annual general report of the controller and auditor general

ANNUAL GENERAL REPORT OF THE CONTROLLER

AND AUDITOR GENERAL

On the Audit of Public Authorities and Other Bodies for the financial year 2011/2012

THE UNITED REPUBLIC OF TANZANIA

NATIONAL AUDIT OFFICE

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

In reply please quote Ref. No.FA.27/249/01/2011/2012 28th March, 2013

H. E. Dr. Jakaya Mrisho 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 Audit of Public Authorities and

Other Bodies for the financial year 2011/2012

Pursuant to Article 143 of the Constitution of the United Republic of Tanzania of 1977 (as amended in 2005), I hereby submit to you my sixth Annual General Report on the Audit of Public Authorities and Other Bodies as defined in Section 3 of the Public Audit Act No. 11 of 2008.

This report includes audit reports of 126 Public Authorities and

Other Bodies for the financial years ended 30th September, 2011, 31st December, 2011 and 30th June, 2012.

I submit for your kind consideration and onward submission to Parliament in accordance with the requirement of the law.

Ludovick S. L. Utouh

CONTROLLER AND AUDITOR GENERAL

mailto:[email protected]

http://www.nao.go.tz/

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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 United Republic of Tanzania of 1977 as amended from time to time and amplified by the Public Audit Act, No. 11 of 2008 (as amended) and Public Audit Regulations of 2009. 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:- Objectivity: We are an impartial organization, offering

services to our clients in an objective and unbiased manner;

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

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

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

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 utilisation:

We are an organization that values and uses public resources entrusted to it in an efficient, economic and effective manner.

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TABLE OF CONTENTS

PAGE

OFFICE OF THE CONTROLLER AND AUDITOR GENERAL ........................ II

VISION, MISSION AND CORE VALUES .............................................. II

LIST OF TABLES ………………………………………………………………………………………. VII

LIST OF FIGURES ……………………….…………………………………………..……. IX

LIST OF ABBREVIATIONS/ACRONYMS ............................................VII

ACKNOWLEDGEMENT ............................................................. XIII

FOREWORD .........................................................................XV

EXECUTIVE SUMMARY ........................................................... XVII

CHAPTER ONE ...................................................................... 1

Background Information ........................................................... 1

CHAPTER TWO..................................................................... 10

Basis and Types of Audit Opinions .............................................. 10

CHAPTER THREE .................................................................. 17

Summary of Outstanding Audit Recommendations ........................... 17

CHAPTER FOUR ................................................................... 30

Significant Matters Not Reported in the Previous Year‟s Report ........... 30

CHAPTER FIVE ..................................................................... 38

Procurement and Contracts Management ...................................... 38

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CHAPTER SIX ....................................................................... 61

Assets Management ............................................................... 61

CHAPTER SEVEN................................................................... 79

Human Resource Management ................................................... 79

CHAPTER EIGHT .................................................................. 88

Corporate Governance ............................................................ 88

CHAPTER NINE ................................................................... 102

Government Investments, Interests and Privatisation Process ........... 102

CHAPTER TEN ................................................................... 111

Results of Special Audits ....................................................... 111

CHAPTER ELEVEN ............................................................... 122

Value Added and Impact of The CAG‟s Reports ............................. 122

CHAPTER TWELVE .............................................................. 128

Conclusions and Recommendations ........................................... 130

Appendices ...................................................................... 145

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LIST OF TABLES Page

Table 1: Allocation of Audit Assignments of PA&OBs in 2011/2012 .................................................................... 7 Table 2: Status of the Audits ............................................. 13 Table 3: Trend Analysis of Opinions Issued to PA&OBs for Three Years ......................................................................... 14 Table 4: Entities with No Title Deeds ................................... 63 Table 5: Deteriorating Financial Performance of BAKITA ............ 64 Table 6:Non-performing Loans with no Repayments ................. 66 Table 7: New Customers Who Never Existed in CHC Loan Records ...................................................................... 69 Table 8: Overdue Trade Receivables ................................... 72 Table 9: Poaching Incidences at TANAPA .............................. 76 Table 10: Performed Patrol Mandays ................................... 76 Table 11: List of Pilots and Their Retirement Dates .................. 84 Table 12: Trend of Dividends, Loans Repayment and other Proceeds ................................................................... 106

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LIST OF FIGURES

Page

Figure 1: Allocation of Audit Assignments of PA&OBs in 2011/2012 ........................................................ 8 Figure 2: Opinions Issued to Public Authorities and Other

Bodies for 3 Consecutive Years 2009/2010 to 2011/2012 in Graphical Representation .................... 15

Figure 3: Audit Opinion Issued to PA&OBs Presented in Pie chart .................................................................... 16 Figure 4: An Increase in MoHSW Outstanding Loan to MSD .......... 33 Figure 5: Trend of Dividends, Loans Repayment and Other Proceeds ........................................................ 106 Figure 6: Trend Analysis of Increase in Number of Audited PA&OBs ......................................................... 126

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List of Abbreviations/Acronyms

AfDB Africa Development Bank AFROSAI African Organisation of Supreme Audit Institutions AFROSAI –E African Organisation of Supreme Audit Institutions of

English Speaking AICC Arusha International Conference Centre ALMS Alternative Loan Management System AO Accounting Officer ATC Air Tanzania Corporation ATCL Air Tanzania Company Limited AU African Union AUWASA Arusha Urban Water Supply and Sewerage Authority BAKITA Baraza la Kiswahili Tanzania BRELA Business Registration and Licensing Authority BoD Board of Directors BoT Bank of Tanzania BUWASA Bukoba Urban Water Supply and Sewarage Authority CAG Controller and Auditor General Cap Chapter CARMATEC Centre for Agricultural Mechanizations and Rural

Technology CBE CBT

College of Business Education Cashewnut Board of Tanzania

CDA Capital Development Authority CEO Chief Executive Officer CHC Consolidated Holding Corporation CIDA Canadian International Development Agency CLC Chief Legal Council CMSA Capital Marker Security Authority COASCO Co-operative Audit and Supervision Corporation COSOTA COSTECH

Copyright Society of Tanzania Tanzania Commission for Science and Technology

CPA-PP Certified Public Accountants in Public Practice CS Company Secretary DAWASA Dar es Salaam Water Supply and Sewerage Authority DAWASCO Dar es Salaam Water Supply Company DMI Dar es Salaam Maritime Institute DSE Dar es Salaam Stock Exchange

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DSM Dar es Salaam DUCE Dar es Salaam University College of Education DUWASA Dodoma Urban Water and Sewarage Authority EAC East Africa Community ECGS Export Credit Guarantee Scheme ELRA Employment and Labour Relations Act EWURA Energy and Water Utility Regulatory Authority EWURA CCC Energy and Water Utility Regulatory Authority

Consumer Consultative Council FA Force Account GN Government Notice GNP Gross Domestic Product GEPF Government Employees Provident Fund GoT Government of Tanzania GPSA Government Procurement and Supplies Agency GTEA General Tyre East Africa HESLB Higher Education Students‟ Loans Board HFO Heavy Fuel Oil HR Human Resource HRM Human Resource Management HT Hyper Tension IAS International Accounting Standards ICC International Criminal Court ICT Information Communication Technology IFAC International Federation of Accountants IFC International Finance Corporation IFM Institute of Finance Management IFRS International Financial Reporting Standards INTOSAI International Organisation of Supreme Audit

Institutions IPSASs International Public Sector Accounting Standards IPTL Independent Power Tanzania Limited IPPs Independent Power Producers IRDP Institute of Rural Development Planning IRUWASA Iringa Urban Water Supply and Sewerage Authority ISA International Standard on Auditing ISSAI International Standards of Supreme Audit

Institutions KCML Kiwira Coal Mines Limited

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KCPL Kiwira Coal and Power Limited KfW Kreditastalt fur Wiederaufbau KOJ Kurasin Oil Jet KPL Kilombero Plantation Limited KSL Kagera Sugar Limited KUWASA Kigoma Urban Water Supply and Sewerage Authority LC Letter of Credit LGAs Local Government Authorities LAPF Local Authority Pension Fund LART Loans and Advances Realization Trust LPO Local Purchase Order LTD LUWASA

Limited Lindi Urban Water Supply and Sewerage Authority

MD Managing Director MDAs Ministries, Department and Agencies MEM Ministry of Energy and Minerals MNH Muhimbili National Hospital MNMA Mwalimu Nyerere Memorial Academy MNRT Ministry of Natural Resources and Tourism MoF Ministry of Finance MoHSW Ministry of Health and Social Welfare MOI Muhimbili Orthopedic Institute MORUWASA Morogoro Urban Water Supply and Sewerage

Authority MSD Medical Stores Department MTUWASA Mtwara Urban Water Supply and Sewerage Authority MUCCoBs MUCE

Moshi University College of Co-operatives and Business Studies Mkwawa University College of Education

MWAUWASA Mwanza Urban Water Supply and Sewerage Authority MWEKA College of Africa Wildlife Management NACTE National Council of Technical Education NAOT National Audit Office of Tanzania NBAA National Board of Accountants and Auditors NBC National Bank of Commerce NBS National Bureau of Statistics NCAA Ngorongoro Conservation Area Authority NDC National Development Corporation NHC National Housing Corporation

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NHIF National Health Insurance Fund NIC National Insurance Corporation NIDA National Identification Authority NMB National Microfinance Bank NMC National Milling Corporation NSSF National Social Security Fund OLAS Online Loan Application Systems PA&OBs Public Authorities and Other Bodies PAA Public Audit Act PE Personal Emoluments PEs Public Enterprises PF Personal Files PFMRP Public Financial Management Reform Programme PHRO Principal Human Resource Officer PMG Pay Master General PMU Procurement Management Unit POAC Parastatals Organisation Accounts Committee POC Parastatals Organisation Committee PO-PSM President‟s Office – Public Service Management PPA Public Procurement Act PPAs Power Purchase Agreement PPF Parastatal Pension Fund PPR Public Procurement Regulation PPRA Public Procurement Regulatory Authority PS Permanent Secretary PSPF Public Service Pension Fund PSRC Presidential Public Sector Reform Commission RAHCO Reli Assets Holding Corporation REA Rural Electrification Agency RUBADA Rufiji Basin Development Authority SADC Southern Africa Development Community SADCOPAC Southern Africa Development Community Public

Accounts Committee SAI Supreme Audit Institution SCOPO Standing Committee of Parastatals Organisation SIDA Swedish International Development Agency SIDO Small Industry Development Organisation SNAO Swedish National Audit Office SPM Southern Paper Mills Limited

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STAMICO State Mining Corporation STP Secretary to the Tender Board SUMATRA Surface and Marine Transport Regulatory Authority SUWASA Sumbawanga Urban Water Supply and Sewerage

Authority TANAPA Tanzania National Parks TANESCO Tanzania Electric Supply Company Limited TATEPA Tanzania Tea Packers Limited TAWIRI Tanzania Wildlife Research Institute TB Tender Board TBC Tanzania Broadcasting Corporation TBL Tanzania Breweries Limited TBS Tanzania Bureau of Standards TCAA Tanzania Civil Aviation Authority TCB Tanzania Coffee Board TCC Tanzania Cigarette Company TCRA Tanzania Communications Regulatory Authority TEA Tanzania Education Authority TET Technical Evaluation Team TEMDO Tanzania Engineering and Manufacturing Design

Organization TFDA Tanzania Food and Drugs Authority TLSB Tanzania Library Services Board` TNBC Tanzania National Business Council TOL Tanzania Oxygen Limited TPA Tanzania Ports Authority TPC Tanzania Post Corporation TPCC Tanzania Portland Cement Company TPDC Tanzania Petroleum Development Corporation TPL Tanganyika Packers Limited TR Treasury Registrar TRA Tanzania Revenue Authority TRC TRL

Tanzania Railway Corporation Tanzania Railway Limited

TsHs Tanzania Shillings TSN Tanzania Standard Newspaper TTB Tanzania Tourist Board TTCL Tanzania Telecommunications Company Limited UDA Usafiri Dar es Salaam

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UDOM University of Dodoma UNCITRAL United Nations Commission of International Trade

Law URT United Republic of Tanzania USA United States of America USD United State Dollar UWASA Urban Water and Sewerage Authority VAT Value Added Tax VETA Vocational Education and Training Authority VRN Vat Registration Number

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ACKNOWLEDGEMENT I am obliged to extend my gratitude to His Excellency Dr. Jakaya Mrisho Kikwete, the President of the United Republic of Tanzania, for always drawing attention to, and laying emphasis on this general report. My appreciation goes to the Honorable Speaker of the Parliament of the United Republic of Tanzania, Chairpersons and Honorable members of various oversight Committees of Parliament and the whole Parliament for their commitment in the deliberation on the contents of the report and issue directives to Public Authorities and Other Bodies for corrective measures. I equally wish to express my gratitude to the Boards of Directors, Chief Executive Officers and for that matter Accounting Officers and all employees of the audited Public Authorities and Other Bodies for the co-operation extended to my audit teams during our audit of their entities. I would also like to thank the Printer for expediting the printing of this report and therefore making it possible for it to be submitted to the President of the United Republic of Tanzania on the statutory due date. Further, I wish to express my sincere appreciation to the Development Partners who have been supporting NAOT especially the Public Financial Management Reform Programme (PFMRP) under the Co-ordination of the World Bank (WB), the Swedish National Audit Office (SNAO), the Government of Sweden through the Swedish International Development Agency (SIDA), Department for International Development (DFID) of UK, African Development Bank (ADB), United States of America International and Development Agency (USAID) SAI of India and all other well wishers who have contributed immensely towards the modernization of the audit function in my office by sponsoring training to NAOT staff and provision of various facilities such as computers and vehicles.

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Furthermore, I wish to thank all the private auditing firms that have been working with NAOT in the audits of Public Authorities and Other Bodies on my behalf. Finally, with much appreciation I would like to thank the members of staff of the National Audit Office. Their commitment and dedication in the fulfillment of this task has been very inspirational to me. The scope of the audit has substantially been broadened after my office (SAI of Tanzania) joined SAI of UK and SAI of China to constitute the UN Audit Board which is responsible for the audit of the United Nations for six years with effect from 1st July, 2012. I urge the staff of the National Audit Office to continue to upholding the same team spirit they have demonstrated in all their future endeavors so that we could raise higher the banner of the office in providing efficient audit services in order to enhance accountability and value for money in the collection and use of public resources.

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FOREWORD

It is my great pleasure and honour to present the sixth annual general report on the audit of Public Authorities and Other Bodies for the year 2011/2012. The report is a compilation of various individual reports on the audit of Public Authorities and Other Bodies. The report presents highlight of issues that impedes efficiency of Public Authorities and Other Bodies in discharging their established objectives and achievement of the predetermined goals.

The main purpose of this report is to draw the attention of the Executive, Legislature, Judiciary, Development Partners and the General Public at large about the main findings, conclusions and recommendations drawn from the audit of Public Authorities and Other Bodies during the year 2011/2012. In this era of increased need for accountability, transparency and good governance, informed decisions are very vital. To this effect therefore, I have prepared this report to ensure that decision makers in the country are served with relevant, up-to-date information with technical recommendations on the financial reporting and public resources management of the Public Authorities and Other Bodies in the country. I have prepared this report in compliance with Article 143 of the Constitution of the United Republic of Tanzania and Section 34 of the Public Audit Act No. 11 of 2008. In ensuring that the work of the CAG adds value in the economic development of the country, I have continuously been reviewing my audit approaches to ensure that the reported findings meet the expectations of my stakeholders. Capacity building of my auditors has been an area of first focus and priority in ensuring their understanding of relevant laws, regulations, circulars, directives and various emerging issues both locally and globally such as those of the ongoing reforms in the financial reporting frameworks issued by the International Federation of Accountants (IFAC), INTOSAI and other professional bodies to which NAOT is a member. In this endeavour the NAO staff have been subjected to various trainings as to enhance their efficiency, effectiveness and work

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performance with due diligence. In this regard NAOT has plans under way to construct an Audit Training Centre at Gezaulole Kigamboni, Dar es Salaam and I believe the Government having realized the importance of training auditors will support my office in all aspects of making the project a success. It is imperative to note that, while there is a key role for oversight organs to play in overseeing compliance with the laws, regulations and procedures in public entities, ultimately, the responsibility for the maintenance of a compliant financial reporting framework lies with Board of Directors and in particular each Chief Executive Officer of the PA&OBs. However, I have to commend the role played by His Excellency the President of the United Republic of Tanzania, Dr. Jakaya Mrisho Kikwete and his entire Government, the Parliamentary Oversight Committees, the Speaker and the Parliament at large and the Development Partners especially the World Bank for their continued support in ensuring the existence of enhanced accountability leading to improved governance in the country.

Ludovick S. L. Utouh CONTROLLER AND AUDITOR GENERAL

28th March, 2013

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EXECUTIVE SUMMARY

i. Introduction This executive summary highlights specific issues detailed in

this general report which needs the attention of the Government, Parliament, Boards of Directors and respective managements of PA&OBs to ensure efficient functioning of the entities in operations.

The issues highlighted include: types of audit opinions issued by CAG pursuant to Section 33(3) of the Public Audit Act No.11 of 2008, implementation of the prior year‟s audit recommendations, significant matters not reported in the previous year‟s report, procurement and contract management, assets management, human resources management, corporate governance issues, performance on government investments, interests and privatization process, results of special audits and value added and impact of CAG‟ reports as follows:-

ii. Audit Opinion and Reports Concluded As of 28th February, 2013, I have managed to conclude 126 (71.6%) individual audit reports of Public Authorities and Other Bodies out of the existing 176 PA&OBs which are subject to my ambit of audit under the category of Public Authorities and Other Bodies. Out of the concluded audits, 95 audits were issued with audit opinion while 31 audited accounts were awaiting adoption by the respective Boards of Directors. The main reason for the late adoption is due to lack of Boards of Directors to some of the Public Authorities and Other Bodies, while others failed to convene board meetings on time as required by law. There were also some instances of delays in responding to auditor‟s observations and recommendations to enable timely conclusion of the audits. I therefore urge the responsible authorities to ensure that Boards of Directors are timely appointed once the existing boards‟ tenure lapses.

iii. Implementation of Previous Audit Recommendations There are 25 previous years‟ outstanding recommendations which were not implemented as summarized in chapter three (3) of this report. Some of the issued recommendations have

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remained unattended for more than four years indicating that those charged with governance have not discharged their responsibilities properly. Long outstanding recommendations lead to recurring of similar weakness in future, thereby, hindering the effectiveness of internal controls. Further, I wish to point out that the responses given by the Paymaster General are not satisfactory since most of the audit recommendations are still unresolved. I am of the view that serious steps and measures should be taken by the Government to ensure all previous recommendations are appropriately implemented in an effort to strengthen accountability and create value for money from the use of public resources.

iv. Significant Audit Matters which were not Reported in the Previous Year’s General Report Demand for houses in Tanzania is estimated to be growing tremendously and thus requiring huge investments to construct houses for the growing population. The current housing deficit in Tanzania is estimated at three (3) million units and growing at a rate of 200,000 units per annum. The deficit is coupled with the annual growth in demand, and the urban population growth offer a big hypergrowth opportunity for the national economy. Although the government has taken various measures aimed at reducing the shortages by enacting and amending various legislations to create a conducive environment for the private sector to participate, still the sector is not doing well. MSD which is responsible for drug procurement and distribution does not perform well due to the following factors; Unreliable flow of funds from MoF to MoHSW and then to MSD for procurement and distribution of drugs. There were also difficulties in reconciling financial data between MSD, MoHSW and other players like Muhimbili Orthopedic Institute hence this raise doubt over the transactions among the parties. It is therefore recommended that MoF and MoHSW should always provide the details of all funds disbursed to MSD for

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procurement of drugs and reconcile this information with MSD statement to ensure completeness. Over the years VETA has been growing rapidly without having a formal assessment of the existing structure to see whether it delivers its objectives through the increased capacity. In addition, the set up of VETA‟s accounting system, Navision, does not provide a reliable basis for decision making and control as it does not link all centres to the Head Office. Lack of centralized information system limits timely availability of information necessary for decision making. The Higher Education Student Loans Board for the year ended 30th June, 2011 reported an outstanding students loan receivables amounting to Tshs.793,414,489,454. This figure comprises all amounts loaned to Tanzanian students since 1994 when the program of cost sharing was initiated including amount loaned to untraceable debtors and students who have passed away. IAS 36 requires an entity to make assessment on the impairment loss for the financial assets. Since there is a likelihood of non recoverability of the loaned money, an impairment loss should be assessed and the same being recognized in the statement of comprehensive income. An amount of Tshs.317,878,110 was disbursed as loans to various beneficiaries without instituting proper controls. Some of the pay-out documents were not checked and approved by senior officers. There were suspected forgery and theft of funds amounting to Tshs.90,775,800 at the head office and there were forgeries through students‟ loans disbursement at Mkwawa University amounting to Tshs.66,057,000. In addition, the Board has been issuing loans to beneficiaries without crosschecking the supporting documents. For example, the Board issued unsupported research loans to MUCE 3rd year students amounting to Tshs.15,512,000.

v. Procurement and Contract Management Procurement and contract management is a sensitive area which needs close monitoring and supervision in the Procuring

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Entities (PEs). About seventy five percent (75%) of the country‟s annual budget is spent on procurement of goods and services. This is why the government through its organs saw the need to enact Public Procurement Act No.21 of 2004. I wish to commend the efforts made by the Public Procurement Regulatory Authority (PPRA) in enhancing the public procurement systems and culture which are characterized by openness, transparency, effectiveness, efficiency and value for money. The Authority (PPRA) has always been struggling to build procurement capacity in the country by setting standards for the procurement systems in the United Republic of Tanzania. Conversely, some of the Public Authorities are still not complying with the requirements of the Public Procurement Act No.21 of 2004 and its Regulations of 2005. This audit revealed major weaknesses worth reporting for the government action. Key issues which were reported in the respective public authorities was unauthorized emergency procurement (those lacking PMG‟s retrospective approval), execution of procurement transactions without having contract, procurements out of annual procurement plan, lack of independent functioning of procurement pillars, inappropriate use of procurement methods, unbudgeted procurement and mismanagement of contracts. Also, I would like to draw attention of the public on a nugatory expenditure of Tshs.2,241,585,885.16 paid by TPA to a contractor M/s Oceana Advanced Industries Ltd being penalty for termination of a contract for maintenance and dredging of berth No.1-11. This payment could have been avoided if the procurement contract had been properly managed.

The chargeability of this penalty was explained to be caused by management failure to handover berth No. 7 to the contractor as per the agreement entered between the two parties.

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vi. Asset Management I noted that all PSPF benefits falling due during the 5 years transitional period from 1st July, 1999 to 30th July, 2004 were paid by the Ministry of Finance and Economic Affairs by then from the Consolidated Fund as the Fund was given a grace period of five years after its establishment in 1st July,1999. In this regard, no benefits were made from the Fund during the transitional period. The payments of benefits under the provision of the Act effectively commenced in 1st July, 2004. From the last actuarial valuation completed as at 30th June, 2010, indicated that the financial position of PSPF continued to deteriorate. Recent valuation has revealed an actuarial deficit of Tshs.6,487 billion as at 30th June, 2010, hence the going concern of the Fund is at a very high risk if appropriate measures are not taken by the responsible parties. I also observed that Tanzania Broadcasting Corporation (TBC) has reported an operating loss of Tshs.1,589,611,168 (2011: Tshs.3,547,006,716). At the end of year, the Corporation is technically insolvent with a net liability position of Tshs.2,737,723,752 (2011: Tshs.1,135,630,509) and is largely dependent on Government‟s support in meeting its operational needs and obligations as they fall due in the foreseeable future. These conditions and events may cast significant doubt about the Corporation‟s ability to continue as a going concern. During the audit of Dodoma University I observed properties amounting to Tshs.452,099,118,739 situated at the Dodoma University plots but which were not included in the University‟s books of account. The completed buildings were handed over to the University for use by four Pension Funds which financed the construction projects of most of the University buildings under Government directives. The buildings were yet to be transferred to the University by the Government which entered into agreement with the respective Pension Funds, namely NSSF, PSPF, LAPF and PPF.

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I also noted that provision for doubtful debts of Tshs.83,403,836,594.02 was made without proper justification at CHC. This provision of Tshs.83,403,836,594.02 represents 85% of the receivables amounting to Tshs.98,113,369,474.26 which was inherited by CHC from PSRC. The huge figure of provision made by CHC for its inherited receivables might reduce its efforts in loan recovery. At the Open University of Tanzania, I noted several critical weaknesses which included improper bank reconciliations which cast doubt on the accuracy of Tshs.7,118,266,352 reported as cash and cash equivalents, bank reconciliation statements for five accounts for the whole period under review were not available for audit verification. The Open University internal audit investigation reported misappropriation of public funds aggregating to Tshs.700,182,000. It was explained that the sum was made up of Tshs.219,860,000, which was perpetuated through the Higher Education Students‟ Loans Board and Tshs.480,322,000, which was perpetuated through the Treasury Registrar by way of fraudulent payments to ineligible individuals though the financial implications had not been reflected in the books of account of the University. During the audit of TANAPA, I noted that poaching activities especially on elephant have substantially increased where a total of 110 elephants were killed during the year 2011/2012. The increase of poaching activities at TANAPA has been contributed by patrol man-days not executed as planned at each park level. None performing or reducing of patrols man days may attract more poachers at the parks, hence management of TANAPA should ensure that patrol man days are increased and the patrol exercises improved and supervised effectively.

vii. Human Resources Management Human resource brings a link between different departments in organizations and requires vigorous attention to achieve employee‟s needs. During the year under review I observed

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excessive delays and acknowledgement of submission of pension contributions and other statutory deductions to respective pension funds, deficiency in staff performance appraisal and missing imperative information in staff personal files, understaffing, decisive vacant posts which takes time to be filled. I also noted lack of training policy and programmes and lack of succession plan for some Authorities. Details of exceptions were noted and the way forward has been included under chapter seven of this report.

viii. Corporate Governance

As reported in my previous year‟s report regarding the inclusion of members of parliament on Boards of Directors of various PA&OB, in this year I have noted the continued existence of the members of Parliament as Board of Directors and the Governing Boards. The examples of organisations where it has been observed include STAMICO, TTB, AICC, NCAA, OUT, Centre for Foreign Relations, LUWASA and Cashewnut Board. Contrary to principles of good governance, there were various interference by parent ministries on operations of PA&OBs. During the year 2011/2012, the Ministry of Tourism and Natural Resources transferred a total of Tshs.771,200,000 (2011 TShs.591 million) to Tanzania Tourist Board (TTB) which was not meant for TTB planned activities. The amount was later recalled by the Ministry and TTB releasing the fund as requested through various written instructions. Surprisingly, Tshs.416,103,640 was collected from TTB by staff from the Ministry of Natural Resources and Tourism and Tshs.355,096,360 was directly paid to other Institutions or suppliers by TTB as directed by the Ministry. Such interference by the Ministry on the operations of TTB diminishes the accountability of the Board of Directors on the operations of TTB.

Similar instructions were issued to NCAA to make a salary contribution of Tshs.34,960,000 to the MNRT in respect of four months‟ salary of a Tourism Officer based in Japan. NCAA was

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also instructed to pay for the costs of the participation of members of parliament (MPs) at the International Trade Fairs, to contribute Tshs.340,000,000 for promotion of tourism in USA and contribute Tshs.5,171,200,000 towards the cost of a Bell 407 helicopter although this directive was also not implemented. Another Ministerial interference was noted at Mtwara Urban Water Supply and Sewerage Authority (MTUWASA) where the sum of Tshs.28,616,000 was received from the Ministry of Water for improvement of MIS data in Mtwara but was subsequently withdrawn by an Accountant from the Ministry of Water. At Kariakoo Market Corporation (KMC), I noted irregular appointment of the Advisory Council by the Dar es Salaam City Council contrary to the establishing Act which requires the Chairman of the Board of Directors to be appointed by the President and the other members by the Minister.

ix. Government Investment, Interests and Privatization Process. A review of performance of government investment noted that, Local Government investment has increased by Tshs.1.939 trillion, being an increase from Tshs.10.276 trillion as at 30th June, 2011 to Tshs.12.215 trillion as at 30th June, 2012. The increase has been caused by the increase in revaluation reserve & accumulated surplus and increase in number of government Institutions/Parastatals from 204 in 2010/2011 to 213 in 2011/2012.

Government revenue collected by TR in respect of dividends, loan repayments and other proceeds has increased by Tshs.179.3 billion (equivalent to 622.8%), from Tshs.28.8 billion for the year ended 30th June, 2011 to Tshs.208.1 billion in the year under review. The increase has been attributed to good performance of some parastatals, the ongoing emphasis and close follow up of implementation of Treasury Circular No. 8 that requires public sector organizations and Public Authorities to contribute 10% of their gross revenue to the

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government and liquidation of liabilities by TPA to government.

The objective of privatizing some of the Public Authorities and Other Bodies is to ensure that the entities efficiently provide goods and services and minimize losses. 34 specified public enterprises taken over from the Presidential Public Sector Reform Commission (PSRC) by the Consolidated Holding Corporation (CHC) were still specified up to the time of this general report. Once public enterprises are specified for privatization, they are limited from business expansion since they can neither prepare and implement strategic plans nor be allowed to do any investment. In this case, wear and tear of assets owned by the specified PA&OBs is normally on the higher side since repair and replacement of the assets might not be possible due to shortage of funds. Therefore, the Government should consider speeding up the process of privatization in order to avoid further deterioration of the assets owned by the specified PA&OBs. Until 31st December, 2012 a total of 274 organizations had already been privatized. Examples of the privatized public enterprises are organizations in the Agricultural Sector, Infrastructure, Natural Resources and Tourism.

x. Results of Special Audit During the year under review, special audits were carried out at Tanzania Electric Supply Company (TANESCO) and at the “Shirika la Usafiri Dar es salaam” (UDA). The results of the special audits are as summarized hereunder and detailed in chapter ten of this report. At TANESCO, the special audit was done in two phases and the results were as follows; Phase 1 special audit of TANESCO revealed that, Santa Clara Supplies Company Limited was awarded Contract No. PA/001/11/HQ/G/011 for supply office stationeries, printing and computer consumables for one year from 20th December, 2011. The Managing Director of Santa Clara was the wife of the then MD of TANESCO and she was an ex- employee of

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Office of the Controller and Auditor General PA&OBs 2011/2012 xxvi

TANESCO. Santa Clara Supplies Company Limited business dealing with TANESCO was irregular. The MD of TANESCO did not declared his conflict of interest with the company and the wife of the MD declared her conflict of interest with TANESCO in her tender documents. McDonald Live Line Technology Limited was awarded tenders by TANESCO while the same was in joint venture agreement with the MD of TANESCO. The company was awarded Contracts for the rehabilitation and construction of live lines signed in 2008, 2009, 2010 and 2011. The MD of TANESCO entering into contract with McDonald in 2008 was not in line with TANESCO Code of Ethics and Conduct and the Leadership Code of Ethics Act 1995. Phase 2 special audit revealed that, TANESCO had persistent violation of the Public Procurement Act, 2004 and its regulations. The Managing Director, being the ultimate decision maker regarding all procurements done by the company had persistently failed to prevent the violations and, in most procurement, the Managing Director had directly approved the irregular single source or flawed restricted procurements. The procurement processes in TANESCO had ignored the company‟s own Engineers estimates in deciding reasonableness of tender prices.

