Uganda Health

Marketing Group

Technical Assistance to UHMG

October 2012
Contents

1 Ba c kg ro u n d a n d o b je c tive s o f th e a s s ig n m e n t 4
1.1 Background 4
1.2 Objectives of the assignment 4
1.3 Detailed tasks 4
1.4 Tasks accomplished 5
1.5 Work in progress 5
2 De ta ile d fin d in g s , a c tio n s im p le m e n te d , a n d c o m m e n ts 7
2.1 Inventory management 7
2.2 Staff advances 9
2.3 Vehicle log and maintenance 9
2.4 Debtor management system 10
2.5 Cash management system 11
2.6 Other finance issues indentified under Product Facility 12
2.7 Review of the procurement management system 13
2.8 Review of the human resource system 13
3 Re vie w a n d c o m p le tio n o f th e d ra ft NICRA p ro p o s a l 15
4 Allo c a tin g in d ire c t c os ts a n d s a la rie s a c ros s th e va rio u s p ro je c ts b u d g e ts 17
Atta c h m e n t 1: S to c k ta ke re p o rt fo r th e UHMG e n d o f ye a r s to c k ta ke 18
(i) Bin cards 18
(ii) System records not updated on a timely basis 19
(iii) Expired goods and goods nearing expiry maintained with good stock items 19
(iv) Similar bin cards shared by products with different batch numbers 20
(v) Lack of comprehensive stock taking lists 20
(vi) Poor storage of stock 21

OCTOBER 2012 / UGANDA HEALTH MARKETING GROUP / 2

Confidentiality and Disclaimer Clause

The methodologies in this report are proprietary to KPMG Uganda, a partnership and a
group of member firms of the KPMG network of independent firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity. The information in this
report is provided for the sole use of Uganda Health Marketing Group (UHMG) for the
purposes of strengthening its management and financial systems. The details included in
this report shall not be disclosed to any other party, or be duplicated, used or disclosed in
whole or in part for any purpose other than taking corrective action and strengthening the
management and financial systems of UHMG. KPMG cannot be held responsible for its
unauthorized copying and distribution. We have produced the report specifically for the
purposes stated and its interpretation, use or application for other purposes imposes no
obligations on KPMG. This confidentiality clause applies to all pages and information
included in this report.

OCTOBER 2012 / UGANDA HEALTH MARKETING GROUP / 3

1 Backgr ound and objectives of the assignment
1.1 Backgr ound
Given the magnitude of business operations managed by Uganda Health Marketing Group (UHMG),
and the expanding sources of funding, John Hopkins University (JHU) realised a need to strengthen
UHMG’s management and financial systems to efficiently and cost effectively manage its business
and program activities and to account for funds from multiple funders according to their reporting
requirements. Although there have been small improvements in the financial management systems,
there is need to develop and build UHMG’s financial management system to have innovative
competencies, to enable tracking of expenditures according to funding sources’ requirements, and to
provide up to date financial information for management decision making. JHU therefore contracted
KPMG to assist UHMG over the next one to two years to strengthen its financial management systems
and practices, and strengthen its organizational competencies.

1.2 Objectives of the assignment

The main objective of this assignment is to assist UHMG to strengthen its financial management
systems and practices, and strengthen its organizational competencies.

1.3 Detailed tasks

The terms of reference required KPMG to perform the following activities:
1. Inventory management
• Strengthen the UHMG Product Facility Inventory Management System. Assist UHMG
with developing a monthly monitoring report that tracks inventory on a monthly basis.
• Train staff on effective use of bin cards.
• Establish a monitoring system to ensure staff are adhering to the inventory management
procedures.
2. Staff advances
• Review UHMG’s staff advance policy, train staff on policy to require a written request for
advance (including reason for request and budget); along with timely advance
reconciliation; and a requirement that only a member of senior management team must
approve all advance requests.
• All advance reconciliations must contain supporting detail.
3. Vehicle log and maintenance
• Assist UHMG with creating and maintaining vehicle logs to ensure appropriate use;
appropriate charges across projects.
• Establish a monitoring system to ensure drivers are utilizing the new log.
4. Carry out an assessment of current financial systems, procedures and develop a proposal for
strengthening UHMG’s financial systems and human resources capacity.
5. Review UHMG’s financial and procurement systems to identify strengths and weaknesses and
recommend appropriate actions to improve performance, transparency and accountability.
6. Review systems and procedures for allocation of salaries to budgets across the different funding
sources and develop procedures for tracking salary allocations across budgets/funding sources.
7. Review the process of monitoring the organization’s budgets and contracts with sub-grantees
and identify areas for strengthening. Review the financial management system for UHMG
Projects, including AFFORD and the Product Facility, to ensure compliance with donor and
government requirements and ensure accurate financial reporting and tracking of receipts and
expenditures.
8. As a short-term measure, help UHMG management to develop/establish clear methods for
allocating indirect costs across various projects/budgets.

4
 9. Work with UHMG management to review the draft NICRA proposal and help finalize proposal
for submission to USAID.
10. Guide UHMG’s Finance Directorate to identify investment opportunities for UHMG income
and advise and support UHMG to grow a reserve fund.
11. Coach/mentor the finance and administrative team to implement the plan for strengthening
financial systems and management capacity.

