Public Accounts Audit by CAG Tanzania 2012/2013

O f f i c e o f t h e C o n t r o l l e r a n d A u d i t o r G e n e r a l A G R / C G / 2 0 1 2 / 1 3

2012/2013

THE UNITED REPUBLIC OF TANZANIA

NATIONAL AUDIT OFFICE

THE ANNUAL GENERAL REPORT OF THE CONTROLLER AND AUDITOR GENERAL ON THE

FINANCIAL STATEMENTS OF THE CENTRAL GOVERNMENT (MDAs) FOR THE YEAR ENDED 30TH

JUNE, 2013 The Controller and Auditor General, National Audit Office Samora Avenue/Ohio Street P. O .Box 9080 Tel: +255 (022) 2115157/8 Fax: +255 (022) 2117527 e-mail [email protected] website: www.nao.go.tz Dar es Salaam. This general report covers 60 Ministerial Votes, Departments and Agencies, 25 Regional Administrative Secretaries and 32 Embassies

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In reply, please quote Ref.Na.FA.27/249/01/2012/13 28th March, 2014 Your Excellency Dr. Jakaya M. Kikwete, The President of the United Republic of Tanzania, State House, P. O. Box 9120, DAR ES SALAAM.

RE: SUBMISSION OF THE ANNUAL GENERAL

REPORT OF THE CONTROLLER AND AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF THE CENTRAL GOVERNMENT FOR THE FINANCIAL YEAR ENDED 30TH JUNE, 2013

Pursuant to Article 143(4) of the Constitution of the United Republic of Tanzania of 1977 (revised 2005), and Section 34 (1) (c) of the Public Audit Act No. 11 of 2008. I have the honour and respect to submit to you the General Audit Report on the Central Government for the financial year ended 30th June, 2013 for your information and necessary action.

THE UNITED REPUBLIC OF TANZANIA

NATIONAL AUDIT OFFICE

Office of the Controller and Auditor General, Samora Avenue, P.O. Box 9080, DAR ES SALAAM. Telegram: Ukaguzi", Telephone: 255(022)2115157/8,

Fax: 255(022)2117527, E-mail: [email protected], Website: www.nao.go.tz

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I have provided constructive recommendations which if implemented can mitigate the incidence of irregularities and substantially improve financial accountability in the Government. I submit.

Ludovick S. L. Utouh CONTROLLER AND AUDITOR GENERAL

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TABLE OF CONTENTS

LIST OF TABLES ............................................... ix Office of the Controller and Auditor General ............. xii Vision, Mission and Core Values ............................. xii Foreword ....................................................... xiv Acknowledgement ............................................ xix LIST OF ABBREVIATIONS ..................................... xxi Executive summary .......................................... xxiv

CHAPTER ONE .................................................. 1 1.0 BACKGROUND AND GENERAL INFORMATION .......... 1 1.1. Audit Mandate and Rationale for Audit. .............. 1 1.2 Applicable Auditing Standards and Reporting

Procedures. ............................................... 5 1.3 Number of audited entities and NAOTs set up ...... 7 1.4 Statutory Responsibilities of the audited entities ... 9

CHAPTER TWO ................................................. 12 AUDIT OPINION OVERVIEW, TYPES, BASIS AND THE ACTUAL AUDIT RESULTS ...................................... 12 2.0 An overview of the audit opinion ..................... 12 2.1 Types of the audit opinions ............................ 13 2.2 Basis of the audit opinion and the actual audit

results .................................................... 14 2.3 Trend of Audit Opinions ................................ 24 2.4 Audited entities issued with qualified, adverse and disclaimer of opinions with their actual specific

basis of their qualifications ........................... 28

CHAPTER THREE .............................................. 56 FOLLOW UP ON THE IMPLEMENTATION OF THE PREVIOUS YEARS' AUDIT RECOMMENDATIONS .............. 56 3.0 Introduction .............................................. 56 3.1 Responses of accounting officers/ heads of

departments on individual reports submitted to them by the Controller and Auditor General ....... 57

3.2 Follow up on the PMG's structured responses upon the recommendations issued by the Controller and

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Auditor General on the general report of Central Government in 2011/2012 ............................. 60

3.3 Responses on implementation of the PACs recommendations ....................................... 74

CHAPTER FOUR ................................................ 88 PUBLIC FINANCE MANAGEMENT .............................. 88 4.1 REVENUE COLLECTION AND FUNDING ANALYSIS .... 88 4.2 NATIONAL ACCOUNTS ................................. 103 4.3 EXPENDITURE MANAGEMENT ........................ 134

CHAPTER FIVE ............................................... 150 EVALUATION OF INTERNAL CONTROL SYSTEM AND GOVERNANCE ISSUES ........................................ 150 5.0 Introduction ............................................ 150 5.1 Inadequate Performance of Internal Audit Units . 151 5.2 Inadequate Performance of Audit Committees ... 152 5.3 Inadequate Risk Management process ............. 154 5.4 Weaknesses in Information Technology - General

Controls ................................................ 154 5.5 Inadequate Fraud Prevention and Control ........ 156 5.6 Inadequate utilization of IFMS/Epicor System .... 157

CHAPTER SIX ................................................. 160 HUMAN RESOURCES AND PAYROLL MANAGEMENT ....... 160 6.0 INTRODUCTION ........................................ 160 6.1 Key issues raised from audit of MDAs and RS ..... 161 6.2 Absence/Inadequate Open Performance Review and Appraisal System (OPRAS) ...................... 167 6.3 Outstanding staff claims ............................. 168 6.4 Inadequate number of staff ......................... 169 6.5 Deductions made to employees above two third

(2/3) of the gross salary ............................. 170 6.6 Problems associated with the application of Human Capital Management Information System

(HCMIS) LAWSON ...................................... 171 6.7 Absence of Important Posts of Tourist Officer .... 172

CHAPTER SEVEN ............................................. 174 REVIEW OF PROCUREMENT MANAGEMENT ................ 174 7.0 INTRODUCTION ........................................ 174

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7.1 Major Issues Identified on Procurement Audit .... 175 7.2 Procurement without competitive quotation ..... 175 7.3 Assets Procured but not operational ............... 177 7.4 Payments Made Above Invoice/Contractual Amount ................................................. 178 7.5 Procurements out of Annual Procurement Plan .. 179 7.6 Procurement without approval of Tender Board . 180 7.7 Procurement using Imprests ......................... 181 7.8 Stores procured but not accounted for in stores

ledgers .................................................. 183 7.9 Issues Identified by PPRA ............................ 184 7.10 Compliance with PPA 2004 and its regulations of

2005 ..................................................... 185 7.11 Assessment of contracts management ............. 185 7.12 Management of procurement records .............. 186 7.13 Evaluation of Procurement Information Management System (PIMS) .......................... 186 7.14 Recommendations given by PPRA ................... 187 7.15 Anomalies in procurement and stores management

observed by Directorate of Government Assets Management Division (Stock Verifier) .............. 189

CHAPTER EIGHT ............................................. 192 ASSETS MANAGEMENT AND LIABILITIES ................... 192 8.0 INTRODUCTION ........................................ 192 8.1 Non maintenance/establishment of proper Non

current asset register ................................ 193 8.2 Grounded and un-serviceable Noncurrent asset .. 196 8.3 Partial revaluation of Property, Plant and

Equipment ............................................. 197 8.4 Property, Plant and Equipment lacking ownership

documents ............................................. 198 8.5 Improper recognition of intangible assets ......... 199 8.6 Absence of monitoring devices (CCTV camera) at

weighbridge stations ................................. 200 8.7 Misclassification of Development Funds Transfer 201 8.8 Inadequate management of Ivory tusks stockpile and

other trophies ......................................... 202 8.9 Non disclosure of imprest as receivables .......... 205

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8.10 Unsettled liabilities amounting to . ..... 206

