THE UNITED REPUBLIC OF TANZANIA NATIONAL AUDIT ......Annual General Report on the audit of LGAs for...

Annual General Report on the audit of LGAs for the financial year 2018/19 i

THE UNITED REPUBLIC OF TANZANIA NATIONAL AUDIT OFFICE

Controller and Auditor General, National Audit Office, Audit House, 4 Ukaguzi Road, P.O. Box 950, 41104 Tambukareli, DODOMA. Telegram: “Ukaguzi",

Telephone: 255 (026) 2321759, Fax: 255(026)2117527, E-mail: [email protected], Website: www.nao.go.tz

In reply please quote: Ref: CGA.319/421/01/12 30th March, 2020 His Excellency Dr. John Pombe Joseph Magufuli, President of the United Republic of Tanzania, State House, P. O. Box 1102, 1 Julius Nyerere Road, Chamwino, 40400 DODOMA.

SUBMISSION OF THE ANNUAL GENERAL REPORT

ON THE AUDIT OF LOCAL GOVERNMENT AUTHORITIES FOR THE FINANCIAL YEAR 2018/19

I am delighted to submit the Annual General Report of the Controller and Auditor General on the audit of Local Government Authorities for the financial year 2018/19 pursuant to Article 143 (4) of the Constitution of the United Republic of Tanzania of 1977 (as amended from time to time) and Section 34 of the Public Audit Act No. 11 of 2008.

Charles E. Kichere CONTROLLER AND AUDITOR GENERAL

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VISION, MISSION AND CORE VALUES Controller and Auditor General, National Audit Office, (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 United Republic of Tanzania of 1977 (as amended from time to time) and in S.10 (1) of the Public Audit Act No. 11 of 2008. Vision To be a highly regarded Institution that excels in public sector auditing. Mission To provide high quality audit services that improve public sector performance, accountability and transparency in the management of public resources. Core Values in providing quality services; NAO is guided by the following core values:

✓ Objectivity: We are an impartial public institution,

offering audit services to our clients in unbiased manner.

✓ Excellence: We are professionals providing high quality audit services based on standards and best practices.

✓ Integrity: We observe and maintain high standards of ethical behaviour, rule of law and a strong sense of purpose.

✓ People focus: We value, respect and recognize interest of our stakeholders.

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✓ Innovation: We are a learning and creative public institution that promotes value added ideas within and outside the institution.

✓ Results Oriented:

We are an organization that focuses on achievement based on performance targets.

✓ Team work Spirit:

We work together as a team, interact professionally, and share knowledge, ideas and experiences.

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 involving 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 Annual General Report is intended for use by the designated Government Authorities. However, it becomes a Public document after being tabled in the Parliament

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TABLE OF CONTENTS VISION, MISSION AND CORE VALUES ....................................... ii ABBREVIATIONS AND ACRONYMS ......................................... xvi FOREWORD ................................................................ xviii ACKNOWLEDGEMENTS ...................................................... xx EXECUTIVE SUMMARY ..................................................... xxii CHAPTER 1 .................................................................... 1 BACKGROUND AND GENERAL INFORMATION .............................. 1 CHAPTER 2 .................................................................... 5 TYPES AND TREND OF AUDIT OPINIONS ................................... 5 CHAPTER 3 ................................................................... 10 IMPLEMENTATION STATUS OF PRIOR YEARS’ AUDIT RECOMMENDATIONS ........................................................ 10 CHAPTER 4 ................................................................... 16 BUDGET PREPARATION AND EXECUTION ................................. 16 CHAPTER 5 ................................................................... 28 AUDIT OF FINANCIAL STATEMENTS ....................................... 28 CHAPTER 6 ................................................................... 34 EVALUATION OF INTERNAL CONTROL, RISK MANAGEMENT AND GOVERNANCE SYSTEMS ..................................................... 34 CHAPTER 7 ................................................................... 43 PAYROLL AND HUMAN RESOURCES MANAGEMENT ...................... 43 CHAPTER 8 ................................................................... 67 EVALUATION OF DEVELOPMENT PROJECTS AND OTHER PROJECTS .. 67 CHAPTER 9 ................................................................... 81 PROCUREMENT AND CONTRACT MANAGEMENT ......................... 81 CHAPTER 10 ................................................................ 222 EXPENDITURE MANAGEMENT ............................................ 222 CHAPTER 11 ................................................................ 241 REVENUE MANAGEMENT .................................................. 241 CHAPTER 12 ................................................................ 265 ASSETS MANAGEMENT .................................................... 265 CHAPTER 13 ................................................................ 276 RESULTS OF SPECIAL AUDITS ............................................ 276 CHAPTER 14 ................................................................ 294

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CONCLUSION AND RECOMMENDATIONS ................................ 294 APPENDICES ................................................................ 308

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LIST OF TABLES

Table 1-1: Number of the audited LGAs for 2018/19 ................... 3 Table 2-1: LGAs with unfavourable trend of Audit Opinion ........... 8 Table 2-2: Trend of Audit Opinion over period of four years ......... 9 Table 2-3: Summary of Audit Opinions Issued to LGAs ................. 9 Table 3-1: Implementation status of the prior years’ audit recommendations for three consecutive years ......................... 12 Table 3-2: Implementation status of recommendations in the Annual General Report for LGAs for three consecutive years ................. 13 Table 3-3: Trend of Implementation status of LAAC directives ...... 15 Table 4-1: Councils with Modified Opinion .............................. 17 Table 4-2: Trend of approved budget vs. actual collections ......... 17 Table 4-3: Trend of own source revenue collected against recurrent expenditure .................................................................. 18 Table 4-4: LGAs percentage of dependence on recurrent grants .... 19 Table 4-5: LGA percentage of independence on recurrent grants... 20 Table 4-6: Percentage of under collection of own source revenue . 21 Table 4-7: Trend of under released capital development grants .... 23 Table 4-8: Trend of under released recurrent grants ................. 24 Table 4-9: Trend of unutilized recurrent grants ....................... 25 Table 4-10: Trend of unspent development grants .................... 26 Table 5-1: Trend of long outstanding receivables and prepayments 30 Table 5-2: Trend of long outstanding payables ........................ 31 Table 6-1: Fraud issues noted in some of the LGAs .................... 41 Table 7-1: Trend for staffing level in LGAs for four consecutive years ................................................................................ 44 Table 7-2: Trend analysis on LGAs staff in acting capacity ........... 45 Table 7-3: LGAs with employees’ who received their net salaries below 1/3 of their monthly basic pay ................................... 47 Table 7-4: Trend analysis of excessive deductions for four consecutive years .......................................................................... 48 Table 7-5: Inadequate staff performance review and appraisal ..... 50 Table 7-6: Ineffective data cleaning on employees’ information in the HCMIS ......................................................................... 52 Table 7-7: Unpaid staff claims and salaries arrears ................... 53 Table 7-8: LGAs with employees whose promotions were delayed .. 55 Table 7-9: Institutions to whom deductions were not remitted by LGAs ................................................................................ 56 Table 7-10: Statutory deductions not remitted to respective the institutions for four consecutive years .................................. 57

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Table 7-11: Payment of salaries or deductions to non-existing staff ................................................................................ 59 Table 7-12: Unclaimed salaries/refunded salaries not remitted to Treasury ...................................................................... 61 Table 7-13: Payments made to temporary workers without valid contracts ..................................................................... 63 Table 7-14: Non-contribution to workers’ compensation fund (WCF) ................................................................................ 64 Table 7-15: Staff not taking their annual leave ........................ 66 Table 8-1: Projects’ financial performance ............................. 68 Table 8-2: Trend of Capital Development Expenditure ............... 70 Table 8-3: List of LGAs which have diverted the Projects Funds .... 73 Table 8-4: Outstanding contributions to Women and Youths ........ 74 Table 8-5: Trend of unrecoverable Women and Youth loans for four consecutive years ........................................................... 75 Table 8-6: Status of school infrastructures in primary and Secondary schools ........................................................................ 79 Table 9-1: Value of procurements made by LGAs for three consecutive years .......................................................................... 82 Table 9-2: Level of procurement compliance to LGAs for two years ................................................................................ 83 Table 9-3: Inadequate preparation and implementation of annual procurement plans .......................................................... 84 Table 9-4: Trend of procurements made without competitive bidding ................................................................................ 87 Table 9-5: LGAs that procured goods and services without Tender Board approval .............................................................. 88 Table 9-6: Trend of procurement of goods and services without Tender Board approval for three consecutive years ................... 89 Table 9-7: List of LGAs that procured goods and services from unapproved suppliers....................................................... 90 Table 9-8: Trend of procurement from unapproved suppliers for a period of three consecutive years ........................................ 90 Table 9-9: List of LGAs that procured goods and services using imprest beyond allowed limit ....................................................... 91 Table 9-10: List of LGAs that received goods without being inspected ................................................................................ 93 Table 9-11: Trend of procured goods received without inspection . 93 Table 9-12: List of LGAs that procured goods, works and services out of annual procurement plan ............................................... 94

