INTERIM REPORT BY EVALUATION AND
AUDIT UNIT TECHNICAL TEAM TO SECRETARY GENERAL ON MISAPPROPRIATION
OF FUNDS IN THE OFFICE OF THE PRIME MINISTER, UGANDA
15 NOVEMBER 2012
SECTION 1: SCOPE AND
This report sets out the findings of the Technical Team that
travelled to Uganda on 25 October 2012 following the release of the
Auditor General’s Special Investigation Report on the Allegations
of Financial Impropriety in the Office of the Prime Minister of
Uganda received on 19 October 2012. The report has been
prepared by the Technical Team assigned from the Evaluation and
Audit Unit of the Department of Foreign Affairs and Trade.
This is an independent Unit that reports directly to the Secretary
General of the Department. The Terms of Reference are
attached at Annex 1.
Scope of Report
This report is confined to issues particular to the
misappropriation of €11.6 million of donor funds, including €4
million of Irish Aid funds, intended for the Peace, Recovery and
Development Plan (PRDP) but which was fraudulently diverted to
previously dormant accounts within the Office of the Prime Minister
and subsequently withdrawn by various fraudulent means. The report
seeks to explain what happened, what systems weaknesses may have
contributed to facilitating the fraud and whether the fraud could
have been identified at an earlier stage. The report also seeks to
assess any likelihood of such a fraud having occurred in other
areas of the Irish Aid programme in Uganda or to reoccur.
Recommendations are mainly confined to issues around the
misappropriation of the €4 million of Irish Aid funds and lessons
to be learned from this.
The Peace, Recovery and Development Plan is a complex three year
(2009-2012 – Phase 1) multi-sector framework for the re-development
of fifty five of the conflict affected districts of the North of
Uganda. These areas are the poorest and most disadvantaged in
the country. The programme is managed and coordinated through
the Office of the Prime Minister and chiefly delivered by local
governments at district level. It is primarily aimed at
infrastructure development in health, education, water and
sanitation and roads.
The total budget for Phase 1 of the PRDP from all sources, both
government and donors, was c.€473 million of which Ireland
contributed €7.25 million over two years. Planning for a
Phase 2 of the PRDP commenced in 2012. Ireland had
indicated its willingness to contribute to this subject to
satisfactory design, management and oversight. Funding was
delivered primarily by topping up government grants to districts
and was supported by a range of donor funding from Ireland,
Norway, Sweden and Denmark.
The PRDP is part of the Irish Aid country strategy programme
2010-2014, which was approved by Irish Aid’s external appraisal
group (PAEG) in February 2010, following appraisal internally and
externally using Irish Aid appraisal guidelines. Following
approval by PAEG, a Memorandum of Understanding (MOU) governing the
programme was signed between the Governments of Ireland and Uganda
by the then Minister for Foreign Affairs on 30th June
2010. Final annual budget allocations are approved by the
Inter-Department Committee in January each year.
MISAPPROPRIATION OF FUNDS IN THE OFFICE OF THE PRIME
In April 2011 the Office of the Auditor General (OAG) initiated a
value-for-money study into special programmes managed by the Office
of the Prime Minister (OPM) as part of its work programme for
2010/11 but the OAG’s work was hampered by lack of access to
records. In the 2011/12 year the OAG expressed his right of
access to information under legislation, and eventually negative
publicity in the media led to the OAG being formally requested in
August 2012 by inter alia the Permanent Secretary of OPM and donors
to carry out a special investigation. The audit commenced in
late August 2012 and the report was received by Irish Aid on
19th October 2012.
Ireland disbursed its first contribution of €3.25 million to the
PRDP on 21 October 2010, and a second disbursement of €4 million
was made on 22 July 2011.
The first grant of €3.25 million was transferred into the
designated holding account on 21 October 2010 and was subsequently
properly credited to the Uganda Consolidated Fund (UCF) Account in
Bank of Uganda (the central bank of Uganda) on 12 November 2010.
This funding helped finance expenditure under PRDP in the Uganda
financial year 2010/2011. Expenditure was mainly through local
government departments at district level and this expenditure
was included in the Auditor General’s 2010/2011 audit.
A second grant of €4 million was transferred into the designated
holding account on 22 July 2011. This should also
have been transferred to the Consolidated Account “promptly” as per the MOU.
However, the funds remained in the holding account until 28
December 2011, a period of five months after the funds were paid
in by Irish Aid.