CHAPTER NINE ............................................... 208 9.0 SPECIAL AUDIT ......................................... 208 9.1 Introduction ............................................ 208 9.2 Report on the audit conducted on Designated objectives. ............................................. 210 9.3 Ministry of Works on Procurement of MV Misungwi for financial year 2004/2005 ............ 211 9.4 Ministry of Agriculture, Food Security and

Cooperatives on the National Agricultural Inputs Voucher Scheme (NAIVS) ............................. 213

9.5 Ministry of Health and Social Welfare on financial impropriety of training fees at Mkomaindo

Nursing Training Centre .............................. 217

CHAPTER TEN ................................................ 219 OTHER ISSUES ................................................ 219 10.0 INTRODUCTION ........................................ 219 10.1 Government Agency Appraisal ...................... 219 10.2 Payment of Rent Charges by MDAs 226 10.3 Challenges facing Tanzania Prison Service (TPS) . 228 10.4 The role of Controller and Auditor General in

Auditing PPP projects ................................ 234 10.5 Common issues emerging from the ongoing audit of

Political Parties accounts .......................... 243

CHAPTER ELEVEN ........................................... 247 11.0 CONCLUSION AND RECOMMENDATIONS ............. 247 11.1 Non implementation of some of the previous years recommendations ............................. 248 11.2 Procurement Management ........................... 249 11.3 Unattended Shortage of Workforce in MDAs and RS 251 11.4 Salaries Paid to non Exiting Employees .......... 252 11.5 Expenditure Management ............................ 253 11.6 Operation of Embassies .............................. 255 11.7 Operations of Designated Hospitals ................ 257 11.8 National Agricultural Inputs Voucher Scheme (NAIVS).................................................. 259 11.9 IPSAS preparedness and implementation .......... 260

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11.10 Monitoring and evaluation of projects financed through debt proceeds .............................. 265

11.11 Lack of Unified Debt Management Office ........ 266 11.12 Converted Liquidity Papers into financing papers . 266 11.13 Release of funds towards the end of the financial year ......................................... 267 11.14 Management of Customs and Bonded Warehouses ............................................ 268

14.0 ANNEXURES ............................................ 270

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LIST OF TABLES

Table 1: Number of Auditees ....................................... 7

Table 2: List of the audited entities issued with unqualified opinion ..................................................... 15

Table 3: List of audited entities issued with unqualified opinion with other matters ............................ 18

Table 4: Trend of audit Opinion for the past four years ..... 26

Table 5: List of MDAs issued with Qualified Opinion and the their basis ................................................. 30

Table 6: List of audited entities issued with Adverse Opinion

and the basis of adverse opinion ...................... 55

Table 7: PMG's structured responses ............................ 61

Table 8: PAC's recommendations from the report ............ 75

Table 9: The estimates and actual revenue performance for

the financial year 2012/2013 and

2011/2012 ................................................. 90

Table 10: Analysis of Exchequer issues released for Supply

vote:........................................................ 93

Table 11: Analysis of Exchequer issues released for

Development vote: ...................................... 94

Table 12: Analysis of exchequer issues and actual

expenditure for the supply vote for the financial

years 2011/2012 1nd 2012/2013. ..................... 95

Table 13: Analysis of exchequer issues released for

development vote. ...................................... 96

Table 14: Summary of non-tax revenue .......................... 98

Table 15: Analysis of Expenditure arrears is shown below:- . 101

Table 16: Outstanding matters for TRA for 2010/2011 and

2011/2012 ................................................ 114

Table 17: TRA Revenue Performance Tanzania

Mainland .................................................. 115

Table 18: TRA Revenue Performance - Zanzibar ............... 115

Table 19: TRA Revenue Collection Pattern - Tanzania

Mainland .................................................. 116

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Table 20: TRA Revenue Collection Pattern - Tanzania Zanzibar .................................................. 117

Table 21: Summary of tax exemptions issued to institutions 119

Table 22: TRA Exemptions against actual collection for

financial year 2011/12-2012/13 ..................... 120

Table 23: TRA Revenue Yield for Tanzania with Exemptions

considerations .......................................... 121

Table 24: Recurrent expenditure trend ......................... 126

Table 25: Exchequer issues released in each quarter ......... 127

Table 26: Long outstanding imprests ............................ 135

Table 27: Summarized results of long outstanding imprests: 135

Table 28: Summarized payments charged to wrong expenditure codes: ..................................... 136

Table 29: Overpayment ............................................ 137

Table 30: Summarized payments overcharged: ................ 138

Table 31: Summarized payments made out of approved

budget: ................................................... 139

Table 32: Summarized payments inadequate

supported:................................................ 140

Table 33: Missing acknowledgement receipts/ EFR receipts 142

Table 34: Payments without statement of expenditure ...... 143

Table 35: Summarized payments whose vouchers were

missing: ................................................... 146

Table 36: Deferred payments ..................................... 148

Table 37: List of MDAs and RS with unclaimed salaries ....... 162

Table 38: Penalty for Delayed Staff Deductions ............... 164

Table 39: Payment to employees who were no longer in

service .................................................... 165

Table 40 Unauthorized statutory deductions from ex-

government employees ................................ 165

Table 41: Absence/inadequate Open Performance Review

and Appraisal System (OPRAS) ........................ 167

Table 42: Outstanding staff claims ............................... 169

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Table 43: Deductions made to employees over and above two third (2/3) of the gross salary ................... 170

Table 44: MDAs/RSs which did procurement without

quotation ................................................. 176

Table 45: Assets Procured but not operational ................ 177

Table 46: Payments Made Above Invoice/Contractual ........ 178

Table 47: Procurements out of Annual Procurement Plan ... 180

Table 48: Procurement without approval of Tender

Board ...................................................... 181

Table 49: Procurement using Imprest............................ 182

Table 50: Stores procured but not accounted in store

ledgers .................................................... 184

Table 51: Stock Verifier Reports .................................. 190

Table 52: List of MDAs/RS noted with anomalies in asset

register management .................................. 195

Table 53: List of MDAs and RS lacking ownership documents 198

Table 54: List of MDAs and RS with Transfer of Development

funds ...................................................... 202

Table 55: List of MDAs and RS Non disclosure of receivables 205

Table 56: Insufficiency in government funding of

agencies .................................................. 222

Table 57: Under collection of own source revenue ........... 224

Table 58: Payment of Rent Charges by MDAs ................... 227

Table 59: Limited budget .......................................... 230

Table 60: Under release of funds ................................. 231

Table 61: TPS increase of liabilities from suppliers and staff

claims to 30th June 2013 .............................. 232

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Office of the Controller and Auditor General, National Audit Office, United Republic of Tanzania, (Established under Article 143 of the Constitution of the URT) The statutory duties and responsibilities of the Controller and Auditor General are given under Article 143 of the Constitution of the URT of 1977 (revised 2005) together with Sect. 10 (1) of the Public Audit Act No. 11 of 2008.

Vision To be a centre of excellence in public sector auditing.

Mission To provide efficient audit services in order to enhance accountability and value for money in the collection and use of public resources.

Core Values In providing quality services, NAO is guided by the following Core Values:

Objectivity: We are an impartial organization, offering services to our clients in an objective and unbiased manner;

Excellence: We are professionals providing the highest quality audit services based on best practices;

Integrity: We observe and maintain the highest standards of ethical behavior and the rule of law;

People focus: We focus on our stakeholders needs by building a culture of good customer care and having competent and motivated work force;

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Innovation: We are a creative organization that constantly promotes a culture of developing and accepting new ideas from inside and outside the organization and

Best resource utilization: We are an organization that values and uses public resources entrusted to it in an efficient, economic, and effective manner. We do this by:

Contributing to better stewardship of public funds by ensuring that our clients are accountable for the resources entrusted to them;

Helping to improve the quality of public services by supporting innovation on the use of public resources;

Providing technical advice to our clients on operational gaps in their operating systems;

Systematically involve our clients in the audit process and audit cycles; and

Providing audit staff with appropriate training, adequate working tools and facilities that promote their independence. This audit report is intended to be used by Government Authorities. However, upon receipt of the report by the Speaker and once tabled in Parliament, the report becomes a matter of public record and its distribution may not be limited.

