________________________________________________________ Office of the Controller and Auditor General PA&OBs 2011/2012 xvii EXECUTIVE SUMMARY
i. Introduction
This executive summary highlights specific issues detailed in this general report which needs the attention of the Government, Parliament, Boards of Directors and respective managements of PA&OBs to ensure efficient functioning of the entities in operations.
The issues highlighted include: types of audit opinions issued by CAG pursuant to Section 33(3) of the Public Audit Act No.11 of 2008, implementation of the prior year‟s audit recommendations, significant matters not reported in the previous year‟s report, procurement and contract management, assets management, human resources management, corporate governance issues, performance on government investments, interests and privatization process, results of special audits and value added and impact of CAG‟ reports as follows:-
ii. Audit Opinion and Reports Concluded
As of 28th February, 2013, I have managed to conclude 126 (71.6%) individual audit reports of Public Authorities and Other Bodies out of the existing 176 PA&OBs which are subject to my ambit of audit under the category of Public Authorities and Other Bodies. Out of the concluded audits, 95 audits were issued with audit opinion while 31 audited accounts were awaiting adoption by the respective Boards of Directors. The main reason for the late adoption is due to lack of Boards of Directors to some of the Public Authorities and Other Bodies, while others failed to convene board meetings on time as required by law. There were also some instances of delays in responding to auditor‟s observations and recommendations to enable timely conclusion of the audits. I therefore urge the responsible authorities to ensure that Boards of Directors are timely appointed once the existing boards‟ tenure lapses.
iii. Implementation of Previous Audit Recommendations
There are 25 previous years‟ outstanding recommendations which were not implemented as summarized in chapter three (3) of this report. Some of the issued recommendations have _____________________________________________________________ Office of the Controller and Auditor General PA&OBs 2011/2012 xviii
remained unattended for more than four years indicating that those charged with governance have not discharged their responsibilities properly. Long outstanding recommendations lead to recurring of similar weakness in future, thereby, hindering the effectiveness of internal controls.
Further, I wish to point out that the responses given by the Paymaster General are not satisfactory since most of the audit recommendations are still unresolved. I am of the view that serious steps and measures should be taken by the Government to ensure all previous recommendations are appropriately implemented in an effort to strengthen accountability and create value for money from the use of public resources.
iv. Significant Audit Matters which were not Reported in the Previous Year’s General Report
Demand for houses in Tanzania is estimated to be growing tremendously and thus requiring huge investments to construct houses for the growing population. The current housing deficit in Tanzania is estimated at three (3) million units and growing at a rate of 200,000 units per annum. The deficit is coupled with the annual growth in demand, and the urban population growth offer a big hypergrowth opportunity for the national economy. Although the government has taken various measures aimed at reducing the shortages by enacting and amending various legislations to create a conducive environment for the private sector to participate, still the sector is not doing well.
MSD which is responsible for drug procurement and distribution does not perform well due to the following factors; Unreliable flow of funds from MoF to MoHSW and then to MSD for procurement and distribution of drugs. There were also difficulties in reconciling financial data between MSD, MoHSW and other players like Muhimbili Orthopedic Institute hence this raise doubt over the transactions among the parties. It is therefore recommended that MoF and MoHSW should always provide the details of all funds disbursed to MSD for _____________________________________________________________ Office of the Controller and Auditor General PA&OBs 2011/2012 xix
procurement of drugs and reconcile this information with MSD statement to ensure completeness.
Over the years VETA has been growing rapidly without having a formal assessment of the existing structure to see whether it delivers its objectives through the increased capacity. In addition, the set up of VETA‟s accounting system, Navision, does not provide a reliable basis for decision making and control as it does not link all centres to the Head Office. Lack of centralized information system limits timely availability of information necessary for decision making.
The Higher Education Student Loans Board for the year ended 30th June, 2011 reported an outstanding students loan receivables amounting to Tshs.793,414,489,454. This figure comprises all amounts loaned to Tanzanian students since 1994 when the program of cost sharing was initiated including amount loaned to untraceable debtors and students who have passed away. IAS 36 requires an entity to make assessment on the impairment loss for the financial assets. Since there is a likelihood of non recoverability of the loaned money, an impairment loss should be assessed and the same being recognized in the statement of comprehensive income.
