the existingvertical relationships with sector ministries; the need to encourage horizontal accountability o f LGs to their councils and downward accountability o fLGs to their population; and the importance of measuring, comparing, rewarding, and disseminating good practice. Issues around the BudgetCycle Several issues relate specifically to distinct elements of the budget cycle. These are associated primarily with gaps or inconsistencies inthe policy and legal framework andthe operational guidelines providedto LGs. Chiefamong them are the following. Planning and budgeting Perhaps surprisingly, the planning and budgeting process is identified as the weakest element of the budget cycle. This is despite the fact that LGs have received substantial training on development planningand on the preparation o f budget framework papers. A lack o f coherent guidelines and poorly coordinated support and information from the center are significant to this problem. All LGs demonstratedproblems inthe timing and sequencing of the preparation of plans and budgets. The legislation specifies a deadline of 15 June for the DDP and budget to be presented and approved. Ideally the DDP should be prepared and approved by the end o f December, however, so that it can feed into the BFP. Inturn the BFP should feed into the preparation of detailed workplans and budgets to be presentedto and approved by council inJune. There i s also a need to clarify the content and fimction o f the different planning and budgeting instruments, to ensure that they cohere with each other and to clarify their specific contribution to the improvement of financial management at the local level. The relationship between the DDP and the BFP i s not clearly articulated in the guidelines and is not clearly understood at a technical level; inconsistenciesinthe various guidelines also leadto difficulties inplanning and budgeting. The role of the BFP is not well understood, especially by finance departments. The LGs tend to prepare workplans by funding source, to meet central requirements such as those for the PAF. Workplans seldom are used as a means of presenting intended activities and results from budgetedexpenditure to council alongside the budget. - 125 - There finally is a lack o f coordination at the central level. This manifests itself in the center communicating conflicting and confusing formats and information regarding budget formulation. Budgetexecution The procedures and controls set out in the LGFAR generally function well, but there are some gaps in the policies and guidelines that are issued by the center. These in particular exist in the areas of procurement, cashflow management, and commitment control, and contribute to the unpredictability of budget execution. Some of the problems in procurement are due to the absence of common national guidelines for L G procurement. This omission causes confusion in terms of how work needs to be organized and what procedures need to be followed. More rules for procurement planning and contract monitoring evidently needto be unified and madeclear. Many administrationstaff observedthat tendering couldnever be free o fpoliticization while the tender board is appointed by council. This practice undermines the independence o f the administration from council and blurs the division o f roles betweenthe two arms of localgovernment. The cash management in LGs i s weak, and there again i s a lack of guidance from the center on this issue. Poor cash management causes significant unpredictability in budget execution. The FDS budget implementation guidelines provide some guidance for the preparation o f cashflow budgets and the management of cashflow during the fiscal year, but these need to be enforced and followed up by training. Cashflow budgeting also could be incorporated as a key performance indicator in L G inspections and assessments, and possily also into the LGFAR. Although there are provisions inthe LGFAR for the recording o f financial commitments, these are not fully understood. There i s no active ,systemfor LGs o f commitment control. Most LGs tend to ensure that cash is available before they enter into a commitment. This situation clearly i s suboptimal, as central government grant receipts are predictable and LGs should be able to make commitments in advance o f the receipt o f such grants. Again, the FDS budget implementation guidelines provide for this circumstance, butthey have yet to be implementedand LGs have not beentrained intheir use. Under the LGA and the LGFAR, internal auditors are fully engaged in pre-auditing all L G financial transactions. The internal audit departments reported that this undermines their objectivity in auditing financial systems. The internal audit departments also are involved in the evaluation o f tenders. The LGFAR should be brought in line with the 2003 Public Finance and Accountability Act, which relieves internal audit of its pre-audit role. Should this change be made, significant retraining of the internal audit cadre would be required. Accounting and reporting Accounting procedures generally are followed, and accounting and reporting increasingly are conducted in an timely manner. The accounting chain in all districts (with the exception, to an extent, of Kabale), is vertically aligned toward the central agencies, rather than to council or service beneficiaries. This overlooks the potential managementvalue o f accounting and reporting. The central policies and guidelines must be amended to emphasize the managerial and horizontaUdownward accountability purposes o f accounting and reporting. Reporting additionally is fragmented by funding source, making it difficult for managersto make good decisions. There furthermore are several different reporting formats for different programs, creating a burden at the local level. These formats need to be harmonized, ideally through the FDS budget implementation guidelines. There is no comprehensive reporting o f annual performance against workplans alongside the preparation o f final accounts. It is difficult for councillors and managers to get a complete picture of performance. The central government (both the MoLG and line ministries)should consider makingthe production of comprehensive annual performance reports a performance indicator for assessment - 126 - under the routine compliance inspection and annual assessment exercises. This would enhance the value as an LG management tool o fthe cross-sector performance analysis. External accountability and audit The LGs are particularly weak in this. The vertical, fragmented nature o f accounting and reporting fundamentally undermines the ability and interest o f council and the public in holding the administration to account for its performance. This i s one of the most difficult areas for central government to strengthen, as central demands for accountability can undermine the local accountability process. However, some specific actions may help: The central