1.4 Tasks accomplished

During the first phase of our association with UHMG we have been able to work on the following
areas:
(i) Inventory management
(ii) Staff advances
(iii) Vehicle log and maintenance
(iv) Carried out an assessment of the current financial systems and procedures and developed a
proposal for strengthening UHMG’s financial systems and human resources capacity.
(v) Reviewed UHMG’s financial and procurement systems and identified strengths and
weaknesses and recommended appropriate actions to improve performance, transparency and
accountability.
(vi) Reviewed systems and procedures for allocation of salaries to budgets across the different
funding sources and developed procedures for tracking salary allocations across
budgets/funding sources.
(vii) As a short-term measure, assisted UHMG management to develop/establish clear methods for
allocating indirect costs across various projects/budgets.
(viii) Coached and mentored finance staff in the following areas during preparation of the NICRA
proposal:
• Creating reports which act as proof for proper expenditure accounting such as salary
spreadsheets showing all employees as they are spread across various awards to ensure
that salary allocation is correct;
• Reporting budget and actual expenses by project area and/or specific task;
• Reporting overall expenditures by various methods: High level, project specific, and
detailed expenditure; and
• Increasing abilities in financial analysis of data generated by reports.
(ix) Worked with UHMG management in reviewing the draft NICRA proposal and helped finalize
the proposal for submission to USAID.

1.5 Wor k in pr ogr ess

The following areas represent work in progress that KPMG is currently working on with UHMG:
(i) Reviewing the process of monitoring the organization’s budgets and contracts with sub-
grantees and identifying areas for strengthening;
(ii) Proposing a system to record and track exchange rate fluctuations for USD payments received
and payments made in local currency;
(iii) Reassessing the stock management system and working with UHMG management to
strengthen the stock management system;
(iv) Reassessing the debt management system and working with UHMG management to
strengthen the debt management system;
(v) Preparing the proposed changes/ inclusions to the procurement policies and procedures
manual and including them as appendices to the already existing manual;

5
(vi) Assisting UHGM to develop an investment policy;
(vii) Assisting UHMG in developing a sustainability plan; and
(viii) Coaching/ mentoring the finance and administrative staff to implement the plan for
strengthening financial systems and management capacity. This includes:
• Working with the UHMG finance team to develop financial analysis skills in order to
improve high level management of the finance team. This entails developing a checklist
of the financial reports to expect from the financial team, and having the ability to read the
financial reports and make decisions based on the data.
• Providing instructions on basic auditing methods in order to make future systems “audit
ready” by developing an understanding of adequate checks and balances in order to create
future process flows.
• Developing adequate effort tracking system and employee certification methodology for
audit purposes.

6
 2 Detailed findings, actions implemented, and comments
The findings included under this section relate to the issues that have been identified and reported to
UHMG management since we commenced the technical assistance to UHMG. We report on the
progress noted thus far through actions implemented, areas that still need to be worked on, and any
additional comments from KPMG.

2.1 Inventor y management

Observations
(1) Lack of documented stock taking instructions
(2) Inadequate controls over physical stock items
(3) Delay in preparation of the stock variance report
(4) Bin cards are not updated on a timely basis
(5) System records are not updated on a timely basis
(6) Lack of proper organisation of the inventory stores
(7) Inadequate controls over loose stock in the warehouse
(8) Unrestricted access to the main building store
(9) Stock count sheets not prenumbered
(10) Goods nearing expiry maintained with good stock
(11) Wrong packaging of items
(12) Lack of a comprehensive stock taking list.

Actions implemented
(i) Stock taking is carried out on a monthly basis with the stock taking team comprising of staff
from the finance department, warehouse personnel, and casual labourers. This is used as a
monitoring tool to track inventory on a monthly basis and also monitor staff’s adherence to the
inventory management procedures. In addition, the PF finance manager and the Director
Finance and Administration are involved in following up on variances that are identified during
the stock takes.
(ii) Stock taking instructions were developed for UHMG by KPMG and tailored by UHMG
management based on the specific business operations at UHMG. These instructions have been
subsequently used during the stock takes that have been carried out during the months of May,
June, July, August, and September 2012.
(iii) The PF finance manager coordinates the physical inventory counts and ensures that all the stock
count instructions are adhered to, and physical stock counts are carried out by the finance team.
In addition, the warehouse supervisor and warehouse assistant assist in identification of records
and inventory items, but they do not participate in the physical count of the stock items.
(iv) Warehouse personnel have been oriented on how and when to complete inventory bin cards.
(v) The stock count sheets that are used during the stock takes are prenumbered.
(vi) A contractor was engaged to put up lockable cages for expired goods and loose stock items.
(vii) Due care is being taken to pack products with the right specifications.