The special audit on the sale of UDA shares to investor revealed that; the Board of Directors of UDA did not adhere to the procurement procedures in the sale of UDA shares. The Shares were valued at Tshs.744.79 per share in October 2009 and Tshs.656.15 in November, 2010. However, the shares were eventually sold at Tshs.145 per share ignoring the valuations previously conducted. In this regard total amount supposed to have been paid on the discounted share price was Tshs.1,142,643,935 but only Tshs.285 million was paid and the balance is yet to be settled. The chairman of the Board of Directors of UDA received Tshs.320 million for the purported „consultancy‟ service from

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Office of the Controller and Auditor General PA&OBs 2011/2012 xxvii

investor and the amount was deposited into his personal account. This practice reflects a potential conflict of interest in the sale. The amount was claimed by investor to be payment of commitment fee for the sale agreement.

xi Value Added and Impact of the CAG’s Report The report of the current Controller and Auditor General on the PA&OBs was issued for the first time in the year 2006/2007. Since its first issue, the CAG‟s report has pointed out a number of issues which need the attention of the government, parliament and management of PA&OBs to which recommendations were made to suggest solutions to the earmarked observations. It is my pleasure to note that on implementation of my recommendations the government has addressed some of the pertinent issues which has yielded benefits to the government, PA&OBs and the nation as a whole. The notable value added by the CAG‟s recommendations include but not limited to the establishment of the Internal Auditor General‟s Office, Restructuring of the Treasury Registrar‟s Office, Establishment of POAC, Review of TICTS contracts, Increase in the number of audited PA&OBs, Di-specification of some PA&OBs; improved compliance in various Legislations; Adoption of IFRS and IPSAS Accrual by PA&OBs. However, it is apparent that there are a number of CAG‟s recommendations which have not been implemented which are going to be re-submitted in the current report.

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Office of the Controller and Auditor General PA&OBs 2011/2012 1

CHAPTER ONE

BACKGROUND INFORMATION

1.0 Legal Framework for Public Audit in Tanzania

The Office of the Controller and Auditor General of the United Republic of Tanzania is a constitutional office established in accordance with Article 143 of the Constitution of the United Republic of Tanzania 1977 as amended from time to time. Public Audit in Tanzania is emphasized under the Public Audit Act No. 11 of 2008 and under Sect.44 (2) of the Public Procurement Act No.21 of 2004.

The Controller and Auditor General is mandated to audit all Public Authorities and Other Bodies at least once in every financial year as spelled out under Article 143 (5) of the Constitution of the URT as revised from time to time and as amplified under section 32 of the Public Audit Act No 11 of 2008. In connection with that, Section 33 of the Public Audit Act No. 11 of 2008 empowers the Controller and Auditor General to authorise any eligible person /entity to inspect, examine or audit on his behalf the books of account of any body that the CAG may be required to audit.

In understanding the legal framework governing the audit of Public Authorities and Other Bodies, one has to take into consideration of the fact that a number of Public Authorities and Other Bodies are required to operate under the accrual basis of accounting system which will necessitate these authorities to be IFRSs or IPSAS‟s compliant. In such situation, the Public Authorities legal framework governing their financial reporting and auditing will either be the Companies Act No.12 of 2002 or the enabling Acts of Parliament of the respective Public Authorities and Other Bodies.

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1.1 Reporting and Audit Mandate of CAG 1.1.1 Reporting Mandate of CAG

Article 143 (4) of the Constitution of the URT of 1977 as amended from time to time requires the Controller and Auditor General to submit the CAG‟s annual reports to the

President of the URT by 31st

March each year. Upon receipt of such reports, the President shall direct the persons concerned to submit those reports before the first sitting of the National Assembly which shall be held after the President has received the reports and they shall have to be submitted to such sitting before the expiration of seven days from the day the sitting of the National Assembly began. If the President does not take steps of submitting such reports to the National Assembly, then the Controller and Auditor General shall submit a copy of such reports to the Speaker of the National Assembly (or the Deputy Speaker if the office of the Speaker is vacant then, or if for any reasons the Speaker is unable to perform the functions of his office) who shall submit the report to the National Assembly. The CAG report regarding PA&OBs is primarily discussed by the Parliamentary Oversight Accounts Committee responsible for Public Authorities and Other Bodies on behalf of Parliament and a report to that effect prepared and submitted to the Parliament.

1.1.2 Audit Mandate Sections 30 and 32 of the Public Audit Act No.11 of 2008 give

mandate to the Controller and Auditor General to conduct both financial and performance audits of all Public Authorities and Other Bodies. Section 12 of the same Act empowers the Controller and Auditor General to make recommendations for the purpose of:-

• Preventing or minimizing unproductive expenditure of

public moneys. • Maximizing the collection of public revenues;

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• Averting loss by negligence, carelessness, theft, dishonesty, fraud and corruption relating to public moneys and resources.

Improving economy, efficiency, effectiveness in the use of public moneys

1.2 Scope and Applicable Audit Standards 1.2.1 Scope of Audit

Audit scope specifies the focus, extent and boundary of a particular audit. The scope can be specified by defining the physical location of the audit, the organizational units that will be examined, the processes and activities that will be included and the time period that will be covered. The main objective of conducting the audit is to enable the Controller and Auditor General to express an independent opinion on the fairness of the financial statements of the Public Authorities and Other bodies for the year 2011/2012 and whether they have been prepared, in all material respects in accordance with an identified financial reporting framework. Particularly, it covers audited accounts of the periods ended, 30th September, 2011, 31st December, 2011 and 30th June, 2012. It also, includes outstanding and unimplemented audit recommendations made in previous years‟ audit reports. The audit covers the evaluation of the effectiveness of the financial accounting systems and the internal controls over their activities, examination and verification of the accompanying financial statements, the performance report and other auditing procedures as were considered necessary under each circumstance for the purpose of forming an opinion on the financial statements of these entities. The audit is carried out based on risk and materiality, therefore the audit findings are confined to the extent that the records, documents and information requested for the purpose of audit were made available to me.

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1.2.2 Applicable Auditing Standards The National Audit Office (NAO) is a member of the International Organisation of Supreme Audit Institutions (INTOSAI), the African Organisation of Supreme Audit Institutions (AFROSAI) and the African Organisation of Supreme Audit Institutions of English speaking Countries (AFROSAI-E). I therefore, apply in my audit procedures, the International Standards of Supreme Audit Institutions (ISSAI) issued by INTOSAI and the International Standards on Auditing (ISA) issued by the International Federation of Accountants (IFAC). The National Audit Office has a unique responsibility of ensuring that there is a proper public accountability, financial discipline and transparency within the United Republic of Tanzania. Further, NAO has a unique responsibility of issuing timely and good quality audit reports on how best public resources have been put into use.

1.3 Responsibilities of the Board of Directors and Chief

Executive Officers The individual Boards of Directors and the management of the Public Authorities and Other Bodies are responsible for the preparation and fair presentation of the financial statements in accordance with International Financial Reporting standards (IFRS). This responsibility includes: designing, implementing and maintaining internal control systems relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or errors; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. The preparation and submission of Public Authorities‟ accounts is a legal requirement as per individual Public Authorities enabling Acts, the Companies Act of 2002 and the PAA No 11 of 2008. International Financial Reporting Standard (IFRS1) and International Accounting Standards (IAS 1) specify the types of financial statements to be prepared. Public Authorities in

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Tanzania are required to prepare their financial statements in compliance with the International Financial Reporting Standards (IFRS) or the International Public Sector Accounting Standards (IPSAS) accrual depending on the nature and objectives of the Public Authorities in question. This is in line with the decision taken by the National Board of Accountants and Auditors (NBAA) and endorsed by the Government that effective from 1st July, 2004 reporting entities in Tanzania shall embrace the International Financial Reporting Standards framework while auditing will be conducted in accordance with the International Standards on Auditing (ISA), and shall also be guided by standards and guidelines issued from time to time by the National Board of Accountants and Auditors (NBAA). Public Authorities annual reports provide information which assists the general public to assess the performance of these entities and hold them to account for their performance in the use of public resources. Timely provision of information is necessary for this to occur. This is the whole essence of accountability and transparency in the use of public resources.

1.4 Internal Control System Internal controls refer to all means by which public resources are directed, monitored, and measured. Internal controls play an important role in preventing and detecting frauds/misappropriations and protecting the public resources, both physical and intangible. At the organizational level, internal control objectives relate to the reliability of financial reporting, timely feedback on the achievement of operational or strategic goals, and compliance with laws and regulations. At the specific transaction level, internal controls refers to the actions taken to achieve a specific objective (e.g. how to ensure that payments to suppliers and service providers for valid goods and services are rendered).

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1.5 Responsibilities of the Treasury Registrar The Treasury Registrar Ordinance Cap 418 and Sect. 6 of the Public Corporations Act No. 16 of 1992 in relation to functions of Public Corporations, states that the Treasury Registrar has the functions and responsibilities for oversight over Public Authorities and closely monitoring, controlling and managing them effectively in collaboration with the Board of Directors of the respective entities.

1.6 Organization of Audit Work The report provides a summary of the final results of the audit exercise during the year. In order for my Office to effectively handle this task of auditing all the Public Authorities and Other Bodies in the country, I decided to use the constitutional powers vested on me and contracted out to private audit firms the audit of some of the Public Authorities and other Bodies. In executing this responsibility, the office either singly or jointly did the audit of the Public Authorities while the majority of such audits were wholly outsourced. These outsourced audits were subjected to the quality review process of NAOT.

During the year under review, NAOT worked hand in hand with 51 private audit firms registered/short listed with NAOT and registered with the National Board of Accountants and Auditors (NBAA) as Certified Public Accountants in Public Practice (CPA-PP) as shown in Appendix I of this report.

1.7 Submission of Financial Statements to CAG for Audit Section 31 of the Public Audit Act No.11 of 2008 requires Public Authorities and Other Bodies to submit their financial statements to the Controller and Auditor General for audit purposes within three months after the end of the respective financial year to which the accounts relate.

1.8 Outsourcing of Audit Work to Eligible Private Audit Firms Section 33 of the Public Audit Act No. 11 of 2008, empowers the CAG to authorize any person or body eligible to be appointed as an auditor under the Auditors and Accountants (Registration) Act No. 33 of 1972 as amended in 1995 to

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conduct the audit of Public Authorities and Other Bodies on behalf of the CAG and issue a report to him for the subsequent processing for Parliament. Further, the appointed/authorized auditors shall be bound by the provision of the law that they shall not divulge any information which relates to the business secrets of the auditee which comes to their knowledge in the course of the audit. The audit opinion shall remain the sole responsibility of the Controller and Auditor General. During this period of reporting, audit process of 176 Public Authorities and Other Bodies were successfully completed and the audits were done under the following arrangements: Table 1: Allocation of Audit Assignments of PA&OB in 2011/2012

S/n Details No of PA’s %

1. Public Authorities wholly audited by NAOT

21 12

2. Public Authorities jointly audited by NAO and private audit firms

15 9

3. Public Authorities whose audits were wholly outsourced to private audit firms by NAO

140 79

Total 176 100

The above information can be presented in a histogram as follows:

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21 15

140

12 9

79

0

20

40

60

80

100

120

140

160

Audits by NAO Joint Audits Outsourced audits

Total PA&OBs

Percentage

Figure 1: Allocation of Audit Assignments of PA&OBs in 2011/2012

The small percentage (12%) of PA&OBs wholly audited by the CAG is an indication of how serious under staffing the CAG‟s office is subjected to. The CAG needs greater capacity in both the number of staff and knowledge, and skills in order to be able to handle the huge and very challenging tasks ahead.

The full list of the private audit firms which had business dealings with the CAG in the year of audit is shown as Appendix I to this report.

1.9 National Audit Office Setup on Audit of PA&OBs

The set up of the National Audit Office in respect of the audit of Public Authorities and Other Bodies is not adequate for the CAG to discharge his responsibilities and functions as stipulated under Article 143 (5) of the Constitution of the URT as amplified under Section 32 of the Public Audit Act No. 11 of 2008. As a result only few audit assignments about 12% are singly carried out by NAOT staff while 9% audits are done jointly with private audit firms and 79% audit

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assignments are performed fully by outsourced private audit firms. The National Audit Office of Tanzania has a Public Authority Division responsible for auditing, organizing, coordinating and supervising audits of Public Authorities and Other Bodies carried out either by NAOT staff, jointly or 100% outsourced to private audit firms. At the end of the execution of audit assignments, audit opinions remain the sole responsibility of the Controller and Auditor General as stipulated in Section 33(3) of the Public Audit Act No.11 of 2008. The Division is understaffed in terms of manpower. Therefore, in order to meet public expectations on accountability of Public Authorities and Other Bodies, there is a need to strengthen this Division.

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CHAPTER TWO

BASIS AND TYPES OF AUDIT OPINIONS

2.0 Introduction

Audit opinion is an expression of a view by an auditor as to whether or not the audited financial statements have been prepared consistently using appropriate accounting policies in accordance with relevant legislation, regulations, and applicable accounting standards and principles. International Standards on Auditing (ISA) 200 stipulates that the objectives of conducting an audit of financial statements is to enable an auditor to express an independent opinion as to whether the financial statements are prepared in all material respects according to applicable financial reporting framework. This is undertaken to enhance the degree of confidence of the users of the financial statements. In conducting an audit, the overall objective of the auditor is to obtain reasonable assurance as to whether the financial statements as a whole are free from material misstatements, fraud or error, and to report on the financial statements in accordance with the auditor‟s findings.

Article 143 (2) (c) of the Constitution of the United Republic of Tanzania enshrines the statutory requirement for the audit of the Public Sector as amplified under Section 34 (1) of the Public Audit Act No.11 of 2008 which states that “on receipt of accounts prescribed in relevant laws, the Controller and Auditor General shall cause the accounts to be audited and shall within a period of nine months after the end of the year to which the accounts relate, express a professional opinion, in respect of each account and the results of the audit”.

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2.1 Types of Audit Opinion Expressed

2.1.1 Unqualified Opinion An unqualified opinion is expressed when the auditor concludes that the financial statements give a true and fair view (or are presented fairly in all material respects) in accordance with the applicable financial reporting framework.

2.1.2 Unqualified Opinion with Emphasis of Matters

An auditor‟s report may be modified by adding an emphasis of matter paragraph(s) to highlight a matter affecting the financial statements which is included in a note to the financial statements that more extensively discusses the matter. The addition of such an emphasis of matter paragraph(s) does not affect the auditor‟s opinion. The auditor may also modify the auditor‟s report by using an emphasis of matter paragraph(s) to report matters other than those affecting the financial statements.

2.1.3 Qualified Opinion A qualified opinion is expressed when there is material

misstatement in the financial statements and the auditor concludes that an unqualified opinion cannot be expressed but that the effect of any disagreement with management or limitation on scope is not so material and pervasive as to require an adverse opinion or a disclaimer of opinion.

2.1.4 Qualified Opinion with Emphasis of Matter

A qualified opinion with Emphasis of Matter is expressed when the auditor concludes that an unqualified opinion cannot be expressed but that the effect of any disagreement with management or limitation on scope is not so material and pervasive as to require an adverse opinion or a disclaimer of opinion and modified by reporting matters other than those affecting the financial statements.

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2.1.5 Disclaimer of Opinion A disclaimer of opinion is expressed when the possible effect of a limitation of scope is so material and pervasive that the auditor has not been able to obtain sufficient appropriate audit evidence and accordingly is unable to express an opinion on the financial statements.

2.1.6 Adverse Opinion An adverse opinion is expressed when the effect of a disagreement is so material and pervasive to the financial statements that the auditor concludes that a qualification of the report is not adequate to disclose the misleading or incomplete nature of the financial statements.

2.2 Status of the Audit of PA&OBs

This annual general report covers individual audit reports of 176 Public Authorities and Other Bodies. During the financial year 2011/2012, the Chief Executive Officers of 174 Public Authorities and Other Bodies submitted to my office their financial statements for audit purposes. Two Public Authorities (Azania Bank and UDA) did not submit their financial statements to my office for audit purposes on the ground that its ownership is uncertain being the case of (UDA). On the other hand, Azania Bank Limited that was established as a private company in 1995 under the name 1st Adili Bancorp whose public sector status to date is still questionable. To date, 91% of the Bank shares are owned by the Pension Funds which are wholly owned by the government thus giving the government indirect control over the affairs of Azania Bank Limited. Pursuant to Section 30 of the Public Audit Act No.11 of 2008, the Controller and Auditor General is the statutory auditor of all Public Authorities and other Bodies including Azania Bank Limited. However, Azania Bank Limited did not submit its financial statements to the CAG for audit purposes on account that there was a discussion going on with a prospective investor who was expected to acquire a majority

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shareholding. I have not been updated on the status of the investment decision reached. I urge the Treasury Registrar to make a close follow up with Azania Bank Limited in order to establish and ascertain the stake of the Government within the Bank. Of the submitted financial statements, 126 audits were concluded and their reports issued to the respective Public Authorities and Other Bodies. Out of the concluded audit reports, 95 were issued with audit opinions, 31 audits were awaiting adoption by respective Boards of Directors, 10 audits were under quality review process, 24 audits were in progress and 2 Public Authorities did not submit their financial statements for audit. This information has been summarised in the following table:

Table 2: Status of the Audits

S/N Category of The Entity

No of Entities

Audits Concluded & adopted

by BoD

Audit Reports Awaiting Board’s

Adoption

Audit at Quality Review Stage

Audits in Progress

F/S not Submitted

1. Financial Institutions, Pension Funds and Other Public Entities.

47 26 11 4 5 1

3. Public Regulatory Authorities.

49 25 9 2 9 0

4. Training, Research and Higher Learning Institutions.

40 19 9 2 9 0

5. Public Utilities Organizations.

40 25 2 2 1 1

Total

176

95 31 10

24

2 126

The status of the audit of Public Authorities and Other Bodies as at 28th February, 2013 is shown in Appendix II.

2.3 Opinions Issued to Public Authorities

As of 28th February, 2013, I have managed to conclude 126 (71.6%) individual audit reports of Public Authorities and

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Other Bodies out of the existing 176 PA&OBs which are subject to my ambit of audit under the category of Public Authorities and Other Bodies. Out of the concluded audits, 95 audits were issued with audit opinions while 31 audited accounts were awaiting adoption by the respective Board of Directors. Unqualified audit opinions were issued to 62 audited accounts representing 65.3%, while 23 audited accounts were issued with unqualified audit opinions with matters of emphasis representing 24.2%. On the other hand qualified audit opinions were issued to 2 audited accounts representing 2.1% and 7 audited accounts representing 7.4% were issued with qualified opinions with emphasis of matters. During the year under audit, one (1) audited PA&OBs was issued with a disclaimer of opinion representing 1.1% and adverse opinion was not issued to any of the audited PA&OBS. Detailed audit opinions are shown as Appendix III of this report. Table 3: Trend analysis of Opinions Issued to PA&OBs for Three Years

Annual General Report Year

Unqualified opinion

Unqualified opinion with matters of emphasis

Qualified opinion

Qualified opinion

with matters of emphasis

Disclaimer of opinion

Adverse opinion

PA & OBs

2009/2010 92 12 10 7 1 0 122

75.4% 9.8% 8.2% 5.8% 0.8% 0% 100%

2010/2011 84 12 7 4 0 0 107

78.5% 11.3% 6.5% 3.7% 0% 0% 100%

2011/2012 62 23 2 7 1 0 95

65.3% 24.2% 2.1% 7.4% 1% 0% 100%

The above information can be shown in a graphical representation and pie chart as follows:

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Figure 2: Opinions Issued to Public Authorities and Other Bodies for 3 Consecutive Years 2009/2010 to 2011/2012 in Graphical Representation

0

10

20

30

40

50

60

70

80

90

100

2009/2010 2010/2011 2011/2012

unqualified opinion

unqualified opinion withmatters of emphas is

qualified opinion

qualified opinion withmatters of emphas is

Dis claimer of opinion

Advers e opinion

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Figure 3: Audit Opinion Issued to PA&OBs Presented in Pie chart

75.4%

9.8%

8.2%

5.8%

0.8%

0%

Analysis of Audit Opinion 2009/2010

Unqualified opinion

Unqualified opinion with matters of

emphasis

Qualified opinion

Qualified opinions with matters of

emphasis

Disclaimer of opinions

Adverse opinions

78.5%

11.3%6.5%

3.7%

0%

0%


Unqualified opinion

Unqualified opinion with matters

of emphasis

Qualified opinion

Qualified opinions with matters

of emphasis


Adverse opinions

65.3%24.2%

2.1% 7.4% 1% 0.0%


Unqualified opinion

Unqualified opinion with matters of emphasis

Qualified opinion

Qualified opinions with matters of emphasis


Adverse opinions

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CHAPTER THREE

SUMMARY OF OUTSTANDING AUDIT RECOMMENDATIONS

3.0 Introduction

This chapter summarises the outstanding recommendations from the previous years‟ Annual General Audit Report of Public Authorities and Other Bodies which were either partly implemented or not implemented at all as at the time of preparing this report. The improvement in the accountability and good governance of the Public Authorities and Other Bodies will not be attained if there is no effort taken by the individual PA&OBs to implement all outstanding matters. Further, the Government intervention is of vital importance towards implementation of the audit recommendations issued every year. It should be noted that the government alone can not resolve the problem of non implementation of audit recommendations without action and assistance from other organs such as Parliament, Parliamentary Oversight Committee responsible for the Public Authorities and Other Bodies, Boards of Directors and Chief Executive Officers of the respective PA&OBs.

3.1 Responses on the Previous Year’s Audit Report

(2010/2011) I wish to acknowledge the receipt of Government responses to my previous Annual General Reports vide the Permanent Secretary and Paymaster General‟s letter with Ref. No. EB/AG/AUDIT/12/VOL.I/53 dated 20th June, 2012. I appreciate the effort engaged by the PMG in response to the recommendations in respect of Public Authorities and Other Bodies. Nevertheless, some of the outstanding matters are still unresolved. In this regard, the desired goals and objectives of the PA&OBs will not be attained unless the CAG recommendations are fully implemented. It is my desire to express my concerns to the Government that the recommendations issued aimed at ensuring all

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reasonable precautions have been taken to safeguard the collections of public revenue, the receipt, custody, disposal, issue and proper use of public property. Further, the recommendations meant to ensure all public expenditure of public monies has been properly authorised and applied for the purpose for which they were budgeted for by ensuring economy, efficiency and effectiveness have been achieved in the use of public resources while laws and regulations applicable to the relevant PA&OBs have been dully observed. In this regard, I would like to restate the outstanding matters which have not been addressed or partly addressed by the Government, Parliament, Parliamentary Oversight Committees, Boards of Directors and Chief Executive Officers of the Public Entities as a reminder and notification that, I still have unresolved recommendations for rectification.

3.2 A Summary of Outstanding Recommendations for the year 2007/2008

3.2.1 Provision of Capital to Undercapitalized PA&OBs The Treasury Registrar (Shareholder) should ensure that the

undercapitalized PA&OBs are provided with adequate working capital by establishing various sources of funds to inject in the underperforming public entities to ensure smooth operation of their activities, hence provision of better services to the general public.

3.2.2 A Need for Establishment of the Treasury Registrar’s Office in

Accordance with the Treasury Registrar Cap.418

If implementation of this Ordinance is found not feasible after the abolition of the Standing Committee of Parastatals Organisations (SCOPO), then the Government should establish a strong and effective Regulatory Authority which will be responsible for regulating the performance and operations of the 176 plus PA&OBs with a total equity amounting to more than Tshs12.2 trillion in order to

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enhance accountability and transparency of their operations for better service delivery to the public.

3.2.3 Expanding the Role of POAC In my previous reports, I advised the Honourable Speaker to consider expanding the role of the POAC to rename it as the Public Investments Committee and expand its mandate to cover all public enterprises including those in which the Government has controlling and non controlling interest. Since the Honourable Speaker has decided that accounts of PA&OBs will now be handled by PAC, it is advised that the scope of the reconstituted PAC should be substantially broadened including increasing its membership and giving it adequate resources in order for the Committee to be able to handle its substantially increased responsibilities.

In addition, since my office has incurred substantial amount of resources in capacity building of the Oversight Committees which have been disbanded, it is important the reconstituted committees retain some of the previous members in order to ensure continuity of the operations of the oversight committees of PAC and LAAC.

3.2.4 Appointment of Members of Boards of Directors and

Chief Executive Officers Best practice on governance calls for Chief Executive Officers to be appointed by the Board of Directors instead of being appointed by the President. The President should be left with the responsibility of appointing Chairpersons of Boards of Directors while the appointment of the Chief Executive Officers of PA&OBs should be the responsibility of the Boards of Directors. In such a situation the Board of Directors should hold the Chief Executive Officers of Public Authorities and Other Bodies more accountable for results.

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3.2.5 Investment at DAWASCO Dar es Salaam Water and Sewerage Corporation (DAWASCO)

investments should be fast tracked, and groundwater resources be used to resolve the water requirements of the large un-served parts of Dar es Salaam. The water tariffs should also be reviewed to enable DAWASCO to meet its operating costs.

3.3 A summary of outstanding recommendations issued in my Annual General report for the year 2008/2009 which were not implemented are as follows:-

3.3.1 Apparent Conflict of Interest Regarding MPs Being

Appointed Members in Boards of Directors of Public Authorities and Other Bodies Parliament is the highest representative organ of the people charged with the responsibility of scrutinizing the performance (oversight role) of Parastatal Organizations through the oversight Committees. In order to avoid conflict of interest, members of Parliament should not be members of Boards of Directors of Public Authorities and Other Bodies for which they have an oversight role. The Parastatals Accountability Conference held on 23rd -24th January 2009 resolved that members of Parliament should not be members of Boards of Directors of public entities for which they have an oversight role. This practice of Members of Parliament being in Board of Directors of PA&OBs is neither applicable in any Regional Grouping in which Tanzania is a member, for instance EAC, SADCOPAC, SADC, AFROSAI-E, AU nor in any other country in the world.

3.3.2 Performance Contracts with Boards of Directors

The Government should enter into performance contracts with Boards of Directors of PA&OBs and set pre determined deliverables to be achieved during the tenure of these Boards which should be made public. In this regard, Boards of Directors should also sign performance contracts with Chief Executive Officers of PA&OBs who should in turn sign

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performance contracts with their subordinates. If these performance contracts are properly managed they should substantially improve the performance of our PA&OBs in the long run. The Paymaster General responded to the recommendations and issued directives through Treasury Registrar Circular No 1 of 2012 with Ref. No. TYC/T/200/566/29 of 5th January, 2012. Nevertheless, the circular has not yet been operational. The Government should come up with a mechanism of ensuring that Boards of Directors of Public Authorities and Other Bodies sign performance Contracts and those Boards which will not sign the contracts should be subjected to disciplinary action.

3.3.3 A Need for the Establishment of a Public Investment Fund In Tanzania, most of the public entities face the problem of under capitalization which hinders the PA&OBs to meet their operational objectives. The Government should establish a Public Investment Fund to be able to meet these challenges. Parliament should on yearly basis appropriate funds to this Fund while dividends realized and donor support received in this direction may also be deposited in this Fund to enhance its liquidity. Such funds should not be used to finance recurrent expenditure but would best be utilized to finance capital expenditure such as new investments, increasing capital structures and extending bridging finances to the existing PA&OBs.

3.3.4 Delays in Appointment of Boards of Directors of PA&OBs Despite the response from the Paymaster General concerning, the circular issued to the Parent Ministries directing them on promptly appointment of new Board of Directors before expiry of the tenure of the present Boards the problem still exists. I urge the PMG to continue insisting that the relevant appointing authorities to ensure

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that Boards of Directors of PA&OBs are timely appointed once the tenure of office of the current Boards lapses since there are some impacts for delaying in the appointment of Boards of Directors of Public Authorities and Other Bodies. The consequences include delaying the decision making process, inability to adopt audited accounts and approving institutional budgets.

3.3.5 Unequal Management and Use of Public Resource Board of Directors and the Management of Public Authorities serve the same purpose for the public entities which they represent. In this regard, there is a need of standardizing and harmonizing the benefits enjoyed by the Boards of Directors and managements of Public Authorities (i.e sitting allowances, directors‟ fees etc) since all resources consumed belong to the public. In the course of reducing these differences within the PA&OBs it will enhance efficiency and accountability through the use of public resources.

3.3.6 Payment of Salary Top up -- TRL

The amount which was supposed to have been claimed and released as Government top-up of salaries for the period of March to July, 2008 would correctly have amounted to only Tshs.1.4 billion and not Tshs.9.8 billion. Therefore, Tanzania Railways limited over claimed Tshs.8.4 billion from the Government. The PMG response is not satisfactory to address the noted weakness of overpayments made since it has just corrected the duration of payment rather than coming up with what action to be taken against TRL management.

3.3.7 Unpaid Concession Fee Tshs.16.1 billion

The Government should evaluate its partnership with RITES, the current status of the venture, non adherence to the contract agreement, problems currently facing operations and the going concern of TRL and come up with a lasting solution though RITES not in existence.

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According to PMG response the Government has disengaged its partnership with RITES however the fate of unpaid concession and other liabilities are pending awaiting Cabinet decision.

