THE REPUBLIC OF UGANDA

NATIONAL AGRICULTURAL ADVISORY SERVICES (NAADS) PROGRAMME

FINANCIAL STATEMENTS FOR THE YEAR ENDED 30TH JUNE 2014

TOGETHER WITH THE REPORT AND OPINION THEREON BY THE

AUDITOR GENERAL

OFFICE OF THE AUDITOR GENERAL

UGANDA

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TABLE OF CONTENTS

LIST OF ACRONYMS .................................................................................................. iii

REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS ....................... iv

OF NATIONAL AGRICULTURAL ADVISORY SERVICES (NAADS) FOR THE YEAR ENDED

30TH JUNE 2014 ........................................................................................................ iv

1.0 INTRODUCTION ............................................................................................. 1

2.0 PROGRAMME BACKGROUND ............................................................................ 1

3.0 AUDIT SCOPE ................................................................................................. 4

4.0 AUDIT OBJECTIVE .......................................................................................... 4

5.0 AUDIT PROCEDURES PERFORMED ................................................................... 6

6.0 FINDINGS ...................................................................................................... 7

6.1 Compliance with the Financing Agreement ........................................................ 7

6.2 Monitoring and Evaluation of interventions by NAADS secretariat ........................ 7

6.3 Procurement Management ............................................................................... 8

6.4 Framework contracts ....................................................................................... 9

6.5 Distribution of farm inputs ............................................................................... 9

6.6 Tea Intervention Project ................................................................................ 10

6.7 Commitments through local letters of credit at the year-end ............................. 13

6.8 Fixed Assets ................................................................................................. 13

6.9 Unaccounted for funds .................................................................................. 14

6.10 Summary issues from inspection of Districts and sub-counties .......................... 15

6.11 Progress on Issues raised in the Previous Year’s Audit Report ........................... 16

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LIST OF ACRONYMS

Acronym Meaning

NAADS National Agricultural Advisory Services

ATAAS Agricultural Technology and Agribusiness Advisory Services

EAAPP East African Agricultural Productivity Project

BOU Bank of Uganda

IDA International Development Agency

IFAD International Fund for Agricultural Development

URA Uganda Revenue Authority

AASP Agricultural Advisory Services Providers

NARO National Agricultural Research Organisation

SESA Strategic Environmental and Social Assessment

CBF Community Based Facilitators

UGX Uganda Shillings

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REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS

OF NATIONAL AGRICULTURAL ADVISORY SERVICES (NAADS) FOR THE YEAR

ENDED 30TH JUNE 2014

THE RT. HON. SPEAKER OF PARLIAMENT

I have audited the accompanying financial statements of the National Agricultural

Advisory Services (NAADS) Programme for the year ended 30th June 2014. The financial

statements which are set out on pages 14 to 55 comprising of;

Consolidated Statement of Receipts and Payments.

Statement of Financial Position

Consolidated Statement of Sources and Uses of Funds

Statement of Budget Comparison

Notes to the financial statements including summary of significant accounting policies

adopted.

Management’s Responsibility for the financial Statements

Management is responsible for the preparation and fair presentation of the Programme

financial statements in accordance with the modified Cash receipts and payments basis of

accounting and the terms of Memorandum of Understanding and for such internal

controls as management determines is necessary to enable the preparation and fair

presentation of the Project Financial Statements that are free from material

misstatements whether due to fraud or error.

Auditor’s Responsibility

My responsibility is to express an opinion on the financial statements based on my audit.

I conducted the audit in accordance with International Standards on Auditing (ISA).

Those standards require that I comply with the ethical requirements and plan and

perform the audit to obtain reasonable assurance about whether the financial statements

are free from material misstatements.

An audit involves performing procedures to obtain audit evidence about the amounts and

disclosures in the financial statements. The procedures selected depend on the Auditor’s

judgment, including the assessment of the risks of material misstatements of the financial

statements, whether due to fraud or error. In making those risk assessments, the Auditor

considers internal controls relevant to the entity’s preparation and fair presentation of the

financial statements in order to design audit procedures that are appropriate in the

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circumstances. An audit also includes evaluating the appropriateness of accounting

policies used and the reasonableness of accounting estimates made by management, as

well as evaluating the overall presentation of the financial statements. I believe that the

audit evidence I obtained is sufficient and appropriate to provide a basis for my qualified

opinion.

PART “A”

Basis for Qualified Opinion

Supplies of tea seedlings

Shs.18,555,353,908 incurred on the purchase and distribution of 38,168,367 tea

seedlings. However, I was unable to confirm the expenditure as it lacked information of

actual acreage planted. Further, discrepancies were noted in the availed

delivery/distribution records.

Unsupported expenditure

The secretariat incurred Shs.3,953,424,825 on the purchase and distribution of farm

inputs to farmers that were not supported by evidence of receipt by the beneficiary

farmers. Further still, I was not provided with accountability for funds amounting to

Shs.499,088,800 at the secretariat and Shs. 7,913,477,134 in Districts and sub counties.

As such, I was unable to confirm that the funds in this respect were put to intended use.

Qualified Opinion

In my opinion, except for the possible effect of the matters described in the Basis for

Qualified Opinion paragraph, the financial statements present fairly in all material

respects the Financial Position as at 30th June 2014 and the funds received and

expenditure incurred for the year then ended in accordance with the terms of the

Memorandum of Understanding and in compliance with the basis of accounting described

under Note 6.0 of the financial statements.

John F.S. Muwanga

AUDITOR GENERAL

KAMPALA

23rd March 2015

REPORT OF THE AUDITOR GENERAL AND SUPPLEMENTARY INFORMATION

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PART “B”

DETAILED REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS

OF NATIONAL AGRICULTURAL ADVISORY SERVICES (NAADS) PROGRAMME FOR

THE YEAR ENDED 30TH JUNE 2014

This Section outlines the detailed audit findings, management responses, and my

recommendations in respect thereof.