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Table 9-13: Trend of procurements out of annual procurement plan ................................................................................ 95 Table 9-14: LGAs with procured goods but not delivered ............ 96 Table 9-15: Maintenance of motor vehicles without approval by TEMESA ....................................................................... 97 Table 9-16: List of LGAs with stores not recorded in ledgers ........ 98 Table 9-17: List of LGAs with micro procurements not reported to Tender Boards and PPRA ................................................. 100 Table 9-18: List of LGAs with irregular disqualification of the lowest evaluated bidder .......................................................... 102 Table 9-19: List of LGAs with contract variations without Tender Board approval ............................................................ 103 Table 9-20: List of LGAs executed contracts without performance bond ........................................................................ 104 Table 9-21: List of LGAs that executed contracts without being published on PPRA Journal and Tender Portal ....................... 105 Table 9-22: LGAs that Delayed in Payment/honoring of contractors certificates ................................................................ 106 Table 9-23: LGAs that made payment to the contractor without measurement of work done ............................................. 107 Table 9-24: Audit Universe for Comprehensive Contracts Management Audit ........................................................................ 108 Table 9-25: Scope of the Audit ......................................... 110 Table 9-26: Projects implemented without EIA ...................... 111 Table 9-27: Payments to Contractors for Unexecuted Works ...... 112 Table 9-28: Contracts with Unapproved Tender Documents ....... 114 Table 9-29: Contracts Not Included in APP and Budget ............. 116 Table 9-30: Contracts in which Single Sources and Restricted Tendering were used ..................................................... 118 Table 9-31: Contracts Sum and Actual Funds Received ............. 120 Table 9-32: Unpublished Tenders Notices and Awards Information 121 Table 9-33: Loss Resulted from Irregular Disqualifications of the Lowest Evaluated Bidders ............................................... 122 Table 9-34: Contracts with Limited Competition .................... 124 Table 9-35: Irregularities Noted ........................................ 126 Table 9-36: Projects Initiated Without Building Permits ............ 129 Table 9-37: Unjustifiable Cost Items in BoQs ......................... 130 Table 9-38: Contracts whose Covenant Declaration Forms were not Signed ...................................................................... 132 Table 9-39: Contracts Awarded to Non-Responsive Bidders ........ 133 Table 9-40: Contracts Awarded to Ineligible Contractors .......... 136

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Table 9-41: Contracts which cool off period not fully granted .... 137 Table 9-42: Irregularities noted ........................................ 139 Table 9-43: Inclusion of VAT for Exempted Projects ................ 140 Table 9-44: Contracts Awarded without Approval by the Finance and Planning Committee ...................................................... 141 Table 9-45: Contracts Executed without Post-Qualification Examination ............................................................... 143 Table 9-46: Contracts with Irregularities in Tender Opening ...... 145 Table 9-47: Contracts Signed and Implemented with Unregistered Joint Ventures ............................................................. 146 Table 9-48: Contracts whose Copies of Award Letters were not Sent to PPRA ..................................................................... 148 Table 9-49: Unsupported Payment of TZS 40,737,922 and Overpayment of TZS 66,539,685........................................ 149 Table 9-50: Irregularities Noted on Arithmetic Errors Correction . 152 Table 9-51: Contracts Executed without Performance Securities . 154 Table 9-52: Deficiencies Noted in Submitted Performance Security .............................................................................. 156 Table 9-53: Contracts with Deficiencies on Advance Payments and Their Guarantee .......................................................... 159 Table 9-54: Contracts with Unauthorized Variations ................ 161 Table 9-55: Contracts without Insurance Covers ..................... 164 Table 9-56: Irregularities Noted in Negotiation ...................... 166 Table 9-57: Executed Works Paid without Being Measured ......... 168 Table 9-58: Contracts with Delayed Payments ....................... 169 Table 9-59: Contracts with Unjustifiable Delays in Signing and Commencing ............................................................... 172 Table 9-60: Delays in Implementation and Completion of Projects175 Table 9-61: Contracts with Irregularities in Extension of Time .... 182 Table 9-62: Materials Test for Construction Projects Not Performed .............................................................................. 185 Table 9-63: Projects Initiated Without Acquiring Tittle Deeds .... 186 Table 9-64: Contractors Abandoned Sites for More Than Five Months .............................................................................. 187 Table 9-65: Contracts whose Liquidated Damages were not Charged .............................................................................. 188 Table 9-66: Contracts Whose Updated Programs of Work were not Submitted .................................................................. 190 Table 9-67: Unproductive Water Projects ............................. 191 Table 9-68: Omitted BoQ Items in Tender Documents .............. 193

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Table 9-69: Withholding Tax not Deducted from Contractors’ Claims .............................................................................. 197 Table 9-70: Unconfirmed Utilization of Various Building Materials 204 Table 9-71: Excavation of Trenches without Specified Rates in BoQ .............................................................................. 207 Table 9-72: LGA’s spent more than 102 days in all stages of Procurement Cycle ....................................................... 216 Table 10-1: Deficiencies noted in expenditure managements ..... 222 Table 10-2: List of twenty one LGAs with high value of unsupported payments ................................................................... 224 Table 10-3: Trend of unsupported payments for the past three years .............................................................................. 225 Table 10-4: List of LAGs with un vouched expenditure ............. 226 Table 10-5: Nugatory expenditure ..................................... 227 Table 10-6: Expenditure charged to incorrect account code ...... 228 Table 10-7: LGAs made payments without being pre-audited ..... 230 Table 10-8: List of LGAs with un-refunded inter-account .......... 232 Table 10-9: Number of LGAs with withholding taxes anomalies ... 233 Table 10-10: A list of LGAs whose payments for goods not received .............................................................................. 234 Table 10-11: LGAs with un-refunded deposit amount ............... 235 Table 10-12: Inadequate management of imprests .................. 237 Table 10-13 below shows the list of LGA with weakness in utilization of procured fuel and the amount involved. ........................... 239 Table 10-13: Weaknesses in the utilization of procured fuel ...... 239 Table 10-14: Payments made in respect of undisclosed prior years’ payables .................................................................... 240 Table 11-1: LGAs without updated and approved By-laws .......... 242 Table 11-2: LGAs that were still using manual receipt books ...... 243 Table 11-3: Missing manual revenue receipts books ................. 243 Table 11-4: List of LGAs without GOT-HoMIS ......................... 245 Table 11-5: Service levy not collected ................................ 246 Table 11-6: POS which were not registered in LGRCIS .............. 247 Table 11-7: Variances of revenue collected in various reports .... 248 Table 11-8: Revenue agents without binding contracts ............. 250 Table 11-9: Bills adjustments requested and approved by the same person ...................................................................... 252 Table 11-10: Adjustments made in LGRCIS not supported .......... 253 Table 11-11: Revenue collected but not remitted by agents ...... 256 Table 11-12: Delay in banking of revenue collected ................ 257 Table 11-13: Unresolved defaulters due to unknown reasons ...... 258

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Table 11-14: LGAs with weaknesses in operating LGRCIS ........... 259 Table 11-15: Shortage of 258 POS devices ............................ 261 Table 11-16: List of POS devices with negative log-in status ...... 264 Table 12-1: LGAs with expired medical drugs ........................ 267 Table 12-2: Non-current assets not insured ........................... 268 Table 12-3: List of LGAs with assets not coded ...................... 271 Table 12-4: List of LGAs without maintenance register ............. 272 Table 12-5: List of LGAs with improper maintenance of non-current asset registers ............................................................. 273 Table 12-6: Unutilized non-current Assets ............................ 274 Table 13-1: Special audits conducted during the financial year 2018/19 .................................................................... 276