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Foreword

Mr. Ludovick S. L. Utouh (CAG)

This is the first year the MDAs and RSs are preparing their financial statements under IPSAS accrual basis of accounting. I congratulate the Government through the Accountant General for the deliberate effort undertaken to adopt the IPSAS accrual basis of accounting.

Apart from the challenging nature, it is beyond doubt that if compared with the cash basis of accounting; accrual basis of accounting provides a more comprehensive financial information that is important in guiding managements and other users of financial information in arriving at more informed decisions. While I commend this effort, I also urge the government through the Accountant General again, to correctly monitor and evaluate implementation of the roadmap towards the full adoption of the IPSAS accrual basis of accounting.

This report is being submitted to the President of the URT in accordance with Article 143 of the Constitution of the United Republic of Tanzania (revised 2005) and Section 34(1) & (2) of the Public Audit Act No.11 of 2008.

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Pursuant to Article 143(2) (c) of the Constitution of the URT, the Controller and Auditor General shall, at least once every year, audit and issue an audit report in respect of the accounts of the Government of the United Republic, the accounts managed by all officers of the Government of the United Republic, the accounts of all Courts of the United Republic and the accounts managed by the Clerk of the National Assembly.

Under Article 143(4) of the Constitution of the URT, the Controller and Auditor General is required to submit to the President of the URT every report he makes pursuant to the provisions of Sub Article (2) of the same Article. Upon receipt of such reports, the President shall direct the persons concerned to submit these reports before the first sitting of the National Assembly, preferably before the expiration of seven days from the day the sitting of the National Assembly began.

Operational independence of my office has greatly improved following the enactment of the Public Audit Act No. 11 in 2008 and the Public Audit Regulations (GN.47) of 2009. However, in accordance with international standards and best practice, there is need for further improvement in terms of control of salaries and recruitment of staff to enable me to effectively fulfill my Constitutional mandate.

It is worth noting that while my office reports on any non compliance with various laws, rules and regulations and on weaknesses in internal control

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systems across the public sector entities and in particular the Central Government, the ultimate responsibility for the maintenance of an effective and adequate system of internal control and a compliant financial management framework lies with each Accounting Officer.

The Parliament and the Tanzanian citizens look upon the Controller and Auditor General for assurance in regard to financial reporting and public resources management in the public sector in relation to efficiency and effectiveness of programs administration. My office contributes through recommendations given towards improvements in the public sector performance. In this regard, the Central Government and my office each has a role to play in contributing to Parliamentary and public confidence building in public resources management. However, while the roles of Public Sector entities and NAO may differ, the desire for efficient utilization of public resources remains a common ground. In order to meet the expectations of the Parliamentarians and the public at large, NAO continuously reviews its audit approaches and processes to ensure that the audit coverage provides an effective and independent review of the performance and accountability of public sector entities. Moreover, we seek to ensure that our audit coverage is well targeted and addresses priority areas so as to maximize our contribution in improving public administration. Since our work acts as a catalyst in improving financial management, we continue to discuss with our

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auditees contemporary issues and developments that impact on public sector management, particularly financial reporting and good governance. The Public Accounts Committee (PAC), one of the oversight committees of the Parliament, has increased interactions with all Accounting Officers of MDAs and RS. With these efforts, I believe the Central Government has a crucial role to play in order to make sure that the Committee is empowered to ensure that the Accounting Officers take actions on the recommendations issued to them. The Committee should also make full use of the already existing powers they have in this regard.

I would like to acknowledge the professionalism and commitment of my staff in achieving our goals and undertaking the work associated with meeting our ambitious audit programs despite working for many hours in very difficult conditions marked with, insufficient of working tools, low salaries and sometimes working in very remote locations which are not easily accessible. I would also like to acknowledge the work done by the Division of Government Assets Management under the Ministry of Finance for preparing and submitting reports on stock verification for the sampled MDAs and RSs for the financial year 2012/13 that highlighted issues which features in this report. I appreciate the work done by this Division which I found appropriate and relevant to be incorporated in my report.

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I hope that the National Assembly will find the information in this report useful in holding the Government to account for its stewardship of public funds and its delivery of improved public services to Tanzanians. In this regard, I will appreciate to receive feedback from the users of this report on how to further improve it in the future.

Ludovick S. L. Utouh CONTROLLER AND AUDITOR GENERAL _____________________________ National Audit Office, Dar es Salaam, March, 2014

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Acknowledgement I would like to express my special appreciation and thanks to every member of my staff for their tireless efforts in ensuring that the statutory reporting deadline of submitting the report to H.E the President of URT of 31st March was met. I would like also to thank members of the Parliamentary Oversight Committee - the Public Accounts Committee, for their brilliant comments, directives and suggestions during the hearing of Accounting Officers. As an institution charged with providing assurance and confirming credibility in respect of how public funds have been utilized, we pay critical attention to the accountability role our Committee plays in facilitating common understanding of the Controller and Auditor-Generals mandate to both internal and external stakeholders.

I acknowledge with thanks the donor community particularly the Government of Sweden through SIDA and SNAO, the World Bank through the PFMRP project, the African Development bank (AfDB), GIZ, USAID, Government of China and all well wishers who have contributed immensely towards the transformation of my office. Their contributions in developing the human resource, IT systems and physical assets of our office has had tremendous impact in our success. I am equally indebted to all other stakeholders including the Minister of Finance, the Paymaster General, all Accounting Officers of the MDAs and

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RS; Division of Government Assets Management and Public Procurement Regulatory Authority under the Ministry of Finance for their cooperation and provision of vital information needed for the preparation of this report. I would also like to thank the Government Printer for expediting the printing of this report for its timely submission. Last but not least, I would like to thank all our stakeholders including the public servants, media, activists and the public at large without forgetting the role of taxpayers of this country to whom this report is dedicated. Their invaluable contributions in building the nation cannot be underestimated. May the almighty God bless you all as we commit ourselves to promote accountability on the use of public resources in the country.

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LIST OF ABBREVIATIONS

AAG Assistant Auditors General

ADS Administrative Sector

AfDB African Development Bank

AFROSAI-E African Organization of Supreme Audit Institutional- English Speaking Countries

AGR Annual General Report

ATCL Air Tanzania Company Limited

BoT Bank of Tanzania

CAG Controller and Auditor General

CCTV Closed Circuit Television

CEO Chief Executive Officer

CG Central Government

CS-DRMS Commonwealth Secretariat-Debt Recording and Management System

DAG Deputy Auditors General

DDH Designated District Hospitals

DGAM Directorate of Government Assets Management

DMO Debt Management Office

DSA Debt Sustainability Analysis

EFD Electronic Fiscal Device

EPS Economic and Productive Sector

GIZ German International Cooperation

GN Government Notice

GoT Government of Tanzania

H.E His Excellency

HCMIS Human Capital Management Information System

IFAC International Federation of Accountants

IFMS Integrated Financial Management System

IFRS International Financial Reporting Standards

INTOSAI International Organization of Supreme Audit Institutions

IPSAS International Public Sector Accounting Standards

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ISA International Standards on Auditing