1.0 INTRODUCTION

Article 163 (3) of the Constitution of the Republic of Uganda 1995 (as amended)

requires me to audit and report on the public accounts of Uganda and all public

offices including the courts, the central and local government administrations,

universities and public institutions of the like nature and any public corporation or

other bodies or organizations established by an Act of Parliament. In accordance

with the same provisions I appointed Team & Co Certified Public Accountants to

carry out the audit on my behalf and report to me on the above Project to enable me

report to Parliament.

2.0 PROGRAMME BACKGROUND

2.1 SECRETARIAT BACKGROUND

The Government of Uganda (GOU), through the National Development Plan (NDP)

aims at raising agricultural incomes thorough increased productivity and value

addition. The Development Strategy and Investment Plan (DSIP) of the Ministry of

Agriculture and Animal Industry and Fisheries (MAAIF) have been designed within

the framework of NDP to guide sectorial growth. The DSIP seeks to transform

substance farming into commercial agriculture. Agricultural research and advisory

services are core mandates of MAAIF for enhancing agricultural production and

productivity among others. For this purpose the Government of Uganda established

the National Agricultural Advisory Services Organization.

The National Agricultural Advisory Services (NAADS) is a statutory organization that

was established by an act of parliament in 2001. Section 5 of the NAADS Act 2001

sets out the seven (7) objectives of the organization, which are to;

• Promote food security, nutrition, and household incomes, through increased

productivity and market oriented farming;

• Empower all farmers to access and utilize contracted agricultural advisory

services;

• Promote farmer groups to develop capacity to manage farming enterprises;

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• Create options for financing and delivery of agricultural advice for the different

types of farmers, but with emphasis on subsistence farmers, particularly women,

youth and people with disabilities;

• Gradually shift from public delivery to private delivery of agricultural advice;

• Develop private sector agricultural advisory delivery capacity and systems and

assure quality of advice;

• Catalyse the participation of the private sector to fund agricultural advisory

services.

The NAADS program is financed through a Basket/Budget Support mechanism where

donors and GOU pool resources together based on agreed common flow of funds

mechanism for the program as prescribed in the Project Appraisal Document (PAD)

May 23, 2010 for the Agricultural Technology and Agribusiness Advisory Services

(ATAAS).

As a decentralized program, funds are budgeted and released to the districts through

the districts’ individual Votes with the balance of funds being budgeted and released

to the NAADS Secretariat, the national coordinating arm of the program. The

beneficiary District/sub county local governments and farmers co-fund the program.

Among its coordination functions, the NAADS Secretariat is responsible for the

compilation and submission of program financial reports (PFR) to Government and

the Participating Partners. Final accountability to the Participating Partners is through

an attribution of expenditures based on their financing shares in the annual NAADS

budget.

By FY 2012/13 the program had gradually expanded to cover a total of 1,352 sub

counties in 112 districts including Kampala. The sub counties constitute the

population sampled in respect of the 2012/13 statutory audit.

2.2 In the FY 2013/14, NAADS implemented the following three (3) projects;

2.2.1 Agricultural Technology and Agribusiness Advisory Services (ATAAS) Project

The project includes five components:

Component 1: Developing Agricultural Technologies and Strengthening the National

Agricultural Research System. The objective of this component is to develop

agricultural technologies through research, and to strengthen agricultural research

institutions.

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Component 2: Enhancing Partnerships between Agricultural Research, Advisory

Services and other stakeholders. The objectives of component 2 are to enhance the

efficiency and effectiveness of technology development and dissemination by

supporting closer linkages between NAADS, NARO, and other stakeholders.

Component 3: Strengthening the National Agricultural Advisory Services. The

objective of this component is to support improved delivery of demand driven and

market oriented advisory services to farmers to promote their progression from

subsistence to market orientation.

Component 4: Supporting Agribusiness Services and Market Linkages. The objective

of this is to promote integration of smallholders in value chains by supporting

collaboration between agribusiness, farmers, advisers, and researchers to create

viable sustainable market and agribusiness linkages.

Component 5: Program Management. The objective of component 5 is to support the

NARO and NAADS secretariats to ensure: (i) Efficient execution of administrative,

financial management and procurement functions;(ii) coordination of project

activities among various stakeholders;(iii) implementation of safeguard measures

mandated by the Government of Uganda and The World Bank; and (iv) an effective

use of the joint M&E and ICT systems established under component 2.

2.2.2 East African Agricultural Productivity Project (EAAPP)

NAADS is also involved in the implementation of the East African Agricultural

Productivity Project. EAAPP is a five year project whose implementation commenced

in 2011. The project objectives are;

(i) enhance regional specialisation in agricultural research;

(ii) Facilitate increased sharing of agricultural information, knowledge and

technology across boundaries. The objectives are pursued through

strengthening existing Uganda national agriculture research program in

cassava, supporting regional research, training and dissemination of relevant

technologies and supporting increased availability of improved genetic

materials. The project is implemented by NARO and MAAIF but NAADS as the

National Organisation responsible for extension is responsible for the

coordinating farmers training and dissemination of technologies to end users.

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The project is funded by an IDA credit and this funding complements the IDA

supported ATAAS Project described above.

2.2.3 Pilot Goat Breeding and Production Scheme for Export

This is a project that is implemented by NAADS, Ministry of Agriculture Animal

Industry and Fisheries and Sembeguya Estates in Sembabule district. The project is

fully funded by the Government of Uganda. The project objective is to enhance goat

production in the country to exploit export opportunities for goats.

3.0 AUDIT SCOPE

The audit involved a review of transactions undertaken during the FY 2013/2014,

covering the NAADS Secretariat and the participating Districts and 50% of the Sub-

counties.