The funds were then on 28 December 2011 fraudulently transferred to
a previously dormant account maintained in the Bank of Uganda but
under the control of the Office of the Prime Minister. This
account was entitled “Crisis Management Account”. Other funds
in the holding account paid in by the Swedish and Danish
Governments were also fraudulently diverted to this and another
previously dormant account. In total €11.6 million was
fraudulently diverted to these two accounts under the control of
the OPM. This transfer required a high degree of collusion at
a senior level and knowledge of internal controls including the IT
controls and passwords.
Money was subsequently withdrawn from the Crisis Management Account
under a number of guises, including transfers to personal accounts,
use of fake vouchers and bogus suppliers, forging of signatures
etc. As all of this occurred outside of the Government
systems the funds are considered misappropriated and were not
expended on “development activities”.
The main persons involved in the fraud have been identified in the
Auditor General’s report. Some have been arrested while
others have been suspended pending police enquiries. The ultimate
beneficiaries of the misappropriated funds are unknown at this
stage, and it would require a detailed police investigation to
In addition to the direct misappropriation of donor funds via
fraudulent transfers to unauthorised accounts, the report of the
OAG also identifies a number of transactions over the previous year
within the OPM totalling approximately €5 million that were considered as “fraudulently
approved”. The report identifies systematic bypassing of
controls within the OPM including signature forgeries, and
payments to companies and organisations of dubious status.
The Auditor General confirmed that the funds involved were
Government of Uganda (GOU) funds but since GOU funds include
funds provided by a number of donors as direct budget support
the nature and scale of the irregularities are of concern.
The OAG will do further work in this area and a clearer picture
of overall levels of irregularities and fraud within the OPM
will then be available.
It is clear from the audit report that there was collusion at
senior levels and across three key agencies – the OPM, the
Accountant General’s Office (including Treasury) within the
Ministry of Finance, Planning and Economic Development (MOFPED),
and the Bank of Uganda. This was a very sophisticated and elaborate
scheme and, given the level of collusion involved, it would have
been difficult for normal systems to pick up as key controls were
bypassed by the individuals who were responsible for implementing
the controls. While weaknesses or non-application of controls
on both the donor side and the GOU (referred to later in this
report) made the fraud easier and possibly delayed earlier
detection, it is considered that the fraud could only have been
perpetrated by a level of collusion that would not have been
SECTION 3: GOVERNMENT OF
UGANDA SYSTEMS INCLUDING BANK OF UGANDA
Overview of Systems
The public financial management systems of GOU have been assessed
on a regular basis by various international agencies (including
Public Expenditure and Financial Accountability (PEFA) Assessments
in 2005, 2008 and 2012, and Fiduciary Risk Assessments (FRA)
undertaken by UK Department for International Development).
The systems have largely been found to be functional with
appropriate internal controls in place. Internal controls are
dependent upon having appropriate and trustworthy people at
appropriate levels approving expenditure and payments, as well as
systems of passwords, separation of duties, regular reconciliations
In addition the main donors, including the World Bank and EU,
monitor a number of indicators of Government performance including
some particular to public financial management, through a joint
annual assessment process. One of the conclusions of the
process in December 2010 was that “The preparation and
implementation of the budget, internal budget accountability and
external budgetary control satisfies the basic conditions for good
public financial management, including transparency, accountability
and effectiveness in the use of resources”.
All Government accounts are maintained by the Bank of Uganda and
normal systems applicable to any central bank are in place,
including requirements for confirmation of payments, signature
verification, cash withdrawal limits and systems for execution of
electronic funds transfer (EFT) payment files.
Weaknesses Observed in
It is clear that there were some weaknesses in the system.
Bank reconciliations were not done on a timely basis and this
escaped the attention of the Accountant General. As noted in
the OAG’s report, had bank reconciliations been conducted and
reviewed regularly as required the fraud issue could have been
picked up earlier. Dormant bank accounts were allowed to
remain in place, despite the OAG regularly highlighting this
weakness and recommending in his annual reports that they be
The Auditor General’s report describes how some of the key controls
in the Bank of Uganda (BOU) were by-passed. These include
confirmation of payments and signature verification as well as
violation of cash withdrawal limits. In particular BOU systems
around running of electronic funds transfer (EFT) payment files
before receiving confirmation data from the Treasury were not
observed and this facilitated the fraud.
Had Bank of Uganda controls been implemented properly it is most
unlikely that the fraud would have been possible. The
non-implementation is largely attributable to the involvement of
key personnel at BOU in the fraud collusion rather than weaknesses
in the systems themselves. However there were some systems
weaknesses particularly those pertaining to internal BOU
account-to-account transfers. We were informed by the Auditor
General that BOU has since addressed these issues.