ISSAIs International Standards of Supreme Audit Institutions

IT Information Technology

LGA Local Government Authorities

MAFC Ministry of Agriculture, Food Security and Cooperatives

MDAs Ministries, Departments and Agencies

MFAIC Ministry of Foreign Affairs and International Cooperation

MoF Ministry of Finance

MoHSW Ministry of Health and Social Welfare

MTEF Medium Term Expenditure Framework

NA National Accounts

NAIVS National Inputs Voucher Scheme

NAO National Audit Office

NAOT National Audit Office of Tanzania

NHIF National Health Insurance Fund

NIDA National Identification Authority

NSSF National Social Security Fund

OPRAS Open Performance Review and Appraisal System

PA Public Authorities

PA&S Performance Audit and Specialized Audit

PAA Public Audit Act No. 11 of 2008

PAC Public Accounts Committee

PAR Public Audit Regulations

Para Paragraph

PCCB Prevention and Combating of Corruption Bureau

PE Procuring Entities

PFA Public Finance Act

PFMRP Public Financial Management Reform Programme

PFR Public Finance Regulations

PIMS Procurement Information Management System

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PMG Paymaster General

PMO-RALG Prime Ministers Office Regional Administration and Local Government

PMU Procurement Management Unit

PO-PSM Presidents Office Public Service Management

PPA Public Procurement Act

PPE Property, Plant and Equipment

PPF Parastatal Pensions Fund

PPP Public Private Partnership

PPRA Public Procurement Regulatory Authority

PSPF Public Sector Pension Fund

RAS Regional Administration Secretariat

RAs Resident Auditors

REA Rural Electrification Agency

RS Regional Secretariat

Sect. Section

SES Service Sector

Shs. Tanzania Shillings

SNAO Swedish National Audit Office

SOS Social Sector

SSRA Social Security Regulatory Authority

TANROADS Tanzania Roads Agency

TCRA Tanzania Communications Regulatory Authority

TRA Tanzania Revenue Authority

TSSU Technical Support Services Unit

URT United Republic of Tanzania

USAID United State Agency for International Development

VAH Voluntary Agency Hospitals

VAT Value Added Tax

VT Vote

AccGen Accountant General

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Executive summary This general report provides a summary of the final audit results of the financial statements of Central Government (MDAs, Embassies & RS) in the country for the financial year ended 30th June, 2013. An audit of financial statements is the examination of the financial statements of an entity with the view of expressing an independent opinion on whether they present true and fair view of its operations in accordance with the adopted financial report framework. This part of the report therefore, gives an overview of the audit outcomes followed by highlights of salient features noted in the course of audit and summary of recommendations.

(i) General trend of audit opinions

The statutory audit on the financial statements for the year ended 30th June, 2013 which comprised of 60 MDAs, 25 RSs and 32 Tanzania Missions has been completed. The summary of the main findings of the audit is incorporated in this general report and the details of the same have been issued separately in the management letters to Accounting Officers. The following table shows the outcome of the audit opinion issued including the general trend:

Trend of audit opinion for the last four years

Opinion

Years Total % Total % Total % Total %

2009/10 78 76 21 21 2 2 1 1 102

2010/11 99 93 8 7 0 0 0 0 107

2011/12 103 95 5 5 0 0 0 0 108

2012/13 85 72 30 26 1 1 1 1 117

Unqualified Qualified Adverse DisclaimerTotal

Audited

entities

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The Adverse Opinion was issued to Tanzania Embassy in Muscat and disclaimer opinion was issued to National Consolidated Accounts. Generally, there has been a significant regression of the audit opinions as compared to the previous years. Entities issued with unqualified opinion regressed from 46 to 26 entities, representing a decrease of 43% as compared to last years results. While entities issued with unqualified opinion with matter of emphasis increased to 59 from 57 recorded in the last year. Entities issued with qualified opinions increased from 5 entities of last year audit to 30 entities which is 6 times the last year. Also 1 entity was issued disclaimer of opinion and 1 entity was issued with adverse opinion during the year which was not the case for the last year's audit.

These audit results are not good as they signifies that, the financial statements did not sufficiently meet the requirements of the International Accounting Standards, in this case; IPSAS accrual basis of accounting. This means that, there were some areas of the financial statements which did not portray fair results of the operations of the audited entities. The possible causes of these setbacks may be due to the following factors: a) The migration to IPSAS accrual basis of

accounting. Areas that need improvement include accounting treatment of; expenses incurred during the year, recognition of capital grants received in the cash flows statement, identification and recognition of intangible assets

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and reconciliation between cash book and Bank statement.

b) Weaknesses in the IFMS, whereby the same

Epicor configurations used in IPSAS cash basis of accounting was used in IPSAS accrual basis of accounting. As a result, accounting transactions such as imprests were directly expensed, the system did not recognize accrual transactions such as payables and receivables, etc.

c) There was inadequate, capacity building through training across departments of the audited entities to staff who are either indirectly or directly involved in the preparation of financial statements.

d) Financial reporting framework is under IPSAS accrual basis of accounting while the basis of accounts of the budget is still under cash basis which has resulted into mixed concepts on accounting for various items of expenditure in the financial statements e.g. accrual expenses were not reported in the statement of financial performance.

e) Adoption of IPSAS accrual basis of accounting prior to amendment of the existing legislation e.g. Public Finance Act No. 6 of 2001 (amended 2004) contradicts with the IPSAS accrual basis of accounting philosophy.

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(ii) Highlights of the salient features in the current years audit During the course of the audit, we once again noted a number of weaknesses which are covered in details under the respective chapters of this report. These weaknesses are mainly on non compliance with the existing legislations/regulations, lack of proper internal control systems and where such systems exist they are to a large extent neglected. Major irregularities and weaknesses noted during the course of my audit include the following:

(a) Follow up on the implementation of audit

recommendations In my previous general reports I issued several recommendations that needed Government's responses. In last year's audit my report had 28 issues that needed PMG's structured responses. I received responses from the PMG in which five (5) issues have been cleared while the remaining 23 issues were still awaiting for responses.

I also made a follow up on the implementation of my recommendations on the individual audit reports issued to each of the Accounting Officers of the MDAs. For MDAs, there were 960 issues from 52 MDAs. Out of 960 issues, 401 (42%) were completely implemented, 276 (29%) were partially implemented and 283 (29%) were not implemented at all. For Regional Secretariats (RS), there were 578 issues from previous years' observations in 21 RAS out of which 272 (45%) were completely implemented, 105 (18%) were partially implemented and 201 (37%) were not implemented at all.

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The analysis shows that implementation of my recommendations is below 50%. This is not good pace in improving Government operations and accountability. Failure to implement audit recommendations causes the recurrence of weaknesses in future operations. I advise government to hold public officers accountable and implement the outstanding recommendations.

(b) Follow up on the PAC report

The Public Audit Act, 2008 requires the PMG to prepare responses and action plan on the reports of the CAG by taking into account observations and recommendations of the Parliamentary Oversight Committees. Last year Parliamentary Oversight Committees set and discussed observations as raised in my reports from MDAs/RS. PAC issued a total of eleven (11) recommendations to government for implementation through its report which was tabled in the National Assembly on 7th December 2013. Up to the time of writing this report, I had not received any responses from government concerning the implementation of the PAC recommendations but I expect to make follow up on their implementation in the forthcoming audit.

(c) Funds release and budget

There have been remarkable delays in release of funds from Treasury and probably development partners for implementation of development projects. This has led to delayed implementation or non implementation of

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earmarked projects and increase in project costs as well as having huge amounts of unspent balances at the year end. During the year under review, development funds to the tune of Shs.997,940,092,853 was not released while Shs.44,428,749,202 of the released funds were not spent. Recurrent account had Shs.315,463,083,291 unreleased while Shs.35,141,163,606 of the released funds were not spent. In order to tackle the challenge of late release of approved funds, the government is advised to align Exchequer Issues with budget and revenue collections to avoid release of funds close to the end of the financial period. By so doing, it is expected that planned activities will be implemented according to the approved timetable. In order for the Government to reduce reliance in the external assistance for implementation of the national development plans, the government is encouraged to explore alternative internal sources of revenue. Details of findings are in chapter four of this report.