Areas that still need to be worked on (including the suggested way forward)
(1) Although the variance analysis report is prepared by the PF Finance Manager soon after the stock
take has been concluded, explanations for the variances identified are not received on a timely
basis from the warehouse supervisor. As such, remedial actions for correction of variances
identified are not taken timely.
A report with explanations for variances identified during the stock take should be provided by
the warehouse supervisor within 5 working days after completion of the stock take. This report
should be reviewed by the Director PF who should then follow up on the major variances. Once

7
 the report has been approved by the Director PF, the inventory ledger in the accounting system
should be updated by the finance officer to reflect the correct stock position
(2) Bin cards are not updated on a timely basis.
Bin cards should be updated whenever stock items are either purchased or sold off to customers
and the dispatch note has been issued. When goods are returned to UHMG and the Goods
Returns Inwards note has been completed by the warehouse supervisor and approved by the
Director PF and Director Finance and Administration, the bin cards and the accounting system
should be updated appropriately.
(3) Some stock items do not have bin cards
All stock items should have individual bin cards that are maintained on the shelves where the
particular stock items are stored.
(4) System records are not updated on a timely basis.
The system records should always be updated whenever stock items are either procured or sold
off to customers. In cases where a sale has been made and the customer does not pick the goods
within reasonable time (as determined by management), the sale should be reversed in the
system, items should be recognised as stock, and the stock records should be updated both in the
accounting system and on the bin cards.
(5) Inventory stores are not properly organised.
The warehouse and the main building stores should be properly organised. Similar items should
be arranged in the same location for easy monitoring and inventory/ item tags should be
developed for all items in the stores and displayed on the respective shelves or locations
(6) Goods close to expiry are maintained with good stock items.
Expired stock and stock that is close to expiry should be clearly identified and stored in a separate
place that is strictly meant for expired stock. Such stock shall be disposed off after authorisation
by the Director Finance and Administration, and approval of the Managing Director as stated in
the financial management manual. Stock cards for such items should then be adjusted to record
the new inventory levels and the stock written off should be reflected in the accounting system.
(7) Comprehensive stock take lists are not used during the physical stock counts.
Prior to stock taking, all items in the stores/ different locations should be included on the stock
count sheets that shall be used during the stock count. These stock count sheets should all be pre
numbered to ensure adequate control of all documents used during the stock count.
Additional comments from KPMG
• Internal controls need to be enhanced and implemented– On receipt and dispatch of stock both the
warehouse assistant and the warehouse supervisor should be involved. The documents prepared by
the warehouse assistant should be promptly reviewed by the warehouse supervisor who should
ensure that the information on the documents tallies with the physical receipts or issues of stock.
Controls would be further enhanced if a third person is introduced to independently check the
documentation against quantities received and issued.
• All the required documentation at the time of entry of stock into the store and out of the store
should be in place and accurate. Such documentation includes LPOs, dispatch notes, Goods
Received Notes, Bin cards, sales orders and sales invoices. Quantities and item descriptions on all
these documents should tie up.
• The carrying out of periodic stock takes should continue in order to strengthen the PF inventory
management system. After the physical quantities have been compared to the system records,
timely explanations for the variances noted should be provided by the warehouse custodians. The
root causes of the variances need to be ascertained and where system figures have been proved to
be correct, the warehouse personnel should be made to account for the physical stock differences.
• Access controls to the warehouse and main building need to be enhanced. Access to the
warehouse should only be through one route such that there is only one entrance used for
receiving and issuing stock that is not accessible to other members of staff and visitors at UHMG.

8
 The receiving area and the warehouse entry and exit point should be separated from the locations
that are currently being accessed and used as staff work stations.
• UHMG management should put in place a security system whereby the security guards at both
gates must check all cars that leave UHMG premises, including staff vehicles to ensure that no
unauthorised stock items are leaving UHMG premises.
• An integrated financial system should be considered. Records of issues and dispatches into and
out of the store are recorded in the system by the warehouse supervisor and linked to accounts,
such that before the accountant posts the entries into the system, he/ she cross checks the entries
made by the warehouse supervisor against all the required documentation. The accountant can
only post the entries once he/ she is satisfied that the proper quantities have been captured by the
warehouse supervisor.
• Management of UHMG needs to reconsider overhauling the staffing in the warehouse considering
that inadequate controls over stock management have been reoccurring over the past seven
months.

2.2 Staff advances

Observations
Our review of the staff advances policy documented in the financial management manual indicated the
following:
(1) Documents to be submitted with the advance accountability form are not clearly spelled out.
(2) The timeframe within which accountabilities should be submitted is not clear. The policy states
that: “accountabilities for travel shall be accounted for within three weeks of issue while advances
for purchases shall be accounted for within two days of taking the advance.”
(3) Some key control processes and procedures are not documented in the manual, such as, heads of
departments ensuring that the advances are requested and drawn against approved budgets.
Actions implemented
Management has reviewed the staff advances policy with the exception of spelling out the documents
that should be submitted with the accountabilities.
Areas that still need to be worked on (including the suggested way forward)
Key accountability documents need to be clearly spelt out in the staff advances policy and
communicated to all staff to ensure proper presentation of accountability for advances disbursed. All
advance reconciliations should be adequately supported.

