How billions vanish in government

Annually, the Auditor General does comprehensive audits that span various sectors of Uganda’s economy.

The primary objective behind these audits is to enhance transparency, foster accountability, and improve service delivery within the nation. In the context of the 2022/23 audit, several critical scopes were examined, each shedding light on different facets of governance and financial management.

One notable focus of this audit revolved around the meticulous assessment of the implementation of the approved budget, a vital component of government financial accountability. Additionally, the audit scrutinised the intricacies of salary and payroll management practices spanning the entire government of Uganda.

Furthermore, a close examination was conducted into the implementation of the Parish Development Model (PDM), a flagship programme aimed at bolstering local development. A significant revelation arising from the exhaustive 92-page report was the concerning surge in Uganda’s public debt, which surged to a staggering Shs 96.1 trillion.

This daunting figure is further dissected into the domestic debt stock, accounting for Shs 43.6 trillion, and the external debt stock, totaling Shs 52.4 trillion. This marked a substantial increase of Shs 9.3 trillion compared to the debt standing at Shs 86.8 trillion as of June 30, 2022. This surge in public debt raises crucial questions about its sustainability and long-term implications for Uganda’s fiscal health.

Furthermore, the report cast a critical eye on financial discrepancies within the government’s payroll management. Shockingly, during the financial year 2022/23, an astonishing Shs 560 million was disbursed to ghost employees per month—individuals who do not exist or hold no legitimate employment within the government.

This irregular payment could potentially lead to an annual financial loss amounting to Shs 6.72 billion for the government, underscoring the urgency for robust measures to tackle payroll fraud and inefficiencies. Moreover, the Auditor General’s report also illuminated a significant revenue shortfall for the government.

Specifically, the government incurred a loss of Shs 52 billion in uncollected revenue arising from gold exports. This highlights the need for more effective mechanisms to capture and regulate revenue generated from this vital sector, ensuring that the nation’s resources are utilized optimally for development.

APPROVED BUDGET

During the 2022/23 financial year, the Ugandan Parliament approved a budget of Shs 48.1 trillion. However, this initial budget underwent subsequent revisions, eventually reaching Shs 52.5 trillion due to supplementary budgets allocating an additional Shs 4.4 trillion for government expenditure. Interestingly, the auditor general’s report sheds light on a significant discrepancy.

While the revised budget stood at Shs 52.5 trillion, the total amount warranted was only Shs 49.2 trillion, leaving an unfunded budget of Shs 3.3 trillion. Out of the Shs 49.2 trillion allocated across various sectors, only Shs 43.4 trillion was actually spent, revealing a substantial underutilization of Shs 5.8 trillion. This underutilization can be attributed to inadequate funds in the consolidated fund account, the cancellation of invoices, non-implementation of activities by ministries, departments, agencies, and local governments, and delayed fund releases, among other challenges.

An important observation made in the auditor general’s report is that, considering the original budget was Shs 48.1 trillion and actual expenditures amounted to Shs 43.4 trillion, the need for a supplementary budget becomes questionable, as the initial resource allocation was not fully utilized.

As a recommendation, the auditor general emphasized the need for the government to address implementation bottlenecks that hinder accounting officers from effectively utilizing available warrants.

Moreover, it was suggested that the government ensure supplementary warrants are supported by adequate revenue sources and explore the possibility of implementing a system that allocates funds based on the available balance in the consolidated fund. These recommendations aim to improve financial management and accountability within the government’s budgeting process.

IMPLEMENTATION OF PDM

The Parish Development Model (PDM) is a governmental strategy designed to uplift the economic well-being of Ugandan households, with the ambitious target of transforming 39 per cent of these households from subsistence living to active participation in the money economy.

To achieve this goal, substantial financial resources have been allocated and disbursed, but the auditor general’s report reveals a series of challenges and discrepancies in the program’s implementation. In the financial year 2022/23, a budget of Shs 1.059 trillion was allocated for 10,594 savings and credit cooperative societies (Saccos), and all these funds were released. However, Shs 1.05 trillion was transferred to 10,586 Saccos, while Shs 920 million remained untransferred to eight PDM Saccos, raising concerns about the equitable distribution of resources.