An amount of Tshs.317,878,110 was disbursed as loans to various beneficiaries without instituting proper controls. Some of the pay-out documents were not checked and approved by senior officers. There were suspected forgery and theft of funds amounting to Tshs.90,775,800 at the head office and there were forgeries through students‟ loans disbursement at Mkwawa University amounting to Tshs.66,057,000. In addition, the Board has been issuing loans to beneficiaries without crosschecking the supporting documents. For example, the Board issued unsupported research loans to MUCE 3rd year students amounting to Tshs.15,512,000.
v. Procurement and Contract Management
Procurement and contract management is a sensitive area which needs close monitoring and supervision in the Procuring _____________________________________________________________ Office of the Controller and Auditor General PA&OBs 2011/2012 xx
Entities (PEs). About seventy five percent (75%) of the country‟s annual budget is spent on procurement of goods and services. This is why the government through its organs saw the need to enact Public Procurement Act No.21 of 2004. I wish to commend the efforts made by the Public Procurement Regulatory Authority (PPRA) in enhancing the public procurement systems and culture which are characterized by openness, transparency, effectiveness, efficiency and value for money. The Authority (PPRA) has always been struggling to build procurement capacity in the country by setting standards for the procurement systems in the United Republic of Tanzania. Conversely, some of the Public Authorities are still not complying with the requirements of the Public Procurement Act No.21 of 2004 and its Regulations of 2005. This audit revealed major weaknesses worth reporting for the government action.
Key issues which were reported in the respective public authorities was unauthorized emergency procurement (those lacking PMG‟s retrospective approval), execution of procurement transactions without having contract, procurements out of annual procurement plan, lack of independent functioning of procurement pillars, inappropriate use of procurement methods, unbudgeted procurement and mismanagement of contracts. Also, I would like to draw attention of the public on a nugatory expenditure of Tshs.2,241,585,885.16 paid by TPA to a contractor M/s Oceana Advanced Industries Ltd being penalty for termination of a contract for maintenance and dredging of berth No.1-11. This payment could have been avoided if the procurement contract had been properly managed.
The chargeability of this penalty was explained to be caused by management failure to handover berth No. 7 to the contractor as per the agreement entered between the two parties. _____________________________________________________________ Office of the Controller and Auditor General PA&OBs 2011/2012 xxi
vi. Asset Management
I noted that all PSPF benefits falling due during the 5 years transitional period from 1st July, 1999 to 30th July, 2004 were paid by the Ministry of Finance and Economic Affairs by then from the Consolidated Fund as the Fund was given a grace period of five years after its establishment in 1st July,1999. In this regard, no benefits were made from the Fund during the transitional period. The payments of benefits under the provision of the Act effectively commenced in 1st July, 2004. From the last actuarial valuation completed as at 30th June, 2010, indicated that the financial position of PSPF continued to deteriorate. Recent valuation has revealed an actuarial deficit of Tshs.6,487 billion as at 30th June, 2010, hence the going concern of the Fund is at a very high risk if appropriate measures are not taken by the responsible parties.
I also observed that Tanzania Broadcasting Corporation (TBC) has reported an operating loss of Tshs.1,589,611,168 (2011: Tshs.3,547,006,716). At the end of year, the Corporation is technically insolvent with a net liability position of Tshs.2,737,723,752 (2011: Tshs.1,135,630,509) and is largely dependent on Government‟s support in meeting its operational needs and obligations as they fall due in the foreseeable future. These conditions and events may cast significant doubt about the Corporation‟s ability to continue as a going concern.
During the audit of Dodoma University I observed properties amounting to Tshs.452,099,118,739 situated at the Dodoma University plots but which were not included in the University‟s books of account. The completed buildings were handed over to the University for use by four Pension Funds which financed the construction projects of most of the University buildings under Government directives. The buildings were yet to be transferred to the University by the Government which entered into agreement with the respective Pension Funds, namely NSSF, PSPF, LAPF and PPF. _____________________________________________________________ Office of the Controller and Auditor General PA&OBs 2011/2012 xxii
I also noted that provision for doubtful debts of Tshs.83,403,836,594.02 was made without proper justification at CHC. This provision of Tshs.83,403,836,594.02 represents 85% of the receivables amounting to Tshs.98,113,369,474.26 which was inherited by CHC from PSRC. The huge figure of provision made by CHC for its inherited receivables might reduce its efforts in loan recovery.
At the Open University of Tanzania, I noted several critical weaknesses which included improper bank reconciliations which cast doubt on the accuracy of Tshs.7,118,266,352 reported as cash and cash equivalents, bank reconciliation statements for five accounts for the whole period under review were not available for audit verification. The Open University internal audit investigation reported misappropriation of public funds aggregating to Tshs.700,182,000. It was explained that the sum was made up of Tshs.219,860,000, which was perpetuated through the Higher Education Students‟ Loans Board and Tshs.480,322,000, which was perpetuated through the Treasury Registrar by way of fraudulent payments to ineligible individuals though the financial implications had not been reflected in the books of account of the University.