government should emphasize the development and implementation by LGs of communication strategies. If LGs are to strengthen their accountability to the public, they will need guidance inthe presentation of information on budgets, spending, and services. If the legislative framework were to require LGs to present annual workplans and comprehensive annual performance reports to council, and ifti were to require councils to approve these reports, this would motivate councils at least to examine performance. It would also bring the L G system into line with the provisions of the Public Finance andAccountability Act. Further consultations will be heldwith the L GAccounts Committee inparliament and with theAuditor General to gain their perspective on these issues. Impacts of Sector Laws and Policies on Financial Management The interface between sector laws and policies and the L G regulatory framework has important implications for LGs in their ability to deploy resources efficiently and effectively, and to deliver services that are responsive to local needs. The administrative requirementsand conditions attachedto conditional grants tend to promote a vertical relationship between sector departments and the district, creating problems with the interface between sectoral and district-wide processesand underminingthe incentives for collaborationat the district level. Interviews with the sample LGs revealed the concern that sector planning guidelines are in part incompatible with the district-wide planning process, and as such create duplication and inconsistencies. Sector guidelines often require separate consultations at a lower level and specific planning formats, sometimes bypassing lower LGs. Such discrepancies were particularly evident inthe planningunit, for example inthe roads and water sectors. Vertical sector reporting mechanisms additionally seem not to be coordinated with local intersectoral processes. The sectors tend to view themselves as accountable to their central ministry rather than to the district administration, mostly because funds are allocated on a sectoral basis. Intersectoral coordination i s weak. If more funding was allocated at the discretion o f the local government, the sectorswould have more incentiveto coordinate their work. Not all sectors created problems. For example, Kabale District reported that education sector policies and guidelines are straightforward, provide adequate flexibility, and fit well with district processes such as planning and procurement. The converse was true for the agriculture sector. The variety o f programs in itself creates confusion, some involving community participation, for example, and others not. In conclusion, however, the sectors should seek to advance single, uniform policies for LGs that interface with LG-wide processes. Incentivesto Perform The LGDP assessments have provided important inputs to improve the way in which the district carries out its functions. Kabale was among the first districts to benefit from decentralization under the DDP. It has consistently performed well, achieving second place nationally last year for LGDP implementation. The results o f this assessment have motivated staff at district level to further improve their existing systems. Conversely, Jinja was also part o f the initial DDP pilot but was less motivated by its involvement than was Kabale, and has not performed so well in assessments. - 127 - The use of health district performance league tables also has acted to motivate some health services. Jinja led the tables at one point, inspiring the LG's health services director to institute a system of prizes for health units that perform well, and thus providing another layer o f incentive for sector workers. Published performance inexams also has proven an important motivation. The simple exchange o f experience and ideas can serve also as an effective incentive for improved performance. The district planner in Jinja joined an LGDP assessment team to observe good practice elsewhere, for example, and returned to his own district motivated to try out new ideas. The promotion o f learning through observation o f good practice from peers can be an important mechanism for disseminating good practice and motivating LGs to perform. Implementation ofNew Initiatives There are many new initiatives inLGs that relate to financial management. Many o f these address the shortcomings in financial management observed in this study. Overall, however, there i s a lack of proper preparation, capacity building, and follow-up on the part o f central government when introducing new systems and procedures, and this has created disruption and confusion at the local level. It is not enough to prepare guidelines on the new systems and unveil them to the LGs in a one- or two-day workshop. There may needto be a new approach, centeredon the practicaltraining of LGs on site. Fiscal decentralization strategy The FDS initially was piloted in several districts, including Tororo, with the preparation of the BFP and budget for 2003104. The budget formulation guidelines are now being rolled out countrywide, and all LGs were supposedto use them when preparing the BFP fro 2004105. There was concern that the piloting of the FDS was not properly done, however, with inadequatetraining given to LGs on what i s a highly complex program. The FDS guidelines were introduced without proper evaluation, and problems now are emerging. The chart o f accounts is a case inpoint. Tororo was the only one o f the original pilot districts to be including inthis benchmarking sample, and given its poor results in the assessment i s unlikely to give a clear picture of FDS implementation. Broadly, however, it may be concluded that implementation of the new guidelines was lacking in numerous respects. Tororo compiled its BFP without regard to the new formats, for example, and failed to completely adhere to the budget format. The FDS implementation nonetheless seemed to point in some interesting directions for improvement, such as the provision for quarterly performance reports submitted ina common format by sectorsto the planningunit. At the time of interview, officers from Jinja had just received the revised guidelines at the BFP workshop. The district had yet to incorporate them into its planning and budgeting systems. While heads of department and the planner were aware o f the new provisions of the FDS, however, the CFO was not. This, combined with the lack o f coordination within the budget desk, means that the likelihood o f the budget guidelines influencing the budget is low. While the new guidelines had been used by heads of department and the planner to prepare the BFP, they had not been fully internalized, and the BFP as a result was not a particularly coherent document. The heads o f department recognized the value of the new accounting and bank account arrangements, but were understandably concerned about the possibility o f 10percent being allocated away