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LIST OF APPENDICES Appendix 2-1: Status of Audit Opinion for each LGA ................ 308 Appendix 2-2: LGAs with Modified Opinions and their basis ........ 311 Appendix 2-3: Trend of audit opinion for four consecutive years . 322 Appendix 3-1: Outstanding audit recommendations for a period of two to more than five years .................................................. 330 Appendix 3-2: Implementation status of the prior years’ audit recommendations to LGAs ............................................... 333 Appendix 3-3: Implementation status of General Report recommendations for the financial year 2017/18 ................... 338 Appendix 3-4: Implementation status of LAAC directives for the financial year 2018/19 ................................................... 352 Appendix 4-1: Own Source Revenue Trend against Approved Budget .............................................................................. 356 Appendix 4-2: Own Source Revenue Collected against Recurrent Expenditure ................................................................ 362 Appendix 4-3: LGAs with under collection of own source revenue in percentage ................................................................. 367 Appendix 4-4: LGAs with Collection of Own Source Revenue above the Approved Budget .......................................................... 372 Appendix 4-5: List of LGAs with over released Development Grants .............................................................................. 374 Appendix 4-6: List of LGAs with Over released Recurrent Grants . 375 Appendix 4-7: LGAs with under released Development Grants .... 376 Appendix 4-8: LGAs with Under released Recurrent Grants ........ 380 Appendix 4-9: Unutilized recurrent grants ............................ 384 Appendix 4-10: Un-utilized Capital Development Grants ........... 389 Appendix 4-11: Own Revenue not allocated to Development Projects .............................................................................. 394 Appendix 5-1: Long Outstanding amount of Accounts Receivable . 397 Appendix 5-2: Long Outstanding Amount of Accounts Payable .... 401 Appendix 5-3: Pending Litigations against LGAs ...................... 405 Appendix 5-4: List of LGAs with Modified Audit Opinions due to Misstatements ............................................................. 408 Appendix 6-1: Inadequate Information Technology general controls .............................................................................. 410 Appendix 6-2: Inadequate Performance of Audit Committees ..... 415 Appendix 6-3: Weaknesses of Internal Audit Units ................... 419 Appendix 6-4: Weaknesses in Risk Management ...................... 424 Appendix 6-5: Weaknesses on Fraud Risk Management Framework 426

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Appendix 7-1: Shortage of 162,342 staff in 169 LGAs ............... 427 Appendix 7-2: Acting staff and vacant posts .......................... 432 Appendix 7-3: Deductions not remitted to respective institutions 434 Appendix 7-4: Transfer particulars of 731staff not updated in LAWSON .............................................................................. 436 Appendix 7-5: Inadequate management of biometric attendance registers in LGAs .......................................................... 437 Appendix 8-1: Projects implementation funds not entirely spent . 438 Appendix 8-2: Unspent Capital development funds ................. 444 Appendix 8-3: Anomalies noted during execution of the Projects 451 Appendix 8-4: List of LGAs with unimplemented projects .......... 466 Appendix 8-5: List of LGAs with uncompleted Projects ............. 470 Appendix 8-6: LGA’s with completed projects which are not in use .............................................................................. 478 Appendix 8-7: Non contribution of 10% own source to WYDF ...... 481 Appendix 8-8: Outstanding loans due to WYDF ....................... 483 Appendix 8-9: Non disbursement of 20% General Purpose Grant to villages ..................................................................... 486 Appendix 8- 10: Claims rejected by NHIF ............................. 487 Appendix 8-11: Under release of Capitation Grants ................. 488 Appendix 8-12: Concerns noted on implementation of Community Health Fund schemes ..................................................... 490 Appendix 8-13: Shortage of Physical Infrastructure in Secondary Schools ..................................................................... 491 Appendix 8-14: Shortage of Physical Infrastructure in Primary Schools .............................................................................. 493 Appendix 9-1: Procurement of goods, consultancy and services .. 495 Appendix 9-2: LGAs which did not comply with the PPA, 2011 .... 500 Appendix 9-3: Weaknesses in performance of PMU and Tender Boards .............................................................................. 503 Appendix 9-4: LGAs that Made Procurements without Competitive Bidding ..................................................................... 506 Appendix 10-1: Inadequately supported payments .................. 508 Appendix 10-2: List of Councils that incurred ineligible expenditure .............................................................................. 510 Appendix 10-3: List of LGAs with unbudgeted expenditure ........ 511 Appendix 10-4: Number of LGAs with withholding taxes anomalies .............................................................................. 512 Appendix 10- 5: Uncontrolled payments and overdrawn amount in deposit account ........................................................... 513

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Appendix 10-6: Payments to suppliers without demanding EFD receipts..................................................................... 514 Appendix 10-7: Imprests directly charged to expenditure code ... 515 Appendix 10-8: LGAs with unretired imprest ......................... 516 Appendix 10-9: Imprest not recorded in register .................... 517 Appendix 10-10: Fuel whose utilization records are missing ....... 518 Appendix 10-11: Fuel issued to Private Cars without approval .... 519 Appendix 11-1: Service Levy without turnover particulars ......... 520 Appendix 11-2: Revenue not banked ................................... 521 Appendix 11-3: Revenue not collected from various own sources . 522 Appendix 11-4: List of POS devices that were offline for long time .............................................................................. 524 Appendix 12-1: List of LGAs with grounded Assets .................. 526 Appendix 12-2: List of LGAs with Abandoned Assets ................ 528 Appendix 12-3: LGAs missing ownership documents for Assets .... 532

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LIST OF FIGURES Figure 2-1: Audit Opinion Hierarchy ...................................... 6

Figure 3-1: Status of implementation of prior year recommendations

for 2017/18 .................................................................. 12

Figure 3-2: Implementation status of LAAC Directives ................ 15

Figure 11-1: Trend of amount not banked for four consecutive years

.............................................................................. 254

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ABBREVIATIONS AND ACRONYMS

AG Attorney General APP Annual Procurement Plan BoQ Bill of Quantity CAG Controller and Auditor General CAP Crime Action Policy CDCF Constituencies Development Catalyst Fund CHF Community Health Funds Co. Company COWSO Community Owned Water Supply

Organisations CRB Contractors Registration Board DC District Council DE District Engineer DED District Executive Director DWE District Water Engineer EFD Electronic Fiscal Device EIA Environmental Impact Assessment EMA Environmental Management Act FFARS Facility Financial Accounting and Reporting

System GCC General Conditions of Contract HDPE High Density Poly Ethylene HPMU Head of Procurement Management Unit ICT Information and Communications Technology IFAC International Federation of Accountants IFMS Integrated Financial Management System IPC Interim Payment Certificate IPSAS International Public Sector Accounting

Standards ISA International Standards of Auditing ISSAIs International Standards for Supreme Audit

Institutions ITT Instructions to Tenders LAAC Local Authorities Accounts Committee LAAM Local Authority Accounting Manual LGAs Local Government Authorities LGDG Local Government Development Grant LGFM Local Government Financial Memorandum LGLB Local Government Loans Board

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LGRCIS Local Government Revenue Collection Information System

Ltd. Limited M/s Messieurs (French) meaning Gentlemen MC Municipal Council MDAs Ministries, Departments, and Agencies MSD Medical Stores Department MTEF Medium Term Expenditure Framework NAO National Audit Office NHC National Housing Corporation No. Number P4R Program for Results Financing Para. Paragraph PCCB Prevention and Combating of Corruption

Bureau PMU Procurement Management Unit PO-PSM President’s Office – Public Service

Management PO-RALG President’s Office – Regional Administration

and Local Government POS Point of Sale PPA Public Procurement Act PPR Public Procurement Regulations PPRA Public Procurement Regulatory Authority PSO Public Sector Organisations PV Payment Voucher Reg. Regulation SCC Special Conditions of Contract SDGs Sustainable Development Goals Sect. Section STD Standard Tendering Document TANROADS Tanzania National Roads Agency TBA Tanzania Building Agency TC Town Council TZS Tanzania Shillings URT United Republic of Tanzania VAT Value Added Tax WSDP Water Sector Development Programme WYDF Women and Youth Development Fund

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FOREWORD

This Annual General Report has been prepared pursuant to the requirements of Article 143 of the Constitution of the United Republic of Tanzania of 1977 (as amended from time to time) and Section 34 of the Public Audit Act No. 11 of 2008.

Further, Regulation 88 of the Public Audit Regulations, 2009, requires me to submit Annual General Report on the Audit of Local Government Authorities annually to the President of the United Republic of Tanzania on or before 31st March. Therefore, the Annual General Report of LGAs for the year 2018/19 is due for submission under the aforementioned legal bases. Annual General Report is the outcome of the consolidated summary of my findings and recommendations from the individual management letters and audit reports from 185 Local Government Authorities for the year ended 2018/19. This report covers both compliance and financial audits. The compliance audit evaluates whether the LGAs complied with the parliamentary decisions, laws, legislative acts, Government policies and Directives. The financial audit part of my report communicates my audit opinion stating whether the respective LGAs’ financial statements were prepared in accordance with Accrual Basis International Public Sector Accounting Standards (IPSASs) and other governing legislations. My report also highlights on the results of special and comprehensive contract audits conducted and the status of implementation of the prior years’ audit recommendations and Local Authorities Accounts Committee (LAAC) directives issued from time to time.