2.3 Vehicle log and maintenance

Observations
(1) Fuel consumption reports are not prepared timely.
(2) Fuel consumption reports prepared are not comprehensive.
(3) The fuel quantities reported in some of the fuel consumption reports is not consistent with the
information reflected on related supporting documents.
(4) Some of the fuel vouchers are approved when they do not reflect all the required information.
(5) Overstatement of fuel consumption.
Actions implemented
(i) Information gaps in the log books have been rectified; and the concerned drivers have been
cautioned about the importance of filling in all information required in the log books.
(ii) The total mileage covered by each motor vehicle is now captured in the monthly fuel
consumption reports.
(iii) Monthly fuel consumption reports are now being prepared and such reports are reviewed by the
Human Resource Manager and a copy given to the Finance Manager.
(iv) Only fully completed fuel vouchers are now being approved.

9
 Areas that still need to be worked on (including the suggested way forward)
Total mileage covered by each motor vehicle should be recorded in the motor vehicle log book.

2.4 Debtor management system

Observations
At the time of our initial review of debtors in February 2012, the following were our observations:
(1) Some amounts were erroneously recognised as part of debtor balances.
(2) Some of the debtor balances were not supported.
(3) Some of the debtors amounts reflected on the customer ledger accounts did not have specific
reference numbers.
(4) The debt management system in place was weak.
(5) Some of the debtor balances had been outstanding for a long period of time.
(6) Some of the debtor balances were disputed by some UHMG customers.
Actions implemented
(i) A credit committee has been formed, and Terms of Reference for the credit committee developed
by KPMG have been aligned by UHMG management based on the specific business operations
of UHMG.
(ii) Credit limits have been established in the accounting system for customers and as such additional
sales cannot be made to customers when they reach their credit limits.
(iii) Clients have been classified into different categories such as clinics, distributors, health
organisations, NGOs, among other, for better management of sales and debt collection.
(iv) Debt collection methods have been enhanced by the sales team and the consultant who was hired
to follow up on all the debtors. Circularisation has been carried out on all outstanding balances
which has resulted in collection of Ushs. 528,980,122 that relates to old debt of over 360 days as
at 30th September 2012. Specific details are included in the table below:

Description Amount outstanding at Amount outstanding at Amounts collected

23/02/2012 (Ushs) 30/09/2012 (Ushs) (Ushs)
Return to project 456,187,977 262,856,918 193,331,059
Product facility 644,944,517 309,295,454 335,649,063
Total 1,101,132,494 572,152,372 528,980,122

Circularisation has also assisted in identifying the debt amounts worth Ushs. 68 million (relating
to Ernest Olayo Madanji and Emmanuel Kamali) that cannot be validated/ traced to the original
physically reported debtors. An outright provision of this amount would be recommended in the
financial statements of UHMG.
(v) Some of the debtor balances have been supported with respective documentation.
(vi) Reference numbers for debtor accounts in the tally system have been corrected with the
assistance of an IT consultant.
Areas that still need to be worked on (including the suggested way forward)
• Supporting documentation for debtor balances totalling to Ushs. 256 million still needs to be
traced. Retrieval efforts are ongoing as are collection efforts.
• Long outstanding debtor balances that are deemed irrecoverable need to be isolated and presented
to UHMG management for further action. The table below indicates the amount of long
outstanding debt (greater than 360 days) that has not yet been collected based on the balances as at
30 September 2012.

10
 Details Amount (Ushs)
Debtor balances >360 days as at 30 September 2012
RTP debtor balance >360 days 313,811,343
PF debtor balance >360 days 408,049,394
Total 721,860,737
Unallocated credits
RTP 50,954,425
PF 98,753,940
Total unallocated credits 149,708,365
Old debt uncollected (Debtors>360 days less unallocated credits) 572,152,372

2.5 Cash management system

Observations
(1) Bank reconciliation statements for the US dollar accounts were not prepared for some bank
accounts.
(2) There was no evidence that petty cash counts were carried out on a regular basis.
(3) Payment vouchers and supporting documents were not stamped “PAID” after payments had been
effected.
(4) Specific budget information is not indicated on some payment vouchers, and work plan codes are
inconsistently used.
Actions implemented
• Reconciliations for the US dollar account are being prepared.
• Petty cash counts are now being done effectively; these are evidenced on fully signed certificates
that are on file. Spot cash counts are also done sometimes by the Director Finance and Investment.
• Payment vouchers and supporting documents are now being stamped “PAID”.
• A proposed cash management system below for cash and cheque receipts was developed by
KPMG and shared with UHMG management for adaptation.
(a) Receipt and recording cash and cheques received from customers
(i) On receipt of cash, the Accounts Assistant shall count the money in the presence of the
customer and also verify the actual amount to be paid by the customer by referring to the
customer ledger account. The cash received shall then be recorded in the cash column of the
cash book by the Accounts Assistant.
(ii) On receipt of a cheque, the Accounts Assistant shall verify that the cheque has been correctly
completed. Specifically, the cheque should display the following information: UHMG as the
beneficiary, correct date on the cheque, the amounts in figures and in words should match,
signature on the cheque, contact number/ details of the paying customer at the back of the
cheque, and the cheque should be restrictively closed – Account payee only (where required).
The Accounts Assistant shall also verify the amount to be paid with the customer by reference
to the customer’s specific ledger account, and also ensure that the cheque has not been altered.
The amount of the cheque shall then be recorded in the bank column of the cash book.
(iii) For both cash and cheques received, the Assistant Account shall raise a pre- numbered receipt
in triplicate and sign it. The original copy of the receipt shall be given to the customer; while
the duplicate copy shall be attached to the supporting documents, and the triplicate copy
retained in the receipt book to ensure adequate support of transactions and for audit purposes.