from their sectors. Kabale also had some interesting observations on the FDS. Officials pointed out that it permits the number of bank accounts held to be reduced, for example, but that it overlooked the need also to reduce the number of conditions attached to the use o f funds. Doubts also were expressed about the design o f the systems that aim to ensure that this reduced number o f bank accounts can be properly managed. The possibility o f reallocating 10 percent o f transferred resources at the local level was not considered feasible, as all sectors are short o f funds and none will be willing to give up its funding. -128 - Local Government Information Communication System (LOGICS) The system has been installed in the district planning units in Jinja and Tororo. The database i s not fbnctional however, as data are still being collected from the sectors. Practical assessment o f the systemtherefore is impossible, but it clearly has significant potential value. Weaknesses in planning and budgeting and the vertical nature of reporting mean that there is a clear need for a system that works across sectors and that uses a common approach and format in monitoring and evaluation. Chart of accounts The new chart of accounts was adopted countrywide this fiscal year, replacing the old coding systems set out in the LGFAR. Some LGs have expressed concern that the chart o f accounts i s not fully applicable to LGs, and this concern will be verified through central consultations. Training on the chart o f accounts in districts that are not engaged in the IFMS pilot scheme has been inadequate, limitedto a single presentation during the regional budget framework workshop. The chart i s complex, and finance and sector staff needa muchmore thorough inductionto it. Integratedfinancial managementsystem (IFMS) Jinja was the only district in the sample that was piloting the IFMS, which was due to go live a few weeks after the assessment. The system will retain a manual system for requisitioning of funds by heads of department, because o f the large distances between offices in the district. Overall, impressions o f the system were positive, andkey staff appearedto have beenwell trained in its use. A few concerns were voiced. While key staff inthe district appearedwell versed inthe IFMS, general accounts staff were not. A major concern also i s o f inadequate computer literacy among the lower cadre of the accounts staff. It remains to be seen whether or not these staff can be retrained inthe use of automated systems. According to the Jinja finance department the IFMS furthermore disaggregatesthe budget only to the directorate level, and not to the department level. This would mean that finance staff would have to maintain manual records to track expenditures to department, undermining the value-added of the system. The accuracy o fthis claim clearly needs to be verified. - 129 - ANNEX 8 Local Government Integrated Fiduciary Assessment Tool The aim o f the benchmarking tool is to measure and assess the financial management performance o f the local government unit against international good practice. The benchmarking table includes inthe first column a benchmark statemento fgood financial managementpractice for eachperformance area. The next column presents a set of questions and the benchmark principles that are necessary for good performance against the benchmark statement in that performance area. These benchmark principles should be verified as either being true or false for the LG; a true statement scoring 1 and a false statement 0. The table also sets out the sources of information by which the benchmarks may be verified. / The aim is to gather scores against each benchmark but, significantly, to establish also a qualitative impression o f how the systems are functioning. The exercise therefore is to collect scores for the LG against each benchmark but also to collate qualitative information and analysis of performance against each benchmark. Furtherqualitative questions are provided after the end o feach section. Primary Outturns Primary outturns are the immediate results o f the PFM system in terms of actual expenditures (in aggregate and composition), central and local revenues, and arrears. These are assessed in comparison with the budget. They provide, in particular, a measure o f the realism o f the budget and the extent to which the budget i s an authoritative tool o f government policy. The success of the budget ultimately mustbejudged interms o fthe intended results ofthe expenditure and adherenceto the workplan. Table 8A. Local Government Benchmarking Performance Questions andBenchmarkingPrinciples Information Sources Score Max Area and Score Benchmark Primary budget How reliable werep u r budget estimatesfor Final accounts for last 9 outtums 2002/03? three years (budget Aggregate expenditure outtum against the budget estimates) Budget estimates was 10percent comparedto the original budget are realistic and implemented as Reduced deviations over the last threeyears in planned aggregate expenditures Average deviation between actual and budgeted expenditure by sector was less than 10 percent Aggregate deviation inrevenue outtum compared to the original budget was less than 10percent Budgeted local revenue collections are realistic, with a deviation o f less than 10percent from budget estimates Local revenues are more than 5 percent of local government revenues Increased local revenues in absolute terms over the last three years Reduced deviations over the last three years in aggregate revenues Local government arrears are less than 10 percent of budget amounts - 130 - Qualitative Issues: Are the intendedresults ofbudget expendituresbeing achieved? Do local government budget and annual workplans reflect the development objectives and priorities o f the local council and the population? Do LG annual workplans and budget reflect national sector priorities as set out inthe PEAP? Are activities and outputs inannual workplans generally achieved as planned? I s there evidence o f serious deviation from workplans? Assessment of the BudgetCycle This category of indicators provides broad measures of the performance o f the key systems, processes, and institutions within the budget cycle o f local government. These are planning and budgeting, budget execution, accounting and reporting, external scrutiny, and accountability Table 8B. Medium-Term Planning And BudgetFormulation Performance Area Questions and BenchmarkingPrinciples Information Sources Scoring Max andBenchmark Score Planning and Describe the budgetprocess TPC minutes 10 budget formulation process A budgetcall is preparedby the budget desk at Minutesfrom two the beginningofthe budgetcyclethat includes a sector committeeson A credible, clear timeline for the budget planningprocessand the DDP, BFP, and the coherentplanning definitionsof roles andresponsibilities inthe budget and budgetprocess process. is in place, with clear definition of Minutesof