Management of Outsourced Revenue Collection Function by Local Governments (2012)

THE UNITED REPUBLIC OF TANZANIA
NATIONAL AUDIT OFFICE
PERFORMANCE AUDIT ON THE MANAGEMENT OF

OUTSOURCED REVENUE COLLECTION FUNCTION BY
LOCAL GOVERNMENT AUTHORITIES IN TANZANIA
PRIME MINISTERS OFFICE - REGIONAL ADMINISTRATION

AND LOCAL GOVERNMENT
A REPORT OF THE CONTROLLER AND AUDITOR GENERAL OF

PERFORMANCE AUDIT ON THE MANAGEMENT OF OUTSOURCED REVENUE COLLECTION FUNCTION
BY LOCAL GOVERNMENT AUTHORITIES IN TANZANIA
National Audit Office

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NATIONAL AUDIT OFFICE
PERFORMANCE AUDIT ON THE MANAGEMENT OF

OUTSOURCED REVENUE COLLECTION FUNCTION BY
LOCAL GOVERNMENT AUTHORITIES IN TANZANIA
PRIME MINISTERS OFFICE - REGIONAL ADMINISTRATION

AND LOCAL GOVERNMENT
A REPORT OF THE CONTROLLER AND AUDITOR GENERAL

OF THE UNITED REPUBLIC OF TANZANIA
LIST OF CONTENTS
Preface ............................................................................................................................................. iv
Abbreviations and Acronyms ..............................................................................................................v
Executive Summary ..........................................................................................................................vii
CHAPTER ONE
INTRODUCTION
1.1 Background ............................................................................................................................. 1
1.2 Audit objective ......................................................................................................................... 2
1.3 Audit design ............................................................................................................................ 3
1.4 Data Validation process ........................................................................................................... 5
1.5 Structure of the audit report ...................................................................................................... 5
CHAPTER TWO
MANAGEMENT SYSTEM FOR OUTSOURCED REVENUE COLLECTION ACTIVITIES
2.1 Introduction ............................................................................................................................ 7
2.2 Changed conditions for responsible authorities ........................................................................ 8
2.3 Government Policies and Regulation......................................................................................... 8
2.4 Organization and actors for revenue collection .......................................................................... 9
2.5 Steps and procedures at large ................................................................................................ 12
CHAPTER THREE
MANAGEMENT OF ACTIVITIES AT LOCAL GOVERNMENT AUTHORITIES
3.1 Planning before outsourcing ................................................................................................... 15
3.2 Procurement of Revenue Collection Agents ............................................................................ 16
3.3 Management of the outsourced revenue collection contracts ................................................. .18
3.4 Monitoring and Follow up of contracts and collectors performance ....................................... .20
CHAPTER FOUR
MANAGEMENT OF ACTIVITIES AT HIGHER AUTHORITIES
4.1 Activities at regional level. .................................................................................................... ...25
4.2 Activities at Ministerial level. ................................................................................................. ...26
CHAPTER FIVE
CONCLUSIONS
5.1 Planning before outsourcing ................................................................................................... 29
5.2 Procurement of Revenue Collection Agents ............................................................................ 30
5.3 Management of outsourced revenue collection contracts....................................................... .30
5.4 Monitoring of Councils performance by higher authorities. ................................................... ...30
5.5 Monitoring of revenue collection agents by higher authorities. .............................................. ...30
CHAPTER SIX
RECOMMENDATIONS
6.1 Planning before outsourcing ...................................................................................................... 33
6.2 Procurement of Revenue Collection Agents ............................................................................... 33
6.3 Management of outsourced revenue collection contracts ......................................................... .33
6.4 Monitoring of the outsourced revenue collection ....................................................................... .34
6.5 Monitoring of Councils performance by higher authorities. ...................................................... ...34
ii
References
List of Tables
Table 1: Accumulated revenue not remitted by collecting agents

Table 2: Actual revenue collection as a percentage of total revenue
Table 3: Analysis of risk assessed by council
Table 4: Modes