Mo HSW AND PMORALG 200405 AUDIT OF HEALTH

Mo. H&SW AND PMO-RALG 2004/05 AUDIT OF HEALTH BASKET FUND COVERING CENTRAL ACCOUNTS AT Mo. H&SW AND 113 LGA’s Presentation to Special BFC Meeting 8 November 2007 *connectedthinking Pw. C

Agenda PART I – INTRODUCTORY REMARKS PART II – 2004/05 AUDIT OF THE CENTRAL ACCOUNTS AT Mo. H&SW PART III – 2004/05 AUDIT OF 113 LOCAL GOVERNMENT AUTHORITIES (LGA’s)

PART I – INTRODUCTORY REMARKS 1. Audit practices for public funds 2. Objective of an audit 3. Types of audit opinions – matters that do not affect the opinion 4. Matters that DO affect the auditor’s opinion 5. Types of modified audit opinions 6. Comments on 2004/05 audit process

PART I – INTRODUCTORY REMARKS 1. AUDIT PRACTICES FOR PUBLIC FUNDS Controller and Auditor General Specific Needs Development Partner URT Development Partner Different needs Pricewaterhouse. Coopers November 2007 4

PART I – INTRODUCTORY REMARKS 1. AUDIT PRACTICES FOR PUBLIC FUNDS (continued) HBF (PWC) 20% Pricewaterhouse. Coopers A/c No 6 (NAO) November 2007 5

PART I – INTRODUCTORY REMARKS 1. AUDIT PRACTICES FOR PUBLIC FUNDS (continued) • The Controller and Auditor General (CAG) is constitutionally mandated to perform audit of all public monies and report to Parliament. The statutory duties and responsibilities of the CAG are given in section 143 of Tanzanian Constitution and Public Finance Act No. 6 of 2001. • URT requires CAG to ensure 100% compliance with specific constitutional obligations. However, these specificities may not fully address other stakeholders’ needs • Other stakeholders may require audits that specifically focus on own their funding and this necessitates use of specific Terms of Reference (To. R’s), MOU’s, different priorities, formats, etc. • Differences in scope could result in conflicting results (opinions) – materiality levels are different, To. R’s are different, etc. Pricewaterhouse. Coopers November 2007 6

PART I – INTRODUCTORY REMARKS Audit conducted in accordance with ISA/INTOSAI 2. OFcan ANbe. AUDIT Types of. OBJECTIVE audit opinion that expressed by an auditor are covered by the following ISAs: • • ISA 700 – Unqualified opinion ISA 701 – Modifications to the Independent Auditor’s Report Pricewaterhouse. Coopers November 2007 7

PART I – INTRODUCTORY REMARKS 3. TYPES OF AUDIT OPINIONS – 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. Matters that do not affect the auditor’s opinion – emphasis of matter In certain circumstances an auditor may modify his/her report by adding a paragraph to highlight a matter affecting the financial statements. The addition of such an emphasis of matter does not affect the Auditor’s opinion. Examples of such instances could be: • • A paragraph to highlight a material matter regarding a going concern problem A paragraph to highlight a significant uncertainty, the resolution of which is dependent upon future events and which may affect the financial tatements Pricewaterhouse. Coopers November 2007 8

PART I – INTRODUCTORY REMARKS 4. MATTERS THAT DO AFFECT AN AUDITOR’S OPINION An Auditor may not be able to express an unqualified opinion when either of the following circumstances exist and, in the auditor’s judgment, the effect of the matter is or may be material to the financial statements: • • Limitation of scope on the auditors work Disagreement with the management regarding on acceptability of accounting policies, the method of their application or the adequacy of financial statements disclosures. Three types of modified audit opinions: • • • Qualified opinion Disclaimer of opinion Adverse opinion Pricewaterhouse. Coopers November 2007 9

PART I – INTRODUCTORY REMARKS 5. TYPES OF MODIFIED AUDIT OPINION NOT SO FUNDAMENTAL MATERIAL AND PERVASIVE Limitation of Qualified Scope Disagreement Qualified Disclaimer Adverse Definitions Materiality – Information is material if its omission or misstatement could influence decisions of users taken on the financial statements. Materiality depends on item or error judged in the particular circumstances of its omission or misstatement. Pervasive – Affects all areas Pricewaterhouse. Coopers November 2007 10