the budget The timing of the DDPprocessenablesthe DDP conference events and to feed into the BFP andbudgetprocess. responsibilities and Minutesof the district the meaningfit1 The DDP is approvedbefore 15 Juneo f the councilmeetings that participation of previous fiscal year. approvedthe DDP and politicians, civil budget society, and civil Budgetpresentedto council on or before 15 June servants, emuring of the previous fiscal year. Minutesofthe that local needs executivecommittee andpriorities are LLGsmake submissions to the HLGfor from the clerk to represented considerationinthe DDP. council, approvingthe LGBFP The technical planningcommittee, which includes the sector heads of department, is active inDDP Obtainandreview the formulation. LLGsubmissionof priorities to the DLG The executive and councilcommitteesandthe executive are involved inkey DDP andbudgetary decisions . Medium-termallocations to sectors inthe BFP are approvedbefore detailedsectoralbudget estimates are prepared. A budget conferenceis held, andusedto discuss budget strategies as set out inthe BFP. Plans ofNGOsand civil society organizationsare incorporatedinto the DDP. Localgovernment How are the objectives and strategies in the DDP DDP document 8 development plans decided? Two LLG development plans A realistic, The DDP is rolled over from the previous year, (ascertainany achievable district with strategies adjusted andnew outputs and linkages) developmentplan, activitiesidentified - 131 - `erformanceArea Questionsand BenchmarkingPrinciples nformationSources coring ndBenchmark lith clear htrict projects bjectives and 4 clear linkageexists betweenDDP andLLG xwarded by LLGsfor trategies, plans, with evidence of LLG forwardedpriorities onsideration ejecting national [districtprojects) for inclusioninthe DDP nd local need and `wo sector lriorities 4 clear andlogicallinkage exists betweenthe LG evelopmentplans vision, developmentgoals andoutcomes, Jbjectives, andtargets Clear analysis and strategiesto target the poor Clear sector strategies are outlined inthe DDP, and/or standalone sector plansthat are consistent with the DDP Qualitative(SWOT) analysisandperformance informationare analyzed andusedtojustify chosenstrategies Analysis includes informationonper capita service coverage, disaggregated by subcountyand parish. This is usedto target investments Strategies and activitiesand the DDP are hlly costed, with plannedactivities linkedto the availability of resources ,G budget What type of analysis is carried out, and are the )DP kameworkpaper data contained in the LGBFP? ;GBFP 4 BFP inplace Comprehensive, balancedrevenues and niith realistic expendituresare projected over the mediumterm 3udget estimates nedium-term inthe LGBFP devenueprojections 2nd sector budget Medium-termallocations betweensectors are itrategies, and clearly set out, with revenue sources :learly identij?ed 7bjectivesand 7utputs Clear rollover of medium-term allocations, with changesin sector allocationsrelative to the previousyear's BFPjustified inthe LGBFP Analysis o f pastperformance is usedtojustify revenue projections, expenditure allocations, and performancetargets The BFP clearly reflects strategies and investmentsidentified inthe DDP; where there are differencesthese arejustified The BFP contains clearly definedobjectives and output targets, disaggregatedby sector and geographical area Operationalandrecurrent implicationsof capital investmentsare projected Annual workplans How are budget estimates and annual workplans BFP for currentand andbudget oresented? next fiscal year estimates The budget is balancedand covers all expenditure Budget of current Balanced, andrevenue areas fiscal year comprehensive - 132 - PerformanceArea Questionsand BenchmarkingPrinciples [nformationSources scoring vlax andBenchmark kore mnual budget Comprehensive sector allocations cover all 4nnualworkplans for ?stimatesclearly expenditures :went fiscal year ?resented, iupported by,fully Budgetestimatesare similar to the medium-term :omistent annual allocationsset out inthe LGBFP uorkplans, setting mt activities and Informationis includedon actualrevenues and mtputsfor the expenditureso fpreviousyears financial year. The main assumptionsunderlyingthe budget are provided Budget estimates are presentedin away that is easy to understand, with a logicalstructure and clear summary tables Comprehensive annual workplans exist for all sector departments Workplans are presentedfor all revenue sources, not by revenuesource Clear performanceindicators andtargets are includedinthese workplans Workplans are hlly costed and consistentwith budget allocations The roles andresponsibilities of different departments andLGs are clearly set out Poverty-relatedexpendituresare clearly identifiableinthe LGbudgetdocumentation Likelihood of How have improvements been made, and how do nla improvements in you plan to makefurther improvements? planning and budgeting There is evidence that over the last three years the situation has improved Thereis analysis andunderstandingofthe challenges facing the LG There is an explicit LGstrategy or planto improvethe situation - 133 - Table 8C. BudgetExecution - 'erformance Questionsand BenchmarkingPrinciples nformationSources Score Max wea and Score lenchmark - .oca1 revenue How is your LGplanning to enhance local :ax registers 10 ollection pevenues? bceipt books "heLG has a Potential additional revenue sources have tredible strategy 3een identified donthly s/c revenue statements or local revenue 'nhancement, The cost-effectiveness o f different sources 'ublications o f local revenue )ackedup by has been analyzed :ollection fective systems or collecting 4 credible strategy to enhance local ind accounting revenues exists br local 'evenues Outline theprocedures you have inplace for collecting and accountingfor local revenues Gtax and property tax register are properly maintained(including names o f taxpayers and tax assessment) Accountability procedures are inplace for the collection, recording, and banking o f taxes andare complied with by subcounty chiefs and tax collectors HLGsprovide subcounties with proper assistance and supervision intax collection Revenue ledgers are correctly maintained andup to date Revenue collectors keep up-to-date collection registers Subcounty chiefs submit monthly statements that are reconciled with records at the district level Tax revenues collected by LLGs and districts and municipalities are published - Procurement Describe how theprocurement process is Procurementplan 21 organized in your LG, and how you plan Transparent, for procurement in ajscal year Annual workplans accountable and eflcient Atender board i s inplace, appropriately Annual cashflow budget procurement composed and with the approval o f process members. All members have relevant Budget estimates training. Minutes o f council with composition Roles o fthe tender board andthe other o f tender board (TB) members and actors inthe LGadministration and counci their qualifications