3.3.8 PSPF Loan Tshs.58 Billion to HESLB and Students Loans

Repayments Tshs.51.1 Billion Government intervention in decision making is among the factors which are contributing to liquidity problems for the Pension Funds in the country. Loans borrowed from the Pension Funds by the Public institutions through Government guarantee become overdue while the Government is reluctant to enforce repayment. I am of the view that the Government should put strong measures to ensure that the outstanding loan both principal and interest amounts borrowed from PSPF are paid without further delay to avoid any further costs in terms of interest and penalties. The Board is advised to take legal action against employers and individuals who are refusing to cooperate as per the HESLB Act.9 of 2004 to ensure the Fund is recovering the member‟s money.

3.4 Summary of outstanding recommendations issued in my Annual General Report for the year 2009/2010 which are yet to be implemented are as follows;

3.4.1 Delays in Disbursing Funds from Treasury

To minimize Student‟s riots and demonstrations in our Institutions of Higher Learning which might have a negative impact in the students‟ performance in their studies, the Treasury should devise more effective procedures of timely releasing funds to HESLB.

3.4.2 Performance Review of the Existing and Privatized Public Entities

The Government should ensure that the liabilities of PA&OBs whose repayments are due but have not been

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serviced are recovered from the beneficiaries. It is important also that all revenues in arrears are promptly collected.

The Consolidated Holdings Corporation should make a close follow up to ensure that the privatized entities are working as per the sales agreements and should take appropriate action on those entities operating without taking into account the terms of sale

3.4.3 The Principle of Segregation of Duties in the Functioning of the Public Corporations

The Government, Parliament and Judiciary should emphasize on the principle of separation of powers and functions because there has been interference in the day to day operations from Boards of Directors, Members of Parliament sitting in Boards and the Government through several unquestionable instructions. Separation of powers ensures the existence of good governance through the establishment of checks and balances in functioning of the Government and its institutions. Further, efforts should be made to ensure that the principles of corporate governance like separation of powers and functions are extended to lower levels of operations.

3.4.4 Boards of Directors Overriding Management Functions Operational issues of an entity should be implemented by

management and the Board of Directors should evaluate the performance of the management in achieving the approved annual work plan and the strategic plan. Boards of Directors should be trained on their roles and responsibilities and should prepare board charters which would elaborate their roles, responsibilities and modalities to constitute Boards and committees thereof.

The implementation of the recommendation raised is yet

implemented by the PMG since the circular No. TYC/T/200/583 of 28th July, 2004 sent by the Government

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has not changed the situation to date. The government should find alternative solutions to address the problem or action should be taken on the Board of Directors who overrides management functions.

3.4.5 Non Compliance with the Treasury Registrar’s Circular

The Public Authorities and Other Bodies should ensure that they comply with Government directives and make their contributions to the Treasury and whenever they are not in a position to fulfill their legal obligations, they should communicate with the relevant Government department or regulating authority. The Treasury Registrar should be more pro-active as an informed and active owner and establish clear and consistent ownership policies, by ensuring that the governance of PA&OBs is carried out in a transparent and accountable manner, with the necessary degree of professionalism and effectiveness. It is expected that TR will develop and issue an ownership policy, which will define the overall objectives of TR, the TR‟s role in corporate governance over PA&OBs and how the policy will be implemented.

3.4.6 Specified Public Enterprises for Privatization

The Government should consider either to speed up the process of privatization of the specified 34 Public Enterprises which were taken over from PSRC by CHC in order to avoid further deterioration of the assets owned by these PA&OBs or dispecify them and inject sufficient capital in these Public Enterprises in order to revamp them and make them operational.

3.5 In my Previous Annual General report for the year

2010/2011, I issued several recommendations which are yet to be acted upon by the Government. The recommendations are as follows:-

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3.5.1 Assets Management National Social Security Funds spent a sum of Tshs.234.1 billion in the construction of some of the buildings of the University of Dodoma (UDOM), under contract terms of Design, Build, Own and Transfer after 10 years. Other Funds PSPF, LAPF, NHIF and PPF spent a total of Tshs.181.3 billion in construction of buildings of the Dodoma University under the same terms of contract. The constructed buildings are neither in the books of the University of Dodoma nor in the books of the Pension Funds. This has been caused by different understanding of the parties concerned. Pension Funds understand that the amount used to construct the buildings was the loan to the Government while on the part of Government understands was an investment of the Pension Funds.

Further, I noted non performing loans from NSSF with a sum of Tshs.91.7 billion and USD 9.65 million. The amount was loaned for the constructions of Bunge Hall, Police houses and Machinga Complex at Dar es Salaam City Council. Others were used to finance, General Tyre East Africa Ltd, Kiwira Power Coal Mining, Dar es Salaam Cement Company, Continental Venture Limited, Kagera Sugar Co. Limited and Medtch Industrial Co. Limited under Government guarantees. The non performance of these loans guaranteed by the Government exposes the Pension Funds to high risk of losing the members‟ funds and therefore jeopardizing the ability of further re-investing. In addition, I have noted with concern on the non repayment of the loaned funds from the Pension Funds and the non payment by the Government of the guaranteed amounts due to failure of those who have been guaranteed as per the loans agreements and which is contrary to the loans and Guarantees Act of 1974.

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Government, Boards of Directors and Chief Executive Officers of Public Authorities and Other Bodies should ensure that adequate measures and efforts are instituted to collect long overdue debts and proper management of cash and inventory is put in place. In addition to that, care should be taken on existing investment while focusing on investing in performing investment portfolios. Further, Board of Directors of Public Authorities and Other Bodies should ensure that legal ownership of their property; plant and equipment are obtained together with adequate insurance cover against risk and other vulnerable events.

3.5.2 Human Resources Management Vacant posts as per organizational structures including posts held in acting capacity should be filled appropriately in Public Authorities, to ensure that there are effective succession plans in place. Management of all Public Authorities should take appropriate measures aimed at reviewing salary packages and other fringe benefits to be in line with the PA&OBs scheme of service and Government directives regarding salary payments. Public Authorities should also ensure that all salaries due are paid on time. Better management of salary payments will motivate Public Authority‟s staff to continue working for the PA&OBs for longer periods and thus minimizing staff turnover and increasing efficiency and effectiveness in their job performance.

3.5.3 Board of Directors

The Board of Directors should ensure compliance with their establishment Acts with regard to the number of Board members required in the composition of the Board. It was recommended that operational issues of the Authority should be implemented by the management and the Board should be left to evaluate the performance of

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the management in achieving the approved annual work plan and the strategic plan.

3.5.4 A Need to Have a Database for Members of Board of

Directors in PA&OBs In consideration the fact that the expiry of the Boards of Directors‟ tenure occurs on different dates, it may not be possible for the appointing authorities to monitor these dates. In that regard, I am of the view that the Treasury Registrar should develop a database for Board of Directors which shall have a feature of alerting the expiry of the Board in order to enable the appointing authorities to have information for appointing a new Board in time.

3.5.5 Privatization issues

The Government should accelerate the privatisation process of the parastatals under receivership so that proceedings can be used to settle for outstanding loans in order to save the Government from settling the loans it guaranteed on their behalf and at the same time safeguard the many assets of these parastatals.

3.5.6 Assured Sources of Financing Investment Tanzania as a developing nation should come up with a strategy of making available sources of finances at an affordable cost. There is need for the Government to pass a law requiring potential Companies in Tanzania to be listed in the Dar es Salaam Stock Exchange such as mining companies, mobile phone companies, cement companies, beverage drinks companies etc. There is a need for the Government to institute a law which will require public institutions to surrender unclaimed assets to the Treasury as government revenue as in the case of deposits that have remained unutilized for more than 5 years and will no longer to be utilized. Such unclaimed funds could be deposited in the proposed Investment Fund and be used as a source of investment

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finance. Funds could be generated from dividends realized from public investments; proceeds from sale of government properties could also be deposited in this Fund to enhance its liquidity.

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CHAPTER FOUR

SIGNIFICANT MATTERS NOT REPORTED IN THE PREVIOUS YEAR’S REPORTS

4.0 Introduction

According to Section 31 of the Public Audit Act, 2008, every Public Authority and Other Bodies is required to submit its financial statements to the Controller and Auditor General for audit within three months after the end of the financial year to which the accounts relate. Since there has been a considerable non compliance with this provision among the Public Authorities and Other Bodies, some of the audits have been going beyond the reporting period causing failure on the part of the CAG to report the same in the current year. It is important to understand that Public Authorities, whose audits have not been completed on the statutory due dates and therefore not captured in the current year‟s general report, will be included in the forthcoming annual general report. During the period of writing the last year‟s report which was submitted to the President towards the end of March, 2012, only 126 Public Authorities managed to meet the reporting time frame while the remaining 50 could not comply due to various reasons including late submission of financial statements, corporate governance shortfalls like inexistence of Boards of Directors to adopt the financial statements due to lapse of tenure, difficulties of the auditees to respond to audit observations and others.

This chapter, therefore, highlights significant matters considered worthwhile reporting which relates to the previous year‟s audit for some of the audited Public Authorities and Other Bodies for the financial year ended 30th June, 2011 which was not included in the previous year‟s CAGs General Report on Public Authorities issued on 26th March, 2012.

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4.1 The Current Housing Deficit in Tanzania Demand for houses in Tanzania is estimated to be growing tremendously and thus requiring huge investments to construct houses for the population. The current housing deficit in Tanzania is estimated at three (3) million units and growing at a rate of 200,000 units per annum. The deficit is coupled with the annual growth in demand, and the urban population growth offer a big hypergrowth opportunity for the national economy. The problem is more pronounced in urban areas where according to statistics, the urban population has grown from 14.8% in 1980 to 37.5% in 2005 and it is expected to reach 46.8% by 2015. The pace for the development of rental properties and houses constructed for sale is slow in such that, it has failed to deliver in line with the growing housing needs as expected by the public as well as contributing very little on the GDP. In some developed countries, contribution of the housing sector on GDP is between 50% and 60% per annum. Such countries include the United Kingdom and USA which have 58% and 55% respectively, in Asian countries the contribution is between 7% and 31%. For example Malaysia (31%), China (15%) and India (7%). In Tanzania the housing sector contributes less than 1.0% on the GDP per annum. Although the government has taken various measures aimed at reducing the housing shortages facing the country by enacting and amending various legislations to create a conducive environment for the private sector to participate, still the sector is not doing that well.

4.2 Un-reconciled Data for Drugs Between Ministry of Health

and Social Welfare (MOHSW) and Medical Stores Department (MSD) Medical Stores Department (MSD) is an autonomous department of the Ministry of Health and Social Welfare with the main objective of furnishing the nation with quality medical supplies and medical equipment at affordable prices, made available through approved government and non government agencies throughout

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Tanzania. The main functions of MSD are procurement, storage and distribution of quality healthcare products throughout the country. The department carries out other support functions that are concerned or incidental to the performance of the main function. Fulfillment of its activities needs a good flow of funds. The flow of funds from MoHSW to MSD starts by requesting the Funds from MoF, after receiving the same, the disbursement to MSD is effected. Therefore, delays in receipt of government funds by MSD from MOHSW affects its working capital and consequently affecting the availability of stocks in MSD stores, and automatically leading to shortage of stock at health facilities across the country. Apart from that, there are also other setbacks which affect the MSD drug distribution. These include; improper follow up of outstanding receivables which results in some debtors being outstanding for over 12 months and some even 48 months. The case is worse with outstanding debts from MoHSW where there has not been a good recovery of debts. The outstanding amount has been increasing dramatically from Tshs.579 Million in 2005/2006 to Tshs.30.996.billion in 2010/2011. See graph below.

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Figure 4: An Increase in MoHSW Outstanding Loan to MSD

Apart from the hardship MSD experience in recovering the money from the Ministry, MSD also provides logistics function to vertical programs of the Ministry of Health and Social Welfare. For example, the Ministry of Health and Social Welfare sends money to Medical Stores Department (MSD) for procurement of drugs on behalf of MOI. However, the reconciliation of financial data between MSD and Muhimbili Orthopedic Institute is not proper, because the MSD receivable balance that appears in the MOI accounts differs from the amount sent to MSD by MoHSW and the value of drugs that MSD has distributed to MOI. However, MoHSW does not provide information on how much has been disbursed to MSD for MOI. MOI usually obtains this information from the statement prepared by MSD. There is no response from the MoHSW on the confirmation of funds disbursed to MSD. There is a risk that, MSD receivable balance may be misstated because MSD does not disclose all the amounts received from MoHSW on behalf of MOI in the statement.

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While MSD can not reconcile the drug data between itself and other terminals, its performance is also hampered by other internal setbacks which include; incapacity of the ORION accounting system to produce purchases figures for the year per sales category in lieu of the Normal sales programme, vertical sales programme and special procurement programme which cause delays, and lack of consolidated total figures on purchases from sales programmes. Inability to depict the purchases figures from the system makes it difficult to verify whether the purchases recorded in the system were genuine purchases since recorded figures and references thereon can not be traced to goods received notes, contract signed with the suppliers or purchase orders. It also takes longer than the targeted time to clear goods from the airport and seaport. On average, it takes 9 to 24 days to clear goods from the airport and sea ports respectively. This is the set annual target of clearing goods from land and sea port within 14 days after the vessel‟s arrival and for airports it is within 5 days from the arrival. The delays increase the storage and demurrage expenses at the ports. Then, number of days for replenishment of order from the zones is still as high as 24 days when compared to the annual target of 14 days according to the zonal order replenishment cycle set in MSD annual plans. Due to the hardship in disbursement of funds by the Ministry of Health and Social Welfare to MSD, it is difficult for the PMU to plan for procurement of medicines, the situation which leads to unavailability of stocks in the store.

4.3 Unstreamlined Organization Structure, Systems and

Processes VETA operates across the country through its 9 zonal offices, and 21 centres. With VETA employees spread across the centres, means its organisational structure should facilitate consistent standards while enabling sound

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decision making at the zones and at the Head Office. Over the years the organisation has been growing rapidly without having a formal assessment of the existing structure to see whether it delivers its objectives through the increased capacity or not. In addition, the set up of VETA‟s accounting system, Navision, does not provide a reliable basis for decision making and control as it does not link all centres to the Head Office. Lack of a centralised information link limits timely availability of information necessary for decision making. It also limits top management control over the organisations‟ resources. With the increased number of staff and centres, a review of the present organisational structure, functions and staffing is needed. A streamlined organisational structure, systems and processes need to reflect the priorities of the Authority. A structure supported by job descriptions for key positions, rationalised staffing norms and actions may be needed to improve the staff performance. Absence of a well-structured organisation structure including a review of the divisional and departmental set-ups may hinder achievement of VETA‟s objectives.

4.4 Lack of Provision for Impairment on Student Loans

The Higher Education Student Loans Board for the year ended 30th June, 2011 reported an outstanding students loan receivables amounting to Tshs.793.4 billion. This figure comprised all amounts loaned to Tanzanian students since 1994 when the program of cost sharing was initiated. IAS 36 requires for an entity to estimate the amount of an impairment loss on a financial asset. All financial assets, except those measured at fair value through profit or loss, are subject to review for impairment. Therefore, where there is objective evidence that such a financial asset may

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be impaired. The impairment loss is calculated and recognized in the Statement of Comprehensive Income. Review of records noted that there is a likelihood of non recoverability of some loaned money to a number of loanees all over the country. Basing on the above fact, we were of the opinion that the estimate for impairment loss should have been established and provision for the same be done in the books of accounts.

4.5 Inadequate Internal Controls within the Higher Education Student Loans Board Review of the internal audit reports noted that some of the internal controls of the Higher Education Students‟ Loans Board are not working properly. This is due to the reason that, an amount of Tshs.317.8 million was disbursed as loans to various beneficiaries without instituting proper controls. Some of the pay-out documents were not checked and approved by senior officers. There were suspected forgery and theft of Board‟s money amounting to Tshs.90.7 million at the Board head office whereby one employee was involved in the forgery. There were forgeries through students‟ loans disbursement at Mkwawa University amounting to Tshs.66.1 million. In addition, the Board has been issuing loans to beneficiaries without crosschecking the relevant supporting documents. For example, the Board issued unsupported research loans to MUCE 3rd year students amounting to Tshs.15.5 million. It was also noted that, the Board‟s Loan Management System (ALMS) does not allow segregation of duties within the system since the Means Test and allocation functions can be done by only one person. Also the rest of the functions in the system can be done by anyone who has user ID in the system. In addition, there was no data

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classification policies documented to assist in the segregation of duties review process. Further, ALMS automation covers only loan allocation while other processes including loan disbursement and repayment are not automated. Most users opt to use other applications such as Microsoft Excel for operations on loan disbursements and loan repayments. Furthermore, the processing of loans for undergraduate students is done through OLAS and ALMS while the processing of loans for Postgraduate students goes only through ALMS. The Loan processing records for Postgraduate students are maintained in excel files.

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CHAPTER FIVE

PROCUREMENT AND CONTRACTS MANAGEMENT

5.0 Introduction

Tanzania embarked in a major financial management reforms which subsequently led to the restructuring of its procurement system which resulted into the enactment of the Public Procurement Act, 2001 which was later repealed by the Public Procurement Act No.21 of 2004. To ensure the existence of procurement compliance in Tanzania, Section 44 (2) of the PPA, 2004 requires the auditor of each public entity to state in his annual report whether or not the audited entity has complied with the procurement law and its Regulations.

Regulation 31 of the Public Procurement Regulations of 2005 (goods, works, non-consultant services and disposal of public assets by tender) requires the auditor of public bodies to state in his annual report whether or not these regulations have been complied with in relation to competitive tendering and approval of the procurement or disposal by tender by appropriate Tender Boards. In view of the mandate given above, the Controller and Auditor General reviewed the procurement system and related activities of 126 Public Authorities and Other Bodies, during the audit of their financial statements for the financial year 2011/2012. Also, the Public Procurement Regulatory Authority carried out audit of 51 procuring entities of which the results have been included in this chapter.

This chapter also contains review of management of procurement contracts from the respective management audit reports of Public Authorities and Other Bodies during the year under review. Audit of procurement contracts was conducted during the routine audit of the financial years

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ended 30th September 2011, 31st December, 2011 and 30th June, 2012. Outcomes of the review of some of the procurement contracts that were entered into by some of the Public Authorities and other Bodies are analyzed in paragraph 5.2 of this chapter.

5.1 Procurement Management

According to Public Procurement Act, 2004, procurement means buying, purchasing, renting, leasing or otherwise acquiring any goods or works or services by a procuring entity spending public funds on behalf of a ministry, department or regional administration of the Government or public body and includes all functions that pertain to acquiring goods or works or services including description of requirements, selection and invitation of tenderers and preparation and award of contracts. The following observations were raised during the procurement audit of 126 Public Authorities and other Bodies:

5.1.1 Procurement Transactions Made Under Emergency Basis Without Obtaining Approval from the Paymaster General Regulation 42 of GN No.97 allows Accounting Officers or Chief Executive Officers of procuring entities to make procurements that exceed their authority only when it is found out that such procurement is for the interest of the Government. On so doing the Accounting Officers or Chief Executive Officers is directed to immediately obtain the retrospective approval from the Paymaster General. My review of the procurement transactions I performed in the Public Authorities and other Bodies found out that two entities which are Tanzania Ports Authority and Mzumbe University were engaged in emergency procurements that exceeded their authority limit without obtaining approval from the Paymaster General. At the Tanzania Ports Authority I noted that the Authority through PMU procured various equipment worth USD 810,000 and EURO 13,915,783 under emergence basis

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without obtaining approval from PMG. At Mzumbe University management procured a contractor for construction of a five storey building at Dar es Salaam Campus for a contract sum of Tshs.1, 987,136,449.20 under emergency basis of which the approval from PMG could not be obtained.

Pursuant to Regulation 42 (1) (c) of GN No.97 of PPA 2004 the retrospective approvals were supposed to be issued by the Paymaster General if the transactions met the conditions of being granted post approval. We strongly urge the Institutions concerned to regularize the procurement by seeking retrospective approvals from the Paymaster General.

5.1.2 Execution of Procurement Transactions Without Valid Contract With Service Providers A contract is a voluntary agreement entered by two or more parties of which each of them intends to create one or more legal obligations between or among them. The overall responsibility of signing the contracts and management of its implementation is vested to the Chief Executive Officer of a procuring entity as stipulated under section 33(h) and (k) of the Public Procurement Act No.21 of 2004. During the audit of financial statements of Arusha International Conference Centre (AICC) I observed that the Centre hired doctors/consultants to provide services at the AICC hospital without any written agreements/contracts. Under such circumstances, I was unable to ascertain the appropriateness and legitimacy of the consultation fees paid to the hired doctors/consultants amounting to Tshs. 170,947,325. At Tanzania Ports Authority (TPA) my review noted that the Authority received medical services for her staff from private hospitals of Hindu Mandal, Regency, Family Care and Tumaini Hospital of Dar es Salaam costing

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the Authority Tshs. 725,107,859 without contract agreement.

A similar case was reported at Moshi University College of Cooperatives and Business Studies (MUCCOBS) where Tshs.201,100,965 was paid to the Founder/Trustee of Wazalendo Secondary School-Moshi for the cost of constructing the school at the compound of MUCCOBS. From the reviewed documents it was observed that the school buildings were agreed to be the property of MUCCOBs after construction but there was no written agreement or memorandum of understanding between management of MUCCOBs and the Founders/Trustees of the school stating the terms and conditions governing the overall management and operations of the school. These weaknesses were also observed at the College of Business Education (CBE) where all part time academic staff were found to work without signed contracts with the college. At Mzumbe University Tshs.216,028,539.30 was reported to have been paid to various private garages which serviced University vehicles without service agreements with the University. At the National Housing Corporation (NHC) Tshs.196,386,980 was paid to three suppliers for medical services,Tshs.292,546,800 was paid for security service and Tshs.289,354.751 was paid for ticket services without the existence of valid signed contracts with the respective suppliers. The same weakness was also observed at the Consolidated Holding Corporation (CHC) where several Attorneys handling lawsuits for CHC charged fees pegged on the amounts of claims without signed agreements between CHC and the Attorneys while at Ngorongoro Conservation Area Authority (NCAA) procurement of fuel from M/s Mount Meru Petroleum Limited amounting to Tshs.1,229,995,986.74 was done without a contract between NCAA and the supplier contrary to requirements of PPA, 2004 and its Regulations, 2005.

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5.1.3 Procurement of Goods and Services Out of the Annual Procurement Plan In my review of procurement transactions at the College of Business Education (CBE) I found instances of non compliance with the Public Procurement Act, 2004 regarding the procurement of Goods and Services worth Tshs.162,196,132 for Graduation Ceremony held for the year 2011/2012 which was made out of the approved annual procurement plan. A similar case was reported at Dodoma Urban Water and Sewerage Authority (DUWASA) where it was revealed that the Authority procured pipes and fittings worth Tshs.116,475,000 out of the annual procurement plan from M/s Anof Traders Limited. I also noted procurements amounting to Tshs.16,607,953 at Mtwara Urban Water and Sewerage Authority (MTUWASA) which did not follow procurement plan for the year 2011/2012. The same weakness was observed while reviewing the financial statements of the Medical Store Department (MSD) where by procurement of goods and services amounting to Tshs.1,143,411,502.54 were not included in the Annual Procurement Plan contrary to Section 45 of PPA 2004, Regulation 46 of (G.N No.97) and Regulation 25 of G.N.No.98. It was also observed in the review of TCRA financial statements for the year 2011/2012 that eight (8) procurements costing Tshs.1,255,543,372 were made out of the approved procurement plan of the Authority. In the review of tender documents and annual procurement plan for Bank of Tanzania-Mbeya Branch, I revealed two tenders which were made out of the annual procurement plan contrary to Section 45 of PPA, 2004. These were tender for fire retardant, painting of timber surface to office building from M/s JCS TECHNIX (T) LIMITED Tshs.207,356,000 and tender for laying floor tiles at office and dispensary buildings from M/s Gwema General Enterprises Co Ltd Tshs.48,800,000. At NSSF Procurements

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amounting to Tshs.1,069,239,883.60 were observed to be done outside the annual procurement plan.

5.1.4 Non Disclosure of Awarded Tenders to the Public at MWAUWASA Regulation 97(12) of Government Notice No.97 (Public Procurement Regulations, 2005) requires the results of tender award to be published in the PPRA‟s Website and Journal, Government Gazette and in at least two newspapers of wide circulation and or any other appropriate information media on regular basis. Further, Regulation 116 of the same GN No 97 (Public Procurement Regulations 2005) requires the head of the procuring entity concerned to ensure that copies of all contracts are sent to the Public Procurement Regulatory Authority, Attorney General, Controller and Auditor General, Office of the Stock Verification Unit of the Ministry of Finance, Technical Audit Unit of the Ministry of Finance or the Regional Officer of the Controller and Auditor General as the case may be, and the Tanzania Revenue Authority within thirty days from the date of signing the contract. My review of this requirement discovered that lists of all awarded tenders at Mwanza Urban Water and Sewerage Authority (MWAUWASA) with a total cost of Tshs.1, 847,800,000 were not disclosed to the public as per the requirement of law.

5.1.5 Lack of Independent Functioning of AO, TB, PMU and User Department Pursuant to Section 38 of Public Procurement Act, 2004 the procurement pillars AO, TB, PMU and User Department should work independently with each other so as to bring transparency in procurement. During my review of proceedings by the Tender Board at MWAUWASA I noted cases where recommendations of the evaluation committee were rejected by the Tender Board on grounds that they were not included in the tender evaluation criteria. This was also noticed on the deliberations of MWAUWASA Tender Board Meeting No 81 held on 30th September, 2011

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where by the recommendation by PMU of the supply of pipes and fittings were rejected by TB on grounds that the Authority experienced delays on delivery of orders when the proposed suppliers were given orders in the past. Instead, the Board awarded the supply of poly pipes to PLASCO Ltd, the company which did not even participate in the tender. The decision of the Board was backed by the fact that PLASCO Ltd agreed to supply on credit. In the tender for provision of day and night security at the Authority, the proposal of the PMU was turned down by the tender Board and instead, the Tender was awarded to the second bidder on the ranking. In both two examples, the Tender Board applied factors not included in the evaluation criteria, contrary to the requirements of the Act. At the Tanzania Port Authority (TPA) it was revealed that the Authority Tender Board changed the recommendation of the Evaluation Committee on the award of tender for Construction of Cargo Shed at Kiwira Port to M/s Kiure Engineering instead of M/s Satellite Contractors Ltd recommended by the evaluation committee costing Tshs.132,739,321. In another instance the review of financial statements of Ngorongoro Conservation Area Authority observed that the members of the PMU were appointed to be Chairman of the Evaluation Committee or even the member of the evaluation committee thus creating inappropriate segregation of duties between the PMU and Evaluation committee. This also were reported at NSSF where PMU staff were involved in Tender Evaluation process.

5.1.6 Purchase of Low Quality HIV/AIDS Medicine at MSD In my review of procurement procedures at Medical Store Department, I observed weaknesses in inspection and acceptance of drugs and medical equipment which has implication on stock out and expiry of drugs. In some instances, I noted that it takes long time for drugs to be inspected and accepted as there is no functioning

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laboratory for testing of procured drugs/medicine. The quality assurance at the Store involve other agencies such as TFDA,TBS, Government Chemist and National Health Quality Control Laboratory but there are no documented procedures and criteria used for deciding which drugs/medicines to go for laboratory test. For example medicine manufactured and supplied by Supplier Zenufa was recalled by TFDA due to quality problems and are held at MSD warehouses after they had successfully passed the inspection for quality at MSD. In other case ARVs LAMIVUDINE 150MG+ STAVUDINE 30MG+NEVIRAPINE 200MG (TT-VIR 30) was suspended from distribution after they had successfully passed through the MSD quality control. With this fact, there are possibilities of accepting drugs/medicines with low quality which could have adverse impact to users.

5.1.7 Lack of Transparency on the Procurements Made Through GPSA The Government Procurement Services Agency is an Executive Agency of the Ministry of Finance, established under the Executive Agency Act No. 30 of 1997 vide Government Notice No. 235 of 7th December, 2007. The functions of the Agency include procurement, storage and distribution of quality supplies through its Central Office in Dar es Salaam and to twenty one (21) regional offices throughout the country. Its function also includes provision of clearing and forwarding services, arranging procurement of common use items and services by procurement entities through framework agreements and provision of warehousing and storage facilities.

My review of procurements made through the use of GPSA pre-qualified suppliers revealed that the procuring entities do not observe transparency while opting for GPSA pre-qualified suppliers. While I was reviewing the procurements made during the year 2011/2012 at MSD, I observed that procurements were made by soliciting one supplier from

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the list of GPSA and awarded the tender to that Supplier instead of requesting quotations from the pre-qualified GPSA suppliers. This practice is considered to be inappropriate as it has chances of one being biased in the decision for specific supplier. The best practice requires selection of suppliers from GPSA to have basis and mini evaluation of the pro-forma invoice to be done by independent evaluation team different from those inquiring the goods. It was also reported that the NCAA procured goods and services costing Tshs.3,745,842,535 from suppliers that are under framework contract with GPSA without signing any contract.

5.1.8 Inappropriate Use of Procurement Methods The default procurement method in public procurement is competitive tendering proceedings as required by Regulation 63 (1) of G.N. 97 of 2005. However, pursuant to Regulations 70, 71 and 72 of G.N 97 of 2005, the Procuring Entity may use methods other than competitive tendering proceedings. In my audit of procurement methods used by National Housing Corporation in the year 2011/2012, I noted that the Corporation used Force Account (FA) method and Single Source method on some procurements which infringed the competition spirit without a clear justification supported by PPA, 2004 and its Regulations of 2005. In this reviews I observed that the Corporation procured motor vehicles formally planned to be procured through ICB at a cost of Tshs.1,453,000,000 to Tshs.1,878,487,544 under single source resulting into a difference of Tshs.425,487,544 higher than the estimated cost. In the same case TANESCO entered into a single source contract with M/S Quality Trade and Distribution Ltd for Supply of distribution and service line materials under 100,000 customer‟s projects worth USD 23,189,146.54 and Tshs.976,772,823. In this tender the requirements under Regulations 42 and 69 of GN. No 97 of 2005 were not

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clearly observed. This law states conditions for procurement entity to opt for single source that the goods or services to be procured are available only from a particular supplier or services provider or a particular supplier or service provider has exclusive rights in respect of the goods or services and no reasonable alternative or substitute exists. Further, Section 69((1)(b)) states that „there should be urgent need for the goods or services and engaging in tendering proceeding or any other method of procurement would therefore, be impractical, provided that the circumstances giving rise to the urgency were neither foreseeable by the procuring entity nor the result of dilatory conduct on its part.‟ All of these conditions were not observed by TANESCO during the procurement of service line and distribution materials.