4.0 AUDIT OBJECTIVE

The Audit was conducted in accordance with International Standard of Auditing. The

objective of the audit was to form an opinion on the financial affairs of NAADS

organization for the FY 2013/2014.

4.1 At NAADS Secretariat, special attention was paid to establish:

a. Whether designated Accounts have been maintained in accordance with the

provisions of the Financing / Grant agreements and funds disbursed out of the

Accounts were used only for the purpose intended in the financing / grant

agreement;

b. Whether the NAADS secretariat is in compliance with the Treasury Accounting

Instructions 2003, issued under the Public Finance & Accountability Act 2003 and

provisions of the Project Implementation Manual;

c. Compliance with the budget execution requirements at the Secretariat, Districts

and Sub Counties including adherence to budget provisions under various vote

heads;

d. Whether Funds Flow and Disbursement from the MFPED to the NAADS

Secretariat, Districts and Sub Counties was in compliance with agreed

arrangements including banking arrangements;

e. Whether staff claims/payments are in line with their appointments and salaries

and allowances of whatever nature are claimed against proper documentation;

f. Whether advances to staff and third party individuals/ institutions from the

NAADS Secretariat vote were properly accounted for and properly retired;

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g. Whether the management of organisation activities is in line with the approved

Government of Uganda framework, and also in accordance with Participating

Partner agreements. The auditor will be required to report on the effectiveness of

some of the arrangements including farmer groups and technology transfer;

h. Whether procurement at the Sub Counties, Districts and NAADS Secretariat had

been conducted in accordance with the guidelines approved by the Government

of Uganda and the Participating Partners.

i. Whether the assets procured from project funds exist and there is verifiable

ownership by the implementing agency or beneficiaries in line with the financing

agreement. In addition, whether the Assets of NAADS are being used for

organisation activities including whether vehicles are being used in the interest of

the Programme or have been intercepted by senior government officials and

consultants for their own routine use instead of serving the programme;

j. Whether programme reporting to both Government of Uganda and the

Participating Partners is accurate and represents the affairs as at the time of the

audit. Particular emphasis was made to verify the preparation and accuracy of

Programme Management Reports to the stakeholders; including reconciling the

quarterly IFRs submitted to the Bank to the financial statements;

k. Whether the organisation met its tax obligations, social security and other

statutory obligations. Particular attention was made to verify whether these were

dully deducted and remitted to the relevant authorities;

l. Physical existence of project outputs at the beneficiary level.

m. Whether ineligible expenditures were incurred.

4.2 At the participating Local Authorities special focus was given to the following areas:-

a. The system in place at local authorities in relation to management of NAADS

funds, operations and controls including the performance of internal audit, the

local authority’s management and tender procedures;

b. Compliance with Local Government Act and Local Government Accounting and

Financial Regulations and any other applicable laws and regulations on the

transactions that local authorities undertake;

c. Breaches of Government Regulations;

d. Accountability of NAADS expenditure;

e. Performance of private service providers in the participating NAADS Districts/

Sub-counties as contained in the progress reports;

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f. Procurement is being implemented in accordance with the relevant procurement

guidelines including the revised community guidelines;

g. Utilisation of ATAAS funds in line with the approved work plan /budget;

h. Verification of the quarterly financial reports;

i. Physical existence and utilisation of NAADS assets at the District and Sub-county

level;

j. Whether the District/ Sub-counties / Farmer contributions to the programme

were in line with the approved budget with particular emphasis on the

documentary evidence to establish whether these contributions were deposited

on the respective NAADS Accounts.

5.0 AUDIT PROCEDURES PERFORMED

a. Revenue/Receipts

Obtained a schedule of all programme funds provided by the development parties

and Government of Uganda and reconciled the amounts to the programme cash

books and bank statements.

b. Expenditure

Reviewed the Programme funding Agreement to ascertain agreed budget line

activities for the Basket funding and checked whether funds had been utilized in

accordance with the approved work plan;

Vouched transactions of the programme in particular funding received and

expenditures incurred during the period covered by the audit in order to establish

that documentation in support of expenditure agreed with the amount and

description on the payment vouchers and or applications, bank statements and

was properly controlled and accounted for.

c. Internal Control System

Reviewed the internal control system and its operations to establish whether

sound controls were applied throughout the period

d. Procurement

Reviewed procurement of goods and services for the project and reconciled with

the approved procurement plan.

e. Fixed Assets Management

Reviewed use and management of project assets during the period under review.

f. Periodic Reports about project Activities

Reviewed the programme agreement provisions, and reconciled it to the project

activities during the period under review.

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g. Programme Financial Statements

Examined on a test basis, evidence supporting the amounts and disclosures in

the programme financial statements; assessed the accounting principles used

and significant estimates made by programme management as well as evaluating

the overall financial statement presentation.

6.0 FINDINGS

6.1 Compliance with the Financing Agreement

Component 3 of the financing agreement focussed on the provision of advisory

services. However, Government changed the implementation of this component to

free input distribution which led to disagreements with the development partners

that resulted in their suspension of funding for the component.

The change in implementation to provision of free inputs to farmers implies that the

expenditure of Shs 84,823,360,000 recorded under component 3 of the ATAAS

project is ineligible for funding by the participating partners and achievement of the

ATAAS project intended objectives for component 3 may have been compromised.

Management explained that discussions were held with development partners during

the mission of August 2014 and it was agreed that GOU funds should solely be used

to input purchase for distribution to farmers. As such the development partners

agreed to fund other components excluding component 3.

I advised management to ensure that project activities are implemented as agreed

with the development partners to avoid suspension of funding to the project.

6.2 Monitoring and Evaluation of interventions by NAADS secretariat

NAADS is involved in implementation of strategic government interventions in the

agricultural sector for enhancement of household income. The interventions include

the distribution of farm inputs across the country. To assess the impact of the

intervention and to further focus government efforts on priority areas in the sector, it

is necessary to establish a strong and functioning monitoring and evaluation

function. However, it was noted that the existing monitoring and evaluation function

at NAADS is lacking in aspects such as;

(i) Beneficiaries are not identified and documented before procurement of inputs

which creates the risk of diversion of inputs.

