Shs700 billion lies idle under new finance system
Bank of Uganda’s latest figures for October show a buoyant economy with the 2012/13 growth figures revised upwards from 4.3% to 5.8%. However, the same figures show contractions from August in the agricultural and manufacturing indices.
Anecdotal evidence from the street appears to support the Central bank’s position. Sales of companies like Mukwano Group, which manufactures household items, and, the beer maker, Uganda Breweries Ltd, have reportedly gone down by 25% and 20% respectively.
Among the myriad explanations for the slowing down of the economy, one thing is clear; government institutions that are the biggest spenders in the economy are spending less.
As the economy settles into the second quarter of the 2013/14 Financial Year stretching from October to December, Ministry of Finance figures show that only 25% of the wage and non-wage budget has been spent. The government budget for all departments is on average Shs 2.5 trillion for every three months. Only Shs 600 billion has been spent so far.
The amounts spent by the government departments are likely to be even lower because many districts are not yet integrated on the new system.
The Independent has seen documents showing that several ministries and departments were still yet to fully withdraw funds for the first quarter despite the Ministry of Finance releasing funds for the second quarter.
The Independent has been told that up to Shs 700 billion of the quarterly budget that is supposed to have been spent by this time is lying unutilised on the Bank of Uganda account. What is going on?
Part of the answer could lie in changes taking place in the office of the Secretary to the Treasury, Keith Muhakanizi.
Unlike in the past when long queues of government officials requesting for money characterised the office, when The Independent visited recently, there was no single official.
Six months into his three-year contract, Keith Muhakanizi is implementing ambitious reforms.
In the latest in a series of reforms, Muhakanizi has also slapped a limit on daily cash withdrawals by government ministries, departments and agencies (MDAs) to Shs 50 million.
He has also ordered all money for government ministries, departments and agencies (MDAs) to be placed on a single account at Bank of Uganda. This is a major departure from the past where government departments kept money on multiple accounts at the Central bank and commercial banks and could withdrawal without a daily limit.
Under the new Treasury Single Account (TSA), government ministries, departments and agencies receive money from a single Treasury account on a quarterly basis.
All transactions by a permanent secretary; who typically is the accounting officer of a ministry, will automatically be monitored by an internal auditor, the Office of the Auditor General and other officials.
Even the Shs 50 million, which they can withdrawal daily, must be in line with the submitted work plan. The system will automatically log you out if you submit a request that is not on the work plan.
The result is the slow absorption of money by government departments, which in turn has possibly contributed to the thawing in household expenditure. But Muhakanizi has no qualms about it.
“It shows you that these reforms have made it difficult for these people (ministry officials) to carelessly spend government money,” he says, “all the loopholes they were taking advantage to steal, have been sealed.”
Under the previous arrangement, government departments, agencies, and ministries received money from multiple accounts at the Central bank and several commercial banks on a monthly basis.
Critics say the government’s finance management system had been compromised leaving many loopholes that officials were taking advantage of to swindle billions of shillings.
The presence of multiple accounts at BoU and a limitless withdrawal of cash, are some of the weaknesses that enabled officials at the Central bank to allegedly connive with officials in government MDAs to create fake accounts, and withdraw monies in billions on a daily basis.
In the famous case where then-principal accountant in the Office of the Prime Minister Geoffrey Kazinda was convicted of forgery which led to the loss of billions, the Auditor General’s report alleged collusion.
Chris Lubega, a systems administrator for the Integrated Finance Management System (IFMS) at BoU allegedly dubiously gave Kazinda the powers of the Permanent Secretary (accounting officer) to sign and approve expenditures in the OPM on specific dormant accounts.
Then the Accountant General, Gustavo Bwoch, transferred money from a donor account, bypassed the Consolidated Fund, and wired it directly to a dormant account controlled by Kazinda. From this, Kazinda would allegedly spend the Shs 16.2 billion as he wished.
The saga in which the Office of the Prime Minister lost Shs 60 billion was followed by another in the Ministry of Public Service where over Shs 300 billion was allegedly swindled. The donors were not amused.
They cut budget support and demanded that the government implements a raft of reforms.
Apart from demanding that the government pays and recovers all the misappropriated funds in OPM, the donors also demanded that the ministry freezes assets of individuals named in the scam and fully constitutes the Office of the Inspector General of Government by appointing all the required deputies.
The donors also demanded that the government fixes systems at BOU, eliminates phantom accounts and fixes the Integrated Financial Management System (IFMS), which officials at the OPM and Bank of Uganda had by-passed to siphon billions for their personal use. The donors also demanded that the government implements the Treasury Single Account.
The donors slashed about Shs 700 billion in budget support for the 2013/14 Financial Year.
While appearing before the Parliamentary Budget Committee in May, the Minister of State for Finance, Fred Omach, admitted that the government was struggling to raise money to finance the 2013/14 Budget because of the aid suspensions. For instance, the Uganda Police personnel went without salaries for a few months and teachers went on strike after the government reneged on an agreed pay rise.
As the aid suspensions sunk in, Finance Minister Maria Kiwanuka in a December 21, 2012 letter to Christine Largade, the International Monetary Fund boss, lamented that the country’s growth-enhancing efforts had been negatively affected by the suspension of budget support by the development partners following what she called “a regrettable mishandling of public resources.”
“We are deeply committed to restoring fiduciary assurances and rebuilding confidence, and have already started to take action against the involved officials and to strengthen our financial management systems,” she wrote.