Similarly audit of Ngorongoro Conservation Area Authority (NCAA) noted three procurements which were made under single source without justifiable reasons as stipulated in the procurement laws. These unlawful procurements were on rehabilitation of nature walking trails in the NCAA awarded to M/s Mount Cliff General Enterprises at a cost of Tshs.165,000,000.00; construction of two in one ranger post building awarded to M/s Tumaini Civil works at a costs of Tshs.205,009,061.34; and supply of one ford ranger awarded to CMC Automobile at a cost of USD 35,430.68. At NSSF it was reported that procurement of goods and services amounting to Tshs.3,391,905,367.07 were done through non-competitive methods (using single sources) while another procurement of additional assets worth Tshs.1,078,781,818.30 were also procured under single source method contrary to third schedule of GN. No. 97 and GN No. 98.

5.1.9 Under Estimation and Unbudgeted Procurement Expenditure Regulation 46 (9) of PPR, 2005 requires the procuring entity to draw up procurement plans for all requirements for which sufficient funds are available. Pursuant to Section 25

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(3) of PPA 2004 no expenditure shall be made out of the funds of the Authority unless that expenditure is part of the expenditure approved by the Board under the estimates for the fiscal year in which the expenditure to be incurred or in the supplementary budget for that year. Accordingly, the plan for implementation shall involve preparation of a project work plan in which the various project tasks and activities, including how the tasks will be accomplished and managed are described, the resources necessary to carry out the various project activities are identified. However, during my review of the procurement plan submitted to PPRA I noted some of the procurement implemented during the year which spent more funds than the budgeted amounts while other procurements had zero budgets. Further, I was not provided with the evidence that the ad hoc procurements were later submitted to the PPRA for ratification. At National Health Insurance Fund, the Fund awarded contracts amounting to Tshs.320,693,500 against the budgeted amount of Tshs.273,600,000. This deviation was assessed to be higher than the approved budget as per Annual Procurement Plan for year 2011/2012 by Tshs.47,093,500. In this scenario it was not evident that budget estimates were considered in tender evaluation process and award of contracts at NHIF while Six (6) procurements for the financial year 2011/2012 at Ngorongoro Conservation Area Authority (NCAA) were made out of the budget which led to additional cost of Tshs.2,707,914,410.78.

At NSSF, it was reported that the Fund awarded tender for supply of MIMS consumables to M/s Techno Brain (T) Ltd at a cost of Tshs.613,635,101.85. Review of the budget noted that the budgeted fund for MIMS consumables was Tshs.360,240,000.00 million only. These shortfalls forced the Fund to reduce quantities by breaking the order into two parts. By so doing the NSSF awarded a contract with a

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value of Tshs.613,635,101.85 while budgeted funds at that time were Tshs.360,240.000.00.

5.1.10 Irregular Procurement of Legal Service at TANESCO

My review of TANESCO accounts revealed that the company procured legal service to intervene enforcement of ICC award filed by Dowans from Rex Attorney and Reed Smith/ Matrix Chambers. Discussions made with staff of the Legal Department at the company noted that TANESCO did not perform due diligence in verifying the existence and status of legal personalities of DOWANS. According to the records, the root cause of why TANESCO was sued in the International Chamber of Commerce by Dowans was because of the contract that was assigned to Dowans from Richmond Development Company LLC which was later proved to be non existing Company at that time. Had it been that the management of TANESCO performed proper due diligence, they could have uncovered that Richmond Development Company LLC was a non existing Company. However, with that bad experience and while trying to solve the problem caused by gross negligence during the procurement process of Richmond Development Company LLC, TANESCO committed another gross negligence by not conducting due diligence on Rex Attorney and Reed Smith/ Matrix Chambers on which there was no legal documentation obtained from BRELA concerning Rex Attorney. Likewise there was no similar documents from UK„s firm registration Authorities concerning Reed Smith/ Matrix Chambers. Further TANESCO entered into a contract with Rex Attorney and Reed Smith/ Matrix Chambers as associates of Rex Attorney, but there were no legal documents showing the existence of such association. TANESCO signed a contract with these legal firms without verifying the legal status that was present at the time of the procurement process. This is a risk for the wellbeing of TANESCO that the company needs to act cautiously in its procurement activities to avoid potential future losses.

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5.1.11 Non Involvement of Tender Board in the Procurement of Goods Section 68 of Public Procurement Act, 2004 requires managements of procuring entities to ensure that all tender awards are approved by the tender board. While I was reviewing the financial statements of STAMICO I did not see a tender board involvement in the procurement of 2 rigs worth Tshs.167,543,900 acquired from China. These rigs were acquired through single sourcing and that the Corporation incurred additional Tshs.36,750,000 to put them in a working condition. In this review, I further noted that despite these rigs being received in August year 2011, the corporation continued to use old rigs in drilling activities in Mikindani/ Mtwara until the project was closed in April, 2012.

At Ngorongoro Conservation Area Authority (NCAA) it was also reported that procurement through tender No. AE/055/2011-12/HQ/G/048 for Transportation of 900 Tons of Maize Grains awarded to M/s Marko Panga at a cost of Tshs.69,532,680.00 was not approved by NCAA Tender board.

5.1.12 Inappropriate Tender Award at NSSF It was reported that NSSF Tender Board approved the award of contract for Air conditioning installation for the proposed construction of NSSF commercial building at Kaloleni in Arusha municipality to a supplier whose quoted price was Tshs.430 million. The awarded price of Tshs.430 million was above the engineer‟s of Tshs.230 million estimates of Tshs.200 million (about 87% increase). When asked of this variation the management responded that the estimates were of 2009 and the lapse of three years has experienced increase in material and labour cost. This could not justify the increase of more than 87% as stated clearly on the evaluation committee‟s memo submitted to the TB on 29/02/2012. Under normal circumstances the

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deviation of lowest evaluated bidder‟s price from engineer‟s estimate should be within 10%.

5.2 Contract Management

According to the Public Procurement Act, 2004, procurement of contract means any license, permit or other concession or authority issued by a public body or entered into between a public body and a supplier or contractor resulting from procurement proceedings for carrying out construction or other related works or for the supply of any goods or services. The following contracts were observed to be improperly entered or implemented during the audit.

5.2.1 Mismanagement of Contract for Design and Construction of Jetties at Lake Tanganyika During the audit of the financial statements of Tanzania Ports Authority I noted that, the Authority entered into contract with M/s Modspan Enterprises Ltd on 20th November, 2009 to design and construct Jetties at Lake Tanganyika (Logasa, Kyala, Karema and Kirando) at a contract price of Tshs.4,870,121,016 VAT inclusive. According to my review this contract was agreed to be completed after 18 months ending July, 2011 from the date of signing the contract.

Review of implementation status revealed that this project faced progress constraints due to poor planning and irresponsiveness of management. For instance I observed that the project faced land dispute, wrong site given to contractor and remoteness of the sites which could have been assessed at the planning stage. These constraints hindered the project from being completed satisfactory and at the agreed time frame (December, 2012). My review further revealed that the contractor M/s Modspan Enterprises Ltd was not fully committed to the project as a result it took much time for the Authority‟s

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engineers to supervise the project and as a result, the procurement costs increased unnecessarily. It was also revealed that this project had high labour turnover due to low pay, unavailability of construction materials and misunderstanding between the contractor and project manager‟s regarding the quality of work. Despite all the weaknesses noted on the performance of the contractor management granted additional works to the contractor costing the Authority Tshs.647,865,000 which increased the contract price from Tshs.4,870,121,016 to Tshs.5,517,986,016. By the time I was concluding the audit of the financial statements a total amount of Tshs.3,126,564,912.47 (equivalent to 56.6%) of the total contract price had already been paid to the contractor while the completed work was assessed at 34% of the contract work to be accomplished.

5.2.2 Delays in Completion of Contract for Review of Scheme of Service and Salary Structure Due to Minimal Supervision at TPA

TPA entered into contract with M/s Deloitte Consulting for provision of consultancy services for review of scheme of service and salary structure on 19/1/2011 for the contract sum of Tshs.67,881,125 VAT exclusive. This contract was expected to be completed on 4/3/2011 by M/s Deloitte Consulting submitting the final report to the Authority (Employer). Audit scrutiny on the various documents provided to the auditors by the management of the Authority noted delays on completion of the assignment caused by the client‟s low participation in the study. This was evidenced in the 135th special tender board minutes of the meeting held on 1/12/2011 which confirmed that the project was delayed by low rate of return of the job analysis forms by the client (TPA). Further, I noted that the contract was extended from time to time. The last minute review showed that it was supposed to be completed on 28/12/2011. This extension resulted into

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price increase by Tshs.36,321,356.27 which is 54% of the original contract price.

5.2.3 Lack of Proper Planning and Mismanagement of Contracts

Resulting into Extra Procurement Costs at TPA During the review of contracts management in the Public Authorities and other Bodies, I noted a serious mismanagement of contracts which led into extra procurement costs and failure to achieve the targeted goals to respective Procuring Entities. For instance in Tanzania Ports Authority (TPA) it was revealed that the Authority entered into a contract with M/s Edcat International Ltd for remodeling of gate No. 2 & 3 at DSM Port and its Head Quarters. This contract was signed on 5th May, 2011 for a contract sum of Tshs.214,698,802 to be completed after 4 months from the date of signing the contract.

My review noted that, this project could not be completed as agreed due to major changes in the scope of works, changes in the building materials and change of weather. This was a result of improper planning at the beginning of the project. Time extension of the contract that is from September, 2011 to June, 2012 lead to additional cost of Tshs.239,864,723 about 89.5% of the original price. A similar mismanagement of contract at TPA was observed on the contract for Supply, Installation, Training and Commissioning of Integrated Payroll, Human Resources, Accounting and Store System. This contract was signed on 14th day of July, 2010 between the Authority and M/s Soft Tech Consultants Ltd and agreed to be completed after five (5) months that was ended on 14th January, 2011.

In the review of performance of this contract I noted that the contractor was involved into a number of extensions as he failed to meet the agreed deadline. In the first request, the completion period was extended for (5) months then it was extended for two (2) months until 14th July, 2011. This

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time again the contractor failed to complete the necessary activities successfully for the commissioning of the project. The Authority and Consultant made an Addendum Agreement on 31st August, 2011 with clause of extensions of the contract and additional service for end-user training at a total fee of USD 31,860 (VAT inclusive) and for a completion period of 54 days.

Further, the Director of ICT on behalf of the Director General extended the completion time to 31st August, 2012 strictly requiring the contractor to finish all pending issues before August, 2012. This could not help the Authority to achieve the targeted objectives as to the time of concluding the audit of the Authority‟s financial statements in November, 2012 there were no signs of completing and commissioning of this project.

5.2.4 Termination of Contracts Leading to Nugatory Expenditure at TPA Tanzania Ports Authority (TPA) entered into a contract with M/s Oceana Advanced Industries Ltd in November, 2008 for maintenance and dredging of berth 1-11 and KOJ at Dar es Salaam Port. The agreed contract price was Tshs.4,633,940,315 VAT exclusive and it was agreed to be completed on 11th May, 2009. My review of this contract noted that the project was not completed as agreed hence necessitating extension of completion period for four (4) months to August 2009. This was due to management‟s failure to hand over berth No.7 as agreed in the contract. This failure was explained to have been caused by exigencies which occurred and large debris that developed upon execution of the contract. This resulted into an additional works to contractor costing USD 753,807.60.

On 15/5/2010 the Authority decided to terminate the contract with M/s Oceana Advanced Industries Ltd for the reasons that there was congestion of ships at DSM port which created inconvenience to the contractor to continue

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with the work. This termination of the contract costed the Authority Tshs.1,656,951,882.96 being standby charges of the equipment which were idle at the time the Authority failed to handover berth No. 7. Due to management negligence the termination cost above which was approved to be paid to the contractor on 1st July, 2010 out of which only Tshs.641,843,640 was paid timely. The remaining balance of Tshs.955,337,748.36 was settled in April, 2011 nine (9) months later due to prolonged discussion by management on settlement of final payments. This delay caused another charges of interest to the Authority amounting to Tshs.584,634,002.20 being interest for delayed payment to the contractor. According to my review this contract was not properly managed to the extent that it led to an expenditure (nugatory) of Tshs.2,241,585,885.16 for which TPA did not get value.

5.2.5 Improper Management of Marketing Contract at TANAPA During the audit of financial statements of TANAPA I observed that, the Park entered into a contract with Glocal Investment of Turkish for marketing and advertising the richness of Tanzania National Parks in Magazines, Billboards and Newspapers at a contract sum of USD 198,000. According to the agreement, the contract required the contractor to supply the employer with hard copies of magazines and newspaper in which the adverts were published in Turkey. The contract also required the contractor to supply the employer with the weekly and monthly schedules of radio and TV programmes including preparation and submission of quarterly reports on media coverage. My review on the implementation of the agreed terms in this contract revealed that the contractor could not manage to supply his employer the hard copies of both weekly and monthly magazines and no report was produced to substantiate whether there were organized radio schedules programmes, TV and outdoor advertisements

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made by the contractor. In addition, I also noted that the parties agreed to arrange for three media trips with four to five people consisting of journalists, columnist and authors for whom only one media trip with three (3) journalists was arranged contrary to the agreement signed between TANAPA and M/s Glocal Investment. In this case value for money could not been achieved.

5.2.6 Violation of Terms and Conditions Stipulated in the Contracts by PEs In my review of financial statements of the Kigoma/ Ujiji Water Supply and Sewerage Authority (KUWASA) for year 2011/2012 I observed mismanagement of contract for supply of 500 units of water meters between the Authority and M/s CERAMIC INVESTMENT. In this review I observed that the Authority signed a contract with the said Supplier on the condition that the goods will be delivered one week after signing the contract 22.06.2011. Contrary to the contract agreement only 200 out of the 500 ordered meters were delivered two months after on 10.08.2011. Management on receiving the 200 meters did not effect payments to the contractor leading to the remaining 300 meters not being delivered to the time of writing this report. Each part to the contract did not fulfil the agreed terms. As a result the contract met obstacles which led to termination of the contract. With this, the liquidated damages in either part could not be enforced as there were no such important clauses in the contract document. At NSSF it was reported delayed delivery of procurements costing Tshs.676,026,905.00 and that penalties for delayed delivery are not consistently applied. A good example was observed on Procurement of Peripheral Devices awarded to M/s Computech ICS Ltd amounting to Tshs.83,324,745.00 where delivery was delayed for 58 days but the supplier was not charged liquidated damages of 10% of contract sum contrary to the terms and conditions of the contract. I also noted that project management function at NSSF is not

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performed jointly by the PMU and Investment department which is contrary to the best contract management practices. The PMU staff are not involved in monitoring the implementation of the contracts contrary to the recommendations of the Public Procurement Regulatory Authority. This can be demonstrated by the fact that the contract register is not updated on the status of the contracts implementation.

5.2.7 Poor Management and Implementation of Contract at

TANESCO The main criterion for a contract to become effective is when parties to the contract have signed it. It appears different on the management of TANESCO as evidenced in the tender No. PA/001/10/HQ/G/001 for supply of Split Type PLC Keypad, Operated Prepayment Meters, LV metering Cabinets, LV Cables and Current Transformers (CTs). On this tender M/s Landis and Gyr (Pty) was awarded a contract for the supply of ARM meters and Keypad three Phase Prepayment Meters 20A to 100A complete with Meter Boxes at a cost of Euro 3,052,350 and M/s NAMIS was given a contract for supply of various sizes armored cables costing USD 375,210. The contract for M/s Landis and Gyr (Pty) was signed on 16th May, 2011 implying that contract should be executed immediately. However, we obtained information that the contract was not implemented since it was an overseas contract waiting for the Letter of Credit to be lodged with the bank when there is availability of funds. On November 2011 the letter with ref No CFO/MTS/PSO/63/74 was lodged to CRDB for Letter of Credit arrangement which was five months after contract award. Regardless of the contract duration being one year and schedule of requirement identified delivery on quarterly basis, these meters had not yet been delivered up to the time of the audit despite the advance payment of Euro 152,617.50 being 10% of contract price already paid. This is a violation of Regulation 121 (1) of GN 97 of 2005

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implying that there is no adequate mechanism for contract management.

In addition, there was no need on the part of TANESCO of starting the procurement process if there was insufficient funds, otherwise the costs, time and other resources incurred for the entire process of procurement could have been used for other activities. This is also contrary to Regulation 62(1) of GN 97 of 2005 which requires the procuring entities to ensure funds have been voted or committed before commencing any procurement process.

5.3 Results of Procurement Audit in 121 Procuring Entities by PPRA The Public Procurement Act, 2004 empowers the Public Procurement Regulatory Authority (PPRA) to carry out procurement audit and report the results thereon. During the year under review, PPRA conducted audit on forty one (41) MDAs, forty five (45) Public Authorities, and thirty five (35) LGAs. Generally, the procurement audits sought to determine whether the procedures, processes and documentations for procurement and contracting were done in accordance with the provisions in the PPA 2004, Public Procurement Regulations (GN. No. 97 and 98 of 2005, and GN. No. 177 of 2007) and that procurement carried out achieved the expected economy and efficiency (value for money for the allocated resources), and the implementation of contracts conformed to the terms thereof.

The outcome of the audits indicated an average level of compliance of 76% which is slightly above the overall level of compliance of 74% in the previous year‟s audit. The compliance was 80% or above in six indicators namely: Establishment and composition of Tender Board (85%); Establishment and composition of PMU (80%); Advertisement of bid opportunities (86%); Time for preparation of bids (91%); Use of appropriate methods of

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procurement (81%), and; Complying with the use of Standard Tender Document as stipulated in the regulations (87%). Generally, the outcome of the audits indicated an average level of compliance of 74% compared to 68% achieved in the FY 2010/2011 computed from the thirteen established compliance indicators. The average level of compliances for MDAs, PAs and LGAs was 77%, 76% and 67% respectively. The achieved compliance is lower than the planned average level of compliance of 80%, while only two indicators had a compliance level of 80% or above during the FY 2010/2011. The performance shows that there is an improvement during the FY 2011/2012 where the average compliance levels was 80% or above in five indicators namely: Establishment and composition of Tender Board (80%); Advertisement of bid opportunities (85%); Time for preparation of bids (90%); The use of appropriate methods of procurement (81%), and; Complying with the use of Standard Tender Document (82%). The compliance was below 80% in the following seven indicators: Functioning of AO, TB and PMU (74%); Preparation of Annual Procurement Plan (57%); Complying to compulsory approvals (78%); Publication of contract awards (68%); Proper keeping of procurement records (66%); Availability of quality assurance and control systems (55%), and; Contract management (74%). For the Public Authorities and Other Bodies the trend of analysis has shown that 9% (4 PEs) of the audited PA&OBs have poor performance, 54% (25 PEs) of the audited PA &OBs have fair performance and 37% (17 PEs) have good performance. Under this category, the National Examination Council of Tanzania attained the highest level of compliance of 94% while the Law School of Tanzania attained the lowest compliance level of 51%.

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In general the areas which still need attention of the managements of the PA&OBs as per the PPRA audit are:

(i) Establishment and composition of tender board; (ii) Establishment and composition of PMUs; (iii) Preparation and implementation of Annual Procurement Plan; (iv) Publication of contract awards; (v) Keeping procurement records; (vi) Contract management.

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CHAPTER SIX

ASSETS MANAGEMENT 6.0 Introduction

An asset is a resource controlled by the enterprise as a result of past transactions or events from which future economic benefits are expected to flow to the enterprise. The future economic benefits embodied in an asset are potential in contributing, directly or indirectly, to the flow of cash and cash equivalents to the enterprise. Asset management is a systematic process of operating, maintaining, upgrading, and disposing the assets in a cost effective way. Management of assets is important for the discharge of the functions of the PA&OBs. The success of the PA&OBs in achievement of the objectives, for which the entities were established, highly depends on the efficiency of that entity in the management of its assets. During this year‟s audit, I observed issues relating to mismanagement of assets in some PA&OBs. This chapter therefore, summarizes significant findings on management of assets emanating from the individual audit reports of various PA&OBs. The following issues have been highlighted to provide stakeholders with general understanding of the results of audits and make right decisions:

6.1 Liquidity Problems at the Tanzania Broadcasting

Corporation Tanzania Broadcasting Corporation strives to be a truly Public Broadcaster that is accountable to the public through its programmes accessible to all citizens regardless of their ideology, religion, class or physical disability. During the year under review, I noted that Tanzania Broadcasting Corporation (TBC) has reported an operating loss of Tshs.1,589,611,168 (2011:Tshs. 3,547,006,716). Further, as at the year end I noted that the Corporation is

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technically insolvent with a net liability position of Tshs.2,737,723,752 (2011: Tshs.1,135,630,509) and is largely dependent on Government‟s financing in meeting operational needs and its obligations as they fall due in the foreseeable future. These conditions and events may cast significant doubt about the Corporation‟s ability to continue as a going concern.

6.2 Deteriorating Going Concern Status of PSPF The Public Service Pensions Fund was established and is governed by the Public Service Retirement Benefits Act No. 2 of 1999. It is a defined benefit scheme which provides retirement benefits for the permanent and pensionable employees of the Central Government of Tanzania and its executive Agencies and holders of constitutional offices.

During the audit of PSPF, I observed that the last actuarial valuation that was undertaken during the year ended 30thJune, 2010 was done by Genesis Actuarial Solutions Limited, an independent firm of actuaries and consultants. The outcome of the valuation indicated that the financial position of the Fund continued to deteriorate. The valuation has revealed an actuarial deficit of Tshs.6.487 trillion as at 30thJune, 2010. I also observed that during the year 2011, the Government made a commitment to initially refund the benefits paid by the Fund from year 2004 to 2010 amounting to Tshs.716 billion. The amount was to be paid on annual installment of Tshs.71.6 billion over 10 years starting from year 2011. As at 30thJune, 2012 the overdue amount relating to 2011 and 2012 was Tshs.133 billion.

It was also noted that, the Government of Tanzania has not managed to honour its obligation in financing the actuarial shortfall as indicated in a letter with reference C/HC: 191/338/01/021 dated 15th June, 2009 which indicates the existence of a material uncertainty which casts significant

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doubt over the Fund‟s ability to continue meeting its obligations as and when they fall due.

6.3 Lack of Legal Ownership of Landed Properties Ownership of landed property refers to legal ownership

evidenced by title deeds or other legally backed

documents, contrary to that, it signifies the entity does not

have legal ownership of the assets in case a third party

claims such ownership. My physical verification of the

landed assets and buildings owned by some of the Public

Authorities and Other Bodies noted that most of the

properties do not have title deeds. As a result legal

ownership of these properties could not be ascertained and

hence put into question the value of properties stated in

the financial statements of these Public Authorities and

Other Bodies. For instance, it was observed that some of

the Water Authorities and other Public Authorities lack

legal ownership of their landed properties as narrated in

the table below:

Table 4: Entities with No Title Deeds S/no Name of Entity Number of Plots Number of

Buildings

1 TPA 44 -

2 MWAUWASA - 5

3 Open University of Tanzania 8 7

4 COASCO 1 -

5 UDOM 2 -

6 TPDC - 1

7 SIDO 19 -

8 Tanzania Postal Corporation 12 -

9 TAWIRI - 1

10 BUWASA - 22

6.4 Deteriorating Financial Performance of BAKITA, MUWASA

and TLSB During the course of audit of the financial performance of BAKITA, it has been noted that the Council is operating under deficit for a number of years due to the decrease in

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Government funding (other charges) and decrease in internal revenue generation as shown in the table below:

Table 5: Deteriorating Financial Performance of BAKITA

Year 2010 2011 2012

Currency Tshs. Tshs. Tshs.

Accumulated profit/(losses) 8,602,000 (37,194,000) (110,425,000)

Other charges 269,303,000 151,989,000 105,411,000

Internal revenue 84,800,000 68,978,000 54,723,000

In view of the above, the Council may fail to continue with its operations without an increase in government support. On the other hand, the Council should also investigate the reasons for a continuous drop over the years of internally generated revenue and develop alternative sources of funding its operations such as embarking in Vigorous means of boosting its internal revenue generating capacities. The same instance was observed during the audit of MUWASA where the performance of the Authority over three years to 30thJune, 2012 has been deteriorating. The Authority is characterized with continuous losses, decreasing net working capital position, uncollected accounts receivable, long overdue unpaid accounts receivable and increasing water leakages and losses. Frequent increases in electricity tariffs which are not matched with equivalent increases in water sales tariffs, new connections or water sales volumes worsen the situation. The audit found the year under review exceptional due to the fact that customers increased from 8,618 to 9,155 (increase of 6%), water revenue declined by Tshs.94.1 million (equivalent to 7%) and the net working capital as at 30th June, 2012 was found to be negative to the tune of Tshs.44.6 million. During the audit of Tanzania Library Services Board, it was revealed that the working capital of the Board was deteriorating. Current liabilities increased by

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Tshs.193,594,767 when compared to previous year but current assets dropped by Tshs.69,403,969 indicating liquidity problems and hence the Board may not be able to meet its obligations as they fall due from time to time which jeopardizes the Boards existence as a going concern.

6.5 Provision for Doubtful Debts Made Without Proper

Justification at CHC Tshs.83,403,836,594.02 Audit review on CHC receivables inherited from PSRC noted that the company has a provision of Tshs.83,403,836,594.02 out of Tshs.98,113,369,474.26 total receivables equivalent to 85% of the total receivables. Looking at the 85% percent of provision, it can be concluded that the Loan Recovery Department in collaboration with the Debt Collecting Agents have failed to meet their responsibilities. Further, it has been learnt that some of these provisions was interest receivable, calculated for late payment of assets or shares bought. Upon inquiry, there was no evidence obtained showing any communication made with debtors whether denying or complaining on the interest amount. Apart from that, there was no provision policy found to substantiate measures taken by CHC management. Huge figure of provision made might reduce much effort of loan recovery and management should make clear analysis with supported evidence to substantiate the provision made.

6.6 PSPF Non-Performing Loans of Tshs.67,179,416,536

PSPF provide loans advance to PA&OBs adequately secured by Government guarantees. During the year under review, I noted that several non-performing loans were advanced to government and non-governmental institutions with no repayments effected at all to the Fund throughout the year. This may distort the Fund‟s cash flows and consequently resulting into failure to meet its obligations, i.e. benefit payments as they fall due. Management should make a follow up on the overdue amounts and ensure that they are collected from the borrowers.

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Examples of the non-performing loans with no repayments are shown in the table below: Table 6:Non-performing Loans with no Repayments

S/N Borrower Name Sector Balance (Tshs)

1. HESLB Government Institution 54,644,657,534

2. PCCB Government Institution 6,678,150,000

3. Tan Power Resources Non -Government Institution 5,421,551,370

4. Tanzania Pharmaceutical Industries

Non-Government Institution 435,057,632

Total 67,179,416,536

6.7 Pension Funds Loan Agreement with the University of

Dodoma/ Government of the URT Funding agreement is a critical document that sets out various funding terms which include but not limited to amount of funds to be advanced, interest rates, repayment schedule and settlement of any disputes should they arise during implementation period. Lack of signed terms of funding may lead to the Fund‟s inability to recover all the funds in case of disputes. During the course of audit of the Funds Loan Agreement, I noted some weaknesses of project agreement financed by Social Security Funds with the Government as narrated below:

(a)PSPF Loan Agreement PSPF entered into agreement with the Government through Ministry of Higher Education and Vocational Training over the financing of the construction of the College of Education of the University of Dodoma. It was further observed that, the substance of the agreement was to treat the contract as a loan, i.e. the Fund to finance and construct the College comprising hostels, dining hall, lecture theatres, class rooms, seminar rooms, office buildings, library, dispensary and other amenities as specified within the contract. Review of the agreement noted baffling interpretation which needs

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immediate authentication. Lack of a clear cut agreement may subject the contract to various interpretations which may result into losses to the Fund in case of disputes. The Fund should liaise with the Government and ensure that the loan agreement is properly worded and any clauses that may be subject to misinterpretation are fine tuned.

(b)PPF Loan Agreement My review of the long term loan agreement of PPF to the University of Dodoma noted that the Fund is participating in funding construction of the University with a total of Tshs. 71 billion invested into the project as at 31stDecember, 2011. According to the agreement, interest will start to accrue once the project is completed. However, we noted that the funding agreement in respect of this project between the Fund and the Government of the United Republic of Tanzania is yet to be finalized as at the date of this report. PPF management through its investment directorate should ensure that clear loan agreements are in place before the loans or projects are executed.

6.8 House of the Sugar Board of Tanzania Occupied by the

Former Minister of Agriculture Every Authority has the right to use the assets possessed for the benefit of the entire Authority without being interfered. During the audit of the Sugar Board of Tanzania, I observed that the Board has a plot No.482 along the Bray Road Masaki. For a long time the house has been occupied by the former Minister of Ministry of Agriculture, Food Security and Cooperatives. Despite of the efforts made by the Board to repossess the property from the occupant as per letter written to the Chief Secretary, and the latter‟s promise to return the same by December 2011, the property is yet to be returned to the Board. Continuing to hold the Board‟s property by former Minister of Agriculture, Food Security and Cooperatives implies that

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the Board is being denied the right to use its rightful property to yield income and this makes the ownership of the property by Sugar Board of Tanzania to be uncertain. Vigorous follow-up with the relevant authorities to repossess the property with immediate effect and restore effective use and control thereof are needed.

6.9 Properties Situated at Dodoma University Plots But Not Included in the University Books of Accounts Valued Tshs. 452,099,118,739 Construction of UDOM colleges was highly contributed to by pension funds in the country. The buildings were handed over to the University for use by the Pension Funds that financed the construction projects of most of the University buildings under Government directives. However, during the audit I noted that all the completed buildings and capital works in progress for six Dodoma University Colleges and Student‟s Hostels valued to Tshs.452,099,118,739 were yet to be recorded in the University books of accounts. It was also revealed that most of the buildings were not covered by insurance since the defects liability period has already expired. The University stands to suffer a total loss of its Property, Plant and Equipment in case of occurrence of insurable hazards such as fire.