(ii) There is no data base of farmers supported by NAADS to track their progress

and success of the interventions.

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The absence of a strong monitoring and evaluation mechanism leads to ad-hoc

implementation of the interventions and this may lead to failure to achieve intended

objectives.

Management explained that NAADS Secretariat provided technology inputs to

beneficiaries to address strategic and special demands usually identified at the top

political and policy leadership level. Management further explained that the support

would therefore normally be provided to clearly defined target groups known well

before procurement and initiation and approval of the procurements of technology

inputs for such support would require evidence of the source of demand.

I advised management to establish a well-functioning monitoring and evaluation

department to measure performance of government’s interventions. Further a well-

documented process should be developed to identify beneficiaries prior to

distribution of farm inputs.

6.3 Procurement Management

In implementing ATAAS project and other programs, NAADS makes various

procurements for supplies and services. However, my review of procurement

procedures and controls revealed the following anomalies;

(i) The procurement plan was not approved by the World Bank contrary to the

provisions of the financing agreement.

(ii) The department does not maintain procurement complaints register where

bidders can register their complaints.

(iii) There is no procurement notice board for publicity.

Failure to ensure approval of the procurement plan by the participating partners

implies non-compliance with the financing agreement provisions which may lead to

the partners’ refusal of funding procurements under the ATAAS project. Further,

absence of a notice board does not only compromise transparency in the

procurement process but also violates established standard government procurement

procedures.

In these circumstances, procurements are not done in accordance with approved

plan which impacts adversely on the implementation of various activities.

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Management explained that the procurement plan was approved by the Board and

submitted to the World Bank which never responded. Management further informed

me that indeed they don’t have a specific procurement notice Board but are using a

general notice board at NAADS Secretariat on the Ground floor at the reception area

and will put in place a specific notice board for procurement

I advised management to ensure that a procurement plan is prepared and approved

in accordance with the Project financing agreement provisions. Further, a

procurement notice board and a complaints register should be put in place to ensure

transparency and accountability within the process of procurement.

6.4 Framework contracts

A framework contract with an Estates firm was signed on 20th February 2014 to

supply 80 motorised Knapsack Sprayers at a price of UGX 1,850,000 per sprayer.

However, the call-off order made to the company on 23rd March 2014 was for 250

units. The additional 170units of motorised Knapsack Sprayers were in excess of the

contracted quantity of 80 units and therefore supplied without being subjected to the

procurement rules and regulations.

Management explained that this was due to the tremendous increased demand for

motorised Knapsack Sprayers following a successful demonstration stage of the

efficient technology in the control of pests and diseases of fruit trees crops notably

citrus, mangoes and coffee. As such, more of the knapsacks were urgently required.

I advised management to ensure full compliance with procurement rules and

regulations to obtain value for money at competitive prices.

6.5 Distribution of farm inputs

During the year, the secretariat incurred UGX 3,953,424,825 on the purchase and

distribution of inputs to farmers that was not supported by lists of beneficiaries or

acknowledgement by the beneficiaries. Further still the distribution of the inputs is

not properly planned because the procurement of the inputs was done before

determination of the beneficiaries.

As a consequence the expenditure on farm inputs was not adequately supported and

there is a risk that some of the inputs did not reach the targeted beneficiaries

implying that the intervention may not achieve the intended objectives.

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Although Management explained that all support documents required for payment as

per the financial procedures were attached to the payment vouchers and were

availed and reviewed during the audit process, I was not availed with the required

documentation.

I advised management to properly plan the distribution of the farm inputs by

inspecting the intended beneficiaries to confirm their requirements and readiness

before procurement of inputs is done. Further, management should ensure that

deliveries are monitored, properly documented and the beneficiaries should

acknowledge receipt of the inputs which acknowledgement should be used to

support the payment.

6.6 Tea Intervention Project

Expenditure amounting to UGX 18,555,353,908 was incurred on the purchase and

distribution of 38,168,367 tea seedlings mainly in the Kigezi region. In the course of

the audit i noted irregularities in the procurement, distribution, delivery and payment

for the tea seedlings as elaborated below;

(i) Suppliers of Tea seedlings

It was observed that contracts for the supply of tea seedlings were made after

supplies had taken place. This was contrary to the established government

procurement laws and regulations which require contracts to be signed after a due

procurement process.

Management explained that this was an innovation after failing with the conventional

procurement process which had revealed that nearly 60% of the seedlings were lost

mainly due to mismatch in funds availability, completion of the procurement process

and the agricultural/growing season and as a result of the delay most beneficiary

farmers would abandon the tea on road sides thus negating the tea intervention

efforts and wastage of funds. As a remedial measure, the District Authorities

together with Kinkizi Development Company who are implementers of the project

devised an innovative approach –the “garden store approach”. Under this approach

farmers who wish to plant tea in a given season do receive supplies directly from the

supplier before completion of the procurement process and it was found to reduce

the mortality rate of the tea plantlets from nearly 60% to 10% with adequate

measures in-built in the approach to mitigate against risk of paying for undelivered

supplies.

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I advised management to adhere to the procurement regulations.

(ii) Lead agencies

The tea intervention in Kigezi area is implemented in collaboration with three lead

agencies. These companies signed Memorandum Understanding (MOUs) with

NAADS to provide services such as mobilizing farmers provide market outlets,

training and field extension services, identify nursery operators, transport and

distribution of plantlets and to facilitate farmers to form cooperatives.

The initial MOUs signed in April 2013 did not provide any payment basis to the lead

agency. Subsequently, an addendum was signed in April 2014 providing a 30%

payment to the lead agency on the value of tea seedlings procured and planted.