Regarding coordination and administrative costs, Shs 82.65 billion was disbursed to specific entities, but Shs 1.097 billion remained unutilized by the Uganda Bureau of Statistics (UBOS), pointing to issues in fund utilization efficiency. Additionally, out of 159 local governments reviewed, 74 incorporated 949 priorities from 1,244 lower local governments into their budgets and work plans, while 794 priorities were omitted, indicating disparities in prioritization.

The alignment of work plans with pillar action plans was found to be lacking among 25 participating ministries, departments and agencies (MDAs), raising questions about program coordination and effectiveness. An administrative discrepancy was identified in the budgeting process, with the Ministry of Finance budgeting for 10,594 parishes instead of the 10,717 gazetted by the ministry of Local Government, leading to 123 parishes being excluded from the PDM programme in 2022/23 and 118 parishes in 2023/24.

In terms of data collection, Shs 4 billion was allocated to UBOS for this purpose, but progress was slow, with household-level data collection at only 41 per cent and the community module data collection at a mere five per cent by December 2023, casting doubt on the timely availability of accurate data.

The disbursement of PDM funds to Saccos faced delays, with no disbursements in quarter one, only 8,860 out of 10,594 Saccos receiving funds in quarter two, and just 905 Saccos receiving funds in quarter three, resulting in a backlog of funds that were eventually disbursed in quarter four.

Out of Shs 820.8 billion received, a significant amount remained undisbursed, with Shs 342 billion left unutilized by the end of the financial year 2022/23. Moreover, Shs 6.2 billion allocated for PDM Saccos in KCCA had not been disbursed at all. The report also highlighted issues of ineligible and non-existent PDM enterprises, with beneficiaries implementing ineligible projects in 68 local governments and non-existent projects in 20 local governments.

Furthermore, all 10,586 Saccos in 176 local governments and KCCA were found to be operating without the necessary licenses to engage in lending activities, as required by the Microfinance Institutions Money Lenders Act, 2016. Additionally, a sample of 112 local governments revealed that 45,321 beneficiaries involved in farming enterprises within 4,511 PDM Saccos had failed to obtain agricultural insurance policies.

As a response to these challenges, the auditor general recommended that the government conduct extensive sensitization programs for all stakeholders involved in the PDM to enhance their understanding of the program’s approach and address the identified issues. These recommendations aim to improve the efficiency and effectiveness of the Parish Development Model in achieving its intended goals.

PUBLIC DEBT

As of June 30, 2023, the total public debt in Uganda had reached a substantial Shs 96.1 trillion. This figure consisted of a domestic debt stock of Shs 43.6 trillion and an external debt stock of Shs 52.4 trillion. This represented a significant increase of Shs 9.3 trillion compared to the prior year’s figure of Shs 86.8 trillion as of June 30, 2022.

The auditor general’s scrutiny revealed a consistent upward trend in the total debt, showing an extraordinary 107 per cent increase over five years, surging from Shs 46 trillion in 2018/19 to Shs 96.1 trillion by June 30, 2023. During the same period, Uganda’s Gross Domestic Product (GDP) experienced notable growth, rising from Shs 132 trillion in 2018/2019 to Shs 184.8 trillion in 2022/23.

This marked an impressive increment of Shs 52.8 trillion. However, a critical observation emerges as the rate of public debt growth has outpaced the rate of GDP growth. This phenomenon can be attributed to increased government expenditure, especially in financing fiscal deficits, which has led to a situation where the escalation of public debt appears to be outstripping the growth of the national economy.

The primary driver behind the surge in external debt is the utilization of these funds to finance the national budget. Given the prevailing circumstances, there is a growing concern about the sustainability of servicing the public debt in the short and medium term if it is not carefully managed.

The expansion of domestic debt can be traced back to the necessity for increased borrowing, particularly to support the economy during the Covid-19 pandemic and mitigate its adverse social and economic repercussions. Additionally, it was imperative to provide economic support in response to escalating global conflicts, such as the Russia-Ukraine war.