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My audit findings were made after consultation and extensive discussion with the auditees and after due consideration of the responses from the Government and managements of respective LGAs. I am therefore assured that, my audit recommendations will add value to the prevailing Government interventions towards better stewardship of public resources and provision of improved quality of services particularly to the local communities. In order to cut across language barriers which may arise, my report is presented in both English and Swahili languages. I also issue special citizens’ edition of my reports entitled “Toleo Maalum la Mwananchi” which narrates key issues using simple language and drawings to portray and convey my message to a wide range of stakeholders including local communities.

Charles E. Kichere Controller and Auditor General of the United Republic of Tanzania 30th March, 2020

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ACKNOWLEDGEMENTS

At the outset, I acknowledge and commend His Excellency, Dr. John Pombe Joseph Magufuli, the President of the United Republic of Tanzania for his commitment towards combating corruption, inefficiencies and embezzlement of public resources. His emphatic efforts on tax collection have helped Tanzania to reduce dependency on budgetary support from development partners. I would also like to acknowledge the working relationship between my Office and the Parliamentary Oversight Committees pursuant to Section 38 of the Public Audit Act, 2008. Upon completion of tabling of my reports, the Local Authorities Accounts Committee (LAAC) had from time to time been issuing directives which contribute largely to the accountability of public resources.

I would also like to express my appreciations to the President’s Office – Regional Administration and Local Governments, all accounting officers and management of the audited entities who took keen interest to see that the audits and field visits were well organized and successful. I honestly commend such high level of positivity and commitment during the audit process. It has always been my pleasure to see such good working relationship been extended in the future audits.

On the other hand, I acknowledge various professional contributions from a number of stakeholders including the NGOs, Development Partners, Government oversight bodies, law enforcement bodies and professional bodies while discharging my constitutional mandate. I sincerely acknowledge good relationship between my office and Media. The Media have shaped the public attitude towards my office and have certainly enhanced my office reputation. I have learnt that the media messages are absorbed easily especially by the local communities. So I am grateful for my office to have access to the media to convey essential audit findings and recommendations to the community.

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Finally, if this report is a success, I dedicate it to the National Audit Office staff for their dedication, professionalism, enthusiasm and invaluable assistance. Without all this, I might not be able to complete this task properly and timely. Besides, I sincerely acknowledge their practical suggestions in the improvement of the report and its presentation.

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EXECUTIVE SUMMARY

As stated in my foreword, the Annual General Report is the product of the consolidated summary of audit findings from the individual management letters and audit reports of 185 Local Government Authorities for the year ended 2018/19. In that regard, this report highlights on vital audit findings, provides recommendations to the Government and suggests the possible solutions and way forward.

(i) Types and trend of audit opinions

Out of 185 audited financial statements of LGAs, 176 (95 percent) had unqualified opinion and 9 (5 percent) had qualified opinion. However, despite of significant number of unqualified audit opinion, respective LGAs still had observation arising from deviated parliamentary decisions, laws, legislative acts, Government policies and directives though do not have direct impact on the correctness of the submitted financial statements.

(ii) Implementation status of prior year audit recommendations

My assessment on the implementation status of prior year audit recommendations noted that 82 percent of 11 recommendations that were issued on the General Report in the financial year 2017/18 had not been implemented by the Government.

Further, my analysis of implementation of recommendations issued separately to 185 LGAs revealed that, out of 10,428 recommendations, 3,334 (32%) recommendations were implemented; 2,891 recommendations (28%) were under implementation; 2,139 recommendations (20%) have not been implemented; 1,802 recommendations (17%) were reiterated and 262 recommendations (3%) were overtaken by events.

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(iii) Budget preparation and execution Analysis of trend of own source revenue for the year under review revealed that 176 LGAs collected TZS 639,401,151,405 as against the budget of TZS 725,633,451,671 which is 89 percent of the budgeted own source revenue. This analysis did not include nine LGAs with qualified opinion.

Further, I continued to observe unsteady releases of funds as compared to the approved budget. For instance, 26 LGAs had approved development grants budget of TZS 73,433,637,673 but received TZS 96,250,291,206 resulting to over release by TZS 22,816,653,533. In addition, 157 LGAs had approved development grants budget of TZS 1,185,489,718,682 but received TZS 628,636,740,919 resulting to under release by TZS 556,852,977,763. Similarly, 18 LGAs had approved recurrent grants budget of TZS 369,440,284,951 but received TZS 395,432,102,867 resulting to over release by TZS 25,991,817,916. While 167 LGAs had approved recurrent grants budget of TZS 4,935,980,658,547 but received TZS 3,947,829,713,378 resulting to under release by TZS 988,150,945,169. Besides, I noted a delay in the release of funds from Treasury for development activities which led to significant balances of unutilized funds at the year-end from 182 LGAs amounting to TZS 258,656,962,461.

(iv) Audit of financial statements

Reviewed Financial Statements noted outstanding receivables amounting to TZS 131,854,275,521 in respect of 170 LGAs which remained uncollected for a period exceeding twelve months.

Similarly, I have noted outstanding payables amounting to TZS 207,235,717,133 in respect of 169 LGA which have remained unpaid for a period exceeding twelve months.

Annual General Report on the audit of LGAs for the financial year 2018/19 xxiv

With regards to contingent liabilities, out of 185 LGAs assessed, 115 LGAs had contingent liabilities totalling TZS 127,991,906,171 which were disclosed in the Financial Statements. Majority of the pending legal cases resulted from land disputes and termination of contracts.

(v) Evaluation of Internal Controls, Governance and Risk

Management Review of internal controls, governance and risk management continued to reveal some issues which need immediate management and Government intervention.

In the area of governance, I have noted Audit Committees from 38 LGAs to have not complied with Order 12 (5) (a) of LGFM, 2009 which requires them to meet at least once in a quarter to review internal and external audit reports including other matters of concern to the LGAs. Internal Audit functions in 185 LGAs had inadequate human resources and other key facilities for effective performance of internal audit units. The consequences include failure to perform and finalize all the planned audits for the financial year 2018/19. Further, internal audit staff in 185 LGAs had not attended trainings on IT systems and other area of importance as part of capacity building. I performed assessment on risk management and noted suspected fraudulent transactions involving TZS 1,247,399,461 in 12 LGAs which require Government attention. Existence of these fraud cases is an indication that the LGAs involved lack appropriate fraud detection measures as a result of ineffective internal controls.

Annual General Report on the audit of LGAs for the financial year 2018/19 xxv

(vi) Payroll and Human Resources Management

My assessment on Payroll and Human Resources Management in 185 LGAs noted a continued decline in staffing level whereby 169 LGAs had a shortage of 162,342 staff. The noted staff shortage had adverse impact on service delivery particularly in the health and education sector which have been mostly affected.

Similarly, 137 LGAs had 554 officers who are working under acting capacity as either Heads of Departments or Units for more than six months without confirmation. This was caused by either lack of appropriate qualifications for the posts of the respective officers or delays in appointing qualified persons for the respective posts by the appointing authority. Examination of payroll and its related supporting documents noted that 5,873 employees in 55 LGAs are receiving less than one third of their basic salaries. I am concerned with such massive deductions from salaries as it may lead to public servants being easily tempted to engage in fraudulent practices. Further assessment revealed that 29 LGAs had outstanding staff claims amounting to TZS 11,136,486,194 which had remained outstanding for more than 12 months without being paid. Non settlement of outstanding staff claims for long time may demotivate employees and ultimately may affect their performance. My review also noted 12 LGAs had unclaimed salaries amounting to TZS 301,979,043 in respect of the retired, deceased, absconded, and dismissed employee which had no documentation of its remittance to Treasury. Recurrence of these payments indicates that my previous years’ recommendations on improvement of payroll management have not been effectively implemented.

Annual General Report on the audit of LGAs for the financial year 2018/19 xxvi

(vii) Evaluation of development and other projects Assessment made on the implementation of development projects noted uncompleted projects worth TZS 77,509,365,805 in 81 LGA mainly caused by late release of funds, inadequate community participation in development activities, inadequate project management and abandonment of projects for a long time.