While public finance management (PFM) systems in Uganda are
reasonably well developed with appropriate controls in place, there
are still areas of weakness, in particular the fact that controls
can be by-passed. The non-rotation of finance staff in line
with GOU’s own internal controls was also a significant failure.
The management of PFM was not sufficiently rigorous or
disciplined as evidenced by the failure to carry out regular and
timely bank reconciliations. These weaknesses were exploited by
those responsible for the fraud.
In the case of Bank of Uganda it was a case of failure to implement
controls that facilitated the fraud rather than their absence.
The failure by BOU to receive written confirmation of EFT
transfers from Treasury before effecting payments was a significant
factor in the execution of the fraud.
In relation to inter-account transfers, and the BOU’s
responsibility in relation to the closing of dormant accounts, it
would appear that BOU systems were not sufficiently strong.
We understand that these issues have been addressed since the
publication of the OAG’s report.
SECTION 4: IRISH AID
INTERNAL FINANCIAL CONTROL SYSTEMS
This Section describes Irish Aid internal controls in relation to
disbursements and post-disbursement follow-up. This is
followed in Section 5 by a description of the programme monitoring
and management arrangements in place.
Irish Aid Internal Control
Systems over Payments to Partners
Irish Aid has a range of internal controls governing payments to
partner organisations, including Governments. These are set
out in the Financial Policies, Guidelines and Procedures Manual of
Irish Aid. The controls include:
Appropriate separation of duties
Appraisal of partners’ systems, which in the case of government
partners involves utilising PEFAs, FRAs and other assessments, as
well as Irish Aid’s own recently introduced public financial
management assessment procedure
comprehensive disbursement checklist setting out all of the main
issues that must be satisfied prior to approval of payment.
This is approved by the Sub-Accounting Officer (Head of Mission)
Processes and requirements for financial monitoring and reporting.
In addition, a memorandum of understanding (MOU) governing Irish
Aid’s contribution to a partner sets out the appropriate terms and
conditions for proper management of the programme.
Process for Disbursement of
The process to be followed before funds can be disbursed to a
partner is set out in the Irish Aid Financial Policies, Guidelines
and Procedures Manual and provisions specific to the particular
programme are set out in the relevant memorandum of
understanding. All of the various stages in approving the
payment are captured in a disbursement checklist with appropriate
sign-off for each stage. The Head of Mission as
Sub-Accounting Officer ultimately approves the payment.
Once the disbursement checklist is approved payment is made by
direct transfer from the Embassy’s bank account (held at Standard
Chartered Bank) to the designated bank account set out in the
MOU. Confirmation of the transfer including details of the
account to which the funds are transferred is received from the
Embassy’s own bank. Irish Aid financial regulations require
that a receipt is obtained but are not adequately specific on the
level of detail required. Ideally a receipt should detail any
subsequent transfer of funds to specific accounts as set out in the
MOU, and should include either copies of bank statements or copies
of any transfer documents.
Payment Approval Process
for PRDP payments
Before the disbursement process for PRDP can start in the Embassy
the following steps must be met by the programme:
1. Overall positive assessment
by the joint donor group of government performance discussed and
agreed at the Joint Budget Support Framework (Irish Aid has a
condition that the assessment must be that when 70% of the
indicators are met a full disbursement will be made. Other levels
of disbursement are pro-rata on percentage achievement).
2. The key trigger for requests
of payment is that the PRDP monitoring committee meeting is held,
after which Ireland requests a requisition of funds from
MOFPED. A key report supporting the payment is the Auditor
General’s report for the pre-previous year.
In respect of the transfer of funds for the PRDP we are satisfied
that all of the pre-disbursement conditions were complied with and
that appropriate authorisation for disbursement was in place. The
funds were properly transferred to the holding account set out in
the MOU and the subsequent fraud was carried out from bank accounts
under the control of the MOFPED.
As regards receipts, it is not the practice of MOFPED to always
automatically issue receipts for funds transferred into their
accounts, sometimes they need to be requested. Receipts are
generally in the form of a letter acknowledging receipt of funds
and confirming the bank account into which they were
deposited. A complete receipt should detail the subsequent
transfer of funds to the Consolidated Fund and include either
copies of Bank of Uganda statements or copies of any transfer
documents, and such receipts were received for some grants
In respect of the €4 million grant to PRDP in 2011, a receipt was
on file but it had no supporting documentation and did not confirm
the transfer of funds to the Consolidated Account. Thus it
was of limited assurance.
Other Payments to
Government by Irish Aid
Other payments to Government made in 2010 and 2011 were checked and
we are satisfied that these were correctly received by Government
and are reflected in the accounts appropriately. However it
was noted that in some instances receipts were not on file.
