Report slams rot in Saccos

Covid-19 could have breathed on past its life-threatening peak in 2020 and 2021, but a special audit report released recently by the Auditor General lays bare the most detailed insight to date into the corruption that eroded efforts to fight the pandemic.

The 162-page report found that government officials who managed the frontline fight against Covid-19 mismanaged and/or diverted about Shs 168.8 billion. The cash swindles, double loan disbursement, and other irregularities are listed in a special audit report into expenditures relating to Covid-19 for the financial year 2020-2021. According to the report, 140 associations received Shs 3.52 billion in loans from Apex Constituency Saccos. But defaulted on repayment of Shs 2.49 billion, almost half the loan amount.

The report found that ministries, departments and agencies paid about Shs 27.38 billion in arrears, but the audit found no documents to support the payments. The same report reveals that about Shs 65.5 billion was released for the purchase of medical supplies in the 2020–21 financial year. About Shs 57.5 billion was spent on medical supplies, the report found, and the balance of Shs 7.9 billion was spent on non-medical supplies, resulting in a diversion of funds.

In December 2019, the World Health Organization (WHO) confirmed an outbreak of Covid-19. The first confirmed cases occurred in Wuhan, China. On March 21, 2020, Uganda registered its first Covid-19 case. He was a 36-year-old who arrived from Dubai. The government instituted several interventions to control and avert the effects of the pandemic on the economic and social well-being of its citizens.

The interventions included a two lockdown, the closure of airports, the restriction of cross-border movements and increased surveillance, among others. These necessitated additional funding. The government also announced several policy interventions, including the payment of domestic arrears, to improve liquidity in the local business community.

About Shs 1.5 trillion was approved in the financial year 2020/21 budget. Shs 1.2 trillion in additional funding was also provided.

Receipts from Development Partners

A review of cash receipts for the period ending June 30, 2021, found that the government received Shs 2.9 trillion from different development partners. This left a balance of Shs 81.2 billion unpaid. The funds included a grant of EUR 4 million (Shs 15.5 billion) from the European Union (EU), a loan of USD 304,108,912 (Shs 1.1 trillion) from the World Bank, a grant of USD 2,700,547 (Shs 10 billion) from IDA, a grant of USD 14,700,000 (Shs 54.9 billion) from IDA, a Special Drawing Rights (SDR) 9,200,000 (Shs 45 billion) from IDA and a loan of USD 498,723,489 (Shs 1.8 billion) from IMF.

From that, USD 498.7 million (Shs 1.8 trillion) was disbursed to the government from the IMF in the financial year 2019–20. However, only part of that money was utilized in the year under review. In a letter dated August 9, 2021, the permanent secretary and secretary to the Treasury advised that the total amount released for Covid-19 expenditure in the financial year 2020/21 was Shs 2.3 trillion, of which Shs 677 billion was disbursed for the settlement of domestic arrears.

In the same letter, the ministry of finance informed the auditor general that Shs 130 billion had been released to State House for youth project funding. In a letter dated October 20, 2021, the State House comptroller said since the outbreak of the Covid-19 pandemic, State House had not received any funds related to the pandemic.

Utilization of funds

The Bank of Uganda received an IMF Rapid Facility for the fiscal year 2019/20.Uganda received a Special Drawing Rights (SDR) facility of about USD 153,720,118 (Shs 574.7 billion), which was used to support the Uganda Development Bank (UDB) and the budget. Another facility received was worth approximately USD 345,003,371 (Shs 12.8 trillion). The facility was intended to cushion the country during Covid-19 times, and as such, the Bank of Uganda needed strong muscles to deal with any economic shocks that could potentially arise out of Covid-19.

The funds were deposited in the Bank of Uganda account at Citibank, New York, to enhance the country’s foreign reserves, which stood at about 4.4 months of import cover at that time. The funds were invested in near-liquid assets for the purpose of holding reserves ready for use in case of an emergency. To date, the funds are available. As of June 2021, the import cover was 4.7 months.