Further, in the financial year 2018/19, I noted 19 LGAs could not implement the planned capital development projects worth TZS 24,695,407,306 due to non-release of funds by central government or under collection of own source revenue to finance these projects; and also activities worth TZS 1,272,425,624 were not implemented in 12 LGAs despite the fact that the funds for implementation of these projects were available. In addition to the aforesaid, 13 LGAs diverted a total amount of TZS 1,251,851,985 meant for development projects to finance activities which were not intended. I have also learnt that 42 projects worth TZS 12,664,534,104 in 33 LGAs to have been completed but were not in use. Assessment made on the performance of Women, Youth and People with Disabilities Revolving Fund noted that 115 LGAs did not contribute total amount of TZS 9,930,902,514 to the Fund; and also, in 111 LGAs due loans issued to women, youths and people with disabilities groups amounting to TZS 13,794,359,981 had not been recovered. I draw attention to 52 LGAs after noting rejected claims amounting to TZS 2,022,980,474 which were submitted to NHIF in respect of health service rendered to patients with NHIF cards due to improper filling and reviewing of claim forms by the responsible officers leading to existence of various anomalies.

Annual General Report on the audit of LGAs for the financial year 2018/19 xxvii

(viii) Procurement and contract management

I noted during the audit that 74 LGAs made uncompetitive procurements worth TZS 32,461,005,953 without proper justifications; that 47 LGAs procured goods and services worth TZS 9,234,451,830 without obtaining Tender Board approval; 34 LGAs have made procurement worth TZS 4,353,203,757 from unapproved suppliers; 39 LGAs made procurements amounting to TZS 1,476,172,521 using imprest; while 43 LGAs received procured goods worth TZS 5,007,530,026 without being inspected by Inspection and Acceptance Committee.

Further, I noted that 38 LGAs procured goods, works and services amounting to TZS 25,928,485,461 which were not in the respective LGAs annual procurement plan; 27 LGAs ordered and paid TZS 1,090,741,646 for goods, but the same were not delivered by suppliers; 8 LGAs paid a total amount of TZS 350,635,246 to private garages for repair and maintenance of vehicles without being approved by TEMESA; and 36 LGAs procured goods worth TZS 2,604,166,883 but were not recorded in stores ledgers. I performed Comprehensive Contract Management Audit (CCMPA) in 29 LGAs for the financial year 2018/2019. I have identified systemic irregularities and set out conclusions and recommendations as detailed in chapter nine of my report. I draw the attention to the following key weaknesses noted during the audit. ✓ Payments to contractors for unexecuted works TZS

101,006,500 ✓ Irregular disqualification of the lowest bidders which denied

the opportunity to save TZS 176,800,000 ✓ Limited competition for procurement worth TZS 588,853,945 ✓ Contracts awarded to ineligible contractors TZS

9,100,000,000

Annual General Report on the audit of LGAs for the financial year 2018/19 xxviii

✓ Contracts signed and implemented with unregistered joint ventures TZS 2,074,528,581

✓ Unauthorized contracts variations of TZS 1,003,083,139 ✓ Misappropriation of borrowed funds for construction of

commercial market at Namtumbo DC TZS 282,000,000 ✓ Construction of unproductive water projects worth TZS

1,439,026,692

I also cast in my report, the PPRA annual performance evaluation report for financial year 2018/19 by highlighting some of key issues addressed by the Authority. PPRA is our key partner in exercising watchdog and oversight roles.

(ix) Expenditure Management

In 38 LGAs, I noted that expenditures totalling TZS 10,623,048,421 were incurred out of the approved budgetary provision for the year under review. In addition, no authority was produced to regularize the noted unbudgeted expenditures.

Similarly, expenditures of TZS 1,133,435,958 in 28 LGAs were either charged to items not relating to the effected expenditure codes or charged to expenditure codes not budgeted for without obtaining the necessary authority contrary to the prevailing Regulations. Incorrect expense charging and reporting led to unnecessary misclassifications of expenses as well as increased costs associated with error corrections in the financial statements. My review also noted expenditures amounting to TZS 3,450,794,429 in 92 LGAs had no proper supporting documents. In the absence of supporting documents, I could not verify authenticity of the expenditures incurred by the aforementioned LGAs. Unsupported expenditures indicate ineffective controls in the LGAs over custody and documentation of accounting records.

Annual General Report on the audit of LGAs for the financial year 2018/19 xxix

Besides, examination of accounting records have revealed missing payment vouchers of TZS 630,203,898 in 14 LGAs as could not be availed for audit purpose when requested. I am doubtful with expenditure incurred in respect of the missing vouchers as may have been involved in fraudulent transactions leading to a loss to the government.

I also noted that 29 LGAs had not deducted withholding tax amounting to TZS 310,708,788 from payments made in respect of various procurements of goods, services, works and non-consultancy services. Non-compliance with the tax laws and regulations may attract penalties from Tanzania Revenue Authority. In addition, deducted withholding taxes amounting to TZS 248,860,698 in 23 LGAs were not remitted to the Authority. My examination of stores records such as store ledgers, requisition and issue vouchers noted fuel worth TZS 1,360,912,044 in 46 LGAs had no utilization records. Further, there were no evidence availed by 9 LGAs for the accountability of fuel worth TZS 218,764,015 issued to private vehicles. It was therefore difficult to establish full accountability of the procured fuel. I also observed that 14 LGAs were charged a total of TZS 417,247,259 being penalties for non-compliances with legislations or compulsory obligations. I consider such payments to be nugatory since the respective LGAs received no value for the expenditures incurred. In my report, I have also probed ineligible payments totalling TZS 1,555,339,716 in 30 LGAs. I found that such payments violated provision of laws, regulations and other provisions governing the expenditure of public funds. I cast doubt on the adequacy of internal controls system of aforesaid LGAs in detecting and preventing losses of public monies.

Annual General Report on the audit of LGAs for the financial year 2018/19 xxx

I noted with concern uncontrolled payments in deposit accounts in 67 LGAs totalling TZS 9,676,882,553. It appears to me that the LGAs deposit accounts are not properly streamlined because deposit registers are not adequately maintained or not being maintained at all thus limiting the monitoring of deposits account transactions. A review on management of imprest noted unrecorded, unretired and imprests charged directly to expenditure code aggregating to TZS 2,214,575,172 from 99 LGAs. Likewise, I noted that payments totalling TZS 1,511,055,580 in 28 LGAs were made before being verified by the respective pre-audit sections. The noted shortfall earmarks key control gaps of which in my opinion if not addressed, could result into losses or misappropriations of the public funds.

(x) Revenue Management

My assessment on revenue management noted adjustments made by 19 LGAs pertaining to deletion of erroneously recorded revenue transactions in the LGRCIS totalling TZS 626,646,141. The adjustments were requested and approved by the same person and without Accounting Officer’s approval. I cast doubt on such deviation from segregation of duties designed to prevent error and fraud.

A look at banking of revenue noted that 84 LGAs reported collections of revenue from various sources totalling TZS 10,392,553,320 without producing evidences of banking the same in their respective bank account. In the absence of the banking particulars; I cannot assure the public on the accountability of the unbanked collections. I further noted that 206 health centers and dispensaries in 8 LGAs had not installed the electronic revenue collection system. This is contrary to Order issued on 17th October, 2016 by Permanent

Annual General Report on the audit of LGAs for the financial year 2018/19 xxxi

Secretary (PO-RALG) vide a letter with Ref No. CEB.151/297/02/“N”/61.

Likewise, 5 LGAs were still using manual revenue receipts in parallel with LGRCIS. This violates PO-RALG instructions issued on 14th June, 2016 vide a letter with Ref. No. EB.151/297/01/92. Further, I noted that 58 LGAs collected revenue amounting to TZS 5,839,093,607 pertaining to service levy without being supported by turnover particulars from the respective corporate entities to justify the adequacy of the amount collected. The aforementioned list of weaknesses on revenue management is not conclusive. I continued to note several unrectified anomalies emanating from my previous years reports. I reiterate my recommendations on the five LGAs which outsourced revenue sources to 143 agents without binding contracts or agreement with the revenue collecting agents, 60 LGAs which had 1,464 POS devices which were offline for the period ranging from 2 to 1,249 days and two LGAs which had 14 POS devices not been registered in the LGRCIS system.

(xi) Assets Management

Regarding Assets Management, it came to my attention that 3 LGAs had their non-current assets registers not regularly updated. Further, 8 LGAs did not maintain non-current assets registers thereby making it difficult to verify the value as well as the physical existence of some of the assets owned by the LGAs.

