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Finance Report 2015

Dokolo Visit

The CPAR Uganda Ltd financial year which ended on 31 March 2015 was both challenging and at the same time a year of growth for the Company. The external grant fundraising environment for development organisations in Uganda was negatively impacted by global processes - human rights issues, financial crisis and humanitarian crisis caused by man-made and natural disasters in other parts of the world. Those global processes made it difficult for CPAR Uganda Ltd to successfully access new external grant funding, on the one hand. On the other hand, during the year, the manner of the company’s frugal financial management was commendable and it demonstrated a sign of organisational maturity.

CPAR Uganda Ltd’s gross income for the year was slightly over 216 million shillings. The Company’s own income generation efforts realised 78 percent, of its gross income during the year. The company’s own income generation efforts raised 105 percent of the income that it had budgeted to raise from those efforts. Success in achieving its budgeted internal income generation target occurred even though:

  • The company’s efforts to find tenants to rent the CPAR Uganda Ltd Lira Base Camp and to rent the remaining half of the CPAR Uganda Ltd Pader Base Camp did not succeed. 

  • The company’s innovations to generate income through sale of agricultural produce from the CPAR Uganda Ltd Loro Base Camp were frustrated by unfavourable weather – an extended dry spell - which damaged crops in-field. 

  • Interest income from the Company’s savings bank account was low because of the delay in repayment of its endowment funds which had been allocated to pre-finance programme activities that were externally funded; and the delay in rent payments. The delays in payments caused CPAR Uganda Ltd to miss out of interest income that is paid twice a year by its bankers and which is calculated on the basis of balances on its savings account at the time of paying out interest. The delays in payment also frustrated CPAR Uganda Ltd’s efforts to invest in fixed deposits and to take advantage of special income generation offers from its bankers. 

The achievement of the company’s internal income generation target was made possible due to unexpected income from an insurance payment for a former staff member who was involved in a motorcycle accident; and a write-back into income of funds set-aside for gratuity payments for departed staff who failed to fulfill the relevant CPAR Uganda Ltd conditions.

Like most not-for-profit development organisations which are established for the benefit of active poor rural Ugandans, CPAR Uganda Ltd is dependent on external grant funding for its operations. The company’s traditional funding partners – international aid agencies – are also dependent on grant funding from their respective governments. 

During the year, the funding environment for Uganda development organisations, such as CPAR Uganda Ltd, was negatively affected by polarising debate and the passing of amendments to Uganda’s anti-homosexuality laws. Media reports, such as in the Guardian, indicated that Government of Uganda’s traditional ‘donor countries’, such as the United Kingdom, Norway, Denmark and United States of America, withheld ‘development aid’ to Uganda. 

The continuing negative effects of the global financial crisis, other man-made and natural disasters that caused humanitarian crisis in other parts of the world necessitated the diversion of aid away from less affected countries such as Uganda. 

The withholding and diversion of ‘development aid’ by governments of donor countries had a knock on effect on the budgets of CPAR Uganda Ltd’s traditional funding partners and consequently the Company’s fundraising efforts. CPAR Uganda Ltd was not able to obtain new grant funding during the year. 

Total external grant funding for the year was slightly over 48 million shillings, which funding was provided by Canadian Physicians for Aid and Relief for the completion of the five-year Farmers First (FF) Programme. 

The staff members of CPAR Uganda Ltd are commended for appreciating the Company’s financial situation and for exercising high levels of frugality which enabled the company to cover its own administrative costs which totalled to slightly over 110 million shillings. The administrative costs were covered by the Company’s own income generated during the year.

The gains which the staff members made through frugal utilisation of resources were, however, unfortunately, decimated by unexpected expenditure that arose from penalties by one of CPAR Uganda Ltd’s funding partners against the company, totalling to slightly over 81 million shillings. While the funding partner acknowledges that CPAR Uganda Ltd incurred the expenditure implementing the project for which the funds were intended, the funding partner nevertheless disallowed the expenditure on the following grounds: 

  • Staff salaries totalling to slightly over 63.6 million were disallowed for staff positions that the funding partner determined were not originally budgeted for under the project. Some of the positions were actually originally budgeted but because of staff departure and incapacitation new staff members were recruited at different salary rates. Despite CPAR Uganda Ltd’s clear reporting to the funding partner at the time of recruitment and posting, the funding partner did not seek approval from the back donor for the necessary changes in CPAR Uganda Ltd’s project staffing; even though without these changes CPAR Uganda Ltd would not have been able to successfully implement the project as it did. 