are clearly delineated Minutes of TB LG procurementplans are prepared. Spending departments planfor procurement inadvance, giving costs and List o f approved suppliers completion dates, consistent with and as a part o ftheir annualworkplan andcash Technical evaluation committee planning process (TEC) minutes - 134- erformance Questionsand BenchmarkingPrinciples nformationSources :ore Max1 .rea and Score ,enchmark Market surveys are regularlycarriedout to TEC evaluationreports updateprices for goods and services; nationaltender thresholds are adhered to :ontract registers Assistance andtraining is providedby LGs Sample bills of quantities to local suppliers and contractorsinbid preparation sample terms of reference Describe the tendering and bidding idvertisements for tenders Drocess 'rocurement evaluations Budget authority is requiredbeforeinviting bids Minutes of pre-bidmeetings Standard documents are usedfor goods, works, and other contracts(BoQs, Tor); tender documents give clear instructionsto bidders andprovideall information necessaryto prepare responsivebids Contractsare publicly advertisedand adequatetime is given for bidpreparation Prequalificationis carried out from a current list of qualified suppliers and contractors.Newcomers are readily and fairly accommodated A pre-bidmeetingis heldand modificationsare dealt with promptly. Clarifications are dealt with promptly, and records are kept of communicationswith bidders Bids receivedprior to the deadlineare securely stored. Bids are opened inpublic, closeto the deadline Technical evaluation committees(TECs) carry outthorough bid evaluationsand preparebidevaluation reports.Reports explainhow responsivebidders are identified LGTBconsiders the recommendations madeby the TECs andexplains inthe minutes any differencesof assessmentthat i s makes Bidpayment securities are required, when appropriate Contractnegotiations are conducted and documentedafter the award Describe how contracts andpurchases are administered and monitored and describe theprovisionsfor record keeping Assurance is made before contract signing ofthe availability of funds Adequate systems are inplace for -135 - Performance Questionsand BenchmarkingPrinciples - Information Sources Score Max Area and Score Benchmark monitoring the quantity, quality, and timeliness o f contracts. Procurement evaluations are carried out Contracts generally are completedon schedule Variations and disputes with contractors are handled openly and transparently, with contract conditions used as the basis for agreement Contract registers are maintained andkept upto date Procurements carried out below the procurementthreshold are approved by the tender board ex-post, with no evidence of any successive contracting to circumvent thresholds Payroll and Describe theprocessyou have in - DSC minutes in which disciplining 9 personnel recruiting and disciplining staff took place management 4ppropriately composed District Service Samplejob advertisements LG recruits and Zommission @SC) is inplace manages staff Establishmentregisters sffectively, Recruitment is open, with allposts @ciently idvertised inthe press wanagingthe Advance register myroll The number o f staff onprobation for more hantwo years is insignificant Salary arrearsregister The DSC, following the advice o f sector Iepartments, regularly takes decisions on lisciplinary action against members o f ttaff lescribe thesystemsyou have inplacefor vanaging thepayroll lstablishment registers are maintained and re up to date for all established staff. The mayroll is regularly reconciled with the eneral and establishment registers `imely payment of salaries (before 25th o f le month) eparate bank account kept for salaries, ithemployeepaymentsmadeby direct ank transfer isalaryadvanceregisterismaintained,is egularly posted, and is reconciled withthe ;enera1ledger. The repayment schedule is learly indicated Lsalary arrears register is maintained :ash flow )escribe how you manage cashflow 4nnual cashflow budget 20 nanagement :ommitment and The LGhas a cashflow budget which sets Juarterly cashflow budget and - 136- - 'erformance Questionsand BenchmarkingPrinciples nformationSources core lax k e a and core 3enchmark :xpenditure out the expectedtimingof inflows from lisbursementschedules :ontrol differentrevenuesources anddepartment expendituresover the fmancial year, nonthlycashflow statements, ifthey consistentwith workplans and :xist procurementplans. :ash inflows and 'onsistency ofcashflow budgetwith iurflows are Cashflow budgetendorsedby the mual workplans nanaged such executive hat the LG is Vote book ible to meet Establishedprocedures are inplace for :urrentpayments allocating and disbursingcash inflows ?aymentvouchers 7romptly from different revenue sources against the iccording to its budget anddepartmentworkplans Sample localpurchase orders 'inancia1 :ommitments, Transfersare made promptly to sectors, ohile lower councils, andservice units and Establishmentregisters naintaining receivedingood time idequate Salariesarrears register liquidity and not Quarterly cashprojections or limits and iccumulating disbursement schedules are providedto Schedulefor payment of creditors irrears or debts spendingdepartments. These are revised regularlyon the basisof cashreceipts Budget to ascertainevidencefor budgetingfor arrears Regular monitoringof cashposition through monthly cashflow statements ensures that the average cashoutflow does not exceedthe cashinflow Describe what controls your administrations whenfinancial commitments are entered into and payments made Documentationto initiate purchasesof goods or services is adequate; purchase requestsneedto bejustified interms ofthe budget andannualworkplans Vote books reflecting commitments and expenditures are maintained, are up to date, and are reconciled with the main ledger each month Appropriate processes are inplace to approve commitments against cashflow forecasts andto ensure consistencywith workplans Prenumberedlocal purchase orders are preparedfor all purchasesof goods and services andare approvedandrecordedas commitmentswhen issued Adequate proceduresare inplaceto ensure goods orderedare received, checked, and certifiedbefore payment is made An appropriateprocess is inplace for approving payments,with specified levels of authority for different amounts. Supportingdocuments are maintained for all approvals - 137- - Performance Questions and BenchmarkingPrinciples Information Sources Score Max Area and Score Benchmark Payments are made by check; check registers and dispatch books are maintained Doyou haveproblems with thefinancial position ofyour local authority? How solvent is your district? Is there any scope for clearing arrears? Salary and pension arrears are not a significant problem Nonsalary arrears are not a significant problem There are no significant outstanding overdrafts or loans at local banks Credible plans for the clearance o f outstanding arrears anddebts are set out in budget estimates