In addition, assets owned by 13 LGAs worth TZS 604,066,669 were not engraved with the identification code numbers by the time of my audit, this will make it difficult to identify an asset in case of loss. During field inspection, I observed government vehicles and plants in 121 LGAs grounded in either LGAs yards, private garages

Annual General Report on the audit of LGAs for the financial year 2018/19 xxxii

or TEMESA for the period ranging from 6 months to 20 years. Some of the defects were observed to be very minor for the vehicles such as ambulances which are supposed to discharge services, to be abandoned for that unnecessary length of time. Some vehicles are rusting away and the parts being removed or stolen indicating that they are no longer serviceable. I also attended annual stock taking exercises to assess the amount of stock held by LGAs at the end of financial year and observed expired drugs worth TZS 7,334,114,927 in 14 LGAs. Expired drugs not only occupy a limited space but also a delay in boarding them off can result into misuse of expired and obsolete drugs due to lack of secure custody and storage facilities of the same. I associated the accumulation of expired drugs in LGAs with either procurement or in-kind deliveries and stockage of low use or peculiar drugs from MSD to health centers and Dispensaries without consultations. Lack of funds to meet disposal costs and lengthy process of obtaining disposal approvals have further fuelled the problem which needs immediate Government intervention.

(xii) Results of special audits

During the year under review, I conducted special audits in seven LGAs. In addition to other noted irregularities, I detected apparent fraud and losses totalling TZS 6,197,041,125 as summarised in the table below.

S/N Name of

Auditee Financial year Requested

by Suspected fraud and losses (TZS)

1. Bahi DC 2013/14 to 2017/18

PCCB 61,797,235

2. Kondoa DC 2013/14, 2011/12 to 2018/19

PCCB 1,952,002,379

3. Chemba DC 2013/2014, 2011/12 to 2018/19

PCCB 164,855,242

Annual General Report on the audit of LGAs for the financial year 2018/19 xxxiii

S/N Name of Auditee

Financial year Requested by

Suspected fraud and losses (TZS)

4. Kongwa DC 2011/12 to 2018/19

PCCB 481,219,673

5. Mpwapwa DC

2015/16 to 2017/18

PCCB 20,320,000

6. Masasi TC 2014/15 to 2017/18

PCCB 238,093,000

7. Handeni DC 2008/09 – 2018/19 PCCB 3,278,753,596 Total 6,197,041,125

More insight on the findings from special audits have been provided in Chapter 13 of my report. However, the detailed reports have been issued separately to the Authorities which requested special audits.

Annual General Report on the audit of LGAs for the financial year 2018/19 1

CHAPTER 1

BACKGROUND AND GENERAL INFORMATION 1.1 Introduction

In exercise of the provisions under Article 143 of the Constitution of the URT of 1977 (as amended from time to time), and Sect. 10 (1) of the Public Audit Act No.11 of 2008 together with Sect. 45 of the Local Government Finances Act No.9 of 1982 (Revised 2000), I have audited the financial statements of 185 Local Government Authorities for the financial year ended 30th June, 2019. Detailed audit findings and recommendations arising from the audit were reported in the management letters issued separately to management of the respective LGAs. Key audit findings in those management letters were used to compile this report. The report also covers the results of special and comprehensive contract audits conducted during the financial year 2018/19.

1.2 Audit Objectives My audit aimed at achieving the following key objectives: ✓ To express an independent opinion on the financial

statements prepared in accordance with Accrual Basis International Public Sector Accounting Standards (IPSASs) and relevant legislation. These financial statements comprise the Statement of Financial Performance, Statement of Financial Position, Cash Flow Statement and Statement of Changes in Net Asset for the year then ended, and a Summary of Significant Accounting Policies and Other Explanatory Information; and

✓ The objective of the compliance audit, according to the

International Standards of Supreme Audit Institutions, ISSAI 4000, was to provide the intended users with information on whether the audited public entities actually complied


with parliamentary decisions, laws, legislative acts, policy, established codes and agreed upon terms. Compliance audit was performed on procurement of works, goods and services aimed at examining in detail how the accounting officers of the audited entities exercised their responsibilities regarding the procurement process.

1.3 Audit Scope

The audit was carried out in accordance with the International Standards of Supreme Audit Institutions (ISSAIs) and other audit procedures as were deemed appropriate under the circumstances. This covered the evaluation of the effectiveness of the financial accounting system and internal controls over various activities of LGAs. The audit 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. Audit findings and recommendations arising from examination of the accounting records, appraisal of the activities as well as evaluation of the internal control systems which require management’s attention and actions, are set out in the management letters that were issued separately to 185 LGAs. Because of the inherent limitations of an audit, together with the inherent limitations of internal control, there is an unavoidable risk that some material non-compliance may not be detected, even though the audit was properly planned and performed in accordance with the ISSAIs. The total number of LGAs audited in 2018/19 has not changed when compared to the total number of LGAs audited in 2017/18. The number remained the same at 185.


During the financial year 2018/19, my office audited 185 Local Government Authorities as analysed by their respective categories in Table 1-1 below:

Table 1-1: Number of the audited LGAs for 2018/19 S/N Category of the Reporting Entity No. of Entities 1. City Councils 6 2. Municipal Councils 20 3. Town Councils 22 4. District Councils 137

Total 185 1.4 Audit Methodology

Office of the Controller and Auditor General being a member of professional bodies (INTOSAI, AFROSAI and AFROSAI-E) applies standards and guidelines issued by these bodies. INTOSAI issues external auditing standards (ISSAIs) for public sector entities and the United Nations. These standards require auditors to comply with ethical requirements, plan and perform the audits to obtain reasonable assurance whether the financial statements are free of material misstatements whether due to fraud or errors.

My audit dwells on performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected include evaluating the appropriateness of accounting policies used, assessing reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

Also, I consider internal control relevant to the subject matter, but not for the purpose of expressing an opinion on the effectiveness of the audited entities’ internal controls.


1.5 Reporting process The audit process follows a participatory approach; whereby. the audited entity is fully involved throughout the process. The participatory audit approach takes on board the accounting officers, senior management officers, audit committees and internal audit units, as we believe they are in the top position to provide appropriate responses regarding the accuracy of the financial statements and other documents that are relevant to the audit including their compliance with laws and regulations. Further, audit findings are reported against the defined criteria or best practices, and I recommend action for future improvements to the management of the audited LGAs through issuance of management letters. Also, I issue an audit opinion/report featuring on material findings in the audited financial statements, compliance with relevant laws and regulations, as well as significant deficiencies in internal controls.

1.6 Preparation and submission of the Financial Statements

Order 31(1) of LGFM, 2009 requires Accounting Officers to prepare final accounts and submit them to the Controller and Auditor General for audit purposes on or before 30th September of each financial year. The same Order places responsibility on the LGAs’ management to prepare financial statements in accordance with the laws, regulations, directives issued by the Minister responsible for Local Governments, the LGFM, 2009 and IPSASs accrual basis of accounting.


CHAPTER 2

TYPES AND TREND OF AUDIT OPINIONS 2.1 Introduction

According to International Standards of Supreme Audit Institution (ISSAIs), the objectives of conducting audit of financial statements is to enable an auditor to express independent audit opinion as to whether the financial statements are prepared in all material respect in accordance with the applicable financial reporting framework and thus give a true and fair view or fairly present in all material respect, the state of affairs of the entity in a given financial year.

The requirement of me to express an audit opinion is spelt under Sect. 10 (2) of the PAA No.11 of 2008. Besides, pursuant to Sect. 48(3) of the Public Procurement Act No.7 of 2011, I am required to state in my annual audit report whether or not the audited entity has complied with the provisions of the Public Procurement Act and its accompanying Regulations.

2.2 Types of Audit Opinions Generally, there are two categories of audit opinions, unmodified (unqualified) and modified audit opinion. The Controller and Auditor General may issue unqualified opinion on the financial statements which were prepared and complied in all material respect with applicable accounting standards.

In accordance with ISSAI 1705 (Modifications to the Opinion in the Independent Auditor's Report), Modified Opinion has three categories of opinion that are issued on the Financial Statements which indicate that financial statements are not prepared in all material respect in compliance with applicable accounting standards. These are qualified opinion, adverse opinion and disclaimer of opinion.


✓ Qualified Opinion is issued to the Financial Statements when concludes that misstatement existing in the financial statement are material but those misstatements are not pervasive. It is issued when the misstatement revealed by auditor affects only specific balances and not whole financial statements.

✓ An Adverse Opinion is expressed after an auditor obtains sufficient appropriate audit evidence and concludes that there are material misstatements. The International Standard of Supreme Auditing Institution requires auditors to express an adverse opinion if the material misstatements, significantly affect the whole financial statements.

✓ Disclaimer of opinion is issued when auditors could not obtain sufficient appropriate audit evidence to support their opinion.

