A tough rule that seeks to punish government accountants for failure to answer audit queries raised by Uganda’s Auditor-General and global changes in external auditing guidelines are likely to impact the profession. However, taxpayers and investors are likely to benefit from the higher standards.

The new financial management guidelines introduced last year by the Treasury stipulate that accounting officers who fail to answer more than 75 per cent of queries raised by the Auditor-General stand to lose their contracts, according to Protazio Begumisa, president of the Institute of Certified Public Accountants of Uganda (ICPAU) — the local accountancy regulatory body.

Government accounting officers usually serve contracts of three-five years upon deployment in various ministries and departments and are supervised by the Permanent Secretary and Secretary to the Treasury in the Ministry of Finance, Planning and Economic Development.

The stricter accounting rules are aimed at reducing wastage, theft of taxpayers’ money and improving the quality of audit reports.

Financial scandals

Huge public financial scandals that emerged in recent years have raised doubts about the effectiveness of internal controls in public institutions and highlighted the losses incurred by taxpayers.

In 2012, around Ush26 billion ($7 million) of aid provided to the Peace, Recovery and Development Plan for Northern Uganda was reportedly embezzled by officials in the Prime Minister’s Office. The case led to the suspension of foreign aid by some donors and sentencing of accounting officer Geoffrey Kazinda to five years in prison the following year.

In 2013, about Ush165 billion ($44.8 million) was lost through payments to ghost pensioners by accounting officers in the Ministry of Public Service — a major financial scandal that remains unresolved due to unsuccessful prosecution of the prime suspects by the Director of Public Prosecutions (DPP).

However, the DPP’s office successfully prosecuted the same suspects last year in another fraud case involving Ush88 billion ($23.8 million) embezzled through irregular budgeting for National Social Security Fund contributions for civil servants.

More than Ush168 billion ($45.5 million) was incurred on questionable expenditure within public institutions during the 2015/16 period, according to the latest Auditor General’s report released this month.

Accounting officers' nervousness

So far, the introduction of a stringent rule on handling audit queries has caused nervousness among accounting officers about making spending decisions.

“The introduction of this rule has helped to reduce the number of questionable audits recorded by the Auditor-General’s Office last year. The strategic shift from output-based budgeting to programme-based budgeting in 2017/2018 will also compel accounting officers to consider getting more value for money in their dockets,” said Albert Musisi, Commissioner for Macro Economic Policy at the Ministry of Finance, Planning and Economic Development.

“For example, a budget for building new classroom blocks will be subjected to an audit that examines its impact on related performance indicators like teacher and pupil attendance plus quality of teaching,” he added.

New changes to external auditing rules made by the International Auditing Assurances Standards Board (IAASB), which impose a larger disclosure burden on external auditors, could eventually eliminate cases of forged audits done by quack practitioners looking for quick money.

The changes apply to audit reports done on publicly accountable entities such as insurance companies, savings and credit co-operative organisations (Saccos), banks and listed firms.

These changes became effective in other countries last month while Uganda is scheduled to enforce them in December 2017, according to Frederick Kibeedi, a partner at PKF Uganda Certified Public Accountants.

The new audit guidelines require external auditors to add detailed information to their opinions. The details must feature a company background, key audit matters, audit procedures performed, auditor’s professional qualifications and experience, their name and signature instead of the firm’s name plus names of colleagues consulted during the audit process.

While these requirements are likely to expand the size of ordinary audit opinion reports from one page to roughly 10 pages, external audit expenses incurred by affected companies are projected to remain stable.

“The new audit requirements will help increase transparency in financial reporting practices of listed companies. However, audit related costs are not likely to rise because the extra information to be made available to external auditors is partly captured in management letters. It will also enhance discipline in the audit profession by discouraging production of poor quality reports and entry of quacks in the market,” said Selestino Babungi, managing director of Umeme Ltd, a power firm cross-listed on the Uganda Securities Exchange and Nairobi Securities Exchange.