PART I – INTRODUCTORY REMARKS 5. TYPES OF MODIFIED AUDIT OPINION (continued) • A qualified opinion is expressed when the auditor concludes that an unqualified audit opinion cannot be expressed but the effect of any disagreement with management, or limitation of scope in not so material and pervasive to require adverse or disclaimer of opinion. A qualified opinion should be expressed as being except for ‘effects of the matter to which the qualification relates’. • A disclaimer of opinion is expressed when possible 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. • An Adverse opinion is expressed when the effect of disagreement is so material and pervasive that the auditor concludes that a qualification of the report is not adequate to disclose the misleading or incomplete nature of the financial statements. Pricewaterhouse. Coopers November 2007 11

PART I – INTRODUCTORY REMARKS 6. COMMENTS ON 2004/05 AUDIT PROCESS It took 7 months to finalize the 2004/05 audit of the 113 LGA’s! • Audit fieldwork commenced on 10 July 2006 and issued Audit Inception Report (Transmittal Ref. Pw. C/99/NAM/PEM. ltr) • First Draft Report issued on 3 November 2006 (Transmittal Letter Ref. Pw. C/204/NAM/PEM/ltr) Received PMO-RALG comments on 10 January 2007 • • • Issued second Draft Report on 16 January 2007 (Transmittal Ref. Pw. C/09/NAM/PEM/ltr Report discussed during the Audit Sub-committee meeting of 8 March 2007 Issued third Draft Report to CAG for comments on 30 March 2007 (Transmittal Letter Ref. Pw. C/63/NAM/ATM/MK. ltr) Received CAG comments on 18 May 2007 Issued Final Report on 30 May 2007 (Transmittal Letter Ref. Pw. C/109/NAM/PEM/ltr) The above demonstrates need for us all to speed-up the process to bring it more in line with the consultancy contract! Pricewaterhouse. Coopers November 2007 12

PART I – INTRODUCTORY REMARKS 6. COMMENTS ON 2004/05 AUDIT PROCESS (continued) Report for Central Accounts took more than 7 months to finalize! • Audit work commenced on 10 July 2006 and First Draft Report issued on 19 October 2006. Numerous meetings were held to discuss this draft. • Issued second draft report issued for management comments on 15 January 2007 • Received MOH management comments on 24 January 2007 • Received revised management comments on 26 January 2007 • Report discussed during the Audit Sub-Committee meeting on 8 March 2007 • Received revised management comments on 19 March 2007 • Issued Final Draft Report to the C&AG for comments on 30 March 2007 (Transmittal letter Ref. Pw. C/63/NAM/ATM/ltr • Received C&AG comments on 18 May 2007 • Issued Final Report on 25 May 2007 (Transmittal Letter Ref. Pw. C/108/NAM/ATM/ltr Pricewaterhouse. Coopers November 2007 13

PART II – 2004/05 AUDIT OF THE CENTRAL ACCOUNTS AT Mo. H&SW 1. Statement of receipts & payments 2. Summary of significant issues 3. Audit Opinions 2000 to 2005

PART II – 2004/05 AUDIT OF THE CENTRAL ACCOUNTS AT Mo. H&SW 1. STATEMENT OF RECEIPTS & PAYMENTS Pricewaterhouse. Coopers November 2007 15

PART II – 2004/05 AUDIT OF THE CENTRAL ACCOUNTS AT Mo. H&SW 1. STATEMENT OF RECEIPTS & PAYMENTS Payments from Deposit accounts Shs 285, 768, 876 40, 488, 929, 900 6, 087, 462 3, 200, 000 Total Funds Available 40, 777, 586, 238 Payments 37, 667, 159, 044 Balance brought forward Exchequer issues received during the year Retirement receipts in the Deposit Account Balance of unspent funds Pricewaterhouse. Coopers 3, 110, 427, 194 November 2007 16

PART II – 2004/05 AUDIT OF THE CENTRAL ACCOUNTS AT Mo. H&SW 2. SUMMARY OF SIGNIFICANT ISSUES 1. Accounting for commitments An amount of Shs 3. 3 billion unspent the year end was expensed as commitment which is against Public Finance Act of 2001. At the end of the audit Shs 298 million remained unspent. This should have been refunded to the US$ Holding Account. 2. Controls over funds transferred to MSD The ministry transferred Shs 16 billion (or 42%) of Health Basket Fund expenditure to MSD for procurement of pharmaceuticals and health equipment. However, there were no controls to confirm that the funds were used for their intended purposes. Pricewaterhouse. Coopers November 2007 17