6.10 Incomplete Controls Over the CHC Caretakers Paid Tshs.523,451,700.5 In order to manage the specified organizations still in the divesture process, CHC engaged Caretakers. During the year under review, CHC paid six involved Caretakers a sum of Tshs.523,451,700.5. However, there was no report (financial or progress) provided from the caretakers or an official from CHC responsible for supervising the caretakers. Further, review from the monitoring and evaluation reports I noted that National Milling Corporation (NMC) is among the specified entities to be managed by CHC. I was not provided with any report, payment records or even records of income from NMC activities. The audit

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noted that Caretakers are not closely monitored and there is no follow-up to ensure that the monies paid to caretakers are spent as intended and fully supported. Caretakers should be closely monitored and account for every fund remitted to them. NMC being one of the specified entities to be managed by CHC should be closely managed as well. NMC caretakers should enter into agreement with CHC and account for every revenue and expenditure earned and incurred respectively.

6.11 Inadequate Control Over Ex NBC Borrowers at CHC

Tshs.630,733,101.65 During my review of existing loan record of Ex NBC borrowers, it was noted that there were new customers who never existed in the CHC loan records but they have been listed as new customers, all amounting to seven (7) accounts with a total loan value of Tshs.630,733,101.65 as shown in the table below; Table 7: New Customers Who Never Existed in CHC Loan Records

S/no Name of the Borrower Details Amount(Tshs)

1. Rashi D. Mshalu New account 5,000,000.00

2. Andrea Ishengoma Makyai New account 457,383.90

3. C.K.Enterprises New account 39,994,865.00

4. H.N.Impex Port Ltd New account 17,238,689.00

5. Tanzania Tobacco Board New account 537,522,880.00

6. Fidel Emmanuel New account 1,363,312.10

7. Dor-Mohamed Issarahmat New account 29,155,971.65

Total 630,733,101.65

The new customer accounts were fully paid at the end of the year with no debt obligation. Without proper control over these customers, chances are there that the current loan balance for Ex NBC borrowers is unrealistic and therefore unreliable.

6.12 Long Overdue Goods in Transit at TPA Worth Tshs.19,689,640 During the verification in respect of TPA‟s inventories, I revealed that there are long overdue goods in transit

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amounting to Tshs. 19,689,640. The goods were spare parts for patrol boat „Irimina Macha‟ which were ordered through opening Letter of Credit (LC) of 23rd November, 2009. The LC was valid up to 26th February, 2010. I noted that the consignment was received by Cargo Handling Company M/s Swiss Port Tanzania Limited at Julius Kambarage Nyerere International Airport aboard Flight No. ACP 060/5Y SAN of 29th May, 2010, but it was discovered that the consignment was missing in the process of delivery to TPA. Further, audit review noted that the loss is neither provided for nor reported in the financial statements of TPA during the year. Possible measures should be taken to ensure that the consignment or costs thereof are recovered from the concerned Cargo Handling Company as soon as practicable and disclosure of the loss should be well reflected in the financial statements.

6.13 Operating NDC Plot No. 2338 Mbezi Beach, Bagamoyo

Road Without Rental Agreement During the audit it was observed that the NDC does not have a rental agreement with the current occupier of the property, Messrs Vignan Education Foundation whose agreement with Consolidated Holdings Corporation (CHC) expired in August 2011. Vignan Education Foundation refused to accept the terms of the agreement drafted by NDC which inter alia contained a monthly rent of Tshs. 60 million was determined by a professional valuer. Management did not provide us with plausible explanation for not enforcing the Corporation‟s right of evicting the tenant from the property or collecting the proposed rent from them. The Corporation is at a risk of losing the rent collectable from this property that would have improved its liquidity. Management should take action to evict Vignan Education Foundation from the property or enforce the proposed agreement. This should include recovery of interest on the rent up to the date the amount is collected.

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6.14 Lack of Detailed List of Properties in the handing-over note of the Water Supply Scheme to KASHWASA. Kahama Shinyanga Water Supply and Sewerage Authority (KASHWASA) was established to operate the Water Supply Scheme from Lake Victoria to Shinyanga and Kahama towns including management of infrastructure of water supply scheme which form part of the Authority‟s Property, Plant and Equipment. In the course of our audit, we observed that, although the water supply scheme was handed over to the Authority, the Memorandum of Understanding did not include detailed list of assets as historical costs of some assets are still unknown. We noted that the Management received a letter from the Ministry of Water with ref. no. FC.449/599/02A/122 dated 21st December, 2010 forwarding a draft Memorandum of Understanding (MoU) for handing over of the water supply scheme. Management of KASHWASA requested the Ministry of Water to facilitate them in getting details of the assets including their values via a letter with reference number AD.32/45/01B/44 dated 24th August, 2012. The Management through the referred letter requested the Ministry to engage a consultant who would go through all the assets and value them accordingly. However, as to the time of audit, the management has not received any response from the Ministry of Water on this issue.

6.15 Weak Management of Inventories Para 6 (c) of IAS 2 define inventories as assets in the form of materials or supplies to be consumed in the production process or in rendering of services. Inventories represent a large portion of the entity‟s investment and must be well managed in order to minimize losses that might result from the inventory mismanagement. During the audit of PA&OBs, several weaknesses were observed in relation to inventory management. We observed that in some Authorities year-end stock taking exercise was conducted without stocktaking instructions, store issues were not recorded in the store‟s ledger or bin cards. It was also noted that some

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inventory items in the store‟s shelves were not placed with the bin cards. Goods Received Notes were not raised when goods were delivered to store, stock items were included under property, plant and equipment (fixed assets) instead of being reported under inventory. It was further observed that identification of obsolete and slow moving items was not properly conducted. Also, I observed Un-reconciled differences of stock records and physical balance and poor arrangement of items in the store. Obsolete items were included to some PA&OBs accounts. These instances were noted at SOUWASA, IAE, MSD, AUWASA and CAMARTEC just to mention a few.

6.16 Long Overdue Trade Receivables Aggregating to Tshs.29.9 Billion

Business receivables are money owed to a business entity by clients and treated as an asset on the business‟s statement of financial position. Receivables are part of business revenue, along with cash flow and profit. According to best practice, the average collection period should be as low as possible (Maximum of 90 days) in order to avoid tying the entity‟s resources to third parties which will negatively impact on the liquidity of the entity. However, our verification of business receivables in the financial statements of PA&OBs revealed that existence of long overdue receivables which exposes the authority to the risk of loss due to the probability of non-realization of the trade receivables, hence necessitating an upward revision of provision for impairment of trade and other receivables. The table below illustrates some PA&OB‟s with long overdue trade receivables;

Table 8: Overdue Trade Receivables

S/NO Name Of Entity Receivables (Tshs) Period

1. TPA 3,423,242,460.00 2009 to 2012

2. TCRA 15,564,956,947.00 Over a year

3. NDC 104,600,794.00 Over 1 year

4. IPS 19,519,130.99 2003 to Dec 2011

5. IPS 42,805,099.00 Since 2010

6. DUCE 281,563,000.00 Due over 2 years

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S/NO Name Of Entity Receivables (Tshs) Period

7. NIP 34,525,529.00 Over 2 years

8. UDOM 154,854,160.00 Over 2 years

9. KASHWASA 965,377,057.00 Over a year

10. CBE-Mwanza 7,554,047.00 Since 2010

11. DAWASCO 8,163,108,795.00 Over six months

12. IRUWASA 885,058,170.00 Over a year

13. BUWASA 302,543,362.00 Over 4 years

Total 29,949,708,550.99

Further, our audit noted that, Songea Urban Water and Sewerage Authority (SOUWASA) closed customer accounts with balances due for more than five years amounting to Tshs. 211,739,184 during the year under review. However, I noted that there was no Board of Directors approval for the write off as per the requirement of the Authority‟s Financial Regulations. We are of the opinion that management should ensure that all write offs of debtors balances should properly be approved by the Board of Directors as required by the Authority‟s Financial Regulations. Therefore the amount which was written off during the year should be tabled before the Board of Directors for retrospective approval. The same instance was observed at CHC during the period under review of which a total loan amounting to Tshs. 98,924,630.45 was written off from the books of accounts without proper approval from the Board of Directors. CHC‟s management should follow laid down policies and procedures for loan write off.

6.17 Provision for Doubtful Debts for City Water Services

Tshs.6,698,388,568 In the review of trade and other receivables of DAWASA, it was revealed that there was a provision for doubtful debts amounting to Tshs.6,698,388,568 provided for in the accounts. Further, review of the provision established that the amount was specifically provided for City Water Services Ltd whose lease contract was terminated in May, 2005 for poor performance on the lease contract. During CWS exit, it was agreed that the debts outstanding should

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be paid by DAWASA from collections of debts and such funds should be deposited in a special bank account and payment to creditors should be paid from that account. The amount collected and deposited in that account did not suffice to liquidate the outstanding debts and therefore DAWASA paid the debts above, the amount collected by Tshs. 453,178,161 in expectation that City Water Services will repay the amount. It is now over seven years since services of City Water services were terminated and there is no likelihood that the amount would be recovered from the defunct service provider. As a result DAWASA‟s current assets are overstated by the amount overpaid.

6.18 Improper Procedures at Open University of Tanzania

Review of the Open University of Tanzania operations noted several critical weaknesses which need immediate action to be taken as narrated below; Some of the University‟s bank balances as reflected in the financial statements were not properly reconciled with corresponding balances as per bank statements. As at the end of the period under review (30th June, 2012), material differences were noted in the bank reconciliation statements which were availed for our verification. Under the circumstances, the correctness of the cash and cash equivalents which were reported at Tshs.7,118,266,352, as well as the overdrawn cash book balances reported at Tshs.1,534,122,249 in the financial statements could not be ascertained. Bank reconciliation statements for five accounts, for the whole period under review were not availed for audit verification along with their balances as per books of account as at 30th June, 2012. In the absence of the bank reconciliation statements, correctness of the above bank balances as stated in the books of account could not be determined.

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In review of internal audit reports I noted that an internal audit investigation report which was submitted to the University‟s Executive Council reported misappropriation of public funds aggregating to Tshs.700,182,000. It was explained that this sum was made up of Tshs.219,860,000 which was perpetuated through the Loans Board and Tshs.480,322,000 which was perpetuated through the Treasury Registrar by way of fraudulent payments to ineligible individuals. The management explained that legal procedures against responsible officials had already been initiated. The financial implications had, however, not been reflected in the books of account in this regard. There was laxity in ensuring that Loans‟ Board funds paid through the University were strictly paid to entitled registered students. Furthermore, controls to ensure that salaries paid by the Treasury for the University employees were restricted to bona fide employees of the University were not adequate.

6.19 Two Containers of Library Books from Children International (Donors) not cleared at the Dar es Salaam Harbours Since 2009 by TLSB Audit review carried at the Tanzania Library Services Board revealed that the Board has failed to clear the books consignment since 2009. The issues concerning the fate of these books need to be resolved and the same received ready for distribution to respective targeted readers. The relationship between the donors and TLSB need to be safeguarded before they refrain from donating other library books. The library books are still at the harbours pending settlement of custom duties and demurrage charges. According to TLSB management explanations, the cost stood at Tshs.147million. As of 30th June, 2012 the bill was not known as no details were availed for audit review and verification.

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6.20 Increased Poaching Incidences at TANAPA During the review of the data extracted from the quarterly reports of the protection department of TANAPA shows that poaching activities especially on elephants has substantially increased. According to the data extracted from seven parks a total of 110 elephants were killed during the year 2011/2012. Poaching activities especially on elephants is alarming which call for immediate remedial measures to curb the situation as shown on the table below: Table 9: Poaching Incidences at TANAPA

S/No Park 1st qtr 2nd qtr 3rd qtr 4th qtr Total

1. Katavi 2 6 5 2 15

2. Ruaha 5 8 9 4 26

3. Mkomazi 3 0 0 2 5

4. Mikumi 1 3 5 1 10

5. L. Manyara 2 3 0 0 5

6. Serengeti 8 7 2 6 23

7. Tarangire 0 8 13 5 26

Total 21 35 34 20 110

Further, audit review of some parks such as Katavi, Mikumi, Lake Manyara and Mkomazi revealed that patrol days were not executed as planned and the parks had many incidences of poaching and large number of elephants were poached during the year under review as shown on the table below;

Table 10: Performed Patrol Mandays

S/no Park Performed Patrol Mandays –Increase/(Decrease)%

Number of poaching incidence

reported

Number of elephant poached

1. Katavi (43.2) 17 15

2. Mikumi (29.9) 12 10

3. L. Mnyara (57.5) 13 5

4. Mkomazi (43.4) 1 5

Total 35

Patrol man days at each park level were not implemented as planned since some of the parks mentioned above had a continuing negative achievement in patrol man days, hence

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number of poaching incidences and number of elephants poached has increased. Further, audit review revealed that Serengeti has been performing patrols throughout the year but the elephant poached incidences are still alarming and hence much more efforts should be undertaken in that park. On the other hand management of TANAPA should not rely much on the reported few poaching incidences in Mkomazi National Park. Patrol man days should be improved since Mkomazi National Park is the park where rhinos, the endangered wildlife are kept under sanctuary hence reduction in the patrol man days might attract and encourage poachers.

6.21 Licence Fees Paid to TCRA by TBC Contrary on Behalf of Star Media Tshs.618,300,000 Tanzania Broadcasting Corporation Limited (TBC) and Star Communication Network Technologies Corporation Limited (Star) signed an investment agreement in May 2009. The agreement provides for a 35 percent equity shareholding with equivalent voting power in Star Media (Tanzania) Company Limited to Tanzania Broadcasting Corporation Limited (TBC); Star Communication Network Technologies Co Ltd is entitled to a 65 percent on the same once the allotment is completed. Called and paid for share capital of Star Media (Tanzania) Limited is yet to be allotted pending valuation of assets to be provided by Tanzania Broadcasting Corporation Limited (TBC) and those already provided by Star Communication Network Technologies Corporation Limited (Star) as per clause 3.2 and 3.3 of the Shareholders Agreement. The audit of TBC observed that Tshs.618,300,000 was paid to Tanzania Communication Regulatory Authority (TCRA) on behalf of Star Media (Tanzania) Limited in the financial year 2010 in respect of license fees. However, Star Media (Tanzania) Limited has a performance contract signed with

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Tanzania Investment Centre whereby Star Media (Tanzania) Limited has been exempted from paying license fee from its inception for a period of ten years and has thus disputed recognising the amount as TBC‟s advance towards Star Media‟s share capital. The amount is unlikely to be recovered and is therefore fully impaired. No recording has been made in the financial statements regarding the value of TBC„s share of losses in Star Media (Tanzania) Limited. Star Media (Tanzania) Limited incurred a loss of USD 710,456 during the year under review (USD 1,463,253,158 for its first 18 months for the financial period ended 31st December, 2010). TBC has not received value for the money paid on behalf of Star Media (Tanzania) Limited. The TBC Board of Directors should make a decision on the modality of contribution for its share of investment in Star Media (Tanzania) Limited, preferably by applying its lease/rental income as opposed to transferring ownership of its non- current assets.

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CHAPTER SEVEN

HUMAN RESOURCE MANAGEMENT

7.0 Introduction Human resource management is the management of an organization's workforce. It is responsible for the recruitment, training, assessment, rewarding of employees, overseeing organizational leadership and culture, ensuring compliance with employment and labour laws. In circumstances where employees desire and are legally authorized to hold a collective bargaining agreement, HR will typically also serve as the entities primary liaison with the employees' representatives (usually a labour union). This chapter addresses shortfalls/challenges facing Human Resource Management in the PA&OBs as outlined hereunder:

7.1 Lack of Transparency on Recruitments to Some of

PA&OBs Recruitment is the process of finding and hiring the best-qualified candidates (from within or outside an organization) for a job, in a timely and cost effective manner. The recruitment process includes analyzing the requirements of a job, attracting employees to that job, screening and selecting applicants, hiring, and integrating the new employee to the organization. It has been revealed that some of the PA&OB‟s do not comply with their staff regulations whereby, recruitments do not follow transparent procedures, a practice which denies other people the rights to compete employment as is the constitutional right of every Tanzanian with the pre-requisite qualifications and attributes for the job advertised, hence the need for transparency in the recruitment process in all public sector entities.

http://en.wikipedia.org/wiki/Management

http://en.wikipedia.org/wiki/Organization

http://en.wikipedia.org/wiki/Workforce

http://en.wikipedia.org/wiki/Employer_branding

http://en.wikipedia.org/wiki/Training_and_development

http://en.wikipedia.org/wiki/Performance_appraisal

http://en.wikipedia.org/wiki/Remuneration

http://en.wikipedia.org/wiki/Leadership

http://en.wikipedia.org/wiki/Organizational_culture

http://en.wikipedia.org/wiki/Labour_law

http://en.wikipedia.org/wiki/Collective_agreement

http://en.wikipedia.org/wiki/Trade_union

http://www.investorguide.com/definition/process.html

http://www.investorwords.com/9943/hiring.html

http://www.businessdictionary.com/definition/candidate.html

http://www.investorwords.com/3504/organization.html

http://www.businessdictionary.com/definition/job.html

http://www.investorguide.com/definition/cost-effective.html

http://www.investorguide.com/definition/include.html

http://www.businessdictionary.com/definition/requirements.html

http://www.investorguide.com/definition/employee.html

http://www.businessdictionary.com/definition/screening.html

http://www.businessdictionary.com/definition/applicant.html

http://www.businessdictionary.com/definition/employee.html

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I also noted that TSN Ltd granted the permanent and pensionable appointment terms to an accountant as per letter Ref. No. FAM.32/772/06 of 21/09/2006 instead of employment on contract terms as read at folio 4 of her PF No. 481 on 02.10.2006. At the time of her employment, she had already attained the age of 49 years, 6 months and 6 days contrary to section D.39 of the Standing Orders for public service, 2009 and Section B.5.4.1, C 3.1 of the TSN staff Regulations and such procedures might have a negative impact on the productivity of the staff and to the respective Organisation. It was also observed at TNBC that one temporary staff has been in that status since 1st October, 2010 to date. The employment of the staff has been renewed 5 times. The last contract which expired on 23rd March 2012, to date the staff is still serving the Council illegally. This type of employment contract contravenes the Employment and Labour Relations Act (ELRA) of 2004 which requires temporary employment not to exceed 3 months period.

7.2 Remittances of PA&OBs to Social Security Funds Among major functions of pension funds include registering members, collecting contributions, investing and paying pensions and other allied benefits to its members. During the year under review, we noted that some PA&OBs did not submit employees and employers contributions as required by law. At Open University, management did not timely remit their statutory deductions of Tshs.2,481,335,718 to the respective pension authorities. The scenario was also noted at Mtwara Urban Water Supply and Sewerage Authority, TEMDO, DAWASA, CARMATEC, Institute of Adult Education, CMSA and Singida Urban Water. According to the Treasury Circular with Reference No C/BA 54/ 328/01/15 dated 19th July, 2011 all public offices were

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informed on the new procedure for deducting and remitting of pension and national health care contributions. Under the Circular, the Treasury on behalf of the respective employers was to take responsibility for the payment of the employers‟ portion of pension contributions to the following pension funds - PSPF, LAPF, PPF, NSSF, and GEPF as well as NHIF. I observed that for employee‟s contributions which were remitted to the respective social security funds, no evidence was availed to show that the employer‟s portion was remitted by the Treasury to the respective pension funds. This was observed to the audits carried at Moshi University, Cashewnut Board of Tanzania, Mwalimu Nyerere Memorial Academy, Open University of Tanzania, DMI, MWEKA College, MUCCOBS and MNH. Without clear records detailing remittances of the employers‟ contributions to the social security funds by the Treasury and confirmation of receipt of contributions to PA&OB‟s, it is not possible to confirm that the contributions were made by the Treasury.

7.3 Staff Performance Appraisal A performance appraisal is a series of constructive, developmental discussions, between line managers which focus on helping people to realize their potential. It‟s much more effective and easier to appraise performance by regular meetings to discuss progress and provide support, rather than to wait for a single, annual appraisal meeting. In our review of human resources related issues, we noted that staff performance appraisal was not carried out in a number of the PA&OBs and for the few conducted appraisals only appraisal forms are filled by officer under appraisal, while other sections of the appraisal forms were either partially completed or remained plain. Delay of staff performance appraisals may demoralize staff especially those who are hardworking, and management may have inadequate basis for staff promotion and renewal of staff contracts when needed.

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Example of Public Authorities where performance appraisal were not carried out include: MORUWASA, CHC, MWAUWASA, GEPF, TPDC, TSN, STAMICO, LUWASA, CBT, COASCO, DUCE, COSTEC, MTUWASA, TEMDO, PPRA, AUWASA, TCB, TNBC and DMI.

7.4 Missing Records in Personal Files

Personnel records provide a basis for decision making in every area of human resources management such as forecasting and planning, recruitment and selection, employment (including promotion, transfers, disciplinary procedures, termination and redundancy), education and training, administration and health, safety and welfare. The audit carried on some Public Authorities revealed that personal files are missing important information required to be kept in the personal files for future use. This was evidenced by the audits carried at Lindi Urban Water, Tanzania Engineering and Manufacturing Design Organisation (TEMDO), Moshi Urban Water Supply and Sewerage Authority, Kigoma Ujiji Water Supply and Sewerage Authority (KUWASA), Tanzania Commission of Science and Technology, Arusha Urban Water Supply and Sewerage Authority, Moshi Urban Water Supply and Sewerage Authority, Institute of Adult Education and DUCE. In the absence of employees‟ informations the Organisation can loose in disputes between employees and organization. Employee‟s informations should be updated regularly.

7.5 PA&OB’s with Vacant Posts and Others are Under Staffed A temporary understaffing problem does not usually create long-term issues within an organization. However, if the organization has not dealt with understaffing for a prolonged period of time it can create significant problems. Some of PA&OB‟s organization structures have vacant positions for long period of time, and the situation has negative impact for the respective entities. Capital Development Authority (CDA) has 14 key positions which are vacant including that of the CEO.

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At TPA the Directorate of Management System revealed a shortage of staff contrary to approved TPA organization structure (2010). TPA Organization Structure, provides for three posts of Principal Management Systems Officer (Quality Management), Principal Management Systems Officer (Organizational Design and Development) and Senior Management Systems Officer (Quality Compliance). All of these three posts are vacant since year 2010/2011 and no evident effort made to recruit eligible Tanzanians to fill the vacant posts. This has an impact to the operations of the Authority due to the fact that the objective of improving and sustaining management system compliant to IS 9000 series of the Quality Standards can hardly be achieved. At both NHC and PPF currently, one staff (Accountant) is involved in preparation of financial documents, posting of the transactions and reconciling the accounts. This means a transaction cycle is completed by one person, defeating the requirements of segregation of duties as a means of control due to shortage of staff. It was also noted at MSD Mbeya Zonal Office Branch that the sales unit is not adequately staffed. According to the MSD Mbeya Zone organization structure, the sales unit is required to have 3 staff (1 sales officer assisted by 2 sales Assistants) but currently there is one staff who is serving three regions (Katavi, Rukwa and Mbeya). At RUBADA it has been observed that the key and most important positions of Director General and Director of Finance have been vacant for a long time. The situation weakens the management team capability. This affects directly the efficiency and effectiveness in the implementation of RUBADA‟s core functions of its establishment.

7.6 Lack of Training Policy and Programme

It has been noted that, some Public Authorities do not conduct training for their staff and thus resulting to their poor performance. A number of PA&OBs have not carried

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out training needs assessment exercise on its staff to identify the professional gap which management could base to plan for appropriate training activities, and hence training funds have been spent without proper guidelines. Lack of training policy was observed on audits carried out at Mwanza Urban Water Supply and Sewerage Authority and Cashewnut Board of Tanzania. Training policy was not prepared.

7.7 Shortage of Pilots at TPA Risking the Going Concern of the Ports During the audit visit at control tower I managed to have discussion with Pilots and Harbour Master regarding the general operation of the station. One of the serious issues pointed out during this discussion was on the shortage of Pilots at the TPA. We were told that TPA so far has 7 Pilots categorized as follow: Table 11: List of Pilots and Their Retirement Dates

S/no Name Class Station Retirement

1. Mwingamo Abdallah 1 Dar Port Dec. 2012

2. Fredy Mwampeta 1 Dar Port June 2012

3. Regnad Senyangwa 1 Dar Port October 2012

4. Paul Paul 1 Dar Port Dec.2012

5. Kasoso Ramadhani 1 Tanga Port Dec. 2012

6. Henry Matily 1 Tanga Port March 2012

7. Hussein Kasigwa 1 Mtwara Port Dec. 2012

Due to nature of Dar es Salaam Port the pilotage in and out of foreign ships is done by TPA Pilots with class I or II. Without their service there is no operation at the port. We could not get satisfactory measures or efforts such as recruiting or upgrading the existing Pilots to rescue the risk of shortage of Pilots at the ports. Without immediate efforts the operations of the ports are at risk of being paralyzed in the near future. I advice the Management of the Authority and the Board to ensure immediate measures are taken to get pilots for sustainability of ports.

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7.8 Absence of Succession Plan at TPDC

Review of human resource management records and operational and strategic plans revealed that the Corporation human resource recruitments were frozen by the Government for about ten years until 2005. Despite the fact that the current work force of the corporation is aging, the TPDC management had not prepared a comprehensive staff succession and retirement plan. The corporation is likely to face shortage of key staff especially in oil and gas as it will take time to groom a new group of key staff. Urgent measures aimed at preparing and implementing staff succession and retirement plan as part of corporation‟s human resource strategic plan need to be taken by corporation management.

7.9 Non Compliance with Government Circular to Pay Pension to Contract Employees by NSSF

Government circular with reference number C/AC.45/257/01/Temp./26 of 1st December, 2009 requires employees who are under contract for specified period of time to be paid gratuity when the contract ends and not paid for NSSF or PPF contribution. Employees who are under unspecified period of time with the employer are required to be paid a statutory percentage of contribution per requirement of specific employee scheme and not gratuity. During the year under review we observed that NSSF did not comply with the Government circular by paying Tshs.13,062,475.80 to contract employees and Tshs.1,965,035,779.91 to permanent employees as gratuity. These are ineligible expenses and liabilities due to non compliance with Government directives.

7.10 Weaknesses Noted at College of Business Education (CBE) (a) Non Reconciliation of Student’s Numbers The College has no clear record of the number of students studying at the College. For the period of two years

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2009/2010 and 2010/2011 the records differed between the Registrar‟s office and the finance department. This led to differences noted in the revenue collection. For the two years period, the Registrar‟s office recorded revenue of Tshs.9 billion while the finance department recorded total revenue of Tshs.11 billion. (b) Contracts Issued to Staff After Retirement The Director of Human Resource was due for compulsory retirement as required by the Standing Order F.42 of 2009 on 24th November, 2008. However, on 18th July, 2008 CBE Principal wrote to the Treasury Registrar requesting for an employment contract of two years to the retiring staff. The staff remained in service for extra two years even though prior approval from the Treasury Registrar was not granted. Three academic staff who had attained the retirement age of 60 years, remained in office for 2 to 5 years respectively and continued to earn salaries until November 2010 without the consent of the Chief Secretary through the President Office–Public Service Management. (c) Misuse of Unclaimed Salary of Tshs.349 million CBE continued to receive a total of Tshs.349 million being salaries in respect of 10 retired staff (Tshs.244 million), 13 resigned staff (Tshs.104 million) and one deceased staff (Tshs.1 million). The funds received were used to meet other expenditures of the college contrary to the intended purpose of the release of the funds from the Treasury. (d) Inadequate Control of Teaching Allowances It was observed that there is inadequate control of teaching allowances at CBE, because heads of departments do not monitor lecturers and tutors attending classes. Non control of the teaching allowances led to over expenditure of Tshs.74 million above the approved budget of Tshs.300 million. CBE also made a payment of Tshs.147 million to

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part time tutors without formal contracts from 1st November, 2011 to 30th June, 2012.

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CHAPTER EIGHT

CORPORATE GOVERNANCE 8.0 Introduction

Corporate governance involves regulatory and market mechanisms, and the roles and relationships between a company‟s management, Board of Directors, its shareholders and other stakeholders, and the goals for which the corporation is governed. The central focus of corporate governance is to ensure the accountability of individuals in an organization and therefore facilitate the attainment of established objectives of the organizations. The pillars of corporate governance includes the internal audit function, Board of Directors including an audit committee of the board, management, and the external auditor. This chapter provides an insight of the corporate governance matters which were reported in the individual management letters of the Public Authorities and Other Bodies for the financial years ended 30th September, 2011, 31st December, 2011 and 30th June, 2012. For the past three years, a number of observations addressing key areas for improvement of Corporate Governance in the Public Authorities and Other Bodies (PA&OBs) were raised with their respective recommendations suggesting the solutions for the ear-marked anomalies. Some of the issues raised were addressed by the respective PA&OBs and some are either under implementation while others have not been implemented at all. Some of the matters reported in previous years‟ reports include: Lack of Board of Directors Charter, Involvement of Members of Parliament in Operational Activities of Public Authorities, Interference of the Independence of Boards of Directors in directing the activities of Public Authorities, Inefficiency in functioning

http://en.wikipedia.org/wiki/Stakeholder_(corporate)

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of the Board of Directors in the areas of Board‟s Capacity Building Programs, having explicit terms of reference (ToR) for the Appointment of Board of Directors, scheduling of Board meetings and the responsibility of the Boards with regard to Financial Management and Reporting. On the aspect of the Audit Committee there was lack of guidelines on the formation of the Committee, lack of Audit Committee Charter while some of them lacked financial expertise. In some organizations, internal audit departments had inadequate staffing and reporting framework, unsatisfactory preparation of internal audit guidelines, constricted audit coverage, and participation of the internal auditors in pre audit of payments. I noted non compliances with regulations on the payment of Directors‟ fees and submissions of 10% of Gross revenue to Treasury. Other matters reported in the previous reports included: lack of database for members of Boards of Directors in PA&OBs, involvement of Board members in operational activities of the PA&OBs and establishment of an independent office of the Treasury Registrar.

I have noted the efforts exerted by the Government towards implementation of the recommendations set out in our previous year‟s reports. However, there are some recommendations which have been reported in the Paymaster General‟s (PMG) structured responses submitted to the Controller and Auditor General‟s Report for the year 2011 as „implemented‟ but they have recurred in the current year‟s report. I strongly re-iterate the previous year‟s recommendation and urge management to continue with the implementation of the remaining recommendations to improve the performance of PA&OBs.