During the audit of TANAPA, I noted that poaching activities especially on elephant have substantially increased where a total of 110 elephants were killed during the year 2011/2012. The increase of poaching activities at TANAPA has been contributed by patrol man-days not executed as planned at each park level. None performing or reducing of patrols man days may attract more poachers at the parks, hence management of TANAPA should ensure that patrol man days are increased and the patrol exercises improved and supervised effectively.
vii. Human Resources Management
Human resource brings a link between different departments in organizations and requires vigorous attention to achieve employee‟s needs. During the year under review I observed _____________________________________________________________ Office of the Controller and Auditor General PA&OBs 2011/2012 xxiii
excessive delays and acknowledgement of submission of pension contributions and other statutory deductions to respective pension funds, deficiency in staff performance appraisal and missing imperative information in staff personal files, understaffing, decisive vacant posts which takes time to be filled. I also noted lack of training policy and programmes and lack of succession plan for some Authorities. Details of exceptions were noted and the way forward has been included under chapter seven of this report.
viii. Corporate Governance
As reported in my previous year‟s report regarding the inclusion of members of parliament on Boards of Directors of various PA&OB, in this year I have noted the continued existence of the members of Parliament as Board of Directors and the Governing Boards. The examples of organisations where it has been observed include STAMICO, TTB, AICC, NCAA, OUT, Centre for Foreign Relations, LUWASA and Cashewnut Board.
Contrary to principles of good governance, there were various interference by parent ministries on operations of PA&OBs. During the year 2011/2012, the Ministry of Tourism and Natural Resources transferred a total of Tshs.771,200,000 (2011 TShs.591 million) to Tanzania Tourist Board (TTB) which was not meant for TTB planned activities. The amount was later recalled by the Ministry and TTB releasing the fund as requested through various written instructions. Surprisingly, Tshs.416,103,640 was collected from TTB by staff from the Ministry of Natural Resources and Tourism and Tshs.355,096,360 was directly paid to other Institutions or suppliers by TTB as directed by the Ministry. Such interference by the Ministry on the operations of TTB diminishes the accountability of the Board of Directors on the operations of TTB.
Similar instructions were issued to NCAA to make a salary contribution of Tshs.34,960,000 to the MNRT in respect of four months‟ salary of a Tourism Officer based in Japan. NCAA was _____________________________________________________________ Office of the Controller and Auditor General PA&OBs 2011/2012 xxiv
also instructed to pay for the costs of the participation of members of parliament (MPs) at the International Trade Fairs, to contribute Tshs.340,000,000 for promotion of tourism in USA and contribute Tshs.5,171,200,000 towards the cost of a Bell 407 helicopter although this directive was also not implemented. Another Ministerial interference was noted at Mtwara Urban Water Supply and Sewerage Authority (MTUWASA) where the sum of Tshs.28,616,000 was received from the Ministry of Water for improvement of MIS data in Mtwara but was subsequently withdrawn by an Accountant from the Ministry of Water.
At Kariakoo Market Corporation (KMC), I noted irregular appointment of the Advisory Council by the Dar es Salaam City Council contrary to the establishing Act which requires the Chairman of the Board of Directors to be appointed by the President and the other members by the Minister.
ix. Government Investment, Interests and Privatization Process.
A review of performance of government investment noted that, Local Government investment has increased by Tshs.1.939 trillion, being an increase from Tshs.10.276 trillion as at 30th June, 2011 to Tshs.12.215 trillion as at 30th June, 2012. The increase has been caused by the increase in revaluation reserve & accumulated surplus and increase in number of government Institutions/Parastatals from 204 in 2010/2011 to 213 in 2011/2012.
Government revenue collected by TR in respect of dividends, loan repayments and other proceeds has increased by Tshs.179.3 billion (equivalent to 622.8%), from Tshs.28.8 billion for the year ended 30th June, 2011 to Tshs.208.1 billion in the year under review. The increase has been attributed to good performance of some parastatals, the ongoing emphasis and close follow up of implementation of Treasury Circular No. 8 that requires public sector organizations and Public Authorities to contribute 10% of their gross revenue to the _____________________________________________________________ Office of the Controller and Auditor General PA&OBs 2011/2012 xxv
government and liquidation of liabilities by TPA to government.