The auditor general’s report underscores the urgency of the government’s need to review its debt strategy. This review is critical to address the upward trajectory of debt and enhance efforts in domestic revenue mobilization. A high debt-to-GDP ratio can pose significant challenges when it comes to repaying both internal and external debt, potentially leading creditors to demand higher interest rates to compensate for the increased risk of default or debt extension.

While the International Monetary Fund (IMF) recommends a 50 per cent debt-to-GDP ratio as a safety threshold, it’s noteworthy that many developed countries have exceeded this threshold, with some even reaching ratios as high as 200 per cent.

However, it’s important to consider that developing countries are more vulnerable to economic shocks and exchange rate risks, making adherence to the 50 per cent threshold advisable, according to the IMF’s guidance. Ensuring prudent debt management and balancing it with economic growth will be crucial for Uganda’s financial stability and future prosperity.

SPECIAL AUDIT OF SALARY PAYROLL

The auditor general conducted a specialized audit encompassing the salary payroll of the entire government, involving the validation of all government employees in 367 entities. These entities included 162 ministries, departments and agencies (MDAs), 176 local governments, and 29 other government organizations, all for the month of February 2023.

Among the 367 entities audited, it was noted that only 265 MDAs and local governments processed their payrolls through the ministry of Public Service (MoPS), while the remaining 102 MDAs employed separate payroll systems distinct from those utilized by the MoPS. During the comprehensive validation exercise, a total of 358,753 employees dili- gently provided all the required documents and information and underwent thorough verification. These employees were sub- sequently confirmed by their respective accounting officers.

In addition, 25,439 employees were partially verified as they did not submit all necessary documents. It was recommended that these individuals remain on the payroll temporarily until the appointing authority completes their verification process and takes appropriate action.

Approximately 2,246 employees were absent for legitimate reasons such as official leave, sick leave, secondment, and official work abroad, among other valid causes. Additionally, 7,744 individuals, who were absent from the base payroll in February 2023, actively participated in the validation exercise and furnished all required documents.

The audit report highlighted a critical issue involving 2,067 employees who were paid a total of Shs 1.87 billion in the base month alone (equivalent to Shs 22.44 billion annually), yet they did not meet the validation exercise requirements. Consequently, it was strongly recommended that these individuals be excluded from the validated payrolls.

Furthermore, 6,307 employees were either confirmed as deceased, had absconded, or had retired by the time of validation. Among them, 2,483 employees were promptly removed from the payroll, while 3,824 were not deleted in a timely manner. As a result, Shs 23.62 billion was erroneously disbursed to them after their exit date. It was recommended that these individuals be removed from the validated payroll to rectify this financial irregularity.

Lastly, the audit report identified 1,818 individuals who, in the base month of February 2023 alone, received payments totalling Shs 560 million and were subsequently confirmed as non-existent, essentially representing ghost employees. These improper payments could potentially lead to an annual financial loss of Shs 6.72 billion to the government.

To address these issues, the auditor general advised accounting officers to update their payrolls accordingly and initiate necessary steps to recover the amounts irregularly disbursed. This comprehensive audit serves as a critical tool in improving transparency and accountability in the management of government payroll, ultimately contributing to more efficient financial management within the public sector.

INADEQUACIES IN REVENUE COLLECTIONS FROM MINERALS

A review of URA systems revealed that 22 mineral categories, excluding gold, were exported in 6,469 instances worth Shs 72.490 billion without any tax assessment or payment of resultant taxes. The commissioner general attributed this occurrence to the absence of enabling legislation to facilitate the collection of export levies for the listed minerals.

The auditor general urged the government to expedite the en- hancement of existing laws and policies to facilitate the collection of revenue from all minerals exported.