The Uganda Development Bank (UDBL) was initially capitalized with Shs 103.5 billion by parliament. Parliament approved supplementary funding of Shs 455.18 billion (USD. 120 million from the IMF/RCF) to support the bank in providing stimulus funding to the affected sectors. The audit established that Shs 531.81 billion was transferred from the ministry of finance to UDBL as of June 30, 2021.

Of the funds received, Shs 455.18 billion was related to the supplementary budget, while Shs 76.6 billion of the original approved estimates was released. In response to a call for funding by the European Union, UDBL also received a direct grant award for micro, small, and medium non-agricultural companies worth Euros six million. The grant was allocated to concessional loans and a capital loan tenure of up to five years, inclusive of a two-year grace period.

The grant was to be utilized towards stimulating business operations in the tourism sector, which was heavily battered by Covid-19. The grant provided affordable loans to the sector with flexible terms. It was observed that about Euros 1,602,370 (Shs 7.14 billion) of the approved grant had been received by the Bank as of June 30, 2021.

Utilization of funds by UDBL

In the Letter of Intent dated April 30, 2020, the minister of Finance, Planning, and Economic Development said the government intended to use part of the funds secured from the IMF to provide investment finance through additional liquidity injection into UDBL to support local manufacturing.

The letter said UDBL would report separately on the use of the funds received. According to the report, Shs 234.64 billion was disbursed to clients between August 2020 and June 2021. About Shs 65 billion out of the Shs 234 billion was disbursed to financial institutions as medium- and long-term loans. Post Bank received Shs 30 billion and Finance Trust Bank received Shs 5 billion, while Shs 30 billion went to Wazalendo Sacco. The remaining Shs 139.62 billion was distributed to eligible sectors.

Undisbursed funds totaling Shs 296.54 billion remained invested in various commercial banks for varying periods of time.

Utilization of EU grants

About 93 applications were received by the Bank, and 24 were approved by the EU Committee for onward approval by the Management Credit Committee. As of June 10, 2021, 25 applications worth Shs 9.55 billion were approved, and grant disbursements worth Shs 4.34 billion were processed for 14 projects. Management explained that the EU closely monitors the fund’s operations and that the low absorption is due to applications that do not meet the set evaluation criteria.

Microfinance Support Centre of Uganda Ltd

On August 19, 2019, cabinet approved a proposal on the “Presidential Initiative on Wealth and Job Creation” to facilitate the socio-economic transformation of households from subsistence to a money economy and market-oriented production in line with the National Resistance Movement (NRM) Manifesto.

The establishment of Emyooga was to transform 68 percent of Ugandan homesteads from subsistence to market-oriented production. Cabinet announced that each constituency apex Sacco would receive Shs 30 million in seed capital, while registered leader Saccos would get Shs 50 million.

About Shs127.72 billion was appropriated for the Microfinance Support Center for conventional on-lending and Emyooga (specialized groups) grants in the financial year 2020–2021.
Parliament further approved supplementary funding of Shs 210 billion. As of March 31, 2021, about Shs 337.72 billion was transferred from the ministry of Finance to Uganda Microfinance Support Centre Ltd. It was established that overall, out of the Shs 337.72 billion received, Shs 304.3 billion was spent or disbursed by the entity, leaving a balance of Shs 33.3 billion.

Failure to obtain operational licenses

A Sacco cannot operate without a license issued by the Uganda Microfinance Regulatory Authority, according to Section 3 of the Guidelines for Licensing Saccos under Tier 4, the Microfinance Institutions and Money Lenders Act 2016 and the Sacco Regulations 2020.

Over 6,326 Emyooga Saccos validated and financed through the Microfinance Support Centre as of March 31, 2021, didn’t have licenses. Operating without a license exposes members to the risks of poor governance and loss of savings.