Figure 2-1:Audit Opinion Hierarchy

2.3 Emphasis of Matter paragraph A paragraph included in the auditor's report that refers to a matter appropriately presented or disclosed in the financial

Audi

t O

pini

on

Modified Opinion

Qualified Opinion

Adverse Opinion

Disclaimer of OpinionUnmodified (Unqualified) Opinion


statements that in the auditor's judgment, is of such importance that it is fundamental to users' understanding of the financial statements.

2.4 Other matters paragraph Other matters paragraph means a paragraph included in the auditor's report that refers to a matter other than those presented or disclosed in the financial report that in the auditor's judgement, is relevant to users' understanding of the audit, the auditor's responsibilities or the auditor's report.

2.5 Key audit matters paragraph Communicating key audit matters provides additional information to users of the financial statements to assist them in understanding those matters that in the auditor's professional judgment, were of most significance in the audit of the financial statements of the current period.

2.6 Trend of Audit Opinion During the year under review, I issued 176 unqualified opinion the same number as in previous financial year, implying that nine LGAs were issued with qualified opinions. No adverse or disclaimer of opinion issued during 2018/19 unlike previous financial year where I issued one adverse opinion and one disclaimer of opinion.

2.7 LGAs with unfavorable trend of audit opinion I draw attention to nine LGAs which dropped from Unqualified Opinion in previous financial year to Qualified Opinion in the financial year under review. I am concerned with declining performance of the respective LGAs on the aspect of Financial Statements preparation. Details of the LGAs with unfavorable trend of Audit Opinion are shown in Table 2-1 below.


Table 2-1: LGAs with unfavourable trend of Audit Opinion SN Name of the LGA 2017/18 2018/19 1. Buhigwe DC Unqualified Qualified 2. Butiama DC Unqualified Qualified 3. Handeni DC Unqualified Qualified 4. Karatu DC Unqualified Qualified 5. Mkalama DC Unqualified Qualified 6. Nkasi DC Unqualified Qualified 7. Songea DC Unqualified Qualified 8. Songea MC Unqualified Qualified 9. Tabora MC Unqualified Qualified

2.8 LGAs with favorable trend of audit opinion

It is worth noting that I express unqualified opinion based on the applicable financial reporting standards. Therefore, unqualified opinions issued during the year under review shall not be perceived or concluded that the respective LGAs are spotless in terms of their operations.

In the respective LGAs where unqualified opinion were issued, I still noted several non-compliance issues and deviations from the parliamentary decisions, laws, legislative acts, government policies and directives which as per applicable financial reporting standards do not necessitate me to modify my audit report. However, I communicate separately such irregularities in the management letters for further management action.

Kigoma/Ujiji Municipal Council which had Adverse Opinion for four consecutive years and Nyang’hwale District Council which had Disclaimer of Opinion both revealed significant improvement and were issued with Unqualified Opinion during the financial year 2018/19. Further, 167 LGAs continued to maintain the same status of Unqualified Opinion like previous financial year.

A trend of audit opinion issued to LGAs during a span of four consecutive years is shown in Table 2-2 below.


Table 2-2: Trend of Audit Opinion over period of four years Opinions Unqualified Qualified Adverse Disclaimer

Tota

l LG

As

Years Total % Total % Total % Total %

2018/19 176 95 9 5 - - - 185 2017/18 176 94 7 4 1 1 1 1 185 2016/17 166 90 16 9 3 2 - - 185 2015/16 138 81 32 19 1 1 - - 171

Detailed status of audit opinion, basis of opinion and trend of audit opinion for four consecutive years are shown in Appendix 2-1, Appendix 2-2 and Appendix 2-3 respectively to this General Report.

2.9 Audit opinions issued to different classes of LGAs As stated in the previous chapters, operations of LGAs are carried out in four categories of Councils. Table 2-3 shows categories of LGAs and Audit Opinions issued during the year under review. Table 2-3: Summary of Audit Opinions Issued to LGAs

I call for the management of LGAs with declining performance to ensure that sufficient controls are in place to prevent the recurrence of similar misstatements in the Financial Statements which led to modification of my audit opinion.

Category of LGA

No. of LGAs

Types of Opinion Unqualified Qualified Adverse Disclaimer

City 6 6 - - - Municipal 20 18 2 - - Town 22 22 - - - District 137 130 7 - - Total 185 176 9 - -


CHAPTER 3

IMPLEMENTATION STATUS OF PRIOR YEARS’ AUDIT RECOMMENDATIONS

3.1 Introduction

This chapter provides status of the agreed action plans by Accounting Officers to ensure my recommendation and LAAC directives are implemented in line with the agreed timeframe and the actions undertaken have effectively mitigated the weaknesses identified during the previous audits. Section 40 of the Public Audit Act No. 11 of 2008 (as amended by Miscellaneous Amendment No.1 of 2013) requires me to incorporate in the Annual Audit Report, the implementation status of the action plan prepared by Accounting Officers and consolidated by the Paymaster General (PMG). To meet this requirement of the law, status of the remedial actions taken in the implementation of my recommendations and LAAC directives are further discussed in this chapter. My assessment on the implementation status revealed that management of the Councils has been slow in implementing my previous years’ recommendations. Failure on the part of the Councils to implement my previous years’ audit recommendations has resulted to recurrence of similar observations which contributes to ineffective control of resources thus affecting service delivery to the public. Some of the audit recommendations have been outstanding for a period of two to more than five years. Generally, a total of 2387 audit recommendations from audit of 172 LGAs have been outstanding for a period of two years or more as detailed in Appendix 3-1 of this report. In my previous reports, I expressed my concerns regarding unsatisfactory implementation of the long outstanding audit


recommendations and repetition of queried issues relating to general, individual, special audit reports and LAAC directives. Furthermore, for the year under review, there are weaknesses that were reported in my previous years’ reports but also recurring in current year’s report. The consolidated responses and action plan submitted by the Paymaster General have not fully addressed my previous years’ recommendations. Implementation status of the previous years’ audit recommendations regarding the General Report, Individual Reports, and Special Audit Reports as well as LAAC directives are as follows:

3.2 Implementation status of the prior years’ recommendations to LGAs A total of 10,428 recommendations were issued to 185 LGAs during the financial year 2017/18. My analysis on implementation of the recommendations issued shows that, 3,334 (32%) recommendations were implemented; 2,891 (28%) were under implementation; 2,139 (20%) have not been implemented; 1,802 recommendations (17%) were reiterated and 262 (3%) were overtaken by events as represented on the pie chart 3-1 below. Detailed status of these recommendations is shown in Appendix 3-2.


Figure 3-1: Status of implementation of prior year recommendations for 2017/18

Table 3-1: Implementation status of the prior years’ audit recommendations for three consecutive years Status 2017/18 2016/17 2015/16 Implemented 3,334 4,469 4,251 Under implementation

2,891 2,768 2,993

Not implemented 2,139 2,168 3,213

Reiterated 1,802 0 0 Overtaken by events 262 1,830 2,256 Total recommendations

10,428 11,756 12,643

Generally, the implementation pace of my recommendations is not satisfactory. Therefore, more efforts are called for to fully implement the outstanding recommendations especially those which have remained unimplemented for more than a year.

Implemented32%

Under implementatio

n28%

Not implemented

20%

Reiterated17%

Overtaken by event

3%

2017/18


Leaving audit recommendations unattended for a long time, may result into recurrence of similar observations in the coming year thus contributing to inadequate performance of operations which in turn affect service delivery to the public. I insist to the Accounting Officers of the Local Government Authorities to exert more efforts towards implementation of my audit recommendations in order to enhance transparency and sense of accountability to the public.

3.3 Implementation status of the prior years’ audit recommendations based on the General Report of Local Government Authorities I received the Government responses to my annual reports for the financial year ended 30th June, 2018 through a letter with Ref. No. CHA.116/474/01 dated 5th July, 2019. I commend the effort made by the Paymaster General on behalf of the government in providing detailed responses to my recommendations. However, my assessment on the implementation status of my recommendations shows that out of 11 recommendations that were issued in the financial year 2017/18, two (18%) recommendations were under implementation and nine (82%) have not been implemented. Details of the outstanding General Report recommendations are as shown in Appendix 3-3 of this General Report. Table 3-2: Implementation status of recommendations in the Annual General Report for LGAs for three consecutive years Status 2017/18 2016/17 2015/16 Implemented 0 0 0 Under implementation 2 3 9 Not implemented 9 2 5 Reiterated 0 8 0 Overtaken by events 0 0 0 Total recommendations 11 13 14


Generally, implementation of the recommendations incorporated in my Annual General Report of Local Government Authorities is not satisfactory due to inadequate efforts towards addressing the weaknesses noted in my reports. Failure to timely act on my recommendations could result into recurrence of similar weaknesses in subsequent years which could result into negative impact on the effectiveness and efficiency of LGAs operations. I insist Paymaster General to timely respond to my General report recommendations so as to improve accountability and reduce recurrence of the noted weaknesses.