INABILITY TO COLLECT TAXES ON GOLD EXPORTATION

The Mining and Minerals Regulations, 2023, impose a levy of $200 per kilogram on processed gold exported from Uganda. These regulations were in effect from July 1, 2021, to June 30, 2023. For the period of validity of these Regulations, encompassing financial years 2021–2022 and 2022–2023, the auditor general was provided with a summary of all processed gold exports on which the outstanding levy, at the rate of USD 200 per kilogram of processed gold, was expected.

The total gold exports during this period weighed 70,837.91 kilograms, equivalent to $14.1 million or Shs 52.2 billion in uncollected levies, in violation of the Mining and Minerals Regulations, 2023. URA explained that an interim order restrained them from enforcing the statutory instrument.

The auditor general advised the government to vigilantly pursue this matter to its logical conclusion. In the meantime, the government should closely monitor all gold exports to ensure the accuracy of records for tax assessment and collection pending the resolution of the case.

RECOVERY OF STUDENT LOANS

The Higher Education Students’ Financing Policy, 2012, mandates the Higher Education Students Financing Board to recover all mature loans and issue guidelines to facilitate loan recovery. According to the report, the board issued guidelines providing for a one-year grace period after completion of studies for total loan recovery within a maximum period double the years of the beneficiary’s course.

An analysis of the loan portfolio of the board revealed that out of Shs 20.616 billion due for recovery as of June 30, 2023, only Shs 1.199 billion had been collected, leaving Shs 19.417 billion outstanding. The auditor general noted that delayed recoveries pose a risk of student loan amounts turning into bad debts, hindering the fund’s growth and the provision of loans to other eligible beneficiaries.

The accounting officer attributed the low recovery rate to the effects of the Covid-19 pandemic. He further explained that the board had employed multi-dimensional approaches, including enrolling beneficiaries on the single deduction code of the ministry of Public Service and engaging the Credit Reference Bureau to support recovery efforts.

The auditor general recommended that the board consider establishing a system to track beneficiaries and enforce recovery. In the meantime, they should collaborate with the ministry of Public Service and other employer associations to ensure employed beneficiaries are easily traced and fulfill their obligations.

TEACHING UNACCREDITED PROGRAMS

The Universities and Other Tertiary Institutions Regulations, 2008 (12) (2), require the National Council for Higher Education (NCHE) to continuously update the contents and number of accredited courses and programs. Section 5(d)(ii) of the Universities and Other Tertiary Institutions Act, 2001, mandates the National Council for Higher Education to receive, consider, and process applications for the accreditation of academic and professional programs at universities.

Analysis of programs from five universities revealed that out of the 692 programs, only 332 were accredited, 138 had been submitted to NCHE for accreditation, and 222 were not accredited. Makerere University had 347 programs, with only 149 accredited and 120 not accredited; Mbarara University of Science and Technology had 93 programs, with 21 not accredited; Kyambogo University had 128 programs, with 63 not accredited.

EXPIRED VACCINES AND DRUGS AT THE NATIONAL MEDICAL STORES

The report reveals that out of 12,595,920 doses of Covid-19 vaccines in storage, 5,619,120 doses had expired, valued at Shs 28.1 billion. More expired Covid vaccines are still present in various health facilities across the country, with an estimated total loss of Shs 300 billion.

These vaccines were procured from the World Bank loan advanced for Covid-19 support. The report also indicates that National Medical Stores (NMS) has a non-viable or expired stock of drugs worth Shs 33 billion, primarily including anti-retroviral medications (ARVs), which expired due to changes in recommended treatment guidelines by the World Health Organization.

Dr Diana Atwine, the permanent secretary of the ministry of health, explained that the procurement of Covid-19 vaccines was speculative due to the ongoing pandemic. However, funds have been secured from GAVI to manage the recovery and destruction of all expired Covid-19 vaccines. The auditor general advised the government to ensure prudent planning in emergencies.

DELAYS IN DELIVERY AND UNDER DELIVERY OF DRUGS

Health facilities prepare annual budgets for drugs, medicines, and medical supplies, providing expected expenditure and delivery by NMS for the year. The auditor general noted that NMS budgeted to procure drugs and medical supplies worth Shs 185.9 billion for 3,254 health facilities across the country.