8.1 Boards of Directors

The Board of Directors is a body of elected or appointed members mandated to perform the oversight function and directing of the organization. The Board‟s functions are determined by the powers, duties and responsibilities that

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are delegated to it by another authority. There are laws or bylaws which specify the number of members of the board, procedures for their appointment and the number of times the Board meets. The Board is a pillar of a Public Authority‟s existence and prosperity. There are weaknesses which have been noted in the overall functioning of the Boards of Directors in a number of PA&OBs as detailed hereunder:

8.1.1 Review of Planned Corporate Objective Goals

Corporate objectives refer to well defined and realistic goals set by a company that often influences its internal strategic decisions. Most corporate objective and targets used by a business specify the time frame anticipated for their achievement and how the company‟s success should be assessed. During evaluation of the status of achievement of PA&OBs objectives and pre-set goals, we noted that some Authorities had made limited progress in implementation of the budgeted activities due to shortage of funds. An example of authorities which had limitation of funds includes MORUWASA.

8.1.2 Non-compliance with SUMATRA Act, CAP 413 in Respect of the Number of Members of the Board of Directors The Minister responsible for Transport is responsible for appointment of Board members and the Director General after receiving recommendations from a Nomination Committee. The Board Chairman is appointed by the President upon receiving the Minister‟s recommendations. Section 7 Subsection 1 of the SUMATRA Act, CAP 413 requires the Authority to be governed by a Board of Directors composed of seven members as follows; the Chairman who shall be non-executive, five non executive members; and the Director General. Contrary to this, I noted that the SUMATRA Board of Directors has only four (4) members, out of which the Chairman was appointed from the members and the Chief Executive Officer (CEO) is

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serving the Board on acting capacity as Director General since April, 2011. The situation of having a board which is not properly constituted limits the ability of the board in achieving its objectives. This may also pose a challenge in convening meetings in the event one board member is absent as quorum may not be achieved.

8.1.3 Involvement of Board Members in Operational Activities For the members of the Board of Directors to be effective in performing the governing, oversight and monitoring functions of the organization, they have to be independent from operations of the public organization on which they serve. I noted that at STAMICO the chairman of the Board is involved in the day to day operational activities of the Corporation. This is contrary to good corporate governance principles and the State House Circular No. SHC/B.40/6/21 of 28th March, 1994 Paragraphs 3 and 5. During the year under review, STAMICO paid to the Chairman cash equivalent to 100 litres per week in respect of fuel allowance, 40% of the fuel allowance was paid for car maintenance per week and telephone allowance of Tshs.500,000 per month. The chairman also made overseas trips together with management staff. The involvement of the chairman in the day to day operations of STAMICO brings about conflicts of interest and diminishes the independence and objectivity of the entire board. At Ngorongoro Conservation Area Authority (NCAA), I noted the participation of Board Members attending trainings abroad, exhibitions and study tours at a cost Tshs.770,770,405. They also attended the training on smart cards on a similar arrangement. In the event of non achievement of objectives assigned to Board Members, there will be no authority to question non achievement of objectives of which the Board itself has been fully involved in implementing.

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8.1.4 Board of Directors Composition Includes Members of Parliament Contrary to the Principles of Good Governance Members of parliament perform the role of oversight of the public entities which they are expected to oversee. In my previous reports, I observed that there were members of parliament sitting on Boards of Directors and Governing Councils of Public Organizations contrary to the principles of good corporate governance. This year again, I noted that there is persistence of the members of parliament being elected as members of the Boards of Directors of public organizations. The Organisations where the Boards have members of parliament include STAMICO with four members of Parliament (MPs). The nomination of the MPs on the public organization boards of directors leads to serious conflict of interests because the Member of Parliament has an oversight role over the accountability of public organization resources. This situation will result into conflict of interest through performing governance, oversight, controlling and reviewing the duties of the management altogether. Other organizations where members of parliament are serving on the Board of Directors include Tanzania Tourist Board (TTB) (appointed on 23rd March, 2012), Arusha International Conference Centre (AICC), Ngorongoro Conservation Area Authority (NCAA), Open University of Tanzania (OUT), Centre of Foreign Relations, Lindi Urban Water Supply & Sewerage Authority (LUWASA); Cashewnut Board and many other PA&OBs.

8.1.5 Appointment of Treasury Registrar to be a Member of

Board of Directors The Treasury Registrar has an important function to oversee government investments in all public organizations and other bodies in which the government is a shareholder. In order to perform this duty effectively, the Treasury Registrar is required to have a high degree of independence from the organizations owned by the government.

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During the audit of the financial statements for the financial year ended 30th September, 2011 and 31st December, 2011 and 30th June, 2012, I noted some instances where the Treasury Registrar was sitting on the Board of Directors of PA&OBs. This is contrary to the provisions of S.34 (3a) (3) of the Treasury Registrar (Powers and Functions) Act, Cap 370 which states that the Treasury Registrar shall not, personally or by virtue of his office, be appointed as a member or chairman of a corporation in which the Government is a shareholder. The Treasury Registrar is a member to the BoD of Consolidated Holding Corporation (CHC), Public Service Pensions Fund (PSPF), and Tanzania Investment Bank (TIB) among the others.

8.1.6 Lack of Clear Guideline on Ministerial Instructions on the

Operations of Public Authorities and Other Bodies. Tanzania Tourist Board (TTB) is a legal entity which was established by an Act of Parliament (Tanzania Tourist Board Act, CAP 364 of 1962 as amended by Act No. 18 of 1992. The primary responsibility of the Board is to promote and develop tourism in Tanzania. Being a separate legal entity, has the mandate to operate independently under the directives of the Board of Directors. I noted the actions of the parent Ministry (Natural Resources and Tourism) which indicate the existence of interference in the activities of the Board. For instance, the Ministry of Natural Resources and Tourism transferred a total of Tshs.771,200,000 (2011 Tshs.591 million) to Tanzania Tourist Board (TTB) which was not meant for TTB planned activities. The amount was later recalled by the Ministry and TTB releasing the fund as requested through various written instructions. Surprisingly, Tshs.416,103,640 was collected from TTB by staff from the Ministry of Natural Resources and Tourism and Tshs.355,096,360 was directly paid to other Institutions or suppliers by TTB as directed by the Ministry. Such interference by the Ministry on the operations of TTB diminishes the accountability of the Board of Directors on the operations of TTB.

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At the Ministry of Natural Resources and Tourism, I noted that the Minister of Natural Resources and Tourism issued various directives to be implemented by NCAA. Some examples of these operational instructions given to NCAA are as follows: MNRT directed NCAA to make a salary contribution of Tshs.34,960,000 to the MNRT in respect of four months‟ salary of a Tourism Officer to be based in Japan, NCAA to pay for the costs of the participation of members of parliament (MPs) at the International Trade Fairs. It was further directed by MNRT that, one MP should be facilitated to attend each of the specified International Fairs although NCAA management declined the implementation of this directive. NCAA was directed by MNRT to contribute Tshs.340,000,000 for promotion of tourism in the USA, to sponsor three people (two Board Members and one management staff) to attend meeting of the International Centre for the study of restoration and preservation of cultural property that was to be held in Rome on 14-16 November 2011 and to contribute Tshs.5,171,200,000 towards the cost of a Bell 407 helicopter (this directive was also not implemented). The Board, in its 101st meeting on 27th October, 2011 resolved and directed management to ensure all of the ministerial directives are implemented. Another ministerial interference was noted at Mtwara Urban Water Supply and Sewerage Authority (MTUWASA) where the sum of Tshs.28, 616,000 was received from the Ministry of Water for improvement of MIS data in Mtwara. The amount was credited into MTUWASA CRDB Bank account. The amount was subsequently issued to an Accountant from the Ministry of Water for implementation of the activity in Mtwara. The interference from the parent ministries on the operations of the PA&OBs under them causes difficulties as to which party should bear accountability of the involved resources.

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8.1.7 Inappropriate Appointment of Board of Directors and Management of Kariakoo Market Corporation by the City Director Kariakoo Market Corporation was established by an Act of Parliament (Kariakoo Market Corporation Act 1974) and its amendments in 1984. The establishing Act requires that the Chairman of the Board of Directors is appointed by the President (Section 5 (2) (a)) and other Board members be appointed by the responsible Minister as per Section 5 (2) (b) of the Act. I observed that the Corporation has been running without a properly constituted Board of Directors since the year 2000 whereby the Advisory Council was appointed by the Dar es Salaam City Council. Also, the General Manager who is supposed to be appointed by the President was appointed by the Minister contrary to Section 5 (4) of the Act. Such contravention of the establishing Act leads to the illegality of the existence of the Advisory Council.

8.1.8 Delay in Appointment of Board Members and Chairman of the Boards of Directors The legal framework establishing Public Authorities and Other Bodies in the country always state categorically that the Chairman of the Board of Directors will be appointed by the President of the United Republic whereas the appointment of the other members shall be made by the responsible Minister. The timely appointment of the members of the Board and the chairman is vital in ensuring smooth operations of the business of PA&OBs. I noted persistence of delays in appointment of new Boards after expiration of the tenure of predecessor Boards of PA&OBs. Examples of PA&OBs whose boards expired and were not appointed until the completion of current year‟s audit includes: National Insurance Corporation, Medical Stores Department (MSD), Ngorongoro Conservation Area (NCAA), Tanzania Bureau of Standard (TBS), Kahama Urban Water Supply and Sewerage Authority (KUWASA) and National Health Insurance Fund (NHIF). The absence of the boards

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not only affects the operations of the PA&OBs but also limits the completion of the audit cycle due to lack of Boards to adopt the audited financial statements before CAG signs the opinion.

8.2 Audit Committee of the Board The audit committee is a technical subcommittee of the Board of Directors whose functions are mainly to assist the Board in discharging its oversight and monitoring responsibilities. These functions include: to oversee the integrity of financial reporting and disclosure process of the organization, to oversee the exercise of hiring, performance and independence of the external auditors, monitoring the choice of accounting policies and principles, monitoring the internal control process, oversight of the regulatory compliance, ethics, and whistleblower hotlines, to oversee the performance of the Internal audit functions, to discuss and deliberate on the risk management policies and practices with management. According to the best practice as propounded by the Institute of Internal Auditors of Tanzania, the Audit Committee shall consist of at least three and not more than six members of the board of directors. Each committee member has to be both independent and be knowledgeable in financial management matters and financial literate. At least one member shall be designated as the „financial expert‟ as defined by applicable legislation and regulation. Notwithstanding the importance of the oversight roles played by the audit committee in the public organizations, there are shortfalls which inhibit proper functioning of the audit committees as outlined below:

8.2.1 Lack of Independent Audit Committee An effective audit committee requires a high degree of independence from other committees of the board. The review of the functions of the audit committee of the Board of MWAUWASA revealed the functions and

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responsibilities of the committee have been combined with those of finance and planning to form a Planning Finance and Audit Committee. The combination of the duties which in ideal situation ought to have been performed by separate committees diminishes the efficiency and effectiveness of the Audit Committee.

The responsibility for preparation of the respective PA&OBs and presentation of the financial statements lies with the Governing Board and therefore, according to best practice and good governance it is the duty of the Audit Committee on behalf of the Governing Board to review the PA&OBs financial statements before they are submitted to the external auditors. The review by the audit committee is intended to address significant accounting and reporting issues that have an impact on the financial statements.

8.2.2 Lack of a Comprehensive Internal Audit Annual Plan The responsibility of internal audit department is to critically review the operations of the PA&OBs. In accordance with the International Professional Practice Framework (IPPF), the internal audit function is expected to develop a Risk Register, that should be discussed and agreed by the Audit Committee and thus form a basis for the development, of an Annual Internal Audit plan. At MWAUWASA, I noted the absence of an agreed Risk Register of the Authority which implies that the internal audit function remains to be traditional transactional audit approach as opposed to risk based approach. Further, there is lack of a comprehensive internal audit annual plan that meets the requirements of the modern philosophy of risk driven internal audit activity. Lack of such a plan causes ineffective allocation of internal audit resources. The absence of internal audit plan was also noted at the National Development Corporation (NDC) and Tanzania Education Authority (TEA).

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8.2.3 Lack of Internal Audit Manual and Audit Programmes The internal audit manual sets out the policies and procedures that govern the conduct of an audit. It describes the underlying principles, standards and code of ethics for professional practices of internal audit. Despite of, the usefulness of the Audit Manual for the audit exercise, I noted that MWAUWASA has no Internal Audit Manual. As a result, guidance to the internal auditors in terms of the audit process – planning, documentation, review and reporting is lacking. The development of audit programmes, setting minimum documentation standards and guidelines on quality at MWAUWASA is highly affected by the absence of the Audit Manual. Other organizations which have no internal audit manual includes SIDO which has an outdated manual (since 2000) and Tanzania Education Authority (TEA).

8.2.4 Weakness in the Internal Audit and Audit Committee

The purpose of the internal audit charter of the organization is to set out the nature, role and responsibility, status and authority of the Internal Audit Department in the organization, and outline the scope of work of internal audit. At NHIF, I noted that the internal audit charter has a number of weaknesses, which includes the following: i. Lack of periodical assessment to determine the

adequacy of the charter as required by Practice Advisory 1000-1. The NHIF internal audit charter was prepared in August 2009 but not reassessed for its adequacy to date.

ii. The charter does not have guidance on using of other professional expertise in fraud investigation.

iii. The charter has been approved by the Director General contrary to best practice on organizational independence whereas the approval was supposed to be made by the Governing Board.

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On the other hand, I noted that the chairman of the audit committee is also the Chairman of the Board and the Director General is a member of the audit committee contrary to good corporate governance which restricts the chairman of the board to chair other committees of the board and that the audit committee should be made up of non executive members only. Also, I noted limited interaction between internal auditor and the audit committee to the extent that the reports produced by the Chief Internal Auditor were never submitted to the Audit Committee for discussion but they were submitted by the auditor direct to the Director General for action.

8.2.5 Non Establishment of Internal Audit Unit

The function of an internal auditor is to ensure compliance with internal controls procedures and thereby ensure that assets of the organization are safeguarded. Despite of the importance of, the role played by internal audit in the organization, I noted that the post of internal auditor at STAMICO has been vacant although this was reported in management letter in 2008. The post of Internal Auditor was then assumed by an acting Internal Auditor. However, there was no evidence of the internal audit work performed during the year as neither the job description of the acting internal auditor nor reports of internal audit work carried out during the year were available at the time of the audit fieldwork. The absence of a strong internal audit department affects the efficiency of the operations and safeguarding of the assets of STAMICO. At the Institute of Finance Management (IFM), while the internal audit unit has been established, I noted that the Internal Audit Unit is staffed by only one person, a Director of Internal Audit who can not effectively oversee all the operations of the Institute.

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8.2.6 Excess of Number of Board Members at National Development Corporation (NDC) The National Development Corporation (Establishment) Order GN No. 90 of 1969 stipulates that the Board of Directors shall consist of a Chairman and a maximum of nine other board members. This makes a total of ten Board Members. I observed that the Board consists of eleven members contrary to GN No.90 of 1969. This is a breach of the Corporation‟s establishment Act which results in unnecessary cost to the NDC.

8.2.7 Challenges Facing National Insurance Corporation

Operations National Insurance Corporation of Tanzania was restructured in 2009 by the Board of Directors, whose tenure expired in April, 2012. Since then, the Corporation is operating under the management of an Acting Managing Director. Challenges facing the Corporation are mainly contributed by the lack of a Board of Directors to oversee the operations of the business. The absence of the board is a red indicator that the government has allowed NIC to operate only under management decisions. Vital decisions mandated to the Board have not been undertaken. These include appointments to fill top and senior managerial positions which are crucial to the corporation operations, taking disciplinary actions on managers who deserve to undergo disciplinary action, adoption of the corporation audited accounts etc. NIC management has also failed to get on strategic issues which should have been issued by the Board of Directors after reviewing reports submitted by the management team. The budget of the Corporation should be approved by the Board of Directors before implementation of the activities listed in the annual plan. I have noted that the NIC budget for the financial year 2013 has not been approved by the Board of Directors and the corporation is operating under un unapproved budget waiting for retrospective approval

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after the appointment of a new Board. Financial statements of the Corporation for the year ended 31st December, 2011 have been concluded and awaiting adoption by the Board of Directors before the audit opinion is signed by the Controller and Auditor General. In the absence of the Board of Directors, NIC accounts can neither be adopted nor discussed by the relevant Parliamentary Oversight Committee. This is a set back to the corporation operations. The Acting Managing Director of NIC is working under acting capacity for the past four consecutive years. It is clear that the director will not perform to the required set goals due to uncertainty of him being confirmed to the position. This also has an impact on customers‟ turnover as they are uncertain about the future plans of the government on the corporation. Most of NIC employees are under contracts whose tenure elapsed on 31st December 2012. The corporation conducted a performance evaluation and those who performed well during the corporation transition period under the guidance from the Ministry of Finance, were called to proceed with their duties from 2nd January, 2013. Their contracts have not been signed due to the absence of the Board of Directors. I also noted with dismay, the unconvincing number of customers from the public institutions doing business with NIC. The number of public institutions that have insured properties at NIC is still unimpressive. The Government should come up with a strategy to boost the operations of the corporation by making it competitive and encourage public institutions to insure their assets with the National Insurance Corporation. This will help NIC to prosper in the coming few years.

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CHAPTER NINE

GOVERNMENT INVESTMENTS, INTERESTS AND PRIVATISATION PROCESS

9.0 Introduction

This chapter highlights matters relating to the Government Investments in various entities where the Government have both controlling and non-controlling interests, divestures/privatization of public entities and monitoring and evaluation of already privatized entities. Matters relating with Government Investments are extracted from the Treasury statements for the year ended 30th June, 2012, while matters related with privatization process of specified Government entities and post privatization monitoring and evaluation for the year ended 30th June, 2012 are extracted from the Privatization process report and post privatization monitoring and evaluation report respectively for the period under review. The operations of Public Authorities and Other Bodies for the year under review have been measured in terms of financial performance in regards with outstanding liabilities, in terms of guarantees offered by the Government, collected revenue by TR in respect of dividends, loan repayments and other proceeds. Arrears of revenue and going concern of the Public Authorities and Other Bodies were also taken into account.

This chapter is divided into two parts. Part one highlights various matters relating with Government Investments, while part two covers matters relating with the privatization process.

9.1 Government Investments 9.1.1 Investments in Local Companies

The total Government investments in Local Companies have increased from Tshs.10.276 trillion as at 30th June, 2011 to

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Tshs.12.215 trillion as at 30th June, 2012. This is the Government shares and other shareholders‟ funds in 212 entities. Significant increase in other shareholder‟s Fund was caused by the increase in Parastatals and Government Institutions which submitted their audited accounts. Many Government Institutions/Parastatals have submitted their most current audited accounts which portray the current values in Shareholding/Capital funds and other shareholders fund. Another reason was an increase in revaluation reserves and accumulated surplus and an increase in number of Government institutions/Parastatals from 204 in 2010/2011 to 213 in 2011/2012.

9.1.2 Investment in Foreign Companies As at 30th June, 2012, the Government was holding investments with the value of Tshs.145.9 billion in nine Foreign Institutions. The investments position has declined as compared to Tshs.157.5 billion for the year ended 30th June, 2011. The shareholdings held by the Government in Foreign Institutions are constant and have remained almost the same in all institutions. However, the value of investments has decreased due to exchange rate fluctuations and losses from operations in some of the institutions.

9.1.3 The Government Guarantee on Outstanding Liabilities.

The total outstanding liability of the guaranteed amount by the Government as at 30th June, 2012 was Tshs.498.7 billion compared with Tshs.461.6 billion for the year ended 30th June, 2011. The increase is attributed by accrued interest for TFC Loan. These liabilities are grouped as follows:

(a) Parastatals which are not operating, and are under

various stages of receivership include Tanzania Sisal Authority, State Motor Cooperation, SUKITA and General Tyre East Africa. These account for Tshs.33.1

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billion which is 6.64% of the total outstanding guarantees;

(b) Parastatals whose repayments have been rescheduled

include Friendship Textile Mills. The loan balance is Tshs.25.8 billion, which account for 5.17% of the total outstanding guarantees;

(c) Parastatals which currently are under financial

constraints include the Higher Education Students Loans Board with guarantee amounting to Tshs.121.7 billion; Air Tanzania Corporation Limited with guarantee in Us dollar equivalent to Tshs.48.8 billion; Tanzania Fertilizer Company (TFC) with guarantee amounting to Tshs.41.9 billion, and Mara Cooperative Union with guarantee amounting to Tshs.8.5 billion. These guarantees aggregating to Tshs.220.9 billion accounts for 44.29% of the total outstanding guarantees.

(d) Parastatals whose loans have been serviced are; the

Syndicated loan to TANESCO with a current balance of Tshs.203.0 billion and University of Dar es salaam for Faculty of Commerce with current balance loan of Tshs.894.8 million. These loans totalling to Tshs.203.9 billion accounts for 40.89% of the total outstanding guarantees.

(e) Parastatals whose loans are not settled by liquidation

process include State Motor Corporation. The loan balance was Tshs.3.1billion, which account for 0.61% of the total outstanding guarantees;

(f) A new guarantee of Tshs.15.0 billion was issued to

NBAA to secure a loan for construction of the Accountants and Auditors Professional Centre. This account for 3.01% of total amount guaranteed.

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As it can be noted, the total amount of guarantees has increased by Tshs.37.1 billion equivalents to 7.43% from Tshs.461.6 billion in 2010/2011 to Tshs.498.7 billion in 2011/2012. The balance arises from accruing interest and penalties, exchange rate fluctuations/adjustments and a new guarantee issued during the year under review.

9.1.4 Government Revenue. Government revenue collected as at 30th June, 2012 by TR in respect of dividends, loan repayment remittance‟ & other proceeds from Parastatals and other entities increased to Tshs.208.1 billion in the year ended 30th June, 2012 from Tshs.28.8 billion collected during the year 2010/2011, making an increase of Tshs.179.3 billion equivalents to 622.8%. The planned revenue budget for the year under review was Tshs.204.9 billion. The increase is attributed by the following reasons: (i) Good performance of some parastatals and other

entities such as BoT, TPC- LIMITED, NMB, TCC etc which led to an increase of dividends paid to the Government coffers from Tshs.19.8 billion in the year 2010/2011 to Tshs.186.8 billion in the year 2011/2012. This made a difference of Tshs.167 billion equivalent to 843.3%.

(ii) The ongoing emphasise and close follow up of implementation of Treasury Circular No.8 that require public sector organizations and public authorities to contribute 10% of their gross revenue from their normal business activities has lead to an increase in remittances from Tshs. 6.7 billion in the year 2010/2011 to Tshs.19.4 billion in the year 2011/2012; this made a difference of Tshs.12.7 billion equivalent to 193%.

(iii) TPA Liquidating its Liabilities to the Government which resulted into a decrease in amount of loan and interest paid from Tshs.2.3 billion in year 2010/2011

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to Tshs.1.8 billion in year 2011/2012, making a difference of Tshs.519.9 million equivalent to 22%.

In summary, the revenue collected in respect of dividends, loan repayments, remittances and other revenue proceeds for the past four years was as follows:

Table 12: Trend of Dividends, Loans Repayment and other Proceeds

The above information can be presented in graph as follows:

Figure 5: Trend of Dividends, Loans Repayment and Other Proceeds

Trends of Dividend, Loans Repayment and Other Proceeds for the

F/Y 2008/2009 to 2011/2012

-

50,000,000,000.00

100,000,000,000.00

150,000,000,000.00

200,000,000,000.00

250,000,000,000.00

2008/2009 2009/2010 2010/2011 2011/2012

Dividends

P rinc ipal & nteres t

Other Proc eeds & Remittanc e

Total

Financial year

Dividends (Tshs) Principal & interest (Tshs)

Other Proceeds & Remittance (Tshs)

Total (Tshs)

2008/2009

31,323,253,591 6,795,002,069

46,001,873,960

84,120,129,621

2009/2010

15,127,480,388 11,465,621,623

14,056,617,906

40,649,719,917

2010/2011

19,801,780,952 2,340,022,351

6,651,641,793

28,793,445,096

2011/2012 186,821,446,957 1,820,096,604

19,490,988,564

208,132,532,126

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9.1.5 Over Due Loans in Arrears There were arrears of revenue amounting to Tshs.95.3 billion of which Tshs.94.5 billion are loans in arrears that were supposed to have been collected. These arrears of revenue were caused by Non-performing Parastatals which are under liquidation through CHC. The anticipated revenue from loan repayment from these parastatals may be recoverable from liquidation proceeds. Parastatals like TANESCO, TRC (now Reli Assets Holding Corporation (RAHCO)) & TTCL are financially constrained to repay their loans. Treatment of unpaid arrears in respect of Zanzibar Government‟s loans is not yet decided by the two Governments.

9.1.6 Government Outstanding Loans to Parastatals and Other Entities The loan balance outstanding as at 30th June, 2012 has decreased to Tshs.466.5 billion in the year ended 30th June, 2012 from Tshs.480.2 billion in the year 2010/2011, making a decrease of Tshs.13.7 billion equivalent to 2.9%. The decrease was caused by trail off most of loans from Tanzania Ports Authority (TPA), Tanzania Telecommunication Company Limited (TTCL) and National Insurance Corporation (NIC). Further, there were loan repayments made by Tanzania Automech Ltd, Tanzania Civil Aviation Authority (TCAA) and Tanzania Portland Cement Company (TPCC). These Corporations have been servicing their loans according to the loan repayment schedules. Total arrears decreased by 2.86% from Tshs.98.3 billion during the year 2010/2011 to Tshs.94.5 billion in the year 2011/2012. The decrease was due to trail off of most of loans from Tanzania Port Authority (TPA), TTCL loans and National Insurance loan.

Total amount of revenue collected from loans as principal and Interest has decreased by Tshs.211.1 million

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equivalents to 9.02% from Tshs.2.4 billion in year 2010/2011 to Tshs.2.1 billion in the year 2011/2012. Out of the total outstanding arrears amounting to Tshs.94.5 billion as at 30th June, 2012, Tshs.20.7 billion was for Zanzibar Government, Tshs.48.9 billion for TRC loan and Tshs.21.3 billion was TANESCO outstanding loans. These three Institutions account for 96.23% of the total arrears which were supposed to have been paid as per loan agreements.

9.2 Privatization Process Since the commencement of its operation until 31st December, 2012, the CHC has generated a total of Tshs.27.12 billion from sales of buildings which is equivalent to 109.8% of the estimated amount of Tshs.24.7 billion. The amount collected from doubtful/bad debts and liquidation of organizations amounted to Tshs.31.2 billion which is equivalent to 133% when compared with estimated amount of Tshs.23.5 billion since the commencement of its operation. The generated income from Interest on government securities inherited from the former NBC and dividends from the same were Tshs.33.1 billion. The amount which has been collected from rents and other services reached Tshs.4.0 billion. 12 public organizations have been successfully put into insolvency whereby Tshs.6.6 billion has been collected from the exercise. 330 court cases have been managed in various courts in the country. These proceedings are those inherited/transferred from the Government Institutions which ceased to operate, for example; ATHCO, SIMU 2000 Ltd and PSRC.

CHC inherited 34 organizations which were in the process of privatization/ restructuring from the former Presidential Public Sector Reform Commission (PSRC). Up to the year 2012, the following milestones have been achieved in regards with those organizations; signing of the memorandum of understanding (Deed of Settlement) between the Government and the RITES of India on TRL, Signing of Contract for the sale of Plot No 10 at Nyerere

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Road and handover of the NMC Ghana Iringa to Tanzania Cereals and other Produces Board. Either the collection from privatization activities has reached Tshs.2.8 billion. Also, the monitoring and evaluation of a total of 170 organizations privatized has been undertaken.

9.2.1 The Status of Privatization Processes

By 31st December, 2012, a total of 274 organizations were already privatized. Categorically, they includes; 95 organizations in the agricultural sector, 94 in the Industry Sector, 23 Infrastructure sector, 34 in the Natural Resources and Tourism Sector, 15 in the Energy and Minerals sector and 13 organizations from other sectors. These entities include the organizations and units that were closed before privatization. By the end of December, 2012, a total of 29 organizations were in various stages of privatization New Africa Hotel and the National Bank of Commerce are examples. There were also 13 organizations that were in various stages of rehabilitation. These included a National Insurance Corporation (NIC), General Tyre East Africa Limited and the Tanzania Posts Corporation (TPC). Seven (7) organizations had some pending issues waiting to be resolved before completion of the privatization processes. These issues includes; investors failure to fully operate as per sales agreements as well as management‟s inadequate performance. After failure to enforce the relevant sales agreement, the Government was forced to take back such organizations so that it can run them by itself. Some of the government organizations which were taken back includes; Air Tanzania Corporation Limited, Tanzania Railways Limited and Kiwira Coal Mines Ltd. The CHC has completed the liquidation of 47 corporations out of 65 earmarked set for liquidation. Furthermore 18 agencies were at various stages of liquidation while 682 non-core business assets such as plots, houses and warehouses were sold.

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However, the following activities are in the process of implementation:

Selling of George's Grill (the former NBC canteen) which lies along Pamba Street in Dar es Salaam.

Privatization and restructuring of 42 organizations.

Liquidation of remained 18 corporations.

Management of 330 civil matters which are existing in the various courts of law in the country.

Collection of debts from the debtors of the former NBC which reached Tshs.60 billion (plus interest of Shs.billion 21) and Tshs.48.7 billion (interest: Shilling 34 billion) generated by the privatization of public enterprises conducted by PSRC. Monitoring and preparation of title deeds for buildings and plots sold by PSRC.

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CHAPTER TEN

RESULTS OF SPECIAL AUDITS 10.0 Introduction

The Controller and Auditor General (CAG) is empowered under Section 29(2) of the Public Audit Act No. 11 of 2008 to undertake special audits upon receiving a request from a Person, Institution, Ministries, Departments, Agencies, Local Government Authorities Parliamentary Oversight Committee and such other Bodies. Pertinent to such provision in the Act, the Office of the Controller and Auditor General conducted four special audits in some Public Authorities during the year under review. The Public Authorities in which special audits were conducted are the Tanzania Electric Supply Company Limited (TANESCO), Usafiri Dar es Salaam (UDA), Railways Assets Holding Corporation (RAHCO) and College of Business Education (CBE). The key findings of the special audits are presented in this report. Detailed findings are in the respective individual reports and can be obtained from the authority which requested the special audit. Therefore, the key findings from the undertaken special audits are outlined as follows:-

10.1 Tanzania Electric Supply Company Limited The Board of Directors of Tanzania Electric Supply Company Limited (TANESCO) requested the Controller and Auditor General (CAG) to carry out a special audit at TANESCO. The audit was divided into Phase I and II. Phase I of the special audit covered Contract No. PA/001/11/HQ/G/011 which was awarded to M/s Santa Clara Supplies Company Limited for the supply of office stationery, printing and computer consumables for one year from 20th December, 2011. It also covered Contracts signed in 2008, 2009, 2010 and 2011

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which was awarded to M/s McDonald Live Line Technology Limited for the rehabilitation and construction of live line.