and the BFP The local government pays bills promptly and does not accumulate unpaidbills. Most bills are paid within 30 days A creditor ledger or list is maintained, is regularly updated, and is reconciled with the control account inthe general ledger An established schedule exists for the payment o f creditors, with clear criteria on the sequencing o f payments - Intemal Audit Describe the internal auditfinctions, Personnel records o f audit 12 standards, andprocedures that are in place in the local authority Intemal audit reports Internal audit Professionally qualified audit staff are in Work program for intemal audit effectively place monitors the internalfinancial Audit staffhave adequate autonomy and an controls in the adequate budget and facilities LG Intemal audit reports go to the council, not merely to the CAO or CFO Intemal audit staff have access to and regularly check the proper recording o f financial information Internal audit staff have an annualwork program Written standards and procedures are in place for the internal audit The intemal audit reviews the systems for compliance, procurement, revenue :ollection, and bookkeeping The intemal audit unit is not part o f the - 138 - - Performance Questionsand BenchmarkingPrinciples [nformationSources kore 4ax Area and core Benchmark - pre-audit of the financial transaction audit Independent lines o f reporting exist and do not produce conflicts o f interest The intemal audit unitprepares audit reports on at least a quarterly basis High-quality reports are made on the functioning o f LGfinancial management procedures and systems All internal audit reports are automatically made availableto the council. Copies are made availableto the Auditor General and Inspector General o f Government Deviations fiom Describe the systemsfor the application Vote book workplans and for and approval and administration of budgets deviationsfrom workplans and budgets Final accounts Effective Clear procedures are inplace for the Virementkeallocatiodsupplementary procedures are preparation and approval o fapplications requests inplacefor the for virements, reallocations, and applicationfor supplementaries Sample workplan alterations and approval of deviationsfrom Clear procedures are inplace for the workplans and preparation and approval o fapplications budgets, for workplan alterations allowing managerial Virements, reallocations, and flexibility and supplementary provisions are reflected and managerial explained in the monthly financial oversight statements The vote book is amended to reflect the corresponding increases and decreases when virements, reallocations, or supplementary provision warrants are issued Likelihood that How have improvements been made, and budget execution how doyou plan to makefurther will improve improvements? There is evidence that over the last three years the situation has improved There is analysis and understandingof the challenges facing the LG There is anexplicit LG strategy or planto improve the situation - 139 - Table 8D. AccountingAnd Reporting - PerformanceArea Questionsand BenchmarkingPrinciples nformationSources core Iax andBenchmark core, kccountingand What booksofaccount do you use, what is their :ash books 1 .ecordkeeping purpose, and how regularly do you update them? roumals 4 clear and Cashbooks are maintainedandup to date for each hnctioning system individual bank account, for bothrevenue and Ybstracts 's inplace to expenditure znsure that all Zneral ledger rinancial Joumals, abstracts, andgeneral and subsidiary transactions and ledgers are all maintained andup to date Subsidiary ledgers balances are pecorded and Control (ledger) accounts are up to date zppropriately 2ontrol ledgers peported in the rinancial An appropriatesystem is in place for managing [mprestregisters rtatements imprest. Petty cashvouchers are usedandimprest registersare maintained, and adequaterules for replenishing and retiring imprestsare inoperation Bank statements How does the administration ensure that bank Bank reconciliation accounts are managed correctly and reconciled in a statements timely manner with books of account? Store ledgers No more thanthe minimum number of bank accounts are maintained for collectingrevenuesand Latestboardof survey makingexpenditures Councilhasregular bankingarrangements, with receiptsbankedintactand aregular (at least monthly) independentcheck of duplicate banking slips All accounts are reconciled each month, andbank reconciliationstatements are checkedandinitiated by the CFO Describe the systemsyou have inplacefor managing stores and records Stores are managedwell, with store ledgers maintainedandupto date An appropriatesystem is inplace for sellingand writing off stores belongingto the council Clearlydefinedproceduresare in operationfor storingandsafeguardingrecords; sufficient space and equipment andresources are allocatedto records management Stockcountsare carried out regularly, with boards of survey conductedevery year - In-yearfinancial Are thereprovisionsfor financial reporting within 9 andperformance district a hinistrations? reporting Financialreports -om Implementingunits reportregularlyto sector service units departments on funds expended Performancereports LLGsreportmonthlyto councilandthe CAO on from service units funds expended Sector financial and Effective systems are inplace for reportingon sector performancereports - 140- service delivery performance llonthly financial tatements Sector departments preparemonthlyreportsfor the CAO/TC on expenditureandoutputperformance 'AF reports against workplans The CFO preparesmonthly financialreports and submitsthem to the C A O K The CAO presentsmonthlyfinancialreportsto the executive committee Regularfinancial reportsare submitted, ontime, to centralgovernment Regularperformancereports are submitted, on time, to central government Budget reports include all significantgovernment expenditures,revenues, and financing ofgovernment activities n-yearmonitoring, What mechanismsfor monitoring andfollow- up of Monitoringreports malysis, and reports are in place at the district level? ~ollow-up TPC minutes Monitoring reports from the lastthree monthsare availablethat documentperformanceagainst Executivecommittee workplans ninutes The technical planningcommittee(TPC) discusses Sector committee sector performanceandmonitoringreports, and minutes takes follow-up action Executive and sector committees discuss performance andmonitoringreportsand take follow-up actions Regularmeetings are heldwith communities and end users Civil society is regularlyengagedinmonitoring activities Finalaccounts and Are annual pe$ormance reportsprepared? Describe Final accounts performance how annual sector performance is reviewed reports Annual performance The LGprepares draft accounts and submitsthem to reports the Auditor Generalby 30 October The LGprepares annual reportson performance, covering all sectors Likelihood that How have improvements been made, and how do nla monitoring