During the year payments amounting to UGX 3,659,524,377 were made to the

project lead agencies. Issues of concern with this arrangement are;

The MOU does not clearly justify the 30% payment of the value of tea plantlets

to the lead agency.

Payments to the lead agency are not supported by evidence of extension services

provided.

Management explained that the lead agency’s responsibilities are stipulated in the

Memorandum of understanding and payment is effected upon meeting the conditions

there in and the lead agency provides periodic reports on activities carried out on

basis of which payments are effected. I advised management to document activities

undertaken to enable proper justification of the payments.

(iii) Distribution/delivery of tea seedlings to farmers

A field inspection was conducted to confirm existence of tea seedlings distributed.

Four (4) farms were inspected and it was noted for the selected sample that tea was

planted on farms but we were not provided with acreage planted except for one

farm. Generally tea seedlings deliveries to the farms as recorded in the payment

records do not appear to match farm acreage planted. For the farm where acreage

was provided, there was a big discrepancy between the tea seedlings recorded as

delivered and the tea plants that can be accommodated on the farm. The specific

cases are noted below;

A farm for a religious parish

The tea garden was established in March 2012 and has received tea seedlings from

NAADS from start to date. I requested for information on tea seedlings supplied for

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the years 2012 and 2013 but this was not availed. For the year 2014 deliveries of

1,836,000 in May 2014 were noted. We were informed at the time of the audit

(11/12/2014) by the farm manager that in September 2014, additional 1,460,000 tea

seedlings were delivered to the farm. There was no information availed on the

garden acreage.

An individual’s Farm

The farm is located in Busengo Parish Nyarubuye Sub-county Kisoro. Acreage

planted is unknown. Planting of tea in the garden started in March 2012. I was

informed that the farm received seedlings in the subsequent tea seasons of

September12, March 2013, September 2013, March 2014 and September 2014. In

May 2014, the farm received 360,000 tea seedlings. Information on tea seedlings

delivered in the other seasons was not availed.

A Farm for Community Based Organisation

The farm is located in Rubuguri and Ntenko parish in Kisoro district. It is adjacent to

Bwindi National park. Farming commenced in 2012 with an initial delivery of 650,000

tea seedlings supplied. I was informed by the chairman of the community that these

seeds were not planted and dried up on the road side. The actual acreage planted is

unknown. A delivery of 1,793,793 tea seedlings was made to the farm on

20/05/2014 and received by the chairman. The farm has also received other tea

seedlings over the years but information on these deliveries was not availed.

An individual’s Farm

The farm called green valley dairy farm is located in Nyamasizi Kabale district. The

total acreage of the farm was not availed. It is recorded that the farm received

3,006,640 tea seedlings on 02/04/2014. I was informed by the farm manager that he

had also received an additional 1,000,000 million tea seedlings in September 2014.

The procurement processes and procedures in the tea intervention project are not

transparent and contravene procurements rules and regulations. In absence of clear

acreage planted, it was not known how the supplies to particular farms are

determined and there is a risk that some of the recorded deliveries of tea plants are

not actually supplied to the farms/ gardens. Furthermore, I was not certain that the

payments to lead agencies were for actual services rendered.

Management admitted to the need to have records on acreage for tea planted but

observed that tea growing areas in Kigezi sub region require experts to be able to

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determine contour acreage as opposed to horizontal acreage on which traditional

land measurement systems are based. As such management promised to engage the

services of an expert and aim to have the process completed by June 2016.

6.7 Commitments through local letters of credit at the year-end

Funds amounting to UGX 13,892,716,461 were transferred to Bank of Uganda as

commitments to open local letters of credit between 19th June and 27th June 2014.

Included in the funds transferred was UGX 137,551,648 as commission for the letters

of credit. It was further observed that 6 months later after the commitment of the

funds for the local purchases, UGX 6,977,959,526 remain unperformed local letters

of credit. This is made of mainly commitment to the suppliers of citrus seedlings

amounting to UGX 3,640,513,000.

The transfer of these funds to Bank of Uganda in form of local letters of credit was

done to retain unutilised funds at the year end and the additional cost of UGX

137,551,648 in form of the local letters of credit commission paid to Bank of Uganda

was considered wasteful. Such avoidable costs reduce funds meant for service

delivery in this case farm input distribution.

Management explained that the funds transferred were for purposes of retaining

unutilised funds which were for the contracts signed at the end of the year but had

not yet performed due to the fact that the funds amounting to Shs. 30 billion were

received in April towards the closure of the financial year and the procurement

procedures had not been concluded. Management further explained that some of the

supplies depend on the season/weather and being a dry season, it was advised that

some supplies be put on hold for the dry season to end.

I advised management to implement planned activities timely to avoid such year –

end funds retention schemes that result in wastage of resources. Further,

management should not enter into contracts without forecasting and analysing

weather conditions.

6.8 Fixed Assets

It was observed that the fixed asset register is not properly maintained. It lacks most

of the details of assets stipulated in the treasury accounting instructions. Some

assets do not have date of purchase, cost and right location. Further, some of the

motorcycles recorded this year appear twice in the register and one UAA 338F sold

during the year was still maintained in the asset register. It was also noted that the

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organisation started a disposal process of eight vehicles in 2012 when bids were

received but to date, only one vehicle had successfully been disposed off with the

rest still parked at Ministry of Agriculture Offices.

The absence of a comprehensive, accurate and up to date Assets Register implies

that there is a risk that asset losses and misuse may not easily be detected. Further,

failure to timely dispose of assets further diminishes the realisable amount from the

assets because of the continuous waste of these assets that reduces their value.

Management explained that although some assets in the register lack details, efforts

had been made in subsequent verifications to ensure that gaps of that nature and

others are filled. Management further explained that during their quarterly financial

back stopping to districts, reviewing the maintenance and updating of asset register

of NAADS assets is always done.

I advised management to ensure that there is an updated asset register showing all

details as per the Treasury Accounting instructions.