3.4 Implementation status of LAAC Directives My assessment of implementation status of LAAC directives for the financial year 2018/19 shows that most of the directives issued by LAAC have remained outstanding for a long period without actions from management of Local Government Authorities. Out of 958 directives issued by LAAC to 158 LGAs during the year 2017/18, 388 (41%) directives were implemented; 274 (28%) were under implementation; 281 (29%) had not been implemented and 16 (2%) were overtaken by events as shown in Appendix 3-4 of this General Report.


Figure 3-2: Implementation status of LAAC Directives

Generally, the implementation status of LAAC directives is not satisfactory. I therefore urge all Accounting Officers of the respective LGAs to discharge their managerial role and ensure all outstanding directives are acted upon and similar weaknesses will not recur in future for the purpose of improving LGAs’ performance. Table 3-3: Trend of Implementation status of LAAC directives

Fina

ncia

l yea

r

No.

of

LGA

s

No.

of

Dir

ecti

ves

Impl

emen

ted

unde

r im

plem

enta

tion

Not

Im

plem

ente

d

Ove

rtak

en b

y ev

ents

2017/18 158 958 388 274 281 16 2016/17 138 882 391 322 169 0 2015/16 115 748 233 256 259 0

I recommend to the Government through PO-RALG to direct LGAs to timely work on LAAC directives and ensure that LAAC directives are responded as early as possible so as to improve performance of the LGAs.


CHAPTER 4

BUDGET PREPARATION AND EXECUTION

4.1 Introduction This chapter focuses on LGAs performance towards plans and

budgets, collecting and making efficiency use of financial resources which are in the form of own source revenue, grants from Central Government as well as assistance from Development Partners.

4.2 Budget overview

Sect. 43 (1) of the Local Government Finances Act, 1982 (Revised 2000) requires every Local Government Authority not less than two months before the beginning of every financial year, at a meeting specially convened for the purpose, pass a detailed budget of the estimates of the amounts respectively (a) expected to be received and (b) expected to be disbursed, by the Authority during the financial year, and whenever circumstances so require, an authority may pass a supplementary budget in any financial year.

The Medium Term Expenditure Framework (MTEF) usually

prepared for the current financial year as well as subsequent two years is aligned with five years development plan (FYDP II), policies and other National Planning Frameworks. In the year under review, I made an assessment on the LGAs budget processes and noted the following:

4.2.1 Council’s own source revenue trend against approved

budget for five years Own source revenue includes money received in the form of

produce cess, fees, fines and penalties, license fees, building permits and other own sources. These monies are solely utilized to complement Central Government Funds and grants from Development Partners.


During the financial year 2018/19, I assessed 176 LGAs which recorded a total collection of TZS 639,401,151,405 as own source revenue out of the approved estimates of TZS 725,633,451,671 resulting into under collection of TZS 86,232,300,266 equivalent to 11 percent as detailed in Appendix 4-1. I could not reliably assess the own sources revenues collected and Central Government grants in 9 LGAs issued with modified opinion due to material misstatements in the financial statements as shown in Table 4-1 below. Table 4-1: Councils with Modified Opinion SN Name of the LGA Type of Opinion for

2018/19 1. Buhigwe DC Qualified 2. Butiama DC Qualified 3. Handeni DC Qualified 4. Karatu DC Qualified 5. Mkalama DC Qualified 6. Nkasi DC Qualified 7. Songea DC Qualified 8. Songea MC Qualified 9. Tabora MC Qualified

Table 4-2 below shows a trend of Councils’ own source revenue collection against approved budget over a period of five consecutive years. Table 4-2: Trend of approved budget vs. actual collections

F/Year Approved

budget (TZS) Actual

collection (TZS)

Variance Over/(under)

(TZS) %

2018/19 725,633,451,671 639,401,151,405 (86,232,300,266) 11 2017/18 677,965,549,714 566,729,291,189 (111,236,258,525) 16 2016/17 628,045,048,644 523,564,835,716 (104,480,212,928) 17 2015/16 536,203,527,158 482,898,501,332 (53,305,025,824) 10


F/Year Approved

budget (TZS) Actual

collection (TZS)

Variance Over/(under)

(TZS) %

2014/15 471,192,301,516 409,100,130,028 (62,092,171,489) 13

The table above shows that for five consecutive years there was under-collection of own source revenue compared to the approved budget.

4.2.2 Own source revenue collection trend against recurrent expenditure Recurrent expenditure denotes various payments made by LGAs to cover for their daily operations. They include wages and salaries, purchase of goods and services and minor maintenances made to LGAs’ assets. These are proportionally financed by recurrent grants from Central Government and own source revenue. During the financial year 2018/19, a total of 175 out of 176 LGAs assessed, collected TZS 639,401,151,405 as own source revenue and spent TZS 4,139,568,491,180 on recurrent activities. Refer to Appendix 4-2 on expenditure financing from recurrent grants. Table 4-3 below summarizes five years trend of own source revenue collected against recurrent expenditure. Table 4-3: Trend of own source revenue collected against recurrent expenditure

Financial year

Actual collection

(TZS)

Recurrent expenditure

(TZS)

% of independ

ence 2018/19 639,401,151,405 4,139,568,491,180 15 2017/18 566,729,291,189 4,373,555,868,608 13 2016/17 523,564,835,716 4,656,643,395,963 11 2015/16 482,898,501,334 4,453,470,809,033 11 2014/15 409,100,130,028 3,569,212,750,970 11


Table 4-3 above depicts that LGAs can only sustain an average of 15 percent of total recurrent expenditure using own source revenue. This implies that 85 percent of its recurrent expenditure depends on grants. In this regard, LGAs are unable to perform their operations effectively and may perhaps fail to deliver services to the community in the event that Central Government financing comes to an end. Table 4-4 below shows percentage of LGAs’ dependence on grants to finance recurrent expenditure for three consecutive years. Table 4-4: LGAs percentage of dependence on recurrent grants

Percentage interval Number of LGAs

2018/19 2017/18 2016/17 91-100 85 103 118 81-90 68 57 45 71-80 9 11 13 61-70 8 15 05 51-60 2 - - 41-50 4 - -

From the table above, it is clear that 175 out 176 LGAs assessed, depend on Central Government financing for 41 percent or more. Besides, Dar es Salaam City Council has collections which exceeded recurrent expenditures by TZS 11,410,338,000 as indicated in Table 4-5 below.


Table 4-5: LGA percentage of independence on recurrent grants

Name of LGA

Actual Collection (TZS)

Recurrent Expenditures

(TZS) Variation (TZS)

% of Independence

Dar es Salaam CC 14,420,447,981 3,010,109,981 11,410,338,000 479

I recommend the LGAs to boost their revenue collection through widening own source revenue base in order to reduce their dependence on grants from Central Government.

4.3 Own Source Revenue Collection The main sources of revenue for LGAs’ own source are produce cess, service levy, market fees and charges, specific service levy, license fees and permits in business activities.

During financial year under review, the scrutiny of own source revenue collected by 185 LGAs noted the following issues:

4.3.1 Under collection of own source revenue TZS 121,456,501,136 During the financial year 2018/19, total of 126 LGAs budgeted to collect TZS 463,951,507,416 from own source revenue but managed to collect TZS 342,495,006,580 thus resulting to under collection of TZS 121,456,501,136 equivalent to 26 percent of the total budgeted own source revenue. Refer Appendix 4-3. Table 4-6 below shows a score percentage-wise each LGA has recorded for under collection of own source revenue.


Table 4-6: Percentage of under collection of own source revenue Percentage interval

Number of LGAs 2018/19 2017/18 2016/17

81-90 2 - - 61-80 5 5 7 41-60 23 22 20 21-40 39 44 47 01-20 57 80 107

I am concerned with LGAs whose actual collection fell significantly below the estimated amount classified in the range of 21-40% and above. This suggests that there is a possibility that all potential sources of revenue were not fully exploited. Thus, some of the planned activities to be financed using own source revenue were not implemented. In order to enhance revenue collections and enable LGAs to discharge their mandated obligations more efficiently, I call upon LGAs to identify and exploit new revenue sources including but not limited to: a) Formalizat

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