PART II – 2004/05 AUDIT OF THE CENTRAL ACCOUNTS AT Mo. H&SW 2. SUMMARY OF SIGNIFICANT ISSUES (cont. ) 3. 4. 5. 6. Transfer of funds to various institutions under MOH were not accounted for: Shs 2. 1 billion transferred to institutions was not accounted as per the requirement of the Health sector CBF Procedures and Accounting Manual. 4. Unaccounted imprests and imprests retirement not supported: Imprests amounting to Shs 267 million remained unaccounted. We were not provided with supporting documents for imprests amounting to Shs 196 million. Pricewaterhouse. Coopers November 2007 18

PART II – 2004/05 AUDIT OF THE CENTRAL ACCOUNTS AT Mo. H&SW 2. SUMMARY OF SIGNIFICANT ISSUES (cont. ) 5. Inadequately supported expenditure Various payments amounting to Shs 440 million were not adequately supported. Pricewaterhouse. Coopers November 2007 19

PART II – 2004/05 AUDIT OF THE CENTRAL ACCOUNTS AT Mo. H&SW 2. SUMMARY OF SIGNIFICANT ISSUES (cont. ) 6. Payment of Valued Added Tax (VAT) from Health Basket funds The Ministry has been paying VAT from Health Basket funds contrary to section D (f) of Memorandum of Understanding between the Government and the Development Partners. Pricewaterhouse. Coopers November 2007 20

PART II – 2004/05 AUDIT OF THE CENTRAL ACCOUNTS AT Mo. H&SW 2. SUMMARY OF SIGNIFICANT ISSUES (cont. ) 7. Construction of a Paediatric Ward at Muhimbili National Hospital The construction has taken too long and at the time of the audit the Ministry had already paid Shs 4. 6 billion out of a contract some of Shs 5. 7 billion. Since the second, third and fourth floors were less than 40% complete we considered the balance of Shs 1. 1 billion to be inadequate for the completion of the building. Comments on the Paediatric Ward No additional payment was made out of the Health Basket fund during the financial year 2005/2006. The Ministry has prepared an estimate of cost to complete the building and expect to spend Shs 2. 6 billion in addition to the contract sum. Pricewaterhouse. Coopers November 2007 21

PART II – 2004/05 AUDIT OF THE CENTRAL ACCOUNTS AT Mo. H&SW 3. AUDIT OPINIONS ISSUED BETWEEN 2000 & 2005 Financial year Type of Audit Opinion 2000 Qualified 2001 Qualified 2002 Qualified 2003 Qualified 2004 Qualified 2005 Qualified Pricewaterhouse. Coopers November 2007 22

PART III – 2004/05 AUDIT OF THE 113 LOCAL GOVERNMENT AUTHORITIES 1. Statement of receipts & payments and significant audit findings 2. Improvements noted compared to prior audit 3. Audit reports issued & trend analysis 4. Summary of audit findings 5. Comments of use of EPICOR

PART III – 2004/05 AUDIT OF THE 113 LOCAL GOVERNMENT AUTHORITIES 1. STATEMENT OF RECEIPTS & PAYMENTS FOR 113 LGA’s Pricewaterhouse. Coopers November 2007 24

PART III – 2004/05 AUDIT OF THE 113 LOCAL GOVERNMENT AUTHORITIES 1. STATEMENT OF RECEIPTS & PAYMENTS FOR 113 LGA’s Receipts Balance brought forward on 1 July 2004 Shs 8, 376, 594, 979 Receipts during the 12 months period ended 30 June 2005 18, 919, 707, 447 Funds available for use during the period 27, 296, 302, 426 Costs claimed 21, 423, 489, 124 Balance of unused funds as of 30 June 2005 5, 872, 813, 302 SUMMARY RESULTS Shs 2, 393, 974, 582 unexplained shortfall in opening balance; Payments amounting to Shs 846, 978, 577 not accounted for by medical facilities; Payments amounting to Shs 1, 001, 703, 208 used on procurements not allowed by Guidelines on use of Health Basket Funds; Payments amounting to 1, 588, 821, 609 lacked adequate support; Shs 2, 905, 830, 910 unexplained shortfall in closing cash balance; Payments amounting to Shs 290, 694, 985 were considered to be unreasonable mainly because costs were higher than prevailing commercial prices. In other cases, the payee was not prima facie a supplier of the paid for; and Ineffective utilization of available resources by councils where EPICOR has been introduced and staff have received requisite training. Pricewaterhouse. Coopers November 2007 25