and you plan to makefurther improvements? accountability will improve There is evidencethat over the last three years the situationhas improved There is analysis and understandingof the challenges facing the LG There is an explicit LGstrategy or planto improve the situation - 141 - Table 8E. External Accountability, Audit, And Scrutiny Performance Area and Questions and Benchmarking [nformation Score lax Benchmark Principles Sources core Transparency and Describe the measuresyou haw taken [nformation accountability in financial at the district/munic@ali@level to strategy management enhance the transparency offinancial management Budget estimates Final accounts Key budgetary information is published, The council has an information and Public notices is accessible, and is user- communicationsstrategy friendly The L G publishesits workplans, budgets, and accounts; these also are distributed to councillors andposted on noticeboards Budgets, workplans, and accounts are presentedin aform that is easily understandableto council andthe public Within sectors there are specific provisions to ensure that communities and beneficiaries are aware of how funds are spent andare aware of the intendedpurpose of that expenditure The L G publishesinformation on transfersandplannedcompleted activities at servicedelivery unitsand lower LGs Local governmentPAC Is the LG Public Accounts Committee LGPAC minutes 5 scrutiny of audit reports efective in scrutinizing accounts and audit reports? LGPAC reports Effective external scrutiny of LG accounts An LGPAC exists The LGPAC is appropriately composed, is independent, and has adequatebudget The LGPAC meetsat least quarterly Internaland externalaudit reports are regularly discussedby the LGPAC The LGPAC prepareshigh-quality quarterly reports The LGPAC recommends to council follow-up actions, basedon the audit reports Council discussion and How does the council discuss LGAC Council minutes 3 follow-up of LGPAC, and reports? LGAC reports Executiveminutes Council discusses LGAC reports and Council discusses and agrees follow-up actions Reports by h e follows through the executive on - 142- actions recommended by Council discusses LGPAC reportsand follow-up the LGPAC and LGAC agrees follow-up actions Follow-up actions approvedby council and formal responses from the executiveto council/parliament are systematically implemented Does council discuss local government Sector committee 3 annualsector verformance reports? reports performance Sector committeesdiscuss annual Council minutes Council discusses annual performance r- sector performance and agreesfollow-up actions Council discusses annual L G performancereports and agrees follow- up actions Evidenceexists of follow-up actions Likelihood that How have improvements been made, nla monitoring and snd how do you plan to makefurther accountability will improvements? improve There is evidence that over the last three years the situation has improved There is analysis and understandingof the challenges facing the LG There is an explicit L G strategy or plan :o improve the situation Qualitative Issues: How is your interactionwith the Auditor General and LGAC? Describe your LG's interactions with external auditors, and describe how the LG deals with external audit reports. When did the Auditor General last visit to audit your accounts? Describe the process of external audit. When did the Auditor General submit the most recent annual audit report to your LG? For which year's accounts was this? How did you react to the findings and recommendations of the audit reports? What corrective measuresdid the council make? Who decided on what actions to take? - 143 - FinancialManagementCapacityAnd Environment This category seeks to captures the financial management capacity o f LG staff in and the overall environment for financial management. Table 8F. Financial Management Capacity And Environment - Performance Area Questions and BenchmarkingPrinciples Information Sources Scoring Max and Benchmark score - Quality of budgeting Describe the capacity of your staff in Jinancial Personnel records 1 andfinancial management managementskills Appraisal forms The finance and planning department is h l l y staffed High-quality staff All officers in the key positions of CFO, senior rarry out budgeting accountant,, chief internal auditor, andplannerhave mdjnancial the required qualifications nanagement A staff appraisal system is inplace for finance staff Qualified accountants are inplacewith the L G Existing staff are undertaking professional accountancy training Initiatives are in place to increase the budgeting and financial management capacity of existing staff Use of information Describe how you use information technology in 5 technology financial management IT is used in Computers are usedinbudget preparation budgetary and financial Computers are used inpayments approval management Softwarepackages are used inaccounting Computers are used inauditing Most accounts staff are computer-literate Likelihood of How have improvements been made, and how do n/a improvements in youplan to makefurther improvements? crosscuttingissues There is evidence that over the last three years the situation has improved There is analysis and understanding of the challenges facing the L G There is an explicit L G strategy or plan to improve the situation - 144 - Qualitative Issues: How does the underlying institutional, managerial, and political LG environment affect financial management? Staff and managerial culture and behavior What are the major factors that influence amanager's ability to perform? How well do managers understand the inteial controls and the checks and balances used in financial management? Are managers delegated sufficient authority over their budgetary resources to achieve results, or are they subject to rigidcontrols? Can inappropriate behavior among managers affect financial management and the financial position of the districb'municipality? Do managersuse informal mechanismsto gain access to the inputs they needto achieve results? What are the major factors that enable service providers to perform? What are the factors that undermine performance? How does inappropriate behavior among staff members affect financial management and the financial position of the districb'municipality? Are there any local factors that provide incentives for individuals or the local authority to improve their performance? Are there any factors that undermineperformance? Political culture and behavior Can you cite any instances in which established systems are not adhered to, as a result of the behavior of politicians? Can any shortcomings or weaknesses in financial management and the financial position of the districb'municipality be attributed to inappropriate behavior, norms, or values of councillors? Ifyes, please explain the nature of the problem and how this affects the financial management and financial position. How could this problem be addressed? Do political