11
 (iv) The customer shall confirm the accuracy of the receipt before departing from the Accounts
Assistant. This should be known to the customer, including that errors may not be corrected
after leaving the Assistant Accounts’ desk.
(v) The Assistant Account shall record the cash and cheques received in the respective ledger
accounts in the accounting system for the purpose of maintaining a permanent record of
incoming cash and cheques.
(vi) A daily cash report shall be prepared by the Assistant Accountant indicating the cash and
cheques received during the day, the respective chronological receipt numbers of the receipts
issues, and the name of the paying customers. This report shall be handed to the Accountant on
a daily basis.
(vii) The Accountant shall count the physical cash received on a daily basis in the presence of the
Assistant Account and reconcile it to the cash report. The Accountant shall also reconcile the
cheques recorded in the cash book to the cash report.
(viii) The Accountant shall then post the cash and bank details in the accounting system. These
transactions shall be reviewed by the Finance Manager on a monthly basis to ensure that all
cash receipts and cheque payments have been deposited to the proper accounts.
(b) Banking cash and cheques
(i) Cash and cheques received should be banked intact. Daily banking of cash received is preferred
to safeguard cash against theft, misappropriation, and misstatement. After banking, the stamped
bank deposit slips shall be returned to the finance office and attached to the respective
documents that are then properly filed.
(ii) The Accountant shall regularly review the cash-in-transit account to ensure that it always clears
after banking and that the receipt numbers recorded are sequential. Any anomalies should be
investigated and reported to the finance manager for remedial action to be taken.
(c) Other control issues
(i) UHMG sales staff and agents should not receive cash from customers. Customers should be
encouraged to either pay directly at the UHMG offices or in the bank, and provide UHMG with
evidence of payment, after which a receipt shall be issued to the customers.
(ii) All receipt books that are still in use should be kept by the Accounts Assistant in the safe at the
end of each business day. Unused receipt books should all be kept by the Finance Manager
who shall issue them to the Accounts Assistant as and when needed in sequential order, and the
Assistant Account should always sign for receipt of these receipt books.
(iii) The cash handling and transaction posting functions should be separated in the finance
department. For the upcountry pharmacies where the team is small, the supervisor who does
not handle cash should, on a daily basis, review the cash handling documents that are prepared
by the respective staff who report to them. It would be prudent to have a staff that is conversant
with finance and accounts to handle the accounting and recording activities at the upcountry
pharmacies. In addition, the duties of the staff at these pharmacies in respect to cash
management should be clearly spelled out and communicated to them to ensure effective
management of cash transactions.
(iv) When payments are received from customers both in terms of cash or cheque, the cash and
cheques should be kept in the safe until they are deposited in the bank.
Areas that still need to be worked on (including the suggested way forward)
Specific budget information is not indicated on some payment vouchers, and work plan codes are
inconsistently used. Specific budget information should be indicated on all payment vouchers and
work plan codes should be consistently used.

2.6 Other finance issues indentified under Pr oduct Facility

Observations
(1) The role of the PF finance department had not been embraced
(2) Journal vouchers raised to reverse financial transactions were not authorised

12
 Actions implemented
A finance manager was recruited for PF and is working on streamlining the financial operations of PF
to ensure an effective financial management system.

2.7 Review of the pr ocur ement management system

Observations
(1) The procurement policies and procedures are not comprehensive.
(2) There are no documented procurement procedures for pharmaceutical products.
(3) Procurement plans and monthly reports are not prepared.
(4) The filling system for procurement documentation is not adequate
(5) The procurement structures in place are not adequate.
(6) The contracting process and contract documentation used are not adequate.
Actions implemented
(i) Capacity building sessions in procurement planning have been conducted by KPMG for UHMG
staff in the Human Resource and Administration department, Product Facility, Special Projects
and Resource Mobilization and Programs and Services Directorates, and Finance and Investment
Directorate.
(ii) Generic samples of standard terms and conditions for contracting services and works were
developed by KPMG and shared with UHMG management.
Areas that still need to be worked on (including the suggested way forward)
• The directorates should draft their procurement plans based on the template/format provided
during the capacity building sessions.
• The respective UHMG officials should review the generic sample standard terms and conditions
and tailor them to the specific needs/ operations of UHMG.
• A proper filing system should be initiated by the UHMG procurement officer so that KPMG can
advise accordingly based on the available documentation.
• Proper procurement structures need to be put in place to ensure proper functioning of the
procurement function.