6.9 Unaccounted for funds

In the course of the audit I noted the following unaccounted for funds amounting to

UGX 499,008,800.

s/n Description Amount Remarks

1 Advance to PMA 352,000,000 Unaccounted for six months

after advance

Advance to Buginyanya

Zardi

147,008,800 Training workshops for 44

SNCs and 88 AASPs from

Mbale and Sironko Districts

at a cost of Shs. 29,040,000.

Payment to service providers

totalling Shs.17,528,800 paid

out on 30th June 2014. There

are no lists of workshop

participants.

Missing payment details

amounting to

Shs.59,749,000 payment

references 395327,477805

and 477814.

15

Excessive cash drawn on

cheque no 477816

amounting to Shs

40,691,000 for joint training

Workshop with NARO.

Accountability not sufficiently

supported.

In absence of support documents on payments I was unable to confirm that the

funds were used for intended purposes.

Management explained that it was following up the above accountabilities and failure

to obtain satisfactory accountability would result into instituting recovery measures.

I advised Management to expeditiously follow up the matter and institute recovery

measures from responsible officers where misuse is confirmed.

6.10 Summary issues from inspection of Districts and sub-counties

A review was carried on the programmes system of accounting and record keeping

including implementation of programme activities. The review was undertaken in 761

sub counties/town councils in the 112 districts spread across the country and the

following matters were observed. Details of the matters are attached in the

management letters appendix to this report.

(a) Unaccounted for Funds – UGX 4,007,686,846

These are funds for which we were not availed accountability documents by the

accounting officers. It includes expenditure for sub counties/town councils which did

not avail their books for audit, missing payment vouchers and supporting documents

and unbanked co-funding receipts. Further details are included in the District/sub

county management letters.

(b) Ineligible Expenditure – UGX 47,296,801

It was observed that some districts/sub counties incurred ineligible expenditure

under the ATAAS project by spending outside the approved annual budget or by

failing to comply with ATAAS project procurement procedures. Further details are

included in the respective district/sub county management letter.

16

(c) Un-remitted Statutory Deductions – UGX 179,906,634

In almost all the districts/sub counties audited, it was noted that withholding tax,

PAYE and NSSF were either not deducted or where deducted, remittance to URA and

NSSF was usually beyond the stipulated time.

(d) Record Keeping

I noted instances where the sub counties and districts financial reports amounts

differed from the amounts in the underlying records, the cash books and payment

vouchers implying that these reports are not derived from underlying records. These

are noted in the respective district and sub county management letters.

(e) Fixed assets and financial records

I noted that the fixed assets of NAADS were not properly handed over for safe

custody to the Chief Administrative Officers as per instructions during the transition

period. NAADS’ Motor vehicles and motorcycles in many districts and sub counties

continued to be used in activities unrelated to NAADS programme. Some of the

former NAADS coordinators were still in possession of financial records like receipt

books, cash books and payment vouchers in their homes at the time of the audit.

(f) Project implementation Manual (PIM)

Many of the districts and sub counties audited had diverted from the PIM. For

instance the food security component was not fully supported. Funds meant for this

component were in most cases diverted to market oriented component without

approval. More still, the top ceiling of the market oriented farmers support of

Shs.750,000 had been overridden thus supporting fewer farmers than planned.

I advised management to make a follow up on the above matters.

6.11 Progress on Issues raised in the Previous Year’s Audit Report

A review of previous year audit report was done and the status of prior year

recommendation is as below;

ISSUE STATUS/PROGRESS

1. Budgeting and budget

monitoring

The Project Implementation

Manual (PIM) requires NAADS

management to prepare a consolidated annual budget for

NAADS organization and the ATAAS Project. The consolidated

budget should then be submitted

to the NAADS board for review

Not done. There was no

consolidated budget

submitted to the world bank for approval.

Response A consolidated budget

was prepared for the

financial year 2013/2014,

17

and approval. The budget and

supporting work plan should also be submitted to MAAIF for

inclusion in the expenditure

estimates submitted to Parliament for approval. However two

separate budgets are prepared, one that is submitted to

Parliament for approval and the other for the ATAAS project

submitted to the World Bank for

approval. These budgets are not comparable.

submitted to the Board

for approval and finally to MAAIF for inclusion in the

expenditure estimates

submitted to Parliament for approval.

2. Irregular procurement of goods and services

NAADS Secretariat contracted Alakaituk Enterprises Ltd to install

and transport milk coolers. The contract value was UGX

310,665,969. It was however noted that this procurement was

not on the approved procurement

plan and management did not obtain a “no objection” from the

World Bank or inform the bank about this procurement. Further

still, the supplier was acquired

through direct procurement/contracting without

competition. NAADS procurement manual requires that the direct

procurement method is used for small procurements of less than

USD 5,000 or subject to prior

review by participating partners and this was not done.

Not done. Irregular procurements were again

noted during the audit of the financial year 2013/14

3. Delegated procurements to

districts

We noted that the NAADS secretariat delegated various

procurements amounting to UGX 7,307,260,000 to various District

Local Governments. It is a

requirement in the Project Implementation Manual (PIM) for

each delegation to be approved by the Participating Partners. It

was noted that management did not obtain approval for any of the

delegated procurements from the

Participating Partners. The procurements were done at the

districts but the payments were made by the secretariat to the

suppliers.

Response.

NAADS did not delegate

any procurements under ATAAS this FY. We

delegated procurement of tea seedlings to a few

LGS and were cleared by the contracts committee.

All other LG procurements

were made through the NAADS Zonal offices

which are part of the NAADS Secretariat.

4 Procurements outside

the procurement plan

The ATAAS Project

Implementation Manual Chapter 10: Project Management clause

10.2.3 requires the NAADS

secretariat to prepare annual

The procurement plan

was not submitted to the participating partners for

approval.