Management explained that Emyooga Saccos were registered on probation by the Registrar under the Co-operatives Act, which permits newly created Saccos to operate without a license for two years. Thereafter, it becomes mandatory for every Sacco to obtain a license.

Absence of MoUs

The audit report established that funds (seed capital) had been disbursed to 6,326 Saccos as of the end of June 2021; however, there were no memoranda of understanding between the MSC and the Saccos to guide utilization and accountability.

Management explained that the Microfinance Support Center was operating under cabinet resolution, which determined the mode of operation, including the amounts recommended to be disbursed to specific Emyooga Saccos, the interest rates, and the beneficiaries.

Idle funds

A review of bank statements of the beneficiary Saccos established that of funds disbursed as grants to various constituency SaccoS, Shs 34.7 billion remained un-accessed by the beneficiary Saccos as of June 30, 2021. And according to the accounting officer, many Saccos were knocked off course by controls put in place to safeguard access to public funds by unregistered Saccos.

“Failure to access the funds implied that the intended beneficiaries could not engage in the planned income-generating activities. The occurrence hindered the government from attaining the objectives for which the programme was being implemented,” Auditor General’s report said.

Misuse and embezzlement of Sacco funds

Physical inspections carried out in Kayunga district revealed that Shs 500 million disbursed by various Saccos was never supported by loan agreements, and there was no evidence to support the existence of the borrowing associations. The beneficiaries could not be traced. Management stated that they have engaged the district and ministry to follow up on the Saccos involved in this unethical conduct.

Failure to pay subscription fees

The Emyooga guidelines stipulate that every association shall pay Shs 150,000 to the Apex/Constituency Sacco. However, about 168 Saccos did not pay the requisite subscription and membership fees.

While some associations had made partial payments of the requisite Shs 150,000, others did not make any payments at all. The funds are meant to subsidize the operational expenses of the Saccos and increase funds available for lending.

The auditor general noted that failure to adhere to the guidelines posed a risk of encroachment on the Sacco seed capital. About 142 Saccos did not have records such as a member register, lending policies, a record of disbursements, recoveries, financial records including cash books, or minutes of Sacco meetings. Those with some records were insufficient.

Default on loan payments

The audit report found that the 140 associations that got loans worth Shs 3.52 billion, from the Apex Constituency Saccos, defaulted on payment of Shs 2.49 billion by the time of verification, representing a 70.74 per cent default rate. The auditor general observed that failure by the borrowers to repay loans led to the collapse of the Saccos.

Irregularities in loan approvals

The report found that about seven loans, amounting to Shs 5.3 billion, were exceptionally approved under the executive director’s office without following due process. All the loans in question were not submitted for review by the Head of Credit and Operations to the Management Loans Committee (MLC), before approval by the executive director or board, as provided for by the Credit Policy.

According to the report, the executive director’s office waived certain legal and regulatory requirements, such as the tax clearance certificate and mining and exploration license, for two applications that fell outside of his authority and the mandate of MSC.

“It was noted that the loan applicants exhibited weaknesses in financial performance, cash flows, and liquidity; verifiable credit histories; and compliance with legal and regulatory requirements, which increased MSC’s exposure to the risk of loan default since the loans were not subjected to due process of credit appraisal and approval,” the report showed.

Disbursement of loans

It was noted that MSC disbursed loans totalling Shs 13.1 billion prior to the legal department’s approval of the securities. Management took note of the finding and committed that going forward, all disbursements would be made after ensuring that the pledged securities had been fully perfected by the legal department.

Loans advanced to clients without security

The auditor general noted that loans worth Shs 3.1 billion were advanced to two companies without any collateral provided. Management explained that they found it necessary to give the loan because the Zeus project supports many rice farmers.