(d) Expenditure management

On expenditure, we have noted weaknesses in internal control systems over payments, lack of supporting documents in payments, fruitless and wasteful expenditure, unauthorized expenditure, missing payment vouchers non retirement of imprests and weak budgetary controls together with, funds being used for

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unintended purposes. These weaknesses are detailed under chapter four of this report.

(e) Lack of Debt Management Office

The continuous absence of a unified Debt Management Office (DMO) is becoming a major concern in Public Debt management in the country. The records about the public debts have become scattered across various players thus making it difficult to have an accurate data without cross examining with data from other players.

Coordination, which is a key aspect of debt management, is not clearly defined as BoT, Planning Commission, AccGen, External Finance Department, and Treasury Registrar are all tasked with different functions of debt management apart from their core activities. Thus, the absence of a unified DMO has derailed smooth coordination and operations of public debt management.

(f) Government preparedness in implementation

of IPSAS accrual basis On reviewing the progress of IPSAS accrual implementation, I noted that the government still faces challenges such as backlog activities, lack of adequate coordination, high risk on property, plant and equipment, and governments budget system, financial procedures, and policies are still on cash basis.

On reviewing the consolidated financial statements of the United Republic of Tanzania, I

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observed that they did not include the revenue, expenditure, assets and liabilities of the Local Government Authorities (LGAs) and Parastatal Institutions which are in fact using the same IPSAS accrual financial reporting framework. This is contrary to IPSAS 6 which requires a Controlling entity to issue consolidated financial statements which consolidates all government controlled entities, foreign and domestic.

I also noted that, the government lacked actuarial valuation of benefits plan for Government retirees contrary to IPSAS 25. Without performing actuarial valuation, the government has failed to arrive at the initial liability for the Defined Benefit Plans and for that case, the Government could neither determine the amount of actuarial gains/losses, the past and current services nor interest cost of the benefit plan.

(g) Assessment of Internal control system

During the year under audit, I noted that Internal Audit and audit committees underperformed due to inadequate staffing, resources, and inadequate composition of audit committees. It was also noted that most of the MDAs/RS had no documented IT policy and IT disaster recovery plans. Details of these observations are in chapter five of this report.

(h) Human resources and payroll

Human resource is a driver of other resources and therefore, it needs a special attention. On

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Human Resource Management, we noted non updating of staff records on the payroll, shortage of staff as compared to established level, weakness in staff performance appraisal systems and delayed submission of statutory deductions. Details of these anomalies and recommendation thereon have been detailed in chapter six of this report.

(i) Procurement and contract management

On procurement and contracts management, we wish to recognize efforts made by the Public Procurement Regulatory Authority (PPRA) in capacity building programmes which have significantly contributed in enhancing Procuring entities to be more compliant with the requirements of the Public Procurement Act No. 21 of 2004 together with its underlying Regulations of 2005. However, some MDAs and RS still do not comply fully with the requirements of the Public Procurement laws in approving tenders, functioning of procurement management units, appointment of tender evaluation team and goods inspection and acceptance committees. These are detailed in chapter seven of this report.

(j) Asset and liability management

Assets management is a key function to ensure MDAs and RAS efficiently meet their objectives so as to generate economic benefits. Major problems are the lack of evidence of legal ownership of properties and equipments Non maintenance of fixed asset register, grounded and un-serviceable noncurrent assets, partial

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valuation of assets, improper recognition of intangible assets, misclassification of transfer funds and unsettled liabilities. Government through its respective accounting officers of MDAs/RS should ensure that internal controls are strengthened to avoid occurrence of the below noted anomalies in the coming years .Detailed findings are in chapter nine of this report.

(k) Special audit

Section 29 (2) of the Public Audit Act, 2008 underpinned by Regulation 78 of the Public Audit Regulations, 2009 allows me to conduct special audits. Under this mandate, therefore, during the year 2012/13 I carried out four (4) special audits for MDAs. Separate reports have been compiled and availed to the Accounting Officers concerned. However, details of the special audits conducted are in chapter eleven of this report. Salient issues raised from the special audits are summarized below:

A special audit on payrolls and other charges in respect of referral hospitals, district designated hospitals and voluntary agency hospitals for the years 2010/2011 and 2011/2012 noted payment of salaries to non-existing employees Shs.754,992,183, Unclaimed salaries retained in hospitals Shs.Shs.3,047,574,792 were used to finance other unintended activities.

A special audit on procurement of MV Misungwi noted inadequate supervision and monitoring of the contract between Permanent Secretary, Ministry of Works and Sinnautic International.

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MV Misungwi was not officially handed over to the Ministry of Works and Spare parts for MV Misungwi costing Euro 41,140 were not delivered by M/S Sinnautic International even though they have been paid for.

A special audit on National Agriculture Input Vouchers Scheme noted that people who were not in the approved list of beneficiaries received agriculture input vouchers without following formal procedures; Inadequate supervision by the Agricultural Extension officers on the seeds issued by Agro dealers and lack of seeds and fertilizers inspection. Delays in procurement and distribution of the agriculture input vouchers and lack of operational manual of the system, information on fertilizer and seed supply in the country and poor recording keeping of the systems transactions.

Another special audit on Mkomaindo Nursing Training Centre noted improper record keeping and misappropriation of fees collections.

(l) Other issues

I came up with other issues as the results of the power vested in me under Sect. 12 of Public Audit Act of 2008 and Reg. 34 of Public audit regulation, 2009 which gives me power to make recommendations to the Government for any matter that the CAG considers to be better for the management of Public monies, Stores, Securities Stamps and other Properties issues. Matters dealt with in this regard are in chapter

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twelve where I have exercised my power and have made recommendation on:

1) Operations of Government Executive

Agencies, 2) Government (MDAs) rental cost of office

buildings. 3) Issues relating to Management of Prisons

Department. 4) Role of CAG in auditing PPP Project and

Issues raised on Auditing of Political parties

Summary of Recommendations It is the duty of the Accounting Officers to ensure the existence of a sound and effective internal control system within the Votes operations in order to reduce the enormous internal control deficiencies noted. Apart from the detailed recommendations issued to Accounting Officers and sub accounting officers for votes and Embassies/High commissions through the individual management letters issued to the Accounting Officer, I have the following general recommendations to make for this year of audit:

Non implementation of some of the previous years audit recommendations The government should put more efforts to ensure that the issued audit recommendations are attended accordingly. The Paymaster General should instruct Accounting Officers to take necessary measures to improve documentation, which is one of the main causes that contribute to missing documentation and therefore failure to reply to some of the raised audit issues.

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Accounting Officers lack clearly documented action plans to guide the implementation of the CAGs recommendations. The action plan will be specific for issues which cannot be done within a reasonable short period of time, i.e. those medium and long terms recommendations. Insistence of having a register of implementation of CAGs recommendation to be kept by every Accounting Officer is another important mechanism. A register is a good tool to record and track outstanding audit issues not attended to including the progress attained so far.

Lack of Debt Management Office The need for a unified Debt Management Office at the Ministry of Finance is one of the key issues that were addressed during the financial year 2010/2011. I advised the government to hasten the establishment of a unified DMO in order to effectively and efficiently execute the government's debt management functions. The government also needs to take proactive and bold measures including but not limited to, refraining from periodically converting liquidity papers for budget financing, improvement on government revenue collection through TRAs Revenue Gateway System, fiscal discipline and effective budget estimates.

Bonded warehouses The government is advised to ensure adequate controls over the operation of Customs and Bonded Warehouses in order to collect respective custom

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dues. In addition, TRA is urged to comply and enforce existing legislations. IPSAS implementation and Assets Management Since the Government has a provision of five years as first adopter of IPSAS accrual basis, the Government is advised to do the following so as to effectively use this transition period:

Allocate enough resources in terms of finances and human capital to facilitate smooth operation of the exercise.

The government through SSRA to fully comply with IPSAS 25 (Employee benefits) over accounting for Defined Benefit Plans in order to determine its initial liability for defined benefit plans due to IPSAS accrual first year adoption.