10.1.1 Results of Phase I Special Audit Santa Clara Supplies Company Limited (i) Santa Clara was incorporated on 18th April, 2011 and

issued with a Certificate of Incorporation No. 82777. The business licence No. B. 01291130 was issued in May 2011, and Taxpayer Identification Number (TIN) 112-813-659 was given on 28th April, 2011. The VAT Registration Number (VRN) of the company is 40-012119-E. The company‟s shareholders and directors were found to be the wife and two children of the former Managing Director of TANESCO.

(ii) The managing director of Santa Clara, who was an ex-

employee of TANESCO. Resigned when the husband was appointed to be the MD.

(iii) The company was awarded Tender number PA/001/11/HQ/G/011 for the supply of office stationary, printing and computer consumables for the year 2011/2012. Fourteen bidders were awarded the tender worthy Tshs.884,550.000.00. Santa Clara was awarded part of this tender worthy Tshs.147,460,400.00. It was later noted that the contract between TANESCO and Santa Clara did not indicate the amount awarded but a tender form was attached which showed an amount of Tshs.884,550,000.00 indicating that Santa Clara would have been given orders up to Tshs.884,550,000.00. The Contract was signed by the MD of TANESCO and witnessed by the Chief Legal Counsel & Company Secretary (CLC & CS) of TANESCO; and the Managing Director of Santa Clara witnessed by one witness.

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(iv) On 24th January 2012 LPO number 2000009446-1 was issued to Santa Clara for 2,500 reams at Tshs.7,000 each. The total value of the order was Tshs.20,650,000 VAT inclusive. Santa Clara delivered only 500 reams worth Tshs.4,130,000.00. On 22nd February, 2012 Santa Clara submitted a letter requesting for price increase from Tshs.7,000 per ream to Tshs.10,000 per ream. The request for price increase was not granted, and there was no further delivery from Santa Clara from this date. This order was later completed by another supplier. This should have been foreseen from the tender evaluation as the total assets of Santa Clara were only Tshs.107.7 million, made up of Tshs.41.3 million non-current assets and Tshs.66.4 million current assets as at 30th June, 2011. The evaluation team should have considered the ability of this company to handle large orders. However, the total amount paid to Santa Clara for the whole period of year 2011/2012 amounted to Tshs.31,825,400.

(v) One of the requirements of tender No. PA/001/11/HQ/G/011 was for the bidders to submit recently audited financial statements. Santa Clara submitted audited financial statements for the year 2010 being an attempt to fulfil requirements of tender award. The audited accounts submitted by Santa Clara Supplies Company Limited were falsified as they could not have been prepared before the incorporation of the Company on the 18th April, 2011. The financial statements were signed by Fix Capital Certified Public Accountants whose registration by NBAA was not valid. TRA confirmed that the company submitted the statement of estimate for year 2011, but there were no indirect tax returns submitted. Hence the VAT of Tshs.4,854,722.03 paid by TANESCO to Santa Clara was never remitted to TRA.

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(vi) The MD of TANESCO did not declare his conflicts of interest in the procurement as required by Section 2.2 of TANESCO‟s Code of Ethics, and also Santa Clara did not declare the apparent conflict of interest with TANESCO in the tender documents. Santa Clara did not submit major contracts undertaken by the company for the last two years as was required by tender documents; hence it should have been disqualified in the first place.

McDonald Live Line Technology Limited (i) McDonald Live Line Technology Limited was

incorporated on 24th December, 2004 as per Certificate of Incorporation No. 51044. The company‟s Taxpayer Identification Number (TIN) is 103-598-478 which was issued on 27th May, 2005. The VAT Registration Number (VRN) of the company is 10-017916-C. The shareholders and directors is made up of three Tanzanians with ownership of shares 50:30:20 respectively together with 3 Directors.

(ii) One of the main shareholders of McDonald Live Line

Technology ltd was an ex-employee of TANESCO, who was summarily dismissed on 19th July, 1999 for the reasons of absenteeism, non-accountability of cash amounting to Tshs.1,280,000.00 and destroying company vehicle with registration number TZD 2944. McDonald (1st Party) entered into a Joint Venture Agreement with one of the Directors of TANESCO (2nd Party) on 17th July, 2008 who latter was appointed MD.

(iii) The 2nd party was to be responsible for search of projects and assignments from various customers, while the 1st party was to responsible for due performance of the projects. The joint venture was not registered with BRELA. TANESCO MD did not declare the apparent conflict of interest on his dealings with McDonald after being appointed as

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TANESCO‟s MD as required by TANESCO‟s Code of Ethics.

(iv) For the period from 2009 to 2011, five contracts were awarded to McDonald Live Line Company as follows: (a) Contract for live line repair and maintenance of

Mtibwa feeder 35 Km–Reference MSG/S006/2008 dated December 2008–Tshs.73,810,000.00 VAT exclusive; Tender documents were not available for verification.

(b) Contract for the rehabilitation of Nordic 33kV

feeder dated 20th May,2009–Tshs.110,076,000.00 VAT inclusive; Contract performed without bank guarantee as was required by tender documents.

(c) Contract No. PA/001/09/HW/W014 for the

rehabilitation of Kiyungi–Arusha 66kV line dated 11th March, 2010–Tshs.1,417,050,200.00 VAT inclusive; the works commenced on 28th July, 2010 and were supposed to be completed on 9th March, 2011. Due to non completion of the project a further 19 weeks extension was granted and works were supposed to have been completed by 13th July, 2011 the objective which was not achieved; The contract was again extended up to 23rd November, 2011 but the project was not completed. On 19th June, 2012, TANESCO terminated the contract. Up to the time of terminating the contract the company had already been paid Tshs.475.6 million being advance payment of 33% of the contract price contrary to the bidding documents which pegged the advance payment to be 15% of the total contract amount. TANESCO carried out assessment and found out that McDonald live line Technology was supposed to refund to TANESCO Tshs.504,699,685.84 being, penalties, liquidated damages, amount over paid

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in the advance payment and the amount understated from the bank guarantee. Up to the time of concluding this special audit the amount in question was still unpaid by McDonald Live line Technology Company.

(d) Contract No. PA/001/10/HQ/W/025 for the repair and maintenance of Ifakara 33kV line from Kidatu to Mahenge and Mtibwa 33kV line from Mkundi to Mvomero dated 27th July, 2010 (Lot 2) – Tshs.338,247,000.00 VAT inclusive; and

(e) Contract for the repair and maintenance of Mzakwe 33kV live line, Dodoma, dated 6th January, 2011 Tshs.49,501,000.00 VAT inclusive. The tender documents for this contract were not availed for audit verification.

As it can be seen above, Mc Donald Live Line Technology Company Ltd was given the above contracts by the MD of TANESCO following the Joint Venture agreement where as the 2nd party of the Joint Venture Agreement had the responsibility to search for works to be executed.

(v) Confirmation from BRELA indicated that MC Donald Live Line Technology ltd has not filed any annual returns for all the years of its existence i.e 2005, 2006, 2007, 2008, 2009, 2010 and 2011, and has not filed any financial statements in that period. Tshs.1,106,972,416 was paid to McDonald for the contracts signed in 2008, 2009, 2010 and 2011 by TANESCO. This amount was included VAT amount of Tshs.168,860,199.05 which was not remitted to TRA.

10.1.2 Phase II of the special audit covered procurement and corruption related investigation, Electricity theft, Employment related issues, Acquisition and disposal of Company properties, Electrical power shedding in Tanzania

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and Payments to advocates. Results of phase 11 of the special audit are as follows:

(i) Procurement and corruption-related investigation There were persistent violations of the Public Procurement Act, 2004 and its regulations of 2005 perpetrated by middle and senior level executives of TANESCO. The Managing Director, being the ultimate decision maker for all procurements, had persistently failed to prevent the violations and had directly approved the irregular single source or flawed restricted procurements.

(ii) Electricity Theft TANESCO has no reliable, verifiable and effective mechanism to provide it with reasonable assurance that it receives all of its revenues. There is no control of revenues that passes through the private LUKU agent. The reconciliation process between TANESCO and the agents is performed on manual basis and thus prone to errors and fraud. TANESCO does not have records as to how many power token generation units (logic modules) were issued to business partners or vendors. It only has data of those 154 modules (i.e Conlog: 80 Units and Actaris: 74 Units) which have been collected. The Company also lacks reliable records and information on the total number of operational electricity meters and vending machines installed across the country which is a serious violation of proper financial management systems, regulations and its internal control systems.

(iii) Review of Payments to Advocates TANESCO is engaged in major legal contracts with two firms both representing TANESCO in major international lawsuits and other legal matters costing the company over Tshs. 10 billion yearly.

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The law firms were engaged by violating the Public Procurement Act, No.21 of 2004 and its Regulations of 2005. It is also clear that the legal fees charged were not reasonable and management could not ascertain as to whether TANESCO derives Value for Money for the services rendered.

10.2. Usafiri Dar es Salaam (UDA)

The Prime Minister requested the Controller and Auditor General (CAG) to undertake a special audit of the procedures employed during the purported sale of UDA shares to the buyer of those shares and also undertake a management audit of UDA. This was a result of questions raised in Parliament of Tanzania in July 2011 regarding the purported sale of Government‟s shareholding in UDA and the sale of its unalloted shares to the purported owner of UDA.

The findings are presented as follows:- (a) Sale of UDA Shares UDA being a specified public organization was placed under the Consolidated Holding Corporation (CHC) which is the body responsible for restructuring of such companies. CHC was the one mandated to authorise the sale of UDA shares and not UDA‟s Board of Directors as it was conducted. In July 2010, CHC advised the Board of Directors of UDA to seek Government approval before proceeding with the sale of UDA shares. The Board did not obtain such approval before the sale of the unalloted shares of UDA. CHC further recommended that open tender method be used in identifying a potential investor in UDA. The Board of Directors of UDA disregarded the recommendation and proceeded to offer the shares of UDA to purported current owner without following the requirement of the PPA No.21 of 2004.

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UDA was valued at Tshs.744.79 per share in October 2009 and Tshs.656.15 per share in November 2010. However, the Board of Directors of UDA gave a 60% discount on the value to the prospective investor (based on the October 2009 valuation) without any clear basis and the reason of doing so, thus yielded Tshs.298 per share from Tshs.744.79 as per the valuation report of October 2009 which automatically led to an apparent loss of Tshs.1,558,694,380 to UDA. Further, the Board of Directors of UDA entered into a contract with the buyer(investor) to buy the un-allotted shares totaling 7,880,303 at a price of Tshs.145 per share for a total price of Tshs.1,142,643,935 instead of Tshs.744.79 per share as per valuation report that would have yielded Tshs.5,869,170,871. This in turn caused a loss to UDA amounting to Tshs.4,726,526,936. Therefore by using the price of Tshs.298 and Tshs.145 per share instead of Tshs.744.79 for all the shares it led to a loss amounting of Tshs.6,285,221,316 (Tshs.1,558,694,380 +Tshs.4,726,526,936) to UDA. The buyer (investor) paid Tshs.145 per share thus paid a sum of Tshs.285 million against a valuation of Tshs.744.79 or Tshs.656.15 per share. The Board of Directors of UDA further approved the price of Tshs.145 per share on the unallotted shares, giving a further discount of 53% as compared to the earlier price of Tshs.298. (b) Revaluation Report of UDA Shares and Property

The valuation of share reports prepared on 30th October,2009 and 15th November, 2010 did also cover the revaluation of property, plant and equipment performed in August 2009 but the revaluation did not consider the computation of Net Assets; and Liabilities totaling Tshs.473,241,498 that were reported to be taken up by the Treasury-Registrar. In addition, no basis was provided for the 60% discount proposed on the valuation price of Tshs.744.79 per share.

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(c) Confirmation of the Amount Paid by the Purchaser The contract for share subscription dated 11th February, 2011 states that the investor (Buyer) was to pay a sum of Tshs.1,142,643,935 in consideration for the purchase of all un-allocated shares of UDA; although the contract did not specify the bank account into which payments could be made. The investor paid a sum of Tshs.285 million in to account 01J1021393700 at CRDB Bank belonging to UDA. There have been no further payments by the investor in respect of the purchase of UDA shares. This payment is equivalent to 24.9% of the agreed sale price. The investor claims to have paid the former Chairman of UDA Board of Directors a sum of Tshs.320 million as a commitment fee in late 2009. The Chairman admitted receiving Tshs.320 million in his personal accounts from the investor but as „consultancy fees’ for services he claimed to have provided to the investor which raises a serious conflict of interest issues. (d) Improper Practice and Lapses of procedures in the Sale of UDA Shares The Board of Directors of UDA did not obtain approval from the existing shareholders in respect of the sale of the UDA shares as required by the Public Corporations Act empower, Cap. 257. Section 39(2) of the Public Corporations Act PSRC/CHC to determine the means by which the restructuring of a public corporation may be implemented, valuation of assets, invite expression of interest from potential purchasers of specified corporations and determine the price at which shares and assets to be sold. The sale of the shares of UDA was not subjected to a competitive tendering process as required by the Public Procurement Act and as was recommended by CHC. The due diligence report on investor indicated that he did not meet the conditions set out by the PSRC for the

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investment in UDA. The Board of Directors of UDA disregarded this report and proceeded with the purported sale.

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CHAPTER ELEVEN

VALUE ADDED AND IMPACT OF THE CAG’S REPORT

11.0 Introduction

This chapter explains the impact and value added by the CAG‟s Annual General Report issued after concluding audits once in a year. Assessment has been done on how the audit reports issued by the Controller and Auditor General have helped or have effect on the country development agenda from year 2006/2007 to 2010/2011. Some matters which are of added value were seen worth reporting and have been highlighted in this chapter. The implemented specific recommendations had been noticed to add value to the respective entities. With CAG‟s report accountability in the public sector has been noted to improve and those charged with governance had started to measure their performance on the responsibilities and duties assigned to them by the appointing authorities. Generally CAG‟s reports have been helpful in terms of issuing workable recommendations that if implemented would move the country the right direction. The coverage of this chapter has been done not on a specific PA&OBs but the value added/impact of the CAG‟S reports on the issues that benefit the nation as a whole. Below are the facts of value added on recommendations that CAG has been making to the nation through performing Regularity Audit, Performance Audit and special audits as per requirement of the Public Audit Act No.11 of 2008 and other legislations giving him mandate.

11.1 Establishment of Internal Auditor General’s Office Through CAG‟s general report the Government was advised to establish a full fledged department of Internal Audit within the Government which will oversee the functions of internal audit in the country. It was recommended that reports of the internal auditors of Central and Local Government will be reported to the head of internal audit

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department and leave away the practice of tabling their reports to the managements of MDA‟s and LGA‟s which to a great extent are the ones involved in paralysing the functions of the internal audit unit. The Internal Auditor General Department was established by the Government being an effort to implement the CAG‟s recommendation. The department became operational on 6th April, 2011 when the President of the United Republic of Tanzania appointed Mr. Mohammed A. Mtonga to head the division. With the presence of Internal Auditor General we hope that the internal audit function in the public sector will be strengthened to avoid loopholes that have been used in misappropriation of public resources. Proper functioning of the internal auditor general‟s office will enhance collection of government revenues and minimization of unproductive expenditure and hence value for money will be achieved on the utilization of public resources.

11.2 Restructuring of Treasury Registrar’s Office Through the Annual General Report of the Controller and Auditor General on the audit of Public Authorities and Other Bodies for the financial years ended 2007/2008 and 2008/2009 it was recommended to have an independent Treasury Registrar‟s Office. It was further recommended that officials of the Treasury Registrar Office should not be members of the Board of Directors of PA&OBs in order to exercise their oversight functions properly by avoiding conflict of interest. This recommendations were made to increase the powers of the Treasury Registrar to oversee Public Authorities and avoid contradiction on Sections 3(1) - (2) of the Treasury Registrar Ordinance Cap.418 which states that, “upon coming into operations of this Ordinance, there shall be established the Office of the Treasury Registrar. Such person as the President may appoints to the office of the Treasury Registrar shall be a Corporation Sole by the name of the Treasury Registrar and by that name shall have perpetual succession and an official seal with capacity and powers to acquire, hold,

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manage and dispose of investments, to sue and to be sued, to execute deeds and instruments, using his official seal, to enter into agreement binding himself and his successors in office, to exercise all rights, conferred by the holding of investments including powers of holding immovable and other property, and to do all acts and things necessary for expedient and to be done in the execution of the duties of his office or which is required to be done or may be done by the Treasury Registrar under this and any other written law.” Through the CAG‟s report the Office of the Treasury Registrar was structured by amending the Act establishing the office Cap 370.

11.3 Establishment of Parliamentary Oversight Accounts

Committee Between 1970‟s to 1990‟s there was a Parliamentary Committee known as Parastatal Organisations Committee (POC) which had the role of deliberating accounts of the Parastatal Organisations. However, during the era of privatization exercise (1997), it was found unnecessary to have a Parastatal Organizations Committee (POC) due to wrong assumption that all Public Corporations would be privatized. In 2007, I organized an accountability conference which among other things resolved the formation of an additional Parliamentary Oversight Committee responsible for overseeing the affairs of Public Authorities and Other Bodies in the country. The Speaker of the National Assembly agreed with the advice and therefore created the Public Organization Accounts Committee (POAC). The Committee therefore assumed its role until when it was disbanded by the Speaker on the 8th February, 2013. In the course of its lifetime, the POAC has managed to advise the Government to dispecify TPA, TANESCO, NIC, STAMICO etc. by insisting on accountability and good management of public resource

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by those charged with governance. To date TPA is among the Corporation which has adequate revenue to the extent of remitting part of its revenue to Treasury. The Committee has been enhancing accountability and encourage collective responsibility in the country before its removal in February, 2012.

11.4 Review of TICTS Contracts

TPA Container Terminal was leased to a private operator M/s Tanzania International Container Terminal Services (TICTS) since May, 2000. Initially, the lease agreement was to last for a period of ten years. However, towards the end of year 2005, the lease agreement was un-procedurally extended for another term of fifteen years vide Addendum No.2. The Government was advised by the Controller and Auditor General to review the contract of TICTS in order to address the inefficiency that led to the lease failure to attain targets beyond 25% due to congestion at the container terminal. This congestion was caused by shortage of container handling equipment due to reluctance of TICTS to invest in modernization of the terminal. It was through this advice that the Government reviewed the contract of TPA Container Terminal that was leased to a private operator M/s Tanzania International Container Terminal Services (TICTS) and made it more beneficial to the government.

11.5 Increases in Number of Audited PA&OBs

The number of Public Authorities and Other Bodies that are audited by the CAG has been increasing year after year as shown in figure 6. The reported numbers of PA&OBs included in the Annual General Report for the year 2011/2012 is 176 public bodies compared to 158 reported in the Annual General Report on PA&OBs for the year 2006/2007. This was enhanced by the CAG‟s annual general report which recommended that the Treasury Registrar‟s

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Office should reconcile the register of PA&OBs in which the Government holds more than 51% shares. Records from Annual General Reports shows that there were 158 Public Authorities and Other Bodies in year 2006/2007, 164 for the year 2007/2008, 166 for the year 2009/2009, 170 for the year 2009/2010 and 176 for both periods of the years 2010/2011 and 2011/2012. The trend analysis of the increase in number of audited PA&OBs is shown on the following graph. Figure 6: Trend Analysis of Increase in Number of Audited PA&OBs

145

150

155

160

165

170

175

180

Number of PA&OBs

Number of PA&OBs

By identification and eventually conducting of the audit of the identified 18 PA&OBs which were not in the list of TR from 158 PE year 2006/2007 to 176 PE in year 2011/2012, the CAG has managed to minimize unproductive expenditure of public funds, maximize the collection of public revenues and avert loss by negligence, carelessness,

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theft, dishonesty, fraud and corruption relating to public funds and resources.

11.6 Di-specification of Some of PA&OBs Through the Annual General report of the CAG the government has been urged to consider either to speed up the process of privatization of the specified Public Enterprises which were taken over from PSRC by CHC in order to avoid further deterioration of the assets owned by the PA&OBs or dispecify them and inject sufficient capital in these Public Enterprises in order to revamp them.

The recommendation was taken whereby some of the public entities which provide very core and sensitive services to the general public were dispecified like TANESCO, TPA, TPDC, NIC and STAMICO.

11.7 Compliance with Various Legislations and Submission of

Financial Statements on Due Dates The achievement on compliance to various Legislations has been increasing year after year in Public Authorities and Other Bodies. In my first Annual General Report for the year 2006/2007 most of the PA&OBs were not complying with various legislations when compared to current situation. The current position of many PA&OBs in complying with various legislations have been enhanced through the Public Audit Act.No.11 of 2008 which was not in place by the time of my annual report on PA&OBs (2006/2007). Compliance with the Public Procurement Act.No.21 of 2004 and its Regulations of 2005 has minimized loopholes that were used by different institutions when procuring goods and services. Further, Public Authorities and Other Bodies have been complying with PAA by submitting their financial statements to my office for audit purpose on time, thus three (3) months after the closing date as per requirement of the Act as compared to the past whereby delaying of

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submission of financial statements was of high percentage. The trend of submission financial statements on time to my office for the audit purposes by Chief Executive Officers of Public Authorities and Other Bodies has been improving year after year. Trend shows that (19) PA&OBs did not submit their financial statements on time in year 2007/2008, 10 for year 2008/2009, and 7 PA&OBs for year 2009/2010. However, during the financial year 2010/2011 and 2011/2012 all Public Authorities and Other Bodies submitted their financial statements on time except UDA and Azania Bank whose their ownership is uncertain.

11.8 Adoption of IFRS and IPSAS Accrual by PA&OBs Before the year 2004 most of the Public Authorities and other Bodies used to prepare their financial statements in compliance to Tanzania Financial Accounting Standards (TFAS) issued by the National Board of Accountants and Auditors (NBAA). It is through the efforts of the National Board of Accountants and Auditors (NBAA) and the Office of the Controller and Auditor General that remarkable changes have been made. Most of the Public Authorities and Other Bodies have shifted from the TFAS framework and adopted either International Financial Reporting Standard (IFRS) or International Public Sector Accounting Standards (IPSAS) accrual basis depending on the nature and objectives of the Public Authorities in question. The preparation and submission of Public Authorities accounts in compliance with IFRS or IPSAS is a legal requirement as per individual Public Authorities enabling Acts and the Companies Act of 2002 enforced by the CAG‟s Office. This is in line with the decision taken by the National Board of Accountants and Auditors (NBAA) and endorsed by the Government that effective from July 2004 reporting entities in Tanzania were to embrace either the International Financial Reporting Standards (IFRS) issued by International Accounting Standards Board (IASB) or International Public Sector Accounting Standards (IPSAS)

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issued by the International Federation of Accountants (IFAC). Accordingly, auditing has been guided by International Standards on Auditing (ISA) issued by IASB and International Standards of Supreme Audit Institutions (ISSAIs) issued by INTOSAI. Furthermore, auditing is also guided by Standards and Guidelines issued by the National Board of Accountants and Auditors (NBAA). The preparation and presentation of the financial statements which are IFRS or IPSAS compliant has been enhanced through audits done by the Office of the Controller and Auditor General on this reporting framework.

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CHAPTER TWELVE

CONCLUSIONS AND RECOMMENDATIONS

12.0 General Overview

This chapter deals with conclusions and recommendations regarding the matters that have been detailed in this report and which require attention and action of the government, parliament, Board of Directors and managements of the respective public organizations. The findings in this report are general matters which have been summarized from individual management letters, audit reports which were communicated separately to the respective boards of directors of PA&OBs and other pertinent current issues which are of interest to the general public.

Section 12 of the Public Audit Act (PAA) No. 11 of 2008 empowers the CAG to make recommendations for the purpose of preventing or minimizing unproductive expenditure of public moneys, maximizing collection of public revenues, and averting loss by negligence, carelessness, theft, dishonesty, fraud or corrupt practices relating to public resources for the purpose of better service delivery to the public.

During the current year, I audited the financial statements of 174 Public Authorities and Other Bodies (PA&OBs) and managed to conclude the audits of 126 Public Authorities and other Bodies. The financial years for these organizations were ended on 30th September 2011, 31st December, 2011 and 30th June, 2012. By assuming the powers to make recommendations vested to me by PAA No. 11 of 2008, I wish to make general conclusions and recommendations regarding the results of the audits of public authorities and other bodies as follows:

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12.1 Audit Opinion and Reports Concluded As of 28th February, 2013, I have managed to conclude 126 (71.6%) individual audit reports of Public Authorities and Other Bodies out of the existing 176 PA&OBs which are subject to my ambit of audit under the category of Public Authorities and Other Bodies. Out of the concluded audits, 95 audits were issued with audit opinions while 31 audited accounts were awaiting adoption by the respective Board of Directors. Unqualified audit opinion were issued to 62 audited accounts representing 65.3%, while 23 audited accounts were issued with unqualified audit opinions with emphasis of matters representing 24.2%. On the other hand, qualified audit opinions were issued to 2 audited accounts representing 2.1% and 7 audited accounts representing 7.4% were issued with qualified opinions with emphasis of matters. During the year under audit, one audited PA&OB was issued with a disclaimer of opinion representing 1% while adverse opinion was not issued to any of the audited PA&OBs. Detailed audit opinions have been discussed in chapter two(2) of this report.

12.2 Implementation of the Previous Outstanding Recommendations I appreciate and I am very impressed with the efforts and time dedicated by my office in carrying out the audit of Public Authorities and Other Bodies in a professional way and the recommendations issued in my Annual General Reports which requires Government‟s appropriate attention and intervention for rectification. In my previous year‟s reports several recommendations were made; nevertheless most of the issues are still unattended or partially implemented by the government.

I wish to acknowledge the receipt of the Government response to my previous General report through the Paymaster General‟s letter dated 20th June, 2012 with Ref.No.EB/AG/AUDIT/12/VOL.I/53. The responses received from the Paymaster General did not adequate

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cover the recommendations issued in my annual general report of the Public Authorities and Other Bodies for the year 2010/2011. In this regard, government intervention is of vital importance especially on those issues relating to corporate Governance. I am much concerned on the corporate governance issues because if not attended to, they will hinder most of the PA&OBs to attain their planned goals and objectives due to conflict of interest between the executives and those charged with the oversight role.

On the other hand, there are recommendations which are specific to particular Public Authorities. I still call upon the Government through the Parent Ministries of PA&OBs, the Parliament, the Parliamentary Accounts Committees, the office of the Treasury Registrar (TR), Boards of Directors of the respective PA&OBs and the Chief Executive Officers to ensure that the pending recommendations are resolved and that there is accountability towards the predetermined objectives in Public Authorities.

One of the most important aspects which brings about motivation and commitment in my office is through recognition of the work done. This can be attained through measures taken and appropriate attention given to the recommendations issued in my reports. I believe that the Government and the stakeholders of PA&OBs will eventually recognize the importance of the recommendations issued and provide prompt corrective actions. It should be remembered that the recommendations addressed in my reports are meant to bring about changes in the effectiveness and efficiency in the operations of the Public Authorities and Other Bodies for development of the Nation.

12.3 Significant Matters not Reported in Previous Report The NHC intent to increase the housing sector contribution to GDP up to 4% in 2014, could easily trigger growth of the economy in the following areas: Creation of about 200,000

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direct and 500,000 indirect employment opportunities for unskilled, semi-skilled and skilled labour. This transformation will also lead to a minimum direct tax increase of Tshs.120 billion in form of VAT, property tax, land rent, PAYE and corporation taxes. There will be growth of the financial sector through increased liquidity, growing profits and even lending at lower interest rate as well as growth of the insurance industry. The creation of ready market for utility and infrastructure providers will also be enhanced. The growth of the housing sector by an average rate of 30% to 50% per annum over the next 20 years is possible provided that structured housing finance is in place.

The Government through NHC should now focus to;

Balance the real estate portfolios so as to move from predominant real estate management business and put more efforts on real estate development.

Promote home ownership by taking advantage of the Mortgage Financing (Special Provisions) Act and the Unit Titles Act of 2008 which have been enacted recently.

Build affordable houses for low income group countrywide.

Take advantage of its wealth (properties that are strategically located) so as to operate commercially and alleviate housing problems.

Partner with private investors (under PPP arrangement) in undertaking large scale investment projects while ensuring that public interests are safeguarded.

As many government owned Hospitals are always in short of drugs due to the limited funds, it is seriously disturbing that there is no reconciliation of data for drugs between MoHSW and MSD. This raises doubt over the transactions among the parties. It is therefore recommended that MoF and MoHSW should always provide the details of all funds disbursed to MSD for procurement of drugs and reconcile

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this information with MSD statement to ensure completeness. Management of VETA is recommended to review the present organisational structure, functions and staffing and introduce a streamlined organisational structure. This should be supported by job descriptions for key positions, rationalised staffing norms and actions to improve the staff performance. Finally, VETA should introduce an accounting system which links all the operational centres to facilitate fast, efficient and effective decision making across all the levels.

12.4 Procurement and Contracts Management

The Public Procurement Act No.21 of 2004 and its Regulations of 2005 provides a legal framework governing institutional setup and processes in procurement in the public sector. Despite the existence of the law, Public Authorities and Other Bodies are still not complying fully with the requirements of the law. This has been evidenced by audit findings summarized in chapter five of this report which includes partial compliance with the provisions of the PPA of 2004 and its Regulations of 2005 by carrying out procurement of PA&OB without observing transparency and value for money. It was observed that some of the PA&OBs did not administer procurement contract agreements properly. On the other hand, procurement contract management is still one of the weakest area in most of the PA&OBs. Therefore urgent attention is needed to rectify the situation as follows:

Public Procurement Regulatory Authority (PPRA) should continue to implement Capacity Building Programme to enhance awareness and full compliance with the procurement law including the procurement and contract management by Public Authorities and Other Bodies.