Unsupported Domestic arrears payments

Auditors requested supporting documentation in the form of supplier contracts, local purchase orders, invoices, delivery notes, and goods receipt notes in support of the paid liabilities for the different MDAs and observed that arrears totaling Shs 27.38 billion, which were paid, were lacking documentation. Under the circumstances, the audit considered the payment of such transactions as irregular since they could not be supported.

Ministry of Health

According to the ministry of Finance schedule, Shs 253.5 billion was released to the ministry of Health over the financial year 2020/21 for medical supplies, testing kits, the establishment of isolation or treatment centers, face masks, and the procurement of vaccines.

The audit noted that the ministry of Health prepared and submitted a Covid-19 budget summary and work plan to the ministry of Finance for six months (July – December) 2020 totaling Shs 350.4 billion but only received Shs 253 billion.

Medical supplies

According to the Covid-19 supplementary funding documents, Shs 66.9 billion was released for medical supplies over the 2020–21 financial year. However, analysis of the expenditure file revealed that about Shs 57.5 billion was spent on medical supplies and the balance, Shs 7.9 billion, was spent on non-medical supplies, resulting in a diversion of funds.

The auditor general noted that failure to utilise all the allocated funds to purchase medical supplies led to shortages of supplies in some health units across the country. The funds were diverted to pay allowances for health workers.

The accounting officer indicated that it was agreed in a meeting with the secretary to the Treasury that, given the urgency to mitigate the pandemic, the ministry of health would use the unabsorbed Shs 10.02 billion by the end of the financial year to cater for  emergency activities that did not have funding in the budget.

Procurement and distribution of masks

In the financial year 2020/21, the ministry allocated Shs 90.5 billion for the procurement of non-medical masks. Accordingly, the ministry-initiated procurement of reusable/non-medical face masks for mass use by learners and communities of Uganda.

All call-off orders were issued under one contract. Management explained that the procurement, supply, and delivery/distribution of masks was an emergency operation to fight Covid–19 that needed to be handled quickly to enable the lifting of the lockdown, the opening of schools, and later safe community participation in the January 2021 general elections.

Special meals

On February 21, 2021, the ministry of Health signed a two-year framework contract with a company to provide canteen and catering services. The ministry instructed the company to supply food to presumed Covid-19 cases under mandatory quarantine centers at Entebbe Regional Referral Hospital, Uganda Fisheries Institute Entebbe, Mulago National Referral Hospital, Mandela National Stadium-Namboole, and the Call Center.

The ministry had paid the service provider Shs 5.8 billion by June 30, 2021. However, a review of the documents provided for audit purposes revealed that only Shs 47.1 million could be verified with supporting documentation. The balance of Shs 5.7 billion was not supported.

The auditor general noted that in the absence of proper expenditure records, and respective accompanying documents, namely: signed attendance lists and daily lists of beneficiaries signed against every category of service by a health facility staff, the audit team could not confirm that the funds in question were genuinely spent for services offered and value for money derived.

Supply, delivery, and installation of ICUs

The ministry of Health contracted a private company to supply, deliver, install, and commission intensive care equipment in 18 health facilities. The facilities in Uganda included 15 regional referral hospitals and three general hospitals worth Shs 26.9 billion. During the financial year 2019/2020, Shs 26.1 billion was paid, and by November 2021, the project’s total payment was at 100 per cent, while physical progress was reported at 95 per cent.

Despite being paid 98 per cent in advance, the firm could not deliver on time due to the global demand for the same products. According to the project manager’s status report as of July 2, 2021, all supplies had been made and installations were at 90 per cent completion.

The auditor general observed that the installation of ICU equipment at Gulu regional referral hospital did not happen due to lack of adequate infrastructure. Renovation of a temporary ICU ward had started. Additionally, remodeling had started in Masaka and Mbale. Of the 10 facilities earmarked to receive pendants, only three installations at Naguru, Arua and Entebbe had been made at the reporting time. Facilities such as Bombo Military, St. Mary’s Lacor, Jinja and Lira hospitals didn’t have the necessary structural requirements to install the pendants.