18

procurement plans with estimated

expenditures and the procurement method envisaged,

it also provides for quarterly

revision of this plan. The initial procurement plan and any

revisions should be submitted to participating partners for

approval. In the FY 2012/13, the secretariat procured works, goods

and services valued at UGX

3,559,299,574 that were not in the approved procurement plan.

5 Irregular procurement of tea seedlings in

Kanungu

On April 18, 2013, NAADS secretariat delegated the

procurement and supply of 4,210,526 tea seedlings worth

UGX 1,305,263,060 to Kanungu District Local Government under

Kinkizi Development Company

Limited and 1,097,645 tea seedlings worth UGX 340,269,950

under Kayonza Tea Factory.

Kanungu district contracts

committee sat on May 6, 2013 and awarded the contracts for

supply of the seedlings to 15 nursery operators to supply the

seedlings to beneficiary farmers. However, the contracts awarded

related to supplies made between

September and December 2012 implying that the procurement

process was done retrospectively. According to available

documentation, the deliveries

were purportedly made between November and December 2012,

six months before the procurement process to identify,

evaluate and award contracts to

the suppliers was done. The commitment letter was sent to

the district on April 18, 2013.

Not done. The procurement of tea

seedlings was again noted not to be in compliance

with procurement rules and regulations

6 Missing payment

vouchers

The treasury accounting

instructions require accounting

officers to maintain, serially numbered and properly filed

vouchers that support the entries in the books, for audit reference.

We however noted voucher

number EFT 2456397 for NFF hotel bills of UGX 114,211,525 is

missing.

No missing payment

vouchers were noted

during the audit.

7 Unsupported

expenditure

Noted payments effected by the

NAADS secretariat amounting to

Not done. Instances of

inadequate support for

19

UGX 304,477,000 that lack

adequate accountability. Management was advised to

ensure that all payments made

are adequately supported

payments made were

again noted.

Responses.

During the financial year under audit, all supporting

documents for payment were attached before

payments were made.

8 Double payment of

periderms to AASPS)

It was noted that a duplicate per

diem payment was made to Agriculture Advisory Services

Providers (AASPS) that

participated in the AFRISA hay making training. Management

was advised to recover the excess payment of UGX 27,300,000.

Not done

Response.

Management is still

pursuing the issue.

9 Transfers to Zonal

Bank accounts

It was noted that transfers to

zonal bank accounts are expensed on disbursement. In

some instances, actual expenditure in the zones differs

from the expenditure indicated on

the requisitions against which the zonal bank account is replenished

by the secretariat leading to incorrect categorisation of

expenses. Management was advised record the transfers of

funds by the secretariat to zones

as advances and only expense on receipt of accountability from the

zones.

Note done

10 Unaccounted for funds at districts

It was noted that districts did not provide accountability to the

secretariat for funds amounting to UGX 674,549,760.Management

was advised to obtain full

accountability for all funds transferred to districts.

Not done. Some districts did not provide

accountability for funds received for NAADS

activities during the year.

11 Activity advances It was noted that advances to staff for activities and workshops

are expensed on payment to staff

before the actual activity is done. Further still in most cases, the

accountability is not provided within 60 days and there is no

evidence of advance

accountability review. It was also observed that there is no

advances ledger/register maintained at the secretariat to

record activity advances. Management was advised to

maintain advance registers and to

ensure retirement of advances within 60 days.

Not done

20

12 Financial Statements It was noted that although

NAADS is required to prepare annual financial statements, the

nature and form of these financial

statements is not specified in the NAADS Act or the Financial

Management Manual. Absence of clear financial reporting guidelines

has resulted in the preparation of annual financial statements that

do not comply with any generally

accepted financial reporting framework and provide

insufficient information on financial performance. It is

necessary to develop and

document the financial reporting guidelines for NAADS.

Not done

Response. Management is till

handling the issue with

the Ministry of Finance, Planning and Economic

Development.

13 Statutory deductions Noted instances of failure to

deduct Withholding Tax from

suppliers and to timely file returns for PAYE and WHT.

Responses.

All statutory deductions

were withheld and returns for PAYE and WHT filled

on time.

14 Return of unexpended bank balances to

consolidated fund

It was noted that unexpended Bank balances of

UGX11,947,541,888 and 10,404,580,442 as at 30th June

2012 and 30th June 2013 respectively were not returned to

the consolidated fund.

Done. Unexpended bank balances were returned to

the consolidated fund

15 Accounting System

The NAADS secretariat accounting

system is partially computerized

with some of the transactions and financial statements processed by

the Integrated Financial Management System (IFMS).

However a substantial number of

payments are made outside the IFMS. The funds are transferred

to a NAADS expenditure bank account in Bank of Uganda

referred to as Basket Account. It is from this bank account, that

payments are made outside the

IFMS and there are no ledgers maintained to record these

payments. The secretariat financial statements are therefore

prepared using both IFMS data

and payment schedules prepared in Excel Work Sheets. Most funds

deposited on the basket account are drawn from the treasury

account as if they were payments to suppliers and this result into

overstatement of expenditure.

It is necessary to ensure that all

The transfers that were

made to the Basket

account were immediately transferred to beneficiary

accounts. The transfer were in respect to

emergency payments that

would not wait for processing the

identification numbers in IFMIS system.

21

transactions at the secretariat are

processed using IFMS so that there are captured in the ledgers.

Alternatively manual ledgers

should be maintained to record transactions made outside IFMS.

16 Procurements

described as

partnerships

It was noted that some of the

cooperation agreements for

partnerships were actually procurement of goods and

services not competitively done and not done in accordance with

the PPDA Act.

Not done. Similar

agreements were made

during the year.