We are satisfied that correct procedures were followed by Embassy
Kampala in relation to the disbursement of the funds for PRDP and
that confirmation was available from Standard Chartered Bank that
the transfer was made to the correct MOFPED bank account in the
Bank of Uganda as stipulated in the MOU.
There was not a proactive system within the Ministry whereby
transfer of funds into the consolidated account was confirmed to
donors. This in itself is not critical. However, in
conjunction with the other weaknesses in the Government of Uganda
internal controls and in overall management of this programme, had
there been a proper process in place to obtain this confirmation,
it is possible that the fact that the funds were still in the
holding account would have been detected sooner. It must also
be said though that a fraud of this nature involving such a high
level of collusion would not normally be considered as a risk
requiring special mitigation measures.
Irish Aid’s Systems in
Relation to Post-Disbursement Follow up
As outlined in the preceding paragraph there are a number of key
controls in place prior to disbursement of funds to partners.
Once the funds are transferred to partners, including Government,
they are no longer under the direct control of Irish Aid and thus
there are systems to ensure there is accountability around the
subsequent disbursement and use of funds. In the case of funds
provided to Government the main controls are:
expenditure reports of the particular programme, based on
information received from MOFPED and further analysed by donors
· Annual financial
statements of the particular programme funded
· Annual audit by
the Office of the Auditor General, and in many cases specific
audits of individual programmes
These general controls have to be considered in the context of the
nature of the programme, the specifics of the MOU and the donors
involved. While a programme can rely on partner government
financial reporting, it is usually necessary to further collate and
analyse information to obtain a clear financial overview of a
programme, which typically would be done by a “secretariat” or
“project implementation unit”. While there is such a body in
place to support donors in their overall interactions with
Government it is not specifically focussed on PRDP reporting.
Management Arrangements for PRDP
The MOU governing Irish Aid’s contribution to the PRDP stipulates
that MOFPED will provide financial statements showing all sources
of funding, with sufficient detail to identify all sources of
funding including Government of Uganda’s contribution, and
semi-annual and annual budget performance, including expenditure by
district and by major function.
Most of these pieces of financial information are individually
available in various documents, although the specific Government
contribution to the programme was less clear. Government
produces a detailed account of its expenditure across all
government entities every six months. Funds received from
donors are set out separately in this document and it is possible
to reconcile the figures in this account with disbursements made by
an individual donor.
However, the various elements of financial information were not
brought together in one clear report for the PRDP, so donors did
not have a clear financial overview. This is essential in
order to properly manage the programme. Indeed, the overall
PRDP is not a coherent programme as it is comprised of a number of
separate projects brought together in a conceptual programme but
not an actual defined programme. This was a significant
factor in the non-identification by the four donors of the fact
that the funds provided had not been transferred into the
Consolidated Fund by Bank of Uganda.
There were weaknesses around the financial management of the PRDP
and the provisions regarding financial management as set out in the
MOU were not sufficiently followed up by the donors in terms of
making sure they had a clear proper overview of both funding and
expenditure in the programme. As part of annual and
mid-year donor-government reviews, financial reporting on funding
flows needs to follow the measures outlined in the MOU.
Donors also need to ensure that they have full information on
funding flows in and out of consolidated and holding accounts.
Had there been the required proper financial reporting on a
six-monthly basis, it is likely that the failure of funds to be
transferred into the Consolidated Fund would have become apparent
Annual Audit by Office of
the Auditor General
A significant control and source of assurance for Irish Aid around
Government programmes is the annual audit and other pieces of work
carried out by the OAG. On receipt of the OAG report donors
conduct an analysis of the sections of the report relevant to the
development programme and issues arising are followed up. In
many cases the annual statutory report is complemented by other
audit work specific to a particular programme.
For the Uganda country programme, the audit requirements are set
out in paragraph seven of the Memorandum of Understanding between
Ireland and Uganda. The MOU specifies that “The
financial audit of the programme activities under this MOU shall
be done by the Auditor General of Uganda”. The OAG of
Uganda commences his annual audit after the year end (June
30th) and the report is available nine months later
(April of the following year).
The latest annual report from the OAG covering the financial year
2010/11 highlighted a number of issues though there were no
specific issues relating to the PRDP. This is not entirely
surprising because, as noted above, he was unable to conduct the
planned value-for-money work on special programmes in the Office of
the Prime Minister.
While we are satisfied with the OAG’s audit of programmes like the
PRDP, given that it was a new and ambitious programme, a plan for a
specific annual audit and/or other in-year audit work by the OAG
should have been considered by the donors. While the OAG’s
overall annual audit cannot cover all programmes of government
every year in detail, any substantial new programmes or funding
arrangements require particular audit focus.