Establish IPSAS National Coordination Committee made up of professional accountants/auditors and other professions who will be overseers of the five years roadmap to make sure each step is taken seriously and on time. So far one year has lapsed remaining with four years. The committee should be chaired by the Accountant General.

DGAM should work closely with stakeholders so as to enhance the implementation of the action plan for smooth compliance with IPSAS 17, and make necessary adjustments in the financial statements by separating land and building into two distinct asset categories.

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The government is advised to initiate the process of consolidating the financial statements of LGAs, RSs and controlled entities in the financial statements of URT.

To properly configure the IFMS Epicor and the government's budget systems for these systems to process transactions and generate financial statements according to IPSAS accrual requirements.

Procurement Management Government through PPRA has to conduct several seminars with the aim of building capacity of PMUs, Tender Boards, Accounting Officers and User Departments on the importance of complying with the Public Procurement Act and its regulations. Also its important to have Procurement Information Management Systems (PIMS) in effective operation. This system is hosted by PPRA. PPRA has to make sure that this system is user friendly to end users so that MDAs/RS can easily use this system to improve procurement activities. Human resource and Payroll management The PO-PSM should revisit the establishment levels of MDA and RS and come up with the ideal required level. In order to ensure good performance within the government, the audited entities noted with high level of understaffing, should find ways of filling the vacancies to comply with the establishment level. Accounting officers of MDAs and RS should work hard to ensure that they are equipped with sufficient and qualified number of

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staff. Shortage of staff should be communicated to the respective authorities including PO-PSM.

Salaries Paid to non Exiting Employees To avoid such losses in future, Accounting Officers of the respective MDAs/RS should check their payrolls periodically to confirm validity of all entries. Communication should also be enhanced to ensure that names of retirees, absconders or terminated employees are deleted from payrolls once they cease to be in employment. Apart from that, Accounting Officers should ensure unclaimed salaries in respect of employees who are no longer in public service for one reason or another are surrendered timely to Treasury as per given instructions. Furthermore, Accounting Officers should ensure that Human Capital Management Information System (LAWSON) is fully utilized in order to obtain the anticipated value for money in installing the software package. Expenditure Management This is one of the areas noted during audit to accommodate a number of challenges. Mostly, these challenges are caused by having Internal Controls which are not correctly supervised and/or overridden by the entrusted officers. Accounting Officers of MDAs/RS/Missions should ensure all payments are authenticated by proper authorities and proper supporting documents in line with the requirement of Regulation 95(4) of the Public Finance Regulations of 2001. Internal check need to be strengthened including strengthening the pre-audit functions.

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Operation of overseas Tanzania missions A separate study is ongoing in this area. However, basing on what was noted during audit; I have the following general recommendations to make:

The respective Embassies/High Commissions, in corroboration with MFAIC should cease paying Foreign Service allowances to the retired officers who were in the missions and make arrangement for immediate repatriation to their place of domicile. I also recommend that management/relevant authority should consider recovery of the amount paid to this staff.

Embassies/High Commissions management should communicate with the MFAIC for the need of replacement of home based staff who overstayed in one station. This will have positive effects in the services delivery of the respect embassy/missions.

MFAIC management should consider a possibility of setting aside fund in the budget for carrying out economic diplomacy and promoting tourism attraction, taking into consideration that this is an important task to the Countrys economy.

Special audits

The MoHSW in collaboration with the Treasury should improve communication with Hospital managements to ensure immediate deletion of ghost workers who are still in the Government Computer Payrolls. District Designated and Voluntary Agency Hospitals to adhere to the contract agreement signed between MoHSW and the respective Hospitals on Board members' appointment.

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Appropriate action should be taken against the public officers who failed to supervise and manage the execution of the Procurement contract of MV Misungwi and Legal action should be taken against M/S Sinnautic International who failed to implement all works and deliver spare parts of MV Misungwi as per contracts despite of being paid.

In respect of the National Agricultural Inputs Voucher Scheme (NAIVS), the Beneficiaries registered list should be reviewed and assessed if they truly exists and are meeting the criteria for their existence; Agricultural Extension Officers, the Agriculture Seeds Agency and Agriculture Research Institutions should be involved in the review and assessment of the seeds and fertilizers issued in the country. The procurement and distribution of vouchers should be timely done and the Ministry should to come up with a simplified Swahili version of an operational manual of the system.

In respect of special audit conducted on Mkomaindo Nursing Training Centre, the Accounting Officer is urged to strengthen internal control system including improvement of record keeping.

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CHAPTER ONE 1.0 BACKGROUND AND GENERAL INFORMATION

1.1. Audit Mandate and Rationale for Audit. 1.1.1 Audit Mandate

This report is issued in accordance with Article 143 of the Constitution of the United Republic of Tanzania, and Section 10 of the Public Audit Act No. 11 of 2008, I am required to examine, inquire into and audit Ministries, Regions, Independent Government Departments and Agencies.

I am required by Article 143 (2) (C) of the Constitution of the United Republic of Tanzania to audit and issue audit report at least once every year in respect of the financial statements prepared by Accounting Officers of the Government of the United Republic of Tanzania, financial Statements of all Courts of the United Republic of Tanzania and financial statements prepared by the Clerk of the National Assembly. On the other hand, Section 10 (2) (a) of the Public Audit Act No. 11 of 2008 requires the Controller and Auditor General to satisfy that all audited financial statements have been kept in accordance with generally accepted accounting principles. Currently, Ministries, Regions, Independent Government Departments and Agencies are required to prepare and present financial statements in


accordance with either International Public Sector Accounting Standards accrual basis of accounting or International Financial Reporting Standards (IFRS). The submitted financial statements of the MDAs RS and Embassies/High Missions were prepared in compliance with IPSASs -accrual basis of accounting. Also Section 25(4) (a) and (b) of the Public Finance Act require Accounting Officers to submit to the Controller and Auditor General financial statements prepared in accordance with generally accepted accounting practice and in accordance with any instructions issued by the Accountant General and approved by the Permanent Secretary to the Treasury and stating the basis of accounting used. Accounting Circular No. 11 of 2012/2013 issued by Accountant General requires Accounting Officers to prepare and present financial statement using IPSAS accrual basis of accounting. A complete set of financial statements prepared according to IPSAS - accrual basis includes the following components: i. Statement of financial position; ii. Statement of financial performance; iii. Statement of changes in net

assets/equity; iv. Cash flows statement; v. Statement of comparison of budget and

actual amount and


vi. Accounting policies and notes to the financial statements.

Section 34 of the Public Audit Act, 2008 and Regulation 88 of the Public Audit Regulations, 2009 requires the Controller and Auditor General after examination and audit of all financial statements to prepare and submit an annual general report. The annual general report shall be submitted by the Controller and Auditor General to the President of URT by 31st March each year and shall be laid by the Minister or appropriate Minister to the National Assembly within seven days of the next sitting of the National Assembly.

1.1.2 Rationale for Audit 1.1.2.1 Audit objectives

The main objective of conducting the audit is to enable the Controller and Auditor General to express an independent audit opinion on the financial statements of Ministries, Independent Government Departments, Agencies, Regional Administrative Secretariats, Tanzania Revenue Authority and Consolidated National Accounts for the year ended 30th June, 2013. Also, to establish whether the financial statements were prepared in all material respects, in accordance with the International Public Sector Accounting Standards (IPSAS) accrual basis of accounting.


1.1.2.2. Audit methodology A risk based audit methodology is used in auditing financial statements. It emphasizes the need for a detailed understanding of the entity and its environment, including its internal controls and risk assessment analytics, and seeks to place reliance where possible on governance arrangements and organization's processes. The Offices audit methodology is supported by a robust Regularity Audit Manual and TeamMate Electronic Working papers.

To ensure that the audit methodology is kept up to date, NAOT Management through TSSU performs an annual update to the existing audit methodology. This upgrade incorporates all relevant changes to the audit, accounting, and legal frameworks.