Installation of pendants in Mbarara regional referral hospital was halted because the ICU cubicles were too small and 14 out of 17 hospitals lacked critical care specialists to effectively run the ICU facilities. Management explained that at the time of the audit (December 2021), the ministry of Health had since received all ICU equipment, and partial installation of 90 per cent of it had taken place in Entebbe, Naguru, Jinja, Mbale, Soroti, Moroto, Lira, Gulu, Masaka, Mubende, Mbarara, Kabale, Hoima, and Fort Portal regional referral hospitals.

Other hospitals include Kawempe and Kiruddu national referral hospitals, Bombo MGH, and Lacor hospital. The delay is linked to global demand and subsequent shortages caused by the pandemic. The delay in installing all the supplied equipment was due to a lack of funds to construct new ICU buildings and remodel the old ones.

Transfers to Regional Referral Hospitals

Over the financial year 2020–2021, the ministry of Health transferred Shs 12.2 billion in Covid-19 support to health facilities and district local governments. However, the administrative arrangement between the ministry of Health and the supported agencies was that they would spend the money and submit accountabilities to the ministry for review and clearance; of the total disbursement, Shs 3.1 billion was advanced to referral hospitals for the construction of new ICUs and remodeling of old units.

In addition, the report showed that Shs 6.7 billion was advanced to 16 health facilities to facilitate surveillance and feeding of patients, 14 out of the 16 health facilities submitted their accountabilities, which were verified. The audit report showed that Sh4 billion was advanced to 50 district local governments as Covid-19 response funds; of these, 15 submitted their accountabilities to the ministry of Health and had them verified. Shs 5.8 billion remained unaccounted for at the end of the audit.

Security and domestic waste management at Mulago

A review of the payment file revealed that the ministry of Health paid Shs 794.9 million for cleaning services in Lower Mulago during the Covid-19 pandemic and Shs 276.9 million for security services in Lower Mulago.

The audit team noted that the contracts for the supply of cleaning and security services were between the respective suppliers and Mulago national referral hospital, and those contracts were already running in the hospital prior to Covid-19.

“Paying for bills of another vote creates avenues for abuse, indeed, in the year under review, Mulago Hospital was allocated Shs 648 million for guard and security services and used only Shs 28.5 million to pay the security company,” reads part of the report.

In addition, the hospital paid Shs 1.3 billion for cleaning and waste management; given that there was no reconciliation between the ministry and the hospital, duplicate payments could have been made. The auditor general advised the accounting officer to avoid making payments to suppliers of self-accounting votes with whom the entity has no contract.

Purchase of Vaccines

The first government allocation for the procurement of vaccines was Shs 18.5 billion. That amount was transferred to the National Medical Stores on March 29, 2021, for the procurement of Covid-19 vaccines on behalf of the ministry of health.

Later, the government decided to procure vaccines through the COVAX funding facility, whose procurement agency in Uganda is UNICEF. Accordingly, the permanent secretary requested the general manager of the National Medical Stores to transfer the total figure to Unicef to enable it to procure Covid-19 vaccines for Uganda, which NMS did on May 28 2021.

Parliament approved a contingency fund allocation to the ministry, and over the financial year 2020–21, an additional Shs 30 billion was released from the contingencies fund to cater for the procurement and distribution of additional Covid-19 vaccines.

As of June 30, 2021, Shs 24.2 billion had been transferred to Unicef (Shs 23.1 billion) and to National Medical Stores (Shs 1.1 billion), to procure Covid-19 vaccines. That brought the government’s funding for the procurement of vaccines to Shs 42.7 billion, including Shs 18.5 billion. It was, however, observed that by June 30, 2021, the government had not received any supplies using the funds provided. This was attributed to the prevailing market conditions.

The government received vaccines as donations from different agencies and countries. As of October 31, 2021, the government had procured 1,881,600 doses and received a donation of 15,249,490 doses.

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