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The Chief Executive Officers (CEOs) and Procurement Management Units (PMUs) of the procuring entities should exercise their roles in making sure that full compliance with the procurement laws is observed. It is well known that the Annual Procurement Plan in a procuring entity‟s road map of procurement to be executed in the concerned entities. If this is the case therefore, I recommend the management of PA&OBs to be careful in preparing and approving the Annual Procurement Plans (APP) by observing the requirement of Section 45 of PPA 2004 and Regulations 46, 48 and 49 of GN. 97 and Regulations 25 of GN. 98. The PA&OBs should strive to ensure the APP is updated monthly as required by PPA 2004 and its regulations so as to match with the procurement budgets. Moreover, the monthly procurement reports should be prepared by PMU as required by section 35 (o) of PPA 2004 and submitted to the TB and Management for deliberations, guidance and approval.

I further recommend that Chief Executive Officers of the Procuring Entities should ensure that, the Tender Board, the Procurement Management Unit, the Evaluation Committee and User Departments act independently in relation to their respective functions and powers as per requirement of Section 38 of PPA 2004. The PA&OBs should always comply with limits set under the second schedule of G. N. No. 97 and 98 in making decisions on procurement methods to be used. Likewise, the PMUs should ensure that limits provided under Section (b) of the First Schedule of G.N. 97 are adhered to without excuses.

For the proper management of procurement contracts the management of PA&OBs should ensure there is proper and close supervision of contracts which will enable timely delivery of procured goods and services in their institutions. Also, the management of PA&OBs should make close follow up with suppliers/contractors to ensure that contracts are executed as per terms and conditions

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therein. For those employees who will have directly been involved in mismanagement of such contracts, I recommend appropriate actions should be taken against them as stipulated in the procurement laws.

12.5 Assets Management Assets Management of PA&OBs for the year under review has noted several major weaknesses including doubtful going concern status of TBC, PSPF, BAKITA, MUWASA and TLSB, repossession of Sugar Board plot no 482. Assets situated at UDOM plots but not included in the UDOM books of account, lack of legal ownership of landed properties, weakness in controls of caretakers by CHC and inadequate control over ex NBC borrowers. Other noted weaknesses include long overdue goods in transit at TPA, uncleared two Containers with library books by TLSB since 2009, doubtful debt of City Water appearing in DAWASA accounts. In addition, another noted weakness is increasing poaching incidences at TANAPA. Government, Boards of Directors and Chief Executive Officers of Public Authorities and Other Bodies should ensure that vigorous decisions are taken to repossess the Authorities Assets which are improperly owned and used. Board of Directors of Public Authorities and Other Bodies should ensure that legal ownership of their properties is obtained. The Government should take appropriate measures on liquidity position of TBC, PSPF, BAKITA, MUWASA and TLSB. I also recommend to the Board of Directors of PSPF to come up with appropriate plans to address the actuarial deficit which is still high compared to the net asset value of 1,086 million as at 30th June, 2012. The Government and the Pension Funds should agree on the ownership of UDOM assets in order to allow proper recording of the properties in the University books of

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account. All loan agreements for UDOM buildings should be properly worded and ensure that any clauses that are likely to lead to misinterpretations are fine tuned. Further, CHC Board of Directors should ensure proper control over customers‟ loan subsidiary ledgers because officers who are not trustworthy may collude with borrowers and manipulate the existing documents such as securities and cause loss to the corporation. I also recommend that the Board of Directors of Public Authorities and Other Bodies should ensure clear analysis of provision of doubtful debts and receivables with supported evidence to substantiate the intended write offs. In addition the Board of Directors and Chief Executive Officers of Public Authorities and Other Bodies should ensure adequate measures and efforts are instituted to collect long overdue debts and proper management of inventory is put in place. On the other hand, Board of Directors of TLSB and TRA should ensure that the fate of the two uncleared containers containing educational books since 2009 is resolved. Also I recommend that Board of Directors of TANAPA should ensure that patrol man-days for protecting wildlife in the parks especially elephants is improved in order to reduce the incidence of poaching activities in the parks and hence TANAPA‟s objective of conserving National Parks is well achieved.

12.6 Human Resources Management As highlighted in chapter seven, Human Resource Management challenges must be defined and solutions determined in order to accomplish the Public Authorities targets. The challenges facing HR in the public sector today are serious and seemingly endless as it was observed that there is lack of transparency on recruitments to some Public Authorities, delays in submission of pension contributions and other statutory deductions to respective

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pension funds, deficiency in staff performance appraisal, missing imperative information in staff personal files, understaffing to some authorities, decisive vacant posts, lack of training policy and programmes, shortage of man power and missing succession plan in some Authorities.

On performance appraisal Public Authorities should ensure that performance appraisal is carried out yearly and the performance gaps are filled through systematic training or other relevant procedures. The appraisal should include setting specific measurable objectives for each employee at the beginning of the year, which would be evaluated at the end of the year. The results of performance review shall be used by the appointing authority in determining promotion, increments, awards, training needs, re-categorization, demotion, and termination as the case may be. Regarding, the issue of personnel records employee‟s information should be updated with all the required and relevant information to employee‟s recognition.

For vacant posts as per the organization structure of the Public Authorities including posts held on acting capacity should be filled appropriately. Public Authorities should ensure that there is effective succession plan in place. Public Authorities should establish training schedules for each department to ensure that training opportunities are accessible by all employees. Staff training plan should be developed annually, and should be based on training needs assessments. The training needs assessment should be made to all staff.

12.7 Corporate Governance

Corporate governance in the public sector is vital in ensuring public organizations are prudently managed. Maintaining the separation of duties and responsibilities between the oversight organs and the executive leads to reducing the possibility of conflicts of interests and improvement in performance of the Public Organizations.

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The PA&OBs are autonomous entities which require independence from the parent ministries in order for them to be accountable for their decisions and actions.

In some of PA&OBs, weaknesses in the operations of internal audit and audit committees have been noted. The managements of PA&OBs are once again recommended to strengthen internal audit functions and audit committees operations so as to maintain sound internal control environment and safeguarding of assets. On the other hand, the delay in the appointment of the boards of directors by appointing authorities hampers the decision making in the public authorities thereby negatively affecting the performance of the organizations. For my office, the absence of the Boards of Directors prohibits the timely completion of audit cycles due to lack of board of directors to adopt the financial statements before I sign the opinion. To this end, in line with my previous year‟s recommendations, I strongly recommend the government through the Treasury Registrar‟s office to ensure there is a register showing the tenure of all boards of public authorities and make proper planning for succession of the boards whose tenures comes to an end.

The interference of other institutions outside the PA&OBs should be checked. The operational issues of the PA&OBs should be implemented by the management and the Board should evaluate the performance of the management in achieving the approved annual work plan and the strategic plan.

12.8 Government Investment, Interest and Privatisation Process

The operations of Public Authorities and Other Bodies for the year under review have been measured in terms of financial performance, increased local government investment (increased by Tshs.1.939 trillion from

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Tshs.10.276 trillion as at 30th June, 2011 to Tshs.12.215 trillion) during the year under review. The significant increase has been caused by the increase in revaluation reserve & accumulated surplus and increase in number of government institutions/parastatals from 204 in 2010/2011 to 213 in 2011/2012. Government revenue collected by Treasury Registrar in respect of dividends, loan repayments and other proceeds has increased by Tshs.179.3 billion equivalent to 622.8%, from Tshs.28.8 billion for the year ended 30th June, 2011 to Tshs.208.1 billion in the year under review. The increase has been attributed by good performance of some parastatals, the ongoing emphasis and close follow up of implementation of Treasury Circular No.8 that require Public Sector Organizaitons and Public Authorities to contribute 10% of their gross revenue to the government and liquidation of liabilities by TPA to government. Managements of these entities should be closely monitored and regulated to ensure sustainability and constant delivery of services. In case of financial difficulties, the Government should timely provide assistance.

Privatization Issues

The Government, CHC and all other stakeholders who are directly involved in the privatization process should strive to ensure that, all related privatization activities are executed at the appropriate pace. As the CHC tenure is moving towards the end, the Government should review its decision by extending tenure of corporation or prepare the successor so that all privatization activities will be undertaken as intended.

The remaining buildings should be sold by complying with the Public procurement Act and its Regulations,

There should be a close follow up in order to complete the liquidation of remaining 18 organizations,

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CHC should strengthen the post-privatization monitoring & evaluation in order to determine the extent of implementation of the obligations of the investors in accordance with the privatization contracts,

CHC should strengthen its efforts towards the follow up of documents (Title Deeds) for buildings and plots already sold so that they can be handed over to buyers and accelerate the collection of unpaid money from the sale of these assets,

From the set plans and strategies, CHC should ensure that the remaining activities are completed by 30th June, 2014. The situation shows that, some of the remaining work can not be completed as planned. The Government should consider to review its decision by extending the tenure of CHC or should put in place a succession plan so that the privatization process will continue effectively after CHC tenure come to an end,

There should be an assessment of capacity and performance of the organizations/ investor in terms of Human Resources, other resources and performance system (capacity and competence assessment),

Privatization policy should be reviewed, and should be done basing on rules and regulations of the CHC and Public Corporations Act on the issue of privatization of public enterprise,

There should be the binding clause on the sale agreement that forces external auditors of organizations that have been privatized to furnish a copy of audit reports and implementation status of investment plans.

12.9 Results of Special Audit

In regard to Santa Clara Supplies Company Limited and McDonald Live Line Technology Limited in business dealing with TANESCO, it can be concluded that the Managing Director had conflict of interest in both companies, hence not in compliance with Section 2.2 of TANESCO code of

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ethics and conduct and Sections 6(a) of the Public Leadership Code of Ethics Act of 1995.

In the Phase II of the TANESCO special audit it was revealed that; TANESCO had persistent violation of the Public Procurement Act, 2004 and its Regulations of 2005. The Managing Director, being the ultimate decision maker regarding all procurements had persistently failed to prevent the violations and, in most procurement the Managing Director had directly approved the irregular single source or flawed restricted procurements. Procurement processes in TANESCO had ignored TANESCO‟s own Engineers estimates in deciding reasonableness of tender prices.

It is therefore recommended that the Board of Directors of TANESCO should; consider pursuing disciplinary and other measures against all the parties involved in controversial procurements for violations and negligence in discharging their respective duties and responsibilities, cause the reporting of the procurement irregularities relating to both TANESCO‟s personnel and its suppliers to the Public Procurement Regulatory Authority (PPRA) pursuant to the requirements of section 16 of the Public Procurement Act, 2004 for relevant action of PPRA, take legal advice in pursuing disciplinary or other action against the personnel involved in the procurements. The Board of Directors should as matter of urgency strengthen the overall procurement process and systems of internal control to ensure that there are robust and effective procedures across the organisation starting from user departments, PMU, Tender Board, Evaluations Committees, Inspection Committees and all other committees at all times. The Board should also consider revamping the Procurement Management Unit (PMU) and to all its relevant committees to ensure that these are manned by only competent, qualified and diligent personnel and the Board may cause

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the reporting to DCI and PCCB of the matters identified for further fraud and corruption investigation.

The special audit of Usafiri Dar es Salaam (UDA) on the sale of its Shares to an investor, noted several irregularities that prevailed in the sale of the shares. The Board of Directors of UDA did not honour the CHC‟s advice to seek Government approval and the use of open tender method before proceeding with the sale. The shares were sold at Tshs.145 per share and a sum of Tshs.285 million being 24.9% of the total sale of Tshs.1,142,643,935 was paid against Tshs.744.79 per share as per the valuation report of October, 2009. There was no plausible reason for the discount given of 80.54%. The balance of Tshs.857.64 million is yet to be paid by the investor.

The Government should consider taking legal action to the members of the Board who were involved in the sale of shares of UDA without adherence to public procurement procedures.

12.10 Value Added and Impact of the CAG’s Report The report of the current Controller and Auditor General on the PA&OBs was issued for the first time in the year 2006/2007. Since its first issue, the CAG‟s report has pointed out a number of issues which needed the attention of the government, parliament and management of PA&OBs and recommendations were made to suggest solutions to the earmarked observations. I am impressed by the trust that the government has been demonstrating on implementation of my recommendations. This has brought about positive impact on the operations of the PA&OBs, which is regarded as the value additions to public delivery of services. The examples of such impacts include the establishment of Internal Auditor General‟s Office, Restructuring of Treasury Registrar‟s Office, Establishment of POAC, Review of TICTS contracts, Increase in number of

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audited PA&OBs, Di-specification of some PA&OBs, Adoption of IFRS and IPSAS Accrual by PA&OBs and Compliance in various Legislations. In view of this, I recommend that the spirit of addressing the recommendations that are contained in my annual general reports should be fostered for development of the nation. Let us make partnership in finding out lasting solutions to the problems that are facing PA&OBs in the country.

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Appendices

Appendix I

List of Private Audit Firms Auditing of PA&OBs

S/N Name of Audit Firm

1. AA – Adolph Associates

2. ABA Alliance

3. AMAS Associate

4. ABS Consultants

5. ATEKAY Accountants and Auditors

6. Auditax International

7. BK Associates & David Malishee

8. BAAS Associates & EVK

9. Citizen Certified Partners Consortium

10. Co-operative Audit and Supervision Corp

11. CT & Associates & Chabegan & Associates

12. BDO Tanzania

13. Deloitte & Touche

14. Ernst & Young

15. Elite Financial Managers

16. Fincare & Company

17. Global Finance and Business Solution

18. Globe Accountancy Services

19. Global Auditing and Management Solution

20. ISM Consultants

21. INNOVEX Auditors

22. KPMG

23. Martec & Company

24. MATSAB & Company

25. MEKONSULT Auditors

26. MGK Certified Public Accountants

27. MM Micro Business Consultants

28. MURL-AATEC Associates

29. PAN Associates

30. Paul Clem Associates

31. PIMA ASSOCIATES

32. PKF Tanzania

33. PricewaterhouseCoopers

34. Philips & Company

35. Quintex Financial Services

36. R&S Associates

37. Reliable Consultants,

38. RS & Partners

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S/N Name of Audit Firm

39. SBC Consultancy Services

40. Shebrila & Co

41. SMW

42. TAB Consultants

43. Tanna Sree Kumar Co.

44. TAG System Associates

45. Tax Pro Associates

46. TAC Associates

47. TANSCOTT

48. TMC Associates/TOP Consultants Consortium

49. Trion & Company

50. VA Business Assurance Services

51. WISCON Associates

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Appendix II

Status of the Audits

S/N Category of PA&OBs

F/S Submitted

Audit in Progress

Audit at Quality Review Stage

Audit Awaiting

BOD Adoption

Audit Concluded

and Adopted by BOD

Remarks

Financial Institutions, Pension Funds and Other Public Entities

1 Bank of Tanzania (BOT)

Yes - - - Yes

2 Government Employee Provident Fund

Yes - - - Yes

3 Deposit Insurance Board

Yes - - - Yes

4 Local Authority Provident Fund

Yes - - - Yes

5 National Social Security Fund

Yes Yes - - -

6 Export Processing Zones Authority

Yes Yes - - -

7 Parastatal Pension Fund

Yes - - - Yes

8 Public Service Pension Fund (PSPF)

Yes - - - Yes

9 Tanzania Investment Bank

Yes - - - Yes

10 Tanzania Postal Bank

Yes - - - Yes

11 Twiga Bancorp Yes - - - Yes

12 Unit Trust of Tanzania

Yes - - - Yes

13 National Health Insurance Fund

Yes - - - Yes

14 National Insurance Corporation

Yes - - Yes -

15 Dar es Salaam Stock Exchange

Yes - - Yes

16 Capital Markets Securities Authority (CMSA)

Yes - - - Yes

17 Medical Stores Department (MSD)

Yes - Yes - -

18 Tanzania Broadcasting Corporation

Yes - - Yes

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19 Kariakoo Market Corporation

Yes - Yes - -

20 Ngorongoro Conservation Area Authority

Yes - - Yes -

21 Small Industry Development Organisation(SIDO)

Yes - - - Yes

22 State Mining Corporation (STAMICO)

Yes - - - Yes

23 Tanzania Fertilizer Company

Yes - - - Yes

24 Tanzania Engineering and Manufacturing Design Organization

Yes - - - Yes

25 Tanzania Petroleum Development Corporation

Yes - - Yes -

26 National Ranching Company

Yes - Yes - -

27 Tanzania Standard Newspaper

Yes - - Yes

28 National Housing Corporation

Yes - - Yes -

29 Ubungo Plaza Co. Ltd

Yes - - Yes -

30 NHC/PPF IPS Building

Yes - - - Yes

31 Tanzania Posts Corporation

Yes - Yes - -

32 Benjamin William Mkapa Foundation

Yes Yes - - -

33 Consolidation Holding Corporation

Yes - - - Yes

34 Tanzania Marine Parks Reserve

Yes - - - Yes

35 National Development Corporation (NDC)

Yes - - - Yes

36 Tanzania Yes - - - Yes

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National Park (TANAPA)

37 National Identity Authority

Yes Yes - - -

38 Tanzania Investment Centre

Yes - - - Yes

39 Reli Asset Holding Ltd

Yes Yes - - -

40 Cooperative Audit and Supervision Corporation (COASCO)

Yes - - Yes -

41 Tanzania Ports Authority

Yes - - - Yes

42 Tanzania Education Authority

Yes - - - Yes

43 Muhimbili National Hospital

Yes - - Yes -

44 National Bureau of Statistics

Yes - - Yes

45 Kilimanjaro Airport Development Company (KADCO)

Yes - - - Yes

46 Ngorongoro Pastoralist Council

Yes - - Yes -

47 Azania Bank No - - - -

B Public Regulatory Authorities

1. Architects and Quantity Surveyors Registration Board

Yes - - - Yes

2. National Land Use Planning Commission

Yes - - Yes -

3. Fair Competition Commission

Yes - - - Yes

4. Tanzania Insurance Regulatory Authority

Yes Yes - - -

5. Tanzania Atomic Energy Commission

Yes - - - -

6. Tanzania Yes Yes - - -

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Commission for Science and Technology

7. Tanzania National Business Council

Yes - Yes - -

8. Baraza la Kiswahili Tanzania

Yes - - - Yes

9. Capital Development Authority

Yes - - - Yes

10. Contractors Registration Board

Yes - - - Yes

11 Engineer Registration Board

Yes - - - Yes

12 Gaming Board of Tanzania

Yes - - - Yes

13 National Arts Council

Yes - - - Yes

14 National Board of Accountants and Auditors

Yes - - Yes

15 Procurement & Supplies Professionals and Technician Board

Yes - Yes - -

16 National Construction Council

Yes Yes - - -

17 National Council of Technical Education

Yes - - - Yes

18 National Economic Empowerment Council

Yes - - - Yes

19 National Examination Council of Tanzania

Yes - - - Yes

20 National Sports Council

Yes - - Yes -

21 National Environment Management Council

Yes - - - Yes

22 Tanzania Pyrethrum Board

Yes Yes - - -

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23 Rufiji Basing Development Authority

Yes - - - Yes

24 Sugar Board of Tanzania

Yes - - - Yes

25 Tanzania Tobacco Board

Yes - - Yes -

26 Tanzania Sisal Board

Yes - - Yes -

27 Tanzania Cashewnut Board

Yes - - - Yes

28 Tanzania Bureau of Standards

Yes - - Yes -

29 SUMATRA Yes - - - Yes

30 Tanzania Civil Aviation Authority

Yes - - Yes -

31 National Museum of Tanzania

Yes - - Yes -

32 Tanzania Coffee Board

Yes - - - Yes

33 Public Procurement Regulatory Authority

Yes - - - Yes

34 Tanzania Communication Regulatory Authority

Yes - - - Yes

35 Tanzania Cotton Board

Yes - - - Yes

36 Tanzania Food and Drugs Authority

Yes - - - Yes

37 Joint Finance Commission

Yes Yes - - -

38 Tanzania Food and Nutrition Centre (TFNC)

Yes - - -

39 Tanzania Tea Board

Yes - - - Yes

40 Tanzania Tourist Board

Yes - - Yes -

41 Tanzania Tea Small Holders Development Agency

Yes - - - Yes

42 Copyright Society of Tanzania (COSOTA)

Yes Yes - - -

43 Tanzania Diary Board

Yes - - - -

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44 Tanzania Warehouse Licensing Board

Yes - - - -

45 Board of External Trade(TANTRADE)

Yes Yes - - -

46 Social Security Regulatory Authority

Yes - - Yes -

47 Higher Education Students Loan‟s Board

Yes Yes - - -

48 Sumatra Consumer Consultative Council

Yes - - - Yes

49 Tanzania Cereals and other Produce Board

Yes Yes - - -

C Training, Research and Higher Learning Institutions

1 Ardhi University

Yes - - - Yes

2 College of Business Education

Yes - - Yes

3 National Sugar Institute

Yes Yes - - -

4. Tanzania Commission for University

Yes - - Yes -

5. Dar es Salaam Institute of Technology

Yes - - Yes -

6. National Institute of Productivity

Yes - - Yes -

7. Dar es Salaam Maritime Institute

Yes - - - Yes

8. Dar es Salaam University College of Education

Yes - - Yes

9. Institute of Accountancy Arusha

Yes - - Yes -

10. Mbeya Institute of Technology

Yes Yes - - -

11. Institute of Adult Education

Yes - - - Yes

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12. Institute of Finance Management

Yes - - - Yes

13. Institute of Rural Development Planning

Yes - - - Yes

14. Institute of Social Work

Yes - - - Yes

15. Kibaha Education Centre-Kibaha

Yes - - - Yes

16. Kivukoni College (Mwalimu Nyerere Memorial Academy)

Yes - - - Yes

17. Mkwawa University College of Education

Yes - - - Yes

18. CARMATEC Yes - - - Yes

19. Moshi University College of Cooperative and Business Studies (MUCCOBS)

Yes - - - Yes

20. Muhimbili University College of Health and Allied Science

Yes - - Yes -

21. MWEKA College of African Wildlife

Yes - - - Yes

22. Mzumbe University

Yes - - - Yes

23. National Institute for Medical Research

Yes - - - -

24. National Institute of Transport

Yes - - - Yes

25. Open University of Tanzania

Yes - - Yes -

26 Sokoine University

Yes Yes - - -

27 Tanzania Institute of Accountancy

Yes Yes - - -

28 Tanzania Yes - - - Yes

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Institute of Education

29 University of Dar es Salaam

Yes Yes - - -

30 University of Dodoma

Yes - - - Yes

31 Vocational Education Training Authority

Yes Yes - - -

32 Tanzania Forest Research Institute (TAFORI)

Yes - - - Yes

33 Tanzania Fishing Research Institute

Yes - Yes - -

34 Tanzania Wildlife Research Institute (TAWIRI)

Yes - - Yes -

35 Tropical pesticides Research Institute

Yes - - - Yes

36 Centre for Foreign Relation

Yes Yes - - -

37 Tanzania Institute of Research and Development Organisation (TIRDO)

Yes - Yes - -

38 Muhimbili Orthopedic Institute (MOI)

Yes Yes - - -

39 Tanzania Automobile Technologies Centre

Yes Yes - - -

40 Arusha Technical College

Yes - - - Yes

D Public Utilities Organizations

1 Tanzania Electric Supply Co Ltd (TANESCO)

Yes - - - Yes

2 Energy Water and Utility Regulatory

Yes - - - Yes

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Authority

3 EWURA Ccc Yes Yes - - -

4 Tanzania Telecommunication Company Ltd (TTCL)

Yes - - - Yes

5 Arusha Urban Water and Sewerage Authority

Yes - - - Yes

6 Bukoba Urban Water and Sewerage Authority

Yes - - Yes -

7 Babati Urban Water and Sewerage Authority

Yes - - - Yes

8 Dar es Salaam Water Authority Supply Authority

Yes - - - Yes

9 Dar es Salaam Water Supply Company

Yes - - - Yes

10 Dodoma Urban Water and Sewerage Authority

Yes - - - Yes

11 Iringa Urban Water Supply and Sewerage Authority

Yes - - Yes

12 Kigoma Urban Water Supply and Sewerage Authority

Yes - - - Yes

13 Lindi Urban Water Supply and Sewerage Authority

Yes - - - Yes

14 Mbeya Urban Water Supply and Sewerage Authority

Yes - - - Yes

15 Morogoro Water and Sewerage Authority

Yes - - - Yes

16 Mwanza Urban Water Supply and Sewerage Authority

Yes - - - Yes

17 Moshi Urban Water Supply

Yes - - - Yes

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and Sewerage Authority

18 Mtwara Urban Water Supply and Sewerage Authority

Yes - - - Yes

19 Musoma Urban Water Supply and Sewerage Authority

Yes - - - Yes

20 Mbinga Urban Water Supply and Sewerage Authority

Yes - - - -

21 Rukwa Urban Water Supply and Sewerage Authority

Yes - - - Yes

22 Singida Urban Water Supply and Sewerage Authority

Yes - - - Yes

23 Shinyanga Urban Water Supply and Sewerage Authority

Yes - - - Yes

24 Songea Urban Water and Sewerage Authority

Yes - - - Yes

25 Tabora Urban Water and Sewerage Authority

Yes - Yes - -

26 Tanga Urban Water Supply and Sewerage Authority

Yes - - - Yes

27 Tukuyu Water Supply and Sewerage Authority

Yes - - - -

28 Kyela Water Supply and Sewerage Authority

Yes - - - -

29 Ngara Water Supply and Sewerage Authority

Yes - - - -

30 Korogwe Water Supply and Sewerage Authority

Yes - - - -

31 Mpanda Water Yes - - - -

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Supply and Sewerage Authority

32 Njombe Water Supply and Sewerage Authority

Yes - - - -

33 Namtumbo Water Supply and Sewerage Authority

Yes - - - -

34 Tanzania Library Services

Yes - - Yes -

35 Usafiri Dar- es-Salaam (UDA)

No - - - -

36 Air Tanzania Company Ltd

Yes - - - -

37 Arusha International Conference Centre

Yes - - - Yes

38 Marine Services Company

Yes - Yes - -

39 Kahama Urban water and Sewerage Supply Authority

Yes - - - Yes

40 Kahama Shinyanga Water Authority

Yes - - - Yes

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Appendix III Type of Audit Opinion Issued 2011/2012

Unqualified Opinion

S/N Name of PA&OBs

1. Bank of Tanzania (BOT)

2. Government Employee Provident Fund

3. Local Authority Provident Fund

4. Tanzania Investment Bank

5. National Health Insurance Fund

6. State Mining Corporation (STAMICO)

7. NHC/PPF IPS Building

8. Contractors Registration Board

9. Gaming Board of Tanzania

10. Sugar Board of Tanzania

11. SUMATRA

12. Public Procurement Regulatory Authority

13. Sumatra Consumer Consultative Council

14. Ardhi University

15. Institute of Finance Management

16. Kibaha Education Centre-Kibaha

17. CARMATEC

18. Dodoma Urban Water and Sewerage Authority

19. Mzumbe University

20. Arusha Urban Water and Sewerage Authority

21. Morogoro Water and Sewerage Authority

22. Mwanza Urban Water Supply and Sewerage Authority

23. Arusha International Conference Centre

24. Kahama Shinyanga Water Supply and Sewerage Authority

25. Deposit Insurance Board

26. Kilimanjaro Airport Development Company (KADCO)

27. Parastatal Pensions Fund

28. Small Industry Development Organisation(SIDO)

29. Tanzania Coffee Board

30. Tanzania Tea Small Holders Development Agency

31. Dar es Salaam Maritime Institute

32. Moshi University College of Cooperative and Business Studies (MUCCOBS)

33. Tanzania Communication Regulatory Authority

34. Tanzania Cashew nut Board

35. Babati Urban Water and Sewerage Authority

36. Unit Trust of Tanzania

37. Rukwa Urban Water Supply and Sewerage Authority

38. Tanzania Cotton Board

39. Baraza la Kiswahili Tanzania

40. National Council of Technical Education

41. Capital Development Authority

42. Tanzania Investment Centre

43. MWEKA College of African Wildlife

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44. Tanzania Education Authority

45. Kahama Urban water and Sewerage Supply Authority

46. Tanzania Forest Research Institute (TAFORI

47. Tanzania Food and Drugs Authority

48. National Examination Council of Tanzania

49. Architects and Quantity Surveyors Registration Board

50. National Economic Empowerment Council

51. Arusha Technical College

52. Mkwawa University College of Education

53. Capital Market and Securities Authority

54. Rufiji Basin Development Authority

55. Mbeya Urban Water and Sewerage Authority

56. Energy and Water Utilities Regulatory Authority

57. National Bureau of Statistics

58. Iringa Urban Water Supply and Sewerage Authority

59. Institute of Rural Development Planning

60. National Environment Management Council

61. National Board of Accountants and Auditors

62. Engineer Registration Board

Unqualified Opinion with Matters of Emphasis

S/N Name of PA&OBs

1. Public Service Pension Fund (PSPF)

2. Tanzania Postal Bank

3. National Development Corporation (NDC)

4. Tanzania Electric Supply Co Ltd (TANESCO)

5. Dar es Salaam Water Authority Supply Authority

6. Moshi Urban Water Supply and Sewerage Authority

7. Songea Urban Water and Sewerage Authority

8. Tanga Urban Water Supply and Sewerage Authority

9. Tanzania National Park (TANAPA)

10. Kivukoni College (Mwalimu Nyerere Memorial Academy)

11. Lindi Urban Water Supply and Sewerage Authority

12. Shinyanga Urban Water Supply and Sewerage Authority

13. Kigoma Urban Water Supply and Sewerage Authority

14. National Arts Council

15. Tanzania Tea Board

16. Tanzania Telecommunications Company Limited

17. Tanzania Fertilizers Company Limited

18. Tanzania Engineering and Manufacturing Design Organization

19. Singida Urban Water and Sewerage

20. Tanzania Institute of Education

21. Fair Competition Commission

22. Institute of Social Work

23. Dar es Salaam Water Supply Company

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Qualified Opinion

S/N Name of PA&OBs

1. Tanzania Marine Parks Reserve

2. Institute of Adult Education

Qualified Opinion with Matter of Emphasis

S/N Name of PA&OBs

1. Consolidation Holding Corporation

2. Tanzania Ports Authority

3. Mtwara Urban Water Supply and Sewerage Authority

4. University of Dodoma

5. Musoma Urban Water Supply and Sewerage Authority

6. Tanzania Pesticides Research Institute

7. National Institute of Transport

Disclaimer Opinion

S/N Name of PA&OBs

1. Twiga Bancorp

Adverse Opinion

S/N Name of PA&OBs

annual general report of the controller and auditor general

Documents