1.1.2.3 Audit scope

The audit was carried out in accordance with the International Standards of Supreme Audit Institutions (ISSAIs) to provide reasonable assurance as to whether the financial statements are free from material misstatement. Audit procedures include examination of records, internal controls, information systems, control procedures and statutory disclosure requirements. The general audit report summarizes findings from the audit that was conducted


on a sample basis; therefore, the findings are confined to the extent that records, documents and information requested for the purpose of the audit were made available to me.

1.2.0 Applicable Auditing Standards and

Reporting Procedures. 1.2.1 Applicable Auditing Standards

The National Audit Office of Tanzania is a member of the International Organization of Supreme Audit Institutions (INTOSAI), the African Organization of Supreme Audit Institutions (AFROSAI), and the African Organization of Supreme Audit Institutions - English Speaking Countries (AFROSAI-E). Cooperation with other Supreme Audit Institution (SAIs) allows NAOT to share knowledge and information about best practice and development in public sector auditing. For the purpose of MDAs, the National Audit Office audits in accordance with the International Standards of Supreme Audit Institutions (ISSAIs) issued by the International Organization of Supreme Audit Institutions (INTOSAI).

1.2.2 Reporting Procedures. The effectiveness of my audit relies heavily on good communication with the Management of the audited entities. Communication is necessary throughout the


audit process which involves the following steps: i. Issuing engagement letter to auditees

before the audit commences, to explain the nature, timing and scope of the audit;

ii. Preparing Overall Audit Strategy at the end of planning to explain the audit approach to be adopted basing on the preliminary evaluation of the audited entity;

iii. Conducting Entrance meeting with the management of the audited entity;

iv. Issuing an interim management letter or audit queries to provide a list of audit findings and to provide management with an opportunity to respond at the end of an audit;

v. Issuing draft management letters to inform the audited entities of all issues found during the audit and provide management with an opportunity to respond.

vi. Conducting exit meeting with the auditee to discuss audit findings.

vii. Issuing final management letters to inform the audited entities of all significant issues found during the audit and provide management with an opportunity to respond.

viii. Issuing individual audit report to provide an overall opinion on the financial statements and other aspects included in the engagement letter.


1.3.0 Number of audited entities and NAOTs set up

1.3.1 Number of Auditees

During the financial year 2012/2013, I audited 116 government entities comprising of 59 MDAs, 25 Regional Administrative Secretariats and 32 Tanzania Missions abroad. Individual audit reports were issued for each of them. The proportional distributions of these auditees are as shown in the table below: Table 1: Number of Auditees

Auditee Total Percentage

MDAs 59 51

RSs 25 21

Tanzania Missions abroad

32 28

Total 116

Apart from audit of government entities mentioned above, I audited the Consolidated National Accounts; pre audit of terminal benefits and the accounts of Tanzania Revenue Authority.

1.3.2 Set up of NAOT The office is organized into audit teams, a framework that attempts to align related audit entities and to foster expertise in various areas of audit activities. The audit teams are headed by Resident Auditors, who oversee and are responsible for the audits


within the assigned teams. Resident auditors are assisted by the second in-charge. The auditors under each Resident Auditor are divided in teams and each team is managed by the team leader. The Resident Auditors are under the supervision of Assistant Auditors General.

We have found it is useful to group our auditees into smaller manageable locations named Zones which are headed by Assistant Auditors General who report to the Deputy Auditors General. According to NAOT structure, Deputy Auditors General report directly to the Controller and Auditor General. The extract of the NAOT organogram is as shown below:

Figure No. 1: NAOT organogram extract


1.4.0 Statutory Responsibilities of the audited entities

1.4.1 Preparation and submission of the financial statements Section 25(4) (a) and (b) of Public Finance Act, 2001 (revised 2004) requires Accounting Officers to submit financial statements prepared in accordance with generally accepted accounting practice and in accordance with any instructions issued by the Accountant General approved by the Permanent Secretary to the Treasury. Also the Accounting Officers are required to state the basis of accounting used in the preparation of the financial statements.

Further, Accounting Circular No. 11 of 2012/2013 issued by the Accountant General requires MDAs and RS to prepare and present financial statements in line with section 25 of PFA and in accordance with International Public Sector Accounting Standards accrual basis. MDAs and RS have migrated from IPSAS cash basis to IPSAS accrual basis of accounting during the financial year 2012/2013 towards achieving and improving good governance and Accountability in the management of public resources. However, the Government adopted transitional provisions and it is expected that the Government will be fully compliant with IPSAS accrual basis of accounting by the end of the financial year 2016/2017.

Management of MDAs and RS are required to establish and maintain appropriate internal


control systems to ensure that financial and other records are reliable and complete, and they adhere to management policies, orderly and efficient conduct of the MDAs business and guarantee the existence of proper recording and safeguarding of assets and resources.

Furthermore, Regulation 71(1) of the Public Audit Regulation, 2009 requires Accounting Officer to prepare and submit financial statements to the Controller and Auditor General within three months after closure of the respective financial year, i.e. 30th June. In addition, Reg. 71(2) of the Public Audit Regulations, 2009 requires the Accountant General to prepare and submit consolidated financial statements to the Controller and Auditor General within a period of four months after the end of each financial year, i.e. 30th June.

1.4.2 Preparation and submission of management responses/replies Regulation 86(1) (3) of the PAR, 2009 stipulates that, the Controller and Auditor General shall compile the audit findings and prepare a management letter and submit the same to the management of the audited entity. The management of the MDAs shall provide responses on the audit observations and submit the same to the Controller and Auditor General within twenty one days from the date of receipt of the management letter. In case of failure by the management to respond to the management letter within


twenty one days, then such management letter will be concluded with the management responses and the issues raised may be incorporated into the CAG's Annual General Report.

In addition, Regulation 93 of the PAR, 2009 requires every Accounting Officer of the audited entity within twenty one days from the date the general report is tabled before the National Assembly, to prepare responses on the individual reports submitted to them. The accounting officers shall submit responses to the Public Accounts Committee and a copy to the Controller and Auditor General.


CHAPTER TWO AUDIT OPINION OVERVIEW, TYPES, BASIS AND THE

ACTUAL AUDIT RESULTS 2.0 An overview of the audit opinion

As started in the preceded chapters, the central government has embarked on a bold and a major transformation by migrating into IPSAS accrual basis as the framework of the preparation of the government's financial statements, which was adopted effectively from 1st July 2012. This is a very commendable milestone made by the government for the improvement of its financial reporting. Thus, this being the first time IPSAS compliant accrual financial statements are being audited, the transition provisions adopted under note 8 of the audited financial statements were taken into consideration in forming the audit opinions. However, this migration has impacted on the audit opinions issued during the year because, unlike the previous years, this year the number of MDAs issued with unqualified opinions dropped and MDAs issued with qualified opinions increased significantly. It has also resulted into Embassy of Tanzania in Muscat getting adverse opinion and National Consolidated Accounts getting a disclaimer opinion. The main objective of any audits conducted is to enable the auditor to express an independent audit opinion as to whether the


audited financial statements have been prepared in accordance with applicable financial reporting framework and that they present fairly the financial state of affairs of the audited entity. However, this being a public sector audit, the objective has been broaden to include assessment of the auditees compliance with laws and regulations and the effectiveness of the internal controls systems. An audit opinion is the certification from an independent external auditor on whether the audited financial statements present fairly in all material respect, the financial position, financial performance and the cash flows of the audited entity. This certification gives the users of the financial statements an assurance on the validity and correctness of the financial statements in order for them to make appropriate informed decisions.