Throughout the project, the funding partner continued to specifically request time and effort for the Company’s ‘unbudgeted staff’, for example the MD, to implement the project. All the changes that were made in the project staffing CPAR Uganda Ltd formally reported them in writing to the funding partner. Since the funding partner did not explicitly write back to the contrary it was assumed the changes were approved. In fact, during three meetings between CPAR Uganda Ltd and the funding partner the matter of CPAR Uganda Ltd’s project staffing was discussed and a staff member of the funding partner was tasked to write to the back donor on the matter. Subsequently, CPAR Uganda Ltd was made to understand that if the funding partner had written to the back donor on the matter the necessary changes in the project staffing would have likely been approved without question. The CPAR Uganda Ltd Board of Directors has therefore resolved to appeal this penalty.

  • Exchange rate losses totalling to slightly over 13.8 million were also imposed. CPAR Uganda Ltd had received funding for the project in Uganda shillings and implemented the project in Uganda shillings. The funding partner demanded that the accountabilities be done in both shillings and in Euros. Meaning that the shilling expenditure values were the true values and the Euros conversions were estimated values.  In the end the funding partner introduced a Euro exchange rate for converting the Uganda shillings expenditure to Euro, while CPAR Uganda Ltd’s receipts and expenditure were both in Uganda shillings. CPAR Uganda Ltd did not receive nor covert foreign currency for use on the project and therefore was not responsible for exchange rates management. The funding partner’s introduction of an exchange rate disadvantaged CPAR Uganda leading to less reimbursement of what it spent in Uganda shillings. The CPAR Uganda Ltd Board of Directors has resolved to appeal this unfair application of exchange rates by its funding partner.

  • Other costs totalling to slightly over 3.7 million were disallowed. These included the cost share for the project of CPAR Uganda Ltd’s overall audit fees for its financial year ended 31 March 2014; which costs the funding partner deemed unnecessary double-expenditure since the funding partner commissioned a separate project audit. The costs also included rent payment for the project field office which the funding partner deemed not fully supported.

CPAR Uganda Ltd suffered a further loss of funds when one of the Local District Governments did not honour its agreement with CPAR Uganda Ltd for the implementation of a Project. This resulted in loss of slightly over 6.1 million shillings worth of project expenses, which should have been covered by external grant funding. The Board of Directors have resolved to follow-up this matter with that District Local Government.

The company thus completed the year with a gross deficit totalling to slightly over 115 million shillings. Of which 64.3 million shillings was covered by a grant balance for the FF project that was brought forward from the previous year. The disallowing of expenditures by the funding partner and the failure of the District Local Government to release the final grant for the Project therefore caused CPAR Uganda Ltd a net deficit for the year, totalling to slightly over 50.8 million shillings. 

The Company’s endowment fund which stood at nearly 19.3 million shillings as at 31 March 2014 was completely used up and proved insufficient to absorb the company’s net deficit for the year 2014/2015. The closing balance for CPAR Uganda Ltd’s endowment fund therefore fell to an accumulated deficit of slightly over 25.4 million shillings. 

CPAR Uganda Ltd is the proud owner of land, buildings, motor vehicles, office and other equipment which form its capital fund. During the year, processes were initiated to convert some of the capital fund into cash through sale of motorcycles, office and other equipment. Furthermore, in accordance with accounting best practices, the net book value of the fixed assets was reduced by a depreciation charge for the year. Consequently there was a thirteen (13) percent reduction in the net book value of the company’s non-current assets as compared to the previous year. At the end of the year, therefore, the company’s capital fund was valued at slightly over 525.4 million shillings. 

The cash generated from sale of fixed assets was intended to enable CPAR Uganda Ltd to meet its cash needs, including for settling the company’s liabilities. Compared to the previous year CPAR Uganda Ltd’s liabilities have significantly reduced to slightly over 57.7 million shillings. Cash in the bank, as at 31 March 2015 totalled slightly over 22 million shillings, while CPAR Uganda Ltd is owed slightly over 33.9 million shillings to external persons or institutions. The prospects of quick debt recovery are slim. In the short-term it was therefore necessary for the company to convert assets into cash in order to clear outstanding liabilities. Processes are on-going to recover debts owed to CPAR Uganda Ltd in the longer-term.

The CPAR Uganda Ltd MD continued to function as the company’s chief accounting officer, in which capacity she was supported by the Assistant Finance and Administration Officer (AFAO). The AFAO is based at the company’s Lira Offices, located within its Lira Base Camp. Financial management was done in accordance with the company Finance Policy. The MD worked in close consultation with the Chair of the Board of Directors and the Chair of the Finance Committee of the Board of Directors – holding regular meetings and exchanging email and telephone correspondence. 

CPAR Uganda Ltd books of accounts were maintained electronically using QuickBooks backed up manually through the generation of physical journals to which all relevant supporting documents were attached. All financial reports and statements required by the Board of Directors and the company’s funding partners were produced in an accurate and timely manner.

In the coming years CPAR Uganda Ltd has to innovate in order to raise its own income to recover the losses it has made and to return its endowment fund into a healthy positive balance.

 

 

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