PART III – 2004/05 AUDIT OF THE 113 LOCAL GOVERNMENT AUTHORITIES 2. IMPROVEMENTS NOTED COMPARED TO PRIOR AUDIT • Disclaimers of opinion during the year ended 30 June 2005 are 33 (or 29% of 113 Councils audited). This compares favourably with 18 -months period ended 30 June 2004 when the percentage of disclaimers was 54%. • There has been a marked improvement in understanding the requirements of the Guidelines on the utilization of Health Basket Funds. For example, funds used on disallowed procurements during the year ended 30 June 2005 represent 4. 7% of costs claimed, which compares favourably with 8. 7% for the 18 months period ended 30 June 2004. • There has been some improvements in record-keeping. For example, unsupported costs during the year ended 30 June 2005 represent 7. 4% of costs claimed, which compares favourably with 10. 9% during the 18 months period ended 30 June 2004. • Unreasonable payments during the year ended 30 June 2005 was 1. 4% of total costs which compares favourably with the period ended 30 June 2004 when the rate was 3. 8% of costs claimed. Pricewaterhouse. Coopers November 2007 26

PART III – 2004/05 AUDIT OF THE 113 LOCAL GOVERNMENT AUTHORITIES 3. AUDIT REPORTS ISSUED & TREND ANALYSIS Period ended No. of LGA's No. Qualifie d %age Qualified No. Disclaimer %age disclaime r 30 June 2005 (12 months) 113 80 71 33 29 30 June 2004 (18 months) 113 52 46 61 54 31 December 2002 (12 months) 82 30 37 52 63 31 December 2001 (12 months) 82 57 69 25 31 31 December 2000 (12 months) 36 28 78 8 22 The above would indicate some degree of improvement in overall terms in the financial accountability of Health Basket Funds by the councils. However, a lot more improvements are needed to move to the direction of clean opinion. These are in the areas of expenditure coding, competence in financial management, financial discipline, preparation of quarterly reports and effective implementation of EPICOR. Pricewaterhouse. Coopers November 2007 27

PART III – 2004/05 AUDIT OF THE 113 LOCAL GOVERNMENT AUTHORITIES 4. SUMMARY OF AUDIT FINDINGS 1) 100 councils (or 88%) had deficiencies in expenditure codification such that we could not confirm completeness and accuracy of the reported expenditure. 2) 92 councils (or 81%) did not provide adequate supporting third party documentation for some of the payments made. 3) For 80 councils (or 71%) there were inconsistencies between quarterly financial reports submitted to PMO-RALG & Mo. H and the Councils accounting records. 4) 78 councils (or 70%) used Council Health Basket Funds on ineligible procurements contrary to the requirements of the Guidelines on the utilization of Council Health Basket Funds. 5) 70 councils (or 62%) had weaknesses in recording and monitoring of imprest funds including use of incorrect rates of allowances, unreasonable delays by councils staff is accounting for Imprest fund, and giving new imprest before accounting for earlier ones. Pricewaterhouse. Coopers November 2007 28

PART III – 2004/05 AUDIT OF THE 113 LOCAL GOVERNMENT AUTHORITIES 4. SUMMARY OF AUDIT FINDINGS 5) 68 councils (or 60%) did not comply with competitive bidding procedures. 6) For 66 councils (or 58%) where the actual bank balance in Account No. 6 was less than the expected health basket funds balance at 30 June 2005, it is possible that Councils used Health Basket Fund for other activities. 8) For 60 councils (or 53%) there was a general Lack of Value of Money on expenditure made. 9) 67 councils (or 60%) did not comply with competitive bidding procedures. 10) 58 councils (or 51%) had weaknesses in cash and banking controls including lack of regular bank reconciliation, review and approval by appropriate officials. Pricewaterhouse. Coopers November 2007 29

PART III – 2004/05 AUDIT OF THE 113 LOCAL GOVERNMENT AUTHORITIES 5. COMMENTS ON USE OF EPICOR – GENERAL OBSERVATIONS • Most of the councils were unable to produce a complete and accurate statement of receipts and payments for Health Basket Funds using EPICOR and it was evident that there had not been enough practice on using EPICOR at the Council level after the formal training. • Most of the council continued to produce the statement of receipts and payments for CHBF manually, which is not efficient given the resources invested in EPICOR in terms of equipment, software and training over the years Commitment Control System has not been implemented at the council level EPICOR has the capability to closely monitor expenditure against budgets during the ordering and payment processes to ensure that users to charge an expense in accounts where the budgets have been exceeded. This feature has been implemented and is used across all ministries but not at the councils, which increases the risk budget overruns. Pricewaterhouse. Coopers November 2007 30

Q&A Pricewaterhouse. Coopers November 2007 31

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