2.1 Types of the audit opinions Given the audit circumstances, the following types of audit opinions may be expressed. Referred to annexure 'A'

Unqualified Audit Opinion

Qualified Audit Opinion

Adverse Audit Opinion

Disclaimer Audit Opinion

Under given circumstances, I have also included salient issues which do not affect audit opinions which in my opinion I considered them to be of such importance


for the users' understanding of the financial statements. In this case I have included the following paragraphs;

Emphasis of matter paragraph, and

Other matters paragraph

2.2 Basis of the audit opinion and the actual audit results

2.2.1 Unqualified opinion This type of audit opinion is issued when I conclude that, given the sufficiency and appropriateness of the audit evidences, the financial statements of the audited entities present true and fair view. This means that the appropriate IPSAS compliant accounting policies have been applied consistently in preparing the financial statements, applicable laws and regulations have been complied with and that there are adequate disclosures of all information relevant to the proper understanding of the financial statements. During the year under review; 117 central government entities were audited which consisted of 60 MDAs, 25 RS and 321 Embassies/High Commissions, high commission and permanent missions under the Ministry of Foreign Affairs and International Cooperation. Out of these entities; 262 entities were issued with unqualified opinion which is (22%) of the

1 18 Embassies, 12 High Commissions & 2 Permanent Missions

2 21 MDAs, 2 RS & 3 Embassies


total audited entities. These recorded a decrease of 43% as compared to the last year audit. The table 2 below shows the list of audited entities issued with unqualified opinion.

Table 2: List of the audited entities issued with

unqualified opinion S/N Vote Name

1. 8 Constitutional Review Commission

2. 9 Tanzania Public Service Remuneration Board

3. 12 Judicial Service Commission

4. 13 Financial Intelligence Unit

5. 20 President's Office State House

6. 25 Prime Minister's Private Office

7. 26 Vice President's Office

8. 27 Registrar of Political Parties

9. 30 President's Office and Cabinet Secretariat

10. 31 Vice President's Office

11. 33 Ethics Secretariat

12. 34 Ministry of Foreign Affairs and International Cooperation

13. 39 National Service

14. 47 Simiyu Regional Secretariat

15. 57 Ministry of Defense and National Service

16. 58 Ministry of Energy and Minerals

17. 59 Law Reform Commission of Tanzania

18. 62 Ministry of Transport

19. 67 President's Office Public Service Recruitment

20. 84 Singida Regional Secretariat

21. 94 President's Office - Public Service Commission

22. 97 Ministry of East Africa Cooperation

23. 98 Ministry of Works

24. 2012 Tanzania High Commission in Ottawa

25. 2018 Tanzania Embassy in Washington

26. 2027 Tanzanian Embassy in Abu Dhabi Source: CAGs individual reports for 2012/2013


2.2.2 Emphasis of matters The emphasis of matters paragraph was included in the audit report to draw users attention to a matter or matters properly presented or disclosed in the financial statements that are of such importance that they are fundamental to the users understanding of the financial statements. This paragraph is usually included immediately after the respective audit opinion According to the ISSAIs3, the following issues formed the basis of inclusion of the emphasis of matter in my reports; i. a substantial doubt on the sustainability

of services delivery of the audited entities,

ii. lack of consistency in application of Generally Accepted Accounting Principles,

iii. uncertainties related to future outcomes of exceptional litigation,

iv. a situation where there was an early adoption of the reporting standard, and

v. material inconsistency of fact in the annual report and commentary in the financial statements where an amendment was necessary and the entity refused to make the amendment.

3 ISSAI 1706: Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditors Report


During year, out of 1174 audited entities; 545 of them were issued with unqualified opinion with emphasis of matter paragraph which is 46% of the total audited entities. List of these entities is attached to this report as referred into annexure 'B'.

2.2.3 Other matters Other matters paragraph was included in the audit report to draw users attention to any matter or matters other than those presented or disclosed in the financial statements that are relevant to users understanding of the audit, the auditors responsibilities or the auditors report. This paragraph is usually included immediately after the respective audit opinion and emphasis of matter (if any). Accordingly, the following issues formed the basis of inclusion of the other matters paragraph in my audit reports; i. The identified material misstatement of

fact in other information in annual report which required amendments but the management of the audited entities refused to do so,

ii. Issues related to ineffective and inefficient audit committees, internal audits and procurement management units,

iii. Immaterial non compliance with laws and regulations.

4 60 MDAs, 25 RAS and 32 Embassies 5 24 MDAs, 6 RS & 24 Embassies


During year, out of 1176 audited entities; 57 of them were issued with unqualified opinion with other matter paragraph which is (4%) of the total audited entities. The detailed list of these entities and the basis of the other matters is shown in table 3 below:

Table 3: List of audited entities issued with

unqualified opinion with other matters S/N Vote Name

1 16 Attorney General's Chamber

2 65 Ministry of Labour

3 78 Mbeya Regional Secretariat

4 2007 Lusaka High Commission

5 2032 Kuala Lumpur High Commission Source: CAGs individual reports for 2012/2013

2.2.4 Qualified opinion

This type of opinion was issued following my conclusions based on the audit evidence obtained that,

The identified misstatements in the financial statements, individually or in the aggregate, were material but not pervasive to the financial statements, or

In the situation where I was not able to obtain sufficient appropriate audit evidence on which to base my opinion, and concludes that the possible effects on the financial statements of undetected misstatements could be material but not pervasive.

6 60 MDAs, 25 RAS and 32 Embassies 7 2 MDAs, 1 RS & 2 Embassies


This means that, there was either; (i) a material limitation of scope imposed

by the management of the audited entities or by the circumstances which were not pervasive, or

(ii) a material disagreement due to inadequate disclosure or inappropriate accounting treatment which were not pervasive.

The concept of material pointed out here means that, the limitation of scope or disagreement is confined to a specific area of the financial statements but the rest of the financial statements show true and fair View. Specifically, the followings were issues which were considered in issuing qualified opinions;

i. Material misstatement in the financial statements,

ii. Material unsupported expenditures and revenues,

iii. Material non-compliance with laws and regulations such as; unauthorized expenditure and use of revenue, unreported accounts, breaches of procurement rules and regulations, unaccounted stocks and fixed assets, failure to maintain stores and fixed assets register and irregular or wasteful expenditure as well as material losses through criminal conduct.

iv. Material expenditure incurred for which the government did not receive the desired benefits


When forming this opinion, the requirements of ISSAI 1706 was also taken into consideration8. During the year, 309 entities were issued with qualified opinion out of 117 audited entities which is equivalent to 26%. This marks an increase of 6 times as compared to the last years audit results which indicates that, these entities have regressed. Annexure 'C' shows the list of entities issued with qualified opinion.

2.2.5 Adverse opinion This type of opinion is issued after having obtained sufficient appropriate audit evidence, and concludes that financial statements contain misstatements due to disagreement (whether inadequate disclosure or inappropriate accounting treatment) which either, individually or in aggregate, are both material and pervasive. This means that, the disagreements distort the reliability of the financial statements as a whole. Under this circumstance, we conclude that, the financial statements do not present true and fair view. Specific issues leading to this type of opinion included;

8 Inclusion of other matters/and emphasis of matters 9 12 MDAs, 16 RS & 2 Embassies


i. fundamental misstatement in the financial statements,

ii. fundamental unsupported expenditures and revenues,

iii. fundamental non compliance with laws and regulations such as; unauthorized expenditure and use of revenue, unreported accounts, breaches of procurement rules and regulations, unaccounted stocks and fixed assets, failure to maintain stores and fixed assets register and irregular or wasteful expenditure as well as material losses through criminal conduct.

iv. Significance expenditures incurred for which the government did not receive the desired benefits.

During the year, one10 out of 117 audited entities, which is 1%, was issued with adverse opinion.

2.2.6 Disclaimer of opinion In the real sense over the word a disclaimer of opinion is not an opinion but a statement of fact that the audit could not form an opinion. It is issued when the auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion, and the auditor concludes that the possible effects on the financial statements of undetected misstateme

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Public Accounts Audit by CAG Tanzania 2012/2013

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