factors more generally affect sector performance? Ifso, how? - 145 - E. Impact of Laws, Policies, Systems, Guidelines, and Reforms on LG Financial Management This section seeks to examine how the L G assesse the influence of factors that lie outside its control, including laws, policies, and guidelines and its interaction with central government. LocalExternal Factors Describe any external factors specific to your local area. Are there any external factors specific to your local authority, such as insecurity, drought, or famine, that impact financial management? What impact do these factors have on revenues and planned expenditure programs? Impact of LG Laws andPolicies on Financial ManagementandGrants How have the systems for transferring grants to LGs, the associated planning and reporting systems, and financial regulations affected your ability to manage funds and deliver results? I s the existing legal framework o fthe LGA and LGFAR easy to understand and follow? Do the regulations enable you to effectively manageyour finances and implementprograms? How effective are the regulations governing LGprocurement? What are the problems? Are the civil service structures, including the staffing levels that they mandate, generally appropriate for your financial management requirements? How do conditional grants affect your ability to planand manageprograms efficiently and effectively? Does the number o fgrants create aproblem? Do you receive regular transfers from central government? Does the timing o f receipt o f finds affect your ability to manageprograms? Ifso, how? Impacts of Sector Laws and Policies Describe how sector policies and guidelines assist or hinder your local authority inmanaging programs efficiently and effectively. How does this specifically impact financial management? Are there any planning guidelines for your sector? Are they useful? How do conditional grant guidelines affect your ability to plan for and implement programs? Are they consistent with district planning guidelines? How much flexibility do you have to plan for conditional grant funding? Do the restrictions hinder your choice ofprogram? Do the established civil service structures for sectors help or restrict your ability to deploy staff effectively? Do they affect your ability to manage finances? IncentivesProvided by Central Government Does central government provide any incentives for LGs to perform? Does the LGDP performance incentive mechanism give you an incentive to improve performance? How has this worked? - 146 - Has the LGDP provided an incentive for you to upgrade your financial management capacity and practices? Are there other incentives to do so? Are there any incentives provided by sector ministries to improve performance? If so, please describe them.Are they effective? Are there any other incentives providedby central government? Implementation ofNew Initiatives (LOGICS,LoGFIAS, IFMS, FDS) Have you been involved in the FDS pilot? If so, please describe any benefits that you have realized and any problems that you may hqve encountered. Have you been involved in the piloting o f LOGICSand LoGFIAS? Ifso, please describe any benefits that you have realized and any problems that you may have encountered. Have you been involved in the piloting o f IFMS?If so, please describe any benefits that you have realized and any problems that you may have encountered. -147- LIST OF REFERENCES The word processed describes informally reproduced works that may not be commonly available through libraries. CentralGovernmentDocumentation Fiscal Decentralization Working Group, Uganda. 2002. Fiscal Decentralization in Uganda - Draft Strategy Paper IMF (International Monetary Fund)/World Bank. 2004. "The Republic o f Uganda: Tracking Poverty, Reducing Spending: SecondAssessment and Action Plan." Processed. Inspectorate o f Government, Uganda. 2003a. National Integrity Survey. .2003b. Report to Parliamen,t JulpDecember 2002. Local Government Budget Committee. 2003. Guidelinesfor Local Government Budget Process under FDS Modality: Consolidated LG Budget Desk and Sector Budgeting Manual. Local Government Finance Commission. 2003. Draft Guidelines on Implementing Best Practices in RevenueMobilization and Generation. Local Government Finance Commission, August 2003, Final Report on the Inventory of Best Practices in RevenueMobilization and Generation Local Government Releases and Operations Committee. 2003 Fiscal Decentralization Strategy Draft Budget Implementation Manuals. Local Governments Budget Committee. 2003. Fiscal Decentralization Strategy, Phase 11Allocation Principles and Development of Allocation Formulae: Findings, Recommendations, and Formulae Designs. Processed. Mackinnon, John, and RitvaReinikka. 2000. Lessonsfrom Uganda on Strategies to Fight Poverty MoFPED (Ministry o f Finance, Planning, and Economic Development), Uganda. 2001. Poverty Eradication Action Plan, Volumes 1 and 3. .2003a. Draft Estimates of Revenue and Expenditure. . 2003b. Poverty Action Fund: General Guidefor the Planning and Operation of Conditional Grants. ,2004. Release TrackingStudy. MoFPED (Ministry o f Finance, Planning, and Economic Development), Uganda, Public Expenditure Management Committee. 2003. Issues in Local Government Financial Management for the Public Expenditure Review. MoLG (Ministry of Local Government), Uganda. December 2000. Guide on Development Planning for LGs. -148 - .May 2001. LGs Bookkeeping Manual. .2002. Preparation of Local GovernmentDevelopment Program, Phase 11:Final Report. . 2003, Local Government Assessment Manual for Minimum Conditions and Performance Measures. .December 2003. Assessmentfor the CurrentRolloutfor LoGICS to LGs in Uganda. .2004. LoGICS Manual I:District Database. .2004. LoGICS Manual 2 ComplianceInspection. .2004. LoGICS Manual 3: One-StopInformation Resource Center. ,2004. Mentoring Guides. ,January 2000, TheLGs Internal Audit Manual Republic o f Uganda. 1997.Local GovernmentAct. . 1998.Local Government Financial andAccounting Regulations .2000. LGs 'Public Accounts Committee Regulations 2000, Statutory Instrument2000, no. 25. .2003. Public Finance and Accountability Act. Williamson, Tim. 2003. Targets and Results in Public Sector Management: Uganda Case Study. Overseas Development Institute (ODI) Working Paper No. 205. ODI, Center for Aid and Public Expenditure. World Bank. September 2002. Republic of Uganda Public Expenditure Review 2003: Report on the Progress and Challenges of Budget Reforms. .September 2003. Republic of Uganda Public Expenditure Review 2003. Local Government Documentation The following documents were the main sources from each o fthe sampled LGs: Budget estimateso frevenue and expenditure Local government budget framework papers Local government development plans Workplans Final accounts Books o f accounts Minutesofcouncilmeetings Minutesoftender board meetings Minutesof various committee meetings - 149- Internal audit reports Final accounts Various books o f account -150-