Out of these facilities, 3,183 received deliveries of drugs and medicine supplies worth Shs 26.4 billion. Delays in deliveries disrupted patient treatment due to the mismatch between the budgeting cycle and recruitment cycle. The accounting officer of NMS was advised to align the budget for essential medicines and health supplies (EMHS) with demand to ensure timely distribution and delivery of drugs and medical supplies to health facilities.

DELAYED RECRUITMENT OF HEALTH WORKERS

The Health Service Commission planned to recruit 1,200 health workers for national and regional referral hospitals and central health institutions. However, only 669 vacancies were filled, a recruitment performance rate of 56%. The recruitment process took an average of seven months, causing unutilized wage expenditure of Shs 10.6 billion.

Delayed recruitments affected the quality of health service delivery and increased the use of locally appointed temporary staff in health facilities. The auditor general recommended aligning budgeting and recruitment cycles to improve the recruitment process. Additionally, Shs 2.8 billion and Shs 3.3 billion meant for recruitment were not warranted for Mulago national referral hospital and Kawempe referral hospital, respectively, during the period.

LOSS OF RAILWAY MATERIALS

Over the last two years, the corporation has incurred significant losses, which increased by 9.2% compared to the previous year’s loss of Shs 32.2 billion, despite a revenue increase of 13.83%. The losses were also attributed to the theft of materials and equipment for the rehabilitation of the Tororo-Gulu railway line, valued at €3,083,846 (Shs 12.8 billion) and €3,767,742 (Shs 14.2 billion).

This suggests a potential lack of effective systems to secure and monitor stock during project implementation. The auditor general advised the accounting officer to thoroughly investigate the matter and take appropriate action. Furthermore, the auditor general recommended the implementation of an effective system to secure and monitor stock during project implementation.

DELAYED CONSTRUCTION OF STANDARD GAUGE RAILWAY (SGR)

The first phase of the SGR project, covering the Malaba-Kampala route (273 km), was expected to account for 15.8% of the total proposed project length of 1,724 km. However, Shs 134 billion was spent on compensation for project-affected persons (PAPs) along the same route, and the project has not commenced.

The delays were attributed to the failure to secure financing from EXIM Bank of China as initially planned. The auditor general advised the accounting officer to collaborate with relevant stakeholders to secure the necessary funding to expedite the project implementation process.

ENGINEERING AUDIT AND ASSESSMENT OF INFRASTRUCTURE PROJECTS

Under the UgIFT program, the World Bank allocated US$500 million to support decentralized services in various sectors. The government committed to constructing seed secondary schools, upgrading health center IIs to IIIs, extending rural water access, and providing small-scale irrigation equipment to farmers.

An engineering audit was conducted on the construction of 62 seed secondary schools and the upgrading of 54 HC IIs to IIIs. The audit revealed inconsistencies in some certified quantities, resulting in overpayments of Shs 7.1 billion for education projects and Shs 846 million for health projects.

The auditor general advised the accounting officers to ensure the integrity of construction materials through testing and expedite project implementation for timely service delivery. Overpayments should also be recovered.

REVIEW OF INVESTMENT IN ATIAK SUGAR

The government of Uganda owns 40 per cent of the shareholding in Horyal Investment Holding Company (HIHC), which oversees Atiak Sugar Factory. Private investors own the remaining 60 per cent. The government provided substantial funding amounting to Shs 459 billion through the Uganda Development Corporation (UDC) over six years.

Additionally, the National Agricultural Advisory Services (NAADS) opened letters of credit (LCs) totaling Shs 17.3 billion for HIHC. Further funding of Shs 51.9 billion was provided through NAADS for sugar activities, making a total of Shs 69.2 billion.

The auditor general highlighted discrepancies in capital contributions from private shareholders. Furthermore, some funds meant for specific purposes, such as the procurement of trucks, were diverted to other uses.

The auditor general recommended that unutilized government funds on non-performing LCs be returned to the Consolidated Fund. A harmonized approach to managing government investments in the company was also advised.