SECTION 5: PROGRAMME
MONITORING AND MANAGEMENT ARRANGEMENTS
The previous section set out the arrangements around disbursement
and post-disbursement. This section sets out the arrangements
for monitoring and management post-disbursement. The section
first describes the overall management and monitoring arrangements,
then goes on to describe those specific to the PRDP.
Irish Aid Systems
Irish Aid has a comprehensive, rigorous system for the design,
appraisal and approval of its development programmes at country
level. This is accompanied by regular and detailed monitoring and
reporting of the key outputs at both national and sectoral level,
complemented by strong engagement and tracking at local level to
assess the quality and delivery of the programme. Irish Aid
also commissions key tracking studies or research, independent to
national systems, to look at key thematic issues.
Irish Aid has independent systems of audit and evaluation carried
out by the Evaluation and Audit Unit of the Department of Foreign
Affairs and Trade to ensure the programme and financial support
reach their intended targets and that lessons are learnt from
implementation that feed into policy change and design of new
A programme country Desk exists at headquarters level to provide
overall coordination and support to the programme countries.
The role of the Desk is primarily support and link to headquarters
senior management. The main decisions around the day to day
implementation of the programme take place at Embassy level.
At country office level there are systems for the management and
monitoring of the each of our programmes. These are
summarised as follows:
· The Head of
Mission, as sub-accounting officer, has overall responsibility for
the country programme. The Head of Mission is supported by the Head
of Development, Development Specialists and a wider programme team,
made up of local sector experts and programme executives. The
programme is supported by the general administration, finance,
internal audit and other support staff.
responsibility for the delivery of the Irish Aid country programme
lies with the Head of Development and supported by the Development
Specialist and senior advisors. In Uganda there are three
programme teams working in the areas of governance, social services
and economic opportunities. There are regular monthly
programme meetings to review progress and discuss issues affecting
the implementation of the programme.
· A senior
management team provides coordination, direction and oversight of
the programme implementation, financial and internal audit issues,
annual business planning, managing risk, and other strategic
Peace Recovery and
Development Plan (PRDP)
The PRDP is part of the Irish Aid country strategy paper for
2010-14, which was approved by Irish Aid’s external Programme
Appraisal and Evaluation Group (PAEG) on the 18th of
February 2010, following appraisal internally and externally using
Irish Aid appraisal guidelines.
Monitoring and management arrangements of the overall PRDP are
outlined in the MOU signed between the Government and the donors.
The MOU outlines the reporting requirements, including physical and
financial reporting, roles and responsibilities, overall
contributions by partners, procurement, audit, corruption and
dispute settlement, and coordination and dialogue arrangements.
Overall progress on programme outputs is monitored by Ireland and
other contributing donors, through:
· High level
assessment and dialogue with Government of Uganda on PRDP as part
of the overall performance by government during the annual and
mid-year joint donor-government reviews
formal steering committee meetings chaired by the Prime Minister
· Regular monthly
PRDP official and technical meetings with the Office of Prime
Irish Aid also has a Liaison Office based in Karamoja region which
monitors the work and outputs of the programme in the region and
has a close working relationship with the local government.
The office submits regular monthly reports on progress and
challenges. There are also regular monitoring visits by
senior management and sector advisors from the Embassy in
Irish Aid has also commissioned the office of the Budget Monitoring
and Audit Unit of the Ministry of Finance, Planning and Economic
Development to carry out detailed monitoring on a quarterly basis
and provides reports every six months on the delivery of the
outputs of the PRDP in Karamoja. These are detailed reports
that highlight key issues and challenges and make recommendations
for follow up.
Irish Aid has also commissioned a number of additional studies to
look at thematic areas such as the added benefit of the additional
donor funds in the region, changes in customary law, exploring the
potential of mining and tourism. The study on additional
funds highlighted the extra funds that were available to PRDP
districts through the programme, however it also showed a reduction
in overall funding available to PRDP districts from normal central
The design and appraisal process was rigorous and included a risk
assessment process. The monitoring and management
arrangements as set out in the MOU were adequate and appropriate to
a programme of this nature. However, these arrangements
should have been further elaborated into an action plan within the
donor group responsible for managing the programme. This
would have required clarity around allocation of responsibilities,
the nature of reports, including financial reports, some linking of
activity reports to budgets and expenditure reports, and also clear
processes for following up on issues identified in monitoring
reports. A comprehensive risk analysis should also have been
carried out and informed ongoing monitoring of the programme.