2.8 Review of the human r esour ce system

Observations
(1) The organisational structure is not well applied
(2) Lack of clear and detailed job descriptions
(3) Lack of an effective performance management system
(4) Formal employment confirmation letters were not given to some staff upon completion of the
probation period
(5) Staff were not involved in the decision making process
(6) Staff not provided with adequate training
(7) Lack of a reward and recognition system
(8) Staff leave periods not properly planned for
(9) Lack of adherence to the organisational work culture

Actions implemented
(i) Employment contracts have been developed for staff and probation assessments undertaken.
(ii) Participatory decision making is now conducted through involvement of staff during staff
meetings.

13
(iii) KPMG is currently assisting UHMG to put in place an effective performance management
system. A performance management workshop has been held, and the performance management
tool and cycle reviewed.
(iv) Board has approved a 3% performance increment and other initiatives are being explored, such
as, employee of the month that is announced during staff meetings.
(v) Leave schedules have been developed and communicated to the respective Directors for action.
(vi) Change champions have been appointed to champion a conducive and productive work culture. A
staff survey was carried out and the issues identified are being worked on and also HR continues
to sensitise staff on the policies.

Areas that still need to be worked on

1. An effective performance management system needs to be developed at UHMG. This shall be
actualised as part of the HR capacity assessment that KPMG is performing at UHMG.
2. Updating of job descriptions is a continuous process as staff appraisals are carried out and some
staff are shifted from one project to another.
3. Staff need to be provided with adequate training.
4. The current organisational structure needs to be updated to reflect clear authority, responsibility,
and reporting lines that are implemented. KPMG shall highlight the specific areas that need to be
addressed during HR capacity assessment.

14
3 Review and completion of the dr aft NICRA pr oposal
A review was carried out on the draft documents that included an indirect cost rate proposal for the
financial year 2009/2010. It was recommended that the proposed submission to USAID should
include proposals for the financial years since commencement of the current CCP grant, which is the
main /core project funding for which the NICRA is being requested. In this respect, UHMG was
requested to compile salary lists for the financial years 2008/2009; 2010/2011 and projection for
2011/2012 to facilitate compilation of proposal documents for those years. It was later agreed with the
Finance management team to leave out the financial year 2008/2009 since a lot of time would be
needed by the staff to compile the salary lists. Therefore the proposal that has been prepared includes
final rates for financial years 1st October 2009 to 30th September 2010, 1st October 2010 to 30th
September 2011, and a provisional rate is proposed for the current financial year 1st October 2011 to
30th September 2012. In addition, in order to ensure completeness, the review process involved
ensuring that all required documents for submission with the NICRA are in place.

The table below indicates the rates derived from the information received in finalising the draft
NICRA proposal for submission to USAID.

TYPE EFFECTIVE PERIOD TO RATE

FROM
Final October 1, 2009 September 1, 2010 20.28%
Final October 1, 2010 September 1, 2011 22.23%

Provisional* October 1, 2011 September 1, 2012 21.37%

The following checklist was used to ensure that documentation is in place for eligibility to submit the
Indirect Cost Rate (ICR):
1) Determine that the applicable cost principles (stated in the Circulars or the FAR) were followed.
Costs are reasonable, allocable and allowable.
2) Review the organizational chart for a visual picture of the flow of responsibility, identification of
areas of common costs, and the location of those areas in which federally-funded activity exists.
A copy of the organizational chart reviewed depicts the above.
3) Perform an arithmetical verification of the proposal.
Done
4) Determine that the proposal reconciles with the supporting audit, official budget or financial
statements.
Done
5) Review the financial statements and audit report for any indication of activities which may have
been omitted from the indirect cost proposal, such as, the omission of restricted fund costs or the
existence of an affiliated organization receiving supportive service from the parent organization.
Done
6) Determine that the itemized costs in the indirect cost pool pertain to functions that are supportive
of all direct activity.
Done
7) Determine that costs that are statutorily unallowable, or for reasons of non-allocability, have been
eliminated from the indirect cost pool. Determine whether these unallowable or non-allocable
items should be added to the distribution/allocation base.
Done
8) Determine that "pass-through" funds have been excluded from the base.

15
There were no pass through funds.
9) Review and analyze direct costs for the determination of:
(a) Consistency in charging specific items of cost; and
(b) The selection of an appropriate base for allocating indirect costs.
The indirect cost allocation base used is the modified total direct costs consisting of salaries and
wages, fringe benefits, materials and supplies, services, travel, and sub awards up to $25,000
each or all sub awards.
10) Review the contract/grant budget and payments, or contractor/grantee records, for a
determination of: (if deemed feasible under the circumstances)
(a) The direct funding of indirect costs.
(b) Any limitations placed upon the full recovery of indirect costs, i.e. ceiling rates or amounts.
(c) Total Federal funds involved.
Done
11) Check with the appropriate Federal Program Manager for any problems he/she may be aware of
relating to the charging of costs.
None identified.