Attached to this letter, which was copied to BoU Governor, Emmanuel Tumusiime Mutebile, was the long list of reforms Kiwanuka noted she was committed to implementing.
“In parallel,” Kiwanuka’s attachment reads in part, “the government will introduce measures to ensure that all non-wage expenditures are initiated and recorded without delay in the Integrated Financial Management System (IFMS).”
She noted that the measures would cover both the commitment stage, including the issuance of local purchase orders (LPOs), and the goods received and payment stages.
To ensure that the measures are respected by suppliers, she added, the government would publicize these measures in newspapers, informing suppliers that use of non-authorized procedures would render null-and-void any LPOs and result in government action to recover any payments made.
The attachment also notes that the government would make penalties and sanctions automatic for any staff failing to follow the new procedures and to respect IFMS recording deadlines
As demanded by the donors, Kiwanuka also noted that the government “shall introduce a Treasury Single Account to improve cash management, control, and transparency of government operations and to avoid unnecessary interest costs.”
When she announced in May that Muhakanizi was replacing Chris Kassami as secretary to the Treasury, Kiwanuka touted the experienced technocrat’s decisiveness and ability to ensure continuity in government’s financial management. She also noted special connection with donors or, as she called it, Muhakanizi’s “unique outreach capability”. She said this would deepen the government’s interface with stakeholders aka donors.
Since the so-called “OPM scandal”, as the Kazinda case came to be known, donors have intensified demands for a number of financial management reforms if they are to restore their confidence in order for them to re-open the taps of budget support that they had closed.
Today, Finance Ministry officials say they have had the IFMS overhauled, creating limits on daily cash withdrawals, omitting delegation of transaction powers and introducing monitoring alerts for suspicious entries. Each accounting officer has logins to his department’s portion of the single account.
Once the accounting officer abuses the system, it either sends off an alarm or automatically logs them off. Observers say this is a form of instantaneous accountability. But Muhakanizi is also looking at another benefit that could help track the thieves.
“What the new system does is that it leaves a paper trail,” he told The Independent, “if you get government funds and fail to deliver services, whether it is ten years, there will be evidence. What happened in the OPM, is that the Auditor General and Police did not find evidence, a lot of it had been destroyed, you cannot destroy any evidence with the new system.”
To further tighten the noose around government officials, Muhakanizi told The Independent that he was looking to secure and pump about Shs 20 billion into rolling out the new reforms down to local government administrations.
“The new reforms will reduce misuse of public funds by 80 per cent,” he told The Independent.
Muhakanizi has no qualms admitting his activities are partly driven by pressure from donors.
“Do you think we enjoy scandal?” he asks rhetorically, “Of course, it is out of pressure.”
Muhakanizi said suppliers can no longer receive cash from government MDAs.
From this Treasury Single Account, he says money goes directly to the supplier’s account in the bank.
To pay suppliers, all the government body has to do is enter the requisite documents and details of the suppliers into the IFMS and the system automatically gets money onto the supplier’s account.
End of supplementary budgets?
Muhakanizi also noted that under the new reforms, supplementary budgets, which have been a big pain, will be a thing of the past. This is because, if a ministry spends its portion on the system, it cannot spend any more.
This is one part of the reforms that has attracted most pessimism because Muhakanizi’s boss, President Yoweri Museveni is a big fan of supplementary budgets. On average, his State House requests supplementary budgets almost more than three times per year.
But Muhakanizi appears to have a solution to that. He says that the only reason State House had been calling for supplementary budgets in the past, is that the Finance Ministry was allocating them less money than they required.
Lawrence Semakula, the Commissioner Financial Management Services at the Accountant General’s Office, notes that before, the government was incurring huge borrowing costs, bank accounts were overdrawn, efficient entities were being stifled and the government had to rely on cash rationing for budget/cash releases.
Semakula notes that with the Treasury Single Account, the government’s main objectives are to ensure aggregate control over GoU cash balances, minimize transaction costs during budget execution, improve management of cash surplus and shortfalls and ensure efficient control and monitoring of funds allocated to various government agencies, among others.
The IFMS was first introduced in Uganda in 2003, tested out on six ministries and four local governments. It was supplied by international technology giant, Hewlett-Packard.
The then minister of State for Finance, Semakula Kiwanuka - who was as excited as Muhakanizi is today – said the most important benefit of the system was that it increased the ability to undertake central control and monitoring of expenditures and receipts within the ministries and local government. However, it did little if anything to curb corruption.
Yet again, the financial reforms look too ambitious and unpopular amongst the officials who are supposed to implement them since they are the ones who have been benefiting from the loopholes in the system. It is very uncertain, therefore, to tell what the results will be. But Muhakanizi is absolutely positive saying the new measures represent a new dawn in public financial propriety. Hopefully, the donors and all Ugandans will share a similar view going forward.
- Government Ministries, Departments and Agencies (MDAs) receiving money from a single account (Treasury Single Account) at Bank of Uganda
- MDAs have a daily cash limit of Shs 50 million
- MDAs receive money on a quarterly basis
- MDAs approve payments from their TSA Subsidiary account and the instruction is sent to Treasury to generate a bank file for payment
- A file is created to debit the TSA main account and fund the TSA subsidiary accounts with the aggregated approved invoices per MDA.
- After an interval the detailed approved invoices payment file is sent to BOU for clearance.
- At the end of day, reconciliation is done and any balance returned to the TSA main account.
- Releases are made on presentation of validated invoices
- Delegation of transaction powers eliminated
- Monitoring alerts introduced
- Security alerts introduced