In summary, a stronger systematic methodology by Irish Aid and the
donor group in dealing with the recommendations and findings of
these monitoring systems in dialogue at national and local level
could have assisted in ensuring that some of the weakness were
addressed. This is essential for the proper management
of the programme and also had it been in place, could have assisted
in identification of the non-transfer of the donor funds into the
programme at an earlier stage.
SECTION 6: ROLE OF
EVALUATION AND AUDIT
The Irish Aid programme is audited in a number of ways including:
· Audits directly
undertaken by the Evaluation and Audit Unit of the Department of
Foreign Affairs and Trade
· Irish Aid
Missions in the programme countries and selected partners are
audited annually by commissioned internationally reputable audit
· Audit reports
from the national auditors general in partner countries, where
Public Expenditure Financial Accountability or other assessments
have given satisfactory ratings to these bodies
commissioned with other donors of jointly funded programmes.
There is an internal auditor in place in the Embassy in each of the
programme countries. This is a locally recruited individual
with international qualifications.
Annual Embassy Audit
In each programme country an annual audit of the Embassy’s systems
is carried out by an international firm covering both programme and
administration expenditure. While the audit is mainly directed
at ensuring that the accounts of the Embassy show a true and
fair view, the audit also focuses on systems around managing
programmes, compliance with MOUs and the adequacy of internal
Public Financial Management
Recognising that an increasing amount of money is going through
government systems across the Irish Aid programme, Irish Aid has in
the past two years introduced a process of Public Financial
Management (PFM) Assessment, whereby the systems including audit
systems in each country are assessed with regard to their
comprehensiveness and reliability. These are to be carried
out twice in each five year country strategy paper cycle, as part
of the planning for the strategy and again mid-way through the
strategy. A first round of assessments has been undertaken
over the past eighteen months, with the field visit for the Uganda
assessment process having been undertaken in early October
2012. While the report is under preparation it had noted a
deterioration in the PFM environment in Uganda, in particular the
bypassing of key internal financial controls across government,
especially procurement and payroll.
Work of Internal
The internal auditor at Embassy level is responsible for all
internal audit functions and for the design and implementation of a
risk based internal audit programme appropriate to the perceived
risks in the particular country. The internal auditor is also the
person who normally tracks developments in PFM in the programme
countries, assesses reports from the national audit office (NAO)
and provides advice to the Head of Mission on areas of risk,
adequacy of internal controls and any specific instances of
non-compliance with agreed procedures. The internal auditor also
maintains regular contact with the NAO to ensure that areas of risk
around programmes are included in audit programmes of the
NAO. The internal auditor reports to the Head of Mission and
the Evaluation and Audit Unit.
The internal audit work tends to focus outwards to the partner
rather than more internally as to how Irish Aid is managing the
partnership and ensuring that requirements in a given MOU are
met. In Uganda the internal auditor participates in the
Public Financial Management working group through which donors
interact with Government around the strengthening of the Public
financial management system. The internal auditor focuses in
particular on work with the Office of the Auditor General.
The economist in the Embassy participates in a working group around
analysing the budget and strengthening budget
The audit and oversight arrangements at programme country level are
reasonably comprehensive and regularly reviewed but in the case of
the Uganda programme there was not adequate risk identification in
respect of individual components of the country programmes.
Also while there is a formal reporting system whereby the
internal auditor submits reports to the Evaluation and Audit Unit,
and discusses these with the Head of Mission and the Head of
Development before submission, other necessary structures whereby
Embassy level senior management keep abreast of internal audit
issues arising were less structured.
SECTION 7: OTHER
Role of the Auditor General
We are satisfied with the quality of work by the OAG and that it
remains central to the audit of all government programmes.
This has been confirmed through a number of independent
assessments. Irish Aid has provided support to the Office of the
Auditor General for more than ten years and has developed a close
As a follow up to this Special Investigation the OAG is planning a
series of assignments to further review and audit the OPM, the PRDP
and Government of Uganda PFM systems. These include:
· a wider audit of
the whole of the OPM and all funding it received in the past two
years, including GOU funds
· some more
in-depth work following up on the Special Investigation into the
· an audit of the
whole of the PRDP “programme” though as this covers some 55
districts in Northern Uganda it will necessarily be on a sample
· a detailed audit
of the Treasury and IFMS system, the EFT system and the link to BOU
· a review to
verify whether the problems identified in the OPM may have spread
across the system, are they widespread and systemic or confined to
OPM and some other ministries
· completion of the
originally planned Value for Money study on Special Programmes in
OPM to the extent possible
The OAG plans to do as many as possible of the above by April 2013;
they will also complete the
annual statutory audit by 31 March 2013.