17 Agreement between Mugenga Holdings

Ltd, Kisoro Potato Growers Association

and Kisoro District

Local Government

Kisoro District Local Government signed a Memorandum of

Understanding (MoU) on 12th June 2012 between Mugenga

Holdings Limited (MHL) and

Kisoro Potato Growers and Marketing Association (KPGMA) to

set up a potato agro processing plant to be located at Cyanika,

Kisoro town to process Irish

potatoes. On the basis of this MoU, NAADS secretariat made a

payment of Ugx 500,000,000 on 23 August 2012. Noted

deficiencies with this arrangement as explained below;

There was no accountability provided for the payment of UGX

500,000,000 made to Mugenga Holdings Limited.

The share capital of the company of UGX 20,000,000 is much lower

than the contribution of UGX 500,000,000 by the NAADS

secretariat on behalf of the

farmers (Kisoro Potato Growers and Marketing Association).

The beneficiary farmers are not

registered with NAADS contrary to requirements of the project

management procedures provided

in the ATAAS Project Implementation Manual. At the

time of the audit (4/02/2014), which is 17 months after the

payment, the factory had not

been completed.

There is no work plan for implementation of this project

and no date set for completion of the processing plant. Although

Not done

22

the MoU provides for the district

to supervise the project there is no evidence in form of reports to

confirm that monitoring is done.

The secretariat should correct the

deficiencies highlighted and also improve monitoring to ensure

realization of the project objectives.

18 Supply of Parent Stock

Chicks and Poultry feeds to Eden Stores

Deliveries of both the chicks and

feeds were made on various dates in August 2010 without the

involvement of the subject matter

specialist or any other district official to verify and confirm the

supply.

In the post-delivery review report prepared a year later after

delivery by staff of NAADS

secretariat indicated that the beneficiary farmer –Eden stores

would commence distribution of chicks in December 2011.

However, by the time of the audit

(13/02/2014), distribution of chicks to intended beneficiaries

had not been done. The supplier was fully paid on 17th July 2013.

Recommended management follow-up to ensure distribution of

chicks to the farmers.

Not done

19 Cooperation Agreement between

NAADS and Agency for

National Development (A.N.D) for social

economic empowerment

through skills training.

NAADS signed a cooperation agreement with a Non-

Government Organization-Agency

for National Development for training youth to acquire various

skills. The training modules include those not related to the

NAADS mandate and the ATAAS

project such as metal fabrication, saloon, tailoring, Auto electrics,

and cookery and catering as well as carpentry and joinery. It is not

clear how the contractor was procured.

Advised management to terminate contract

Done. The contract was terminated.

20 Supply of Milk Coolers

The secretariat procured 20 milk

coolers and matching generators from M/S Alakaituk Enterprises

Ltd. Alakaituk handed over the milk coolers and generators to

NAADS on 01/08/2012 from which date NAADS commenced

payment of monthly storage fees

to Upstream Ltd of USD 6,161 per

Not done

23

month from August 2012 to

March 2013 and USD from April 2013 to June 2013. The total

expenditure on storage of the

coolers was USD 55,987. This cost was incurred because plans

for distribution and installation of the coolers were not finalized

before the handover.

Further still, our field verification

of the milk coolers revealed that they were not in use in some

cases because the installation was not completed and in others

because there is no milk from

intended beneficiaries. In Buyanja Sub-county Rukungiri district, the

installation was incomplete although the supplier was fully

paid all installation costs.

21 Clearing and Planting of Maize seeds on 500

acres of Land in Adjumani district by

J.S & O General

Supplies Ltd

NAADS secretariat delegated the above procurement to Adjumani

District Local Government and the contractor was paid UGX

360,000,000 for the services.

This activity was however not provided for in the ATAAS project

and the World Bank approved work plan. Also the procurement

was not done in accordance with NAADS and ATAAS procurement

regulations. It is not clear how

the supplier was selected and the World Bank was not informed and

did not give a “no objection” for the procurement as is required by

the ATAAS project procurement

rules. Further still, we noted that the payment of UGX 10,000 per

kilogram for the 10,000 kilograms of OPV seeds was excessive given

that the market price is UGX

1000-2000 per kilogram.

Advised management to follow up the issue

Not done. No action taken on excessive price paid.

22 Staff benefits not in

employment contracts

Noted that 22 staffs of NAADS

secretariat are paid a monthly transport allowance of UGX

214,286 that is not provided for in their respective employment

contracts. The total transport

allowance paid to staff during the financial year was UGX

56,571,504.

On 13th December 2012, NAADS secretariat paid for Christmas

Done

24

shopping vouchers for its staff at

Uchumi Super market valued at UGX. 17,700,000. This is a staff

benefit that is not provided in the

staff employment contracts and was also not taxed. Advised

management to ensure that payments to staff are done in

accordance with the employment contracts.

23 Sitting allowances to

NAADS secretariat staff

Noted instances of payment of

sitting allowances to various staff committees such as the contracts

committee and for staff

participating in interviewing new staff. The payment of these

allowances is unjustified given that these are staff of the

secretariat doing secretariat work within the offices and are actually

ineligible for funding by the

participating partner.

It was recommended that the payment of sitting allowances is

stopped.

Done

24 Fuel Log Books The secretariat maintains fuel logbooks for each vehicle. We

however noted that for some, all required details such as purpose

of journey, time in and out are

not recorded and there is no evidence of review of such

logbooks. Advised management to ensure that fuel log books are

properly completed and reviewed

Not done

25 East African

Agricultural

Productivity Project (EAAPP)

The EAAPP cashbook is not

analysed and there are no ledgers

for project expenses. EAAPP fund transfers to the zonal offices are

maintained in the same cashbook as ATAAS funds.

Payments amounting to UGX

61,625,300 from the EAAPP cash

book were not supported.

Advised management to maintain ledgers and ensure that

appropriate support for all

payments.

Done

26 Pilot Goat Breeding and Production

Scheme for Export

Management was advised to correct these deficiencies

Not done

25

APPENDIX 1

FINANCIAL STATEMENTS