The objective of privatizing some of the Public Authorities and Other Bodies is to ensure that the entities efficiently provide goods and services and minimize losses. 34 specified public enterprises taken over from the Presidential Public Sector Reform Commission (PSRC) by the Consolidated Holding Corporation (CHC) were still specified up to the time of this general report. Once public enterprises are specified for privatization, they are limited from business expansion since they can neither prepare and implement strategic plans nor be allowed to do any investment. In this case, wear and tear of assets owned by the specified PA&OBs is normally on the higher side since repair and replacement of the assets might not be possible due to shortage of funds. Therefore, the Government should consider speeding up the process of privatization in order to avoid further deterioration of the assets owned by the specified PA&OBs. Until 31st December, 2012 a total of 274 organizations had already been privatized. Examples of the privatized public enterprises are organizations in the Agricultural Sector, Infrastructure, Natural Resources and Tourism.
x. Results of Special Audit
During the year under review, special audits were carried out at Tanzania Electric Supply Company (TANESCO) and at the “Shirika la Usafiri Dar es salaam” (UDA). The results of the special audits are as summarized hereunder and detailed in chapter ten of this report.
At TANESCO, the special audit was done in two phases and the results were as follows;
Phase 1 special audit of TANESCO revealed that, Santa Clara Supplies Company Limited was awarded Contract No. PA/001/11/HQ/G/011 for supply office stationeries, printing and computer consumables for one year from 20th December, 2011. The Managing Director of Santa Clara was the wife of the then MD of TANESCO and she was an ex- employee of _____________________________________________________________ Office of the Controller and Auditor General PA&OBs 2011/2012 xxvi
TANESCO. Santa Clara Supplies Company Limited business dealing with TANESCO was irregular. The MD of TANESCO did not declared his conflict of interest with the company and the wife of the MD declared her conflict of interest with TANESCO in her tender documents.
McDonald Live Line Technology Limited was awarded tenders by TANESCO while the same was in joint venture agreement with the MD of TANESCO. The company was awarded Contracts for the rehabilitation and construction of live lines signed in 2008, 2009, 2010 and 2011. The MD of TANESCO entering into contract with McDonald in 2008 was not in line with TANESCO Code of Ethics and Conduct and the Leadership Code of Ethics Act 1995.
Phase 2 special audit revealed that, TANESCO had persistent violation of the Public Procurement Act, 2004 and its regulations. The Managing Director, being the ultimate decision maker regarding all procurements done by the company had persistently failed to prevent the violations and, in most procurement, the Managing Director had directly approved the irregular single source or flawed restricted procurements. The procurement processes in TANESCO had ignored the company‟s own Engineers estimates in deciding reasonableness of tender prices.
The special audit on the sale of UDA shares to investor revealed that; the Board of Directors of UDA did not adhere to the procurement procedures in the sale of UDA shares. The Shares were valued at Tshs.744.79 per share in October 2009 and Tshs.656.15 in November, 2010. However, the shares were eventually sold at Tshs.145 per share ignoring the valuations previously conducted. In this regard total amount supposed to have been paid on the discounted share price was Tshs.1,142,643,935 but only Tshs.285 million was paid and the balance is yet to be settled.
The chairman of the Board of Directors of UDA received Tshs.320 million for the purported „consultancy‟ service from _____________________________________________________________ Office of the Controller and Auditor General PA&OBs 2011/2012 xxvii
investor and the amount was deposited into his personal account. This practice reflects a potential conflict of interest in the sale. The amount was claimed by investor to be payment of commitment fee for the sale agreement.
xi Value Added and Impact of the CAG’s Report
The report of the current Controller and Auditor General on the PA&OBs was issued for the first time in the year 2006/2007. Since its first issue, the CAG‟s report has pointed out a number of issues which need the attention of the government, parliament and management of PA&OBs to which recommendations were made to suggest solutions to the earmarked observations. It is my pleasure to note that on implementation of my recommendations the government has addressed some of the pertinent issues which has yielded benefits to the government, PA&OBs and the nation as a whole.
The notable value added by the CAG‟s recommendations include but not limited to the establishment of the Internal Auditor General‟s Office, Restructuring of the Treasury Registrar‟s Office, Establishment of POAC, Review of TICTS contracts, Increase in the number of audited PA&OBs, Di-specification of some PA&OBs; improved compliance in various Legislations; Adoption of IFRS and IPSAS Accrual by PA&OBs. However, it is apparent that there are a number of CAG‟s recommendations which have not been implemented which are going to be re-submitted in the current report.
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