The following need to be noted

(a) Personnel cost
The personnel cost is the key cost item for indirect cost allocation and therefore verification /
negotiation by USAID involves this area. The Cost Policy Statement indicates positions that are
charged 100% as indirect costs. However, the time allocation in the timesheets differs. This may be
due to the need to submit timesheets as part of the accountability to the different funders of the salary
payments. However, this remains an area that may be questioned since the salary cost allocation
worksheet is prepared from timesheets.
Recommendation
In future, a column for indirect time allocation could be added in the timesheet so that staff can
charge part of the time worked as indirect. In this way the ICR personnel worksheets submitted with
the NICRA application would agree with the primary record of timesheets required as supporting
documents.

(b) ICR Computation for FY 2010-2011

The personnel cost worksheet includes staff lunch contribution for which no details of cost per staff
were available. The amount has been evenly distributed among all staff that appeared to have been on
board for relatively longer period of time. If a detailed list is provided, this can be used to assign the
exact amount per staff.

16
4 Allocating indir ect costs and salar ies acr oss the var ious pr ojects
budgets
Observations
We established that UHMG has the relevant policy manuals and procedures in place that guide cost
allocation. In respect to salary cost, we established that on a monthly basis the Human Resource
manager is provided with the planned time allocation to be charged for each staff member. Time
allocation changes on a monthly basis depending on the planned activities. In respect to other costs,
payment vouchers indicate projects to which the costs relate by use of applicable budget codes that are
then captured in the book keeping. However, we noted inconsistency of time sheet time allocation
with actual salary bookings seen in managerial timesheets.

Recommendation
Timesheets should be the primary document for salary cost allocation. The human resource
department should summarize / prepare monthly salary listing showing time allocation / charged for
the month. Time allocation lists should then be used by accounts staff to post salaries to different cost
centres. Salary payment transaction entry should include allocation to the different cost centres so that
all information is immediately captured. In addition, the timesheets could be revised to include
indirect cost.

17
 Attachment 1: Stock take r epor t for the UHMG end of year stock
take
The end of year stock take was carried out on 1st and 2nd October 2012, and below are our
observations from the physical stock take and respective recommendations.

(i) Bin car ds

Observations
(a) Bin cards not updated on a timely basis
During the physical stock count we noted some variances between the physical stock counted and the
amounts that were recorded on the specific bin cards, a consequence of not updating bin cards on a
timely basis. These variances were reported to UHMG management after the stock take and
subsequent reconciliations have been carried out by the PF finance and stores department to reconcile
the physical stock figures to the bin cards.

(b) Stock items without bin cards

Some of the commercial products did not have bin cards at the time of the stock count. Specific
examples are included in the table below:

Name of item Batch Number Quantity counted

Artefan 12’s PO232C 202 packets

Bispanol 090665 1 tin
Candistin L-9213 3 bottles
Fungifen – Clotrimazole Cream W1853 80 tubes
Haloxen 5 406137 37 packets
Kam Cloxa 1510 1 packet
Maxotrim Pead 100ml M8607 8 bottles
Needles 100203&090831 25 dispensers
Nysatgo L0121 5 bottles
Phenyton 10901PE 3 tins
Trimago T1217 6 tins

Implication
Effective control of stock items is hindered and stock reorder levels may not be effectively managed.
Consequently, stock items may get depleted from the stores and not be replaced timely, which could
result into lost revenues if customers request for certain items that are not readily available.
Recommendations
• Bin cards should be updated whenever stock items are either purchased or sold off to customers
and the dispatch note has been issued.
• When goods are returned to UHMG and the Goods Returns Inwards note has been completed by
the warehouse supervisor and approved by the Director Product Facility and Director Finance and
Administration, the bin cards should be updated appropriately.
• All stock items should have individual bin cards that are maintained on the shelves where the
particular stock items are stored.

18
(ii) System r ecor ds not updated on a timely basis
Observation
Variances were noted between the physical stock quantities as per the stock count results, the bin card
and the amounts recorded in the system at the date of the stock take for some stock items. These
variances were reported to UHMG management after the stock take and subsequent reconciliations
have been carried out by the PF finance and stores department to reconcile the physical stock figures
and bin card records to the tally system. However, there are still a few variances that are yet to be
reconciled by the PF finance team.
Implication
The stock figures recorded in the system at any one time may not be correct which could affect the
accuracy of the financial records and reports generated from the system.
Recommendations
• Once the inventory variance report has been reviewed and approved, the system records should be
updated immediately to reflect the correct inventory figure for the year ended 30th September
2012.
• The system records should always be updated on a timely basis whenever stock items are either
procured or sold off to customers to correlate with the bin card quantities.
• In cases where a sale has been made and the customer does not pick the goods within reasonable
time (as determined by management), the sale should be reversed in the system, items should be
recognized as stock, and the stock records should be updated both in the accounting system and on
the bin cards.

(iii) Expir ed goods and goods near ing expir y maintained with good stock items
Observation
Some stock items (commercial products) that are near their expiry date were stored together with the
good stock. Specific examples are included in the table below:
Name of item Batch Expiry date Quantity counted
Number
Magnomint susp 100ml 091046 10/2012 15
Phenyton 10901PE 10/2012 3
Rinavit – multi vitamin syrup 60ml 101559 10/2012 6
Rubem Cream 091486 10/2012 48
Zocin 250 mg capsules 6’s 309103 10/2012 17
Pilplan Plus 536B 04/2012 8,224

Implication
Stock figures and the overall stock value may be overstated.