This workplan is welcome though ambitious. If there are any
requests from OAG for support these should be favourably
Capacity and Skills within
It is noted that the specific issue around the misappropriation of
funds occurred at a time when there was a simultaneous change in
the two key senior management posts at the Embassy level, both the
Head of Mission and Head of Development. While there is an
established process for written handover, and this was properly
complied with, the organisation policy does not allow for
sufficient face-to-face handover in the changeover of each post.
In addition the internal auditor was on maternity leave
during this time, and while a replacement was engaged on a
part-time basis during her leave this person did not have
sufficiently detailed knowledge around the complexities of the
programme. It is also noted that the Embassy currently has a
vacancy of a development specialist in its approved establishment.
Increasingly, the nature of Irish Aid’s programmes, including at
country level, require a combination of more specific technical and
financial skills. Sometimes when working with other donors
these are available within the larger donor group and it may not be
as critical for all the skills to be available within Irish
Aid. It is necessary that Irish Aid understand what skills
are needed to manage and oversee a particular programme and where
any gaps are identified that steps are taken to fill these.
Stronger business continuity planning is a key part of dealing with
risks around human resource gaps and ensuring that there are no
critical gaps in understanding of the programme and its
SECTION 8: SUMMARY OF
1. This was a very
sophisticated well thought out fraud involving a high level of
collusion at a senior level. The fraud was conceived and
carried out by personnel in collusion who had an intimate knowledge
of systems within Ministry of Finance, Planning and Economic
Development, Office of the Prime Minister and Bank of Uganda.
It is considered that the level of collusion was exceptional and
could not have been normally anticipated.
2. All of the €4 million of
Irish Aid funds involved and the funds of the other three donors (a
total of €11.6m) were fraudulently transferred from the
legitimate bank accounts into which the donors had properly
deposited the money to fraudulent dormant accounts outside of
the government system. The funds were subsequently
fraudulently withdrawn from these accounts. There is no
possibility “that some of the funds might have been used for
development purposes”. All of the €4 million of Irish Aid
funds are considered as misappropriated.
3. The main players involved in
the perpetration of the fraud are identifiable and most have been
suspended. It is impossible to know who the ultimate beneficiaries
of the funds were and the possibility that there may have been
beneficiaries other than the direct perpetrators cannot be ruled
out. This is a matter for police and other investigative
bodies to pursue.
4. Some weaknesses in systems
facilitated the fraud, both in Treasury and Bank of Uganda. These
weaknesses were not clearly identified in the various external
assessments of public financial management systems carried out by
international bodies and donors.
5. The PRDP support was
appropriately analysed, appraised and approved in accordance with
Irish Aid guidelines and the management, monitoring and oversight
arrangements set out in the MOU were comprehensive. The
implementation of the provisions of the MOU and how these would
work in practice were deficient in some areas, especially in
relation to the financial management of the PRDP.
6. Within Irish Aid systems,
specific weaknesses and the failure to fully comply with certain
controls designed into the PRDP lessened the likelihood of earlier
detection of this fraud. In particular was the failure to
ensure that adequate financial data as set out in the MOU governing
the PRDP was available in a single overview document.
7. In addition to this
particular fraud involving Irish Aid and other donor funds, the
findings in the Auditor General’s report strongly indicate the
existence of extensive malpractice around financial management in
the Office of the Prime Minister. Further information on this
will become available when the Auditor General completes his
planned follow up work in 2013. We are satisfied with the
work programme outlined by the Auditor General to follow up on this
issue. We believe that this is the most appropriate and
efficient manner to identify any other weaknesses in the systems
and any other possible irregularities.
8. We are satisfied with the
work of the OAG, not just on this particular case but with the
overall independence and capacity of the office. Issues are
clearly brought to light and recommendations made but the problem
is with meaningful follow up and implementation of recommendations
9. While there is no direct
link between donor management of the PRDP and the fraud the failure
by donors to adequately monitor all the requirements of the MOU,
especially in relation to proper financial information, was a
significant absence and may have contributed to the failure to
identify the fraud at an earlier date.
10. The complexity of aid programmes demands that a
high level of attention is given to ensuring that the correct
skills mix is in place for management of programmes. A more
pro-active approach is required in ensuring that programmes are
adequately staffed in terms of numbers and skills, and that this is
maintained as staff change through the normal rotation system that
pertains in the Department of Foreign Affairs and Trade.
1. Full recovery of the €4
million should be sought and funds should be returned to an account
under the control of the Department of Foreign Affairs and Trade.