Recommendations
Expired stock and stock that is close to expiry should be clearly identified and stored in a separate
place that is strictly meant for expired stock. Such stock shall be disposed off after authorisation by
the Director Finance and Administration, and approval of the Managing Director as stated in the
financial management manual. Stock cards for such items should then be adjusted to record the new
inventory levels and the stock written off should be reflected in the accounting system.

19
(iv) Similar bin cards shared by products with different batch numbers
Observation
We noted records of products that had different batch numbers that were recorded on the same bin
cards. Specific examples are included in the table below.
Batch numbers on Expiry date Physical stock Bin card
Name of item
actual product count balance balance
Actrizine – Cetrizine 10mg 0811 10/2013 3 5
002 9/2012 2
Astolone – Predinisolone 453 08/2014 13 18
Tabs 1000’s 468 12/2014 4
459 08/2014 1
Multi vitamin Tablets T1425 02/2014 6 11
VL102 10/2013 4
T1346 12/2013 5
Implication
Controls over monitoring of such stock items may not be effective.
Recommendations
Each unique product batch number should have a separate bin card. This enables management to issue
products on a timely basis and reduce occurrence of expired goods.

(v) Lack of compr ehensive stock taking lists

Observation
The stock taking sheets that were distributed to the teams prior to commencement of the stock take did
not contain the names and details of some of the stock items in the different locations that were to be
counted. Consequently, some of the stock items that were not included on the stock take sheet were
not counted although they had system balances. Specific examples are included in the table below:
Name of item Batch Number System Quantity
Third Party Logistics
Male Condoms 1109038 158,400
2018STA (64,800)
2818STA 194,400
2913STA 5,760
Microgynon 871-AB 109,440
Implanon implants 211584 48
IUD’s _DFID N061202 9,474
Zarin Implants 07112011 88
Raw Materials
Combination III Mixed 315,360
UHMG Products
Protector DBAID2084 1
DBAID2166 193
DBAID2488 18
DBAID2503 311
Clotri denk N/A 17
Cozepam 5mg N/A 30
Examination gloves medium N/A 80

20
 Name of item Batch Number System Quantity
Examination gloves small N/A 130
Fulexin N/A 3
Iodine tincture 22ml N/A 82
IV Cannula 20g N/A 1
Kam Predsol tablets 100 N/A 23
Keto 200 N/A 589
Lactulose syrup N/A 20
Solar Active radio connector N/A 3,464
Solar Led Lamp N/A 2,432
Solar Panel N/A 3,068
Solar Passive radio connector N/A 3,493
Solar power pack N/A 3,728
Water for Injection N/A 4,507
In addition, units of measure for some stock items were either not reflected or wrongly reflected on
the stock count sheets. Specific examples are included in the table below:
Name of item Category Location
Bendex Commercial Products Main Warehouse
Betapyn Commercial Products Main Warehouse
Ceftriaxone 1gm Vial Commercial Products Main Warehouse
Compral Commercial Products Main Warehouse
Disecting forceps Commercial Products Main Warehouse
U Check Commercial Products Main Warehouse
Blue Gold 3PL Main Warehouse

Implication
Controls over stock are compromised which could result in some items in the different stores/
locations not being reflected in UHMG records. In addition, the values of some stock items might not
be correctly captured in the system records which could impact on the correctness of the value of
stock recorded in the financial records of UHMG.
Recommendation
Prior to stock taking, all items in the stores/ different locations including their specific descriptions
and units of measure should be included on the stock count sheets that shall be used during the stock
count. These stock count sheets should all be pre-numbered and all items included on the stock count
sheet should be counted.

(vi) Poor stor age of stock

Observation
The following were noted in respect to storage of stock items:
• Microgynon (Batch 871A) was not accessible during the stock count due to its poor storage,
specifically; the product was sealed off by male condoms and consequently not counted during the
stock take.
• Injecta plan loose drugs for batch 41 and 43 were kept in the same box and stored in a different
location from other loose drugs.
• Similar items of stock are still stored in different locations in the same store.

21
Implication
Controls over such stock items are compromised, and such stock is susceptible to theft, damage and
obsolescence which may go un noticed for a long period of time.

Recommendation
Management should ensure that all stock items are properly stored in the respective locations and can
easily be accessed for issuing and monitoring. Where there is limited space, management may
consider obtaining more space for proper storage of its products.

Management comments
• Management is working with the stores and PF finance teams to ensure that all variances
identified during the stock take are resolved. A large percentage of the reconciliation process has
already been achieved.
• The issue of poor storage of stock items is caused by inadequate storage space in the warehouse.
A contract has been awarded to an architectural and construction firm to design an extension to
the warehouse.
• Management shall in the interim consider looking into obtaining alternative lockable storage
facilities to reduce the congestion of stock in the current stores and warehouse, as the extension to
the main warehouse is being worked on.

22