2. No further disbursements
should be made to the Government of Uganda until all the follow up
audits planned by the OAG are completed, Government’s response to the
findings has been assessed and there is credible evidence of
sustained improvement in internal controls over the PFM
system. This is likely to be late second half of 2013 at the
3. It would be inadvisable to
proceed with any programmes managed or under the supervision of the
OPM for the foreseeable future and at least until the further
reports are received from the OAG and substantively addressed.
4. Any further audit work
relating to PRDP, OPM and MOFPED controls should be left to the
office of the OAG. Donors, including Irish Aid, should establish a
mechanism for communication with the OAG to ensure that areas of
concern are included in future audits.
5. If so requested, support
should be considered for the OAG to ensure that the work programme
outlined is completed in the shortest possible timeframe.
6. In implementing programmes,
in particular new programmes, consideration should be given as to
whether additional audit work over and above the annual statutory
audit by the OAG is necessary. This should be discussed with
the OAG and could include internal audit, specific programme audit,
or some form of ongoing audit of internal controls at various
levels of the programme.
7. Provisions of MOUs must be
translated into specific systems, processes and actions at
operational level. This applies in particular to the requirement
that proper financial information is available. All programme
managers should understand the financial flows and key obligations
agreed to in programme MOUs and have the tools to assess risks in
the programme they are managing. A basic understanding of the
system of national accounts is essential in this.
8. Embassy Kampala should
review and strengthen where necessary its implementation of the
requirements of the Irish Aid Financial Policies, Guidelines and
Procedures Manual and also ensure that roles and responsibilities
in this area are clearly defined and properly understood.
9. Embassy Kampala must ensure
procedures are in place to track clearly that funds disbursed to
Government are properly received into and transferred to the agreed
accounts on a timely basis and reflected in published government
10. The required structures for regular interaction and
communication between internal audit and senior management at the
Embassy should be fully activated and utilised and relevant issues
arising should be brought to the attention of headquarters promptly
in accordance with existing policies.
11. The Evaluation and Audit Unit should review its
workplan and consider ways to further strengthen its focus on risk
areas. Linkages and communications between internal auditors
at headquarters and field level should be strengthened including
increasing frequency of visits.
12. The adequacy of the Department’s policy around
handover processes should be reviewed to ensure that there is
adequate continuity between changing staff in managing complex
programmes of this nature. This should include provision for
substantive face-to-face handover in the Embassy.
13. Regular risk assessments should be carried out
across all programmes including risk assessments of specific
programmes or projects. This would take account of the
changing risk profile which is characteristic of many developing
14. In light of issues raised in this report a review
should be undertaken of the management arrangements, including risk
and financial management, in all programme countries to ensure that
all procedures and protocols are being properly implemented and
risks appropriately identified and managed.
Terms of Reference
Evaluation & Audit Unit
Technical Team Mission to
Irish Embassy Kampala on
25th October, 2012
The overall purpose of the mission is “to establish as best possible the
whereabouts of the Irish funds lodged to the Peace Recovery and
Development Programme (PRDP) Basket Account.”
1) Conduct a detailed analysis of the Auditor General’s Special
Investigation into the Office of the Prime Minister, with the
Embassy-based Internal Auditor, to establish as far as possible the
likely levels of funds unaccounted for and funds misappropriated,
and by whom.
2) Review the flow of funds from disbursement by the Embassy
through to district level project implementation, both intended and
3) Meet personally with the office of the Auditor General to
discuss the specifics of the Special Investigation Report, and seek
assessment of the wider implications across the Government of
Uganda public financial management system and weaknesses therein.
4) Assess the overall management arrangements in respect of
the Peace, Recovery and Development Plan for Northern Uganda (PRDP)
programme, including in particular the Embassy’s internal
arrangements for monitoring and oversight of the programme.
5) An assessment of the actual programme activities and outputs to
6) The mission will also include meetings with other donors
involved and any other relevant parties as considered necessary by
the technical team.
On return the technical team will present a report for the
Annex 2: List of
Bank of Uganda
Department for International Development (UK)
Electronic Funds Transfer
Fiduciary Risk Assessment
Government of Uganda
Integrated Financial Management System
Ministry of Finance, Planning and Economic Development
Memorandum of Understanding
National Audit Office
Office of the Auditor General
Office of the Prime Minister
Programme Appraisal and Evaluation Group
Public Expenditure and Financial Accountability Assessment
Public Financial Management
Peace, Recovery and Development Plan
Uganda Consolidated Fund
 Memorandum of Understanding governing the
programme was signed between the Governments of Ireland and
Uganda by the then Minister for Foreign Affairs of Ireland and
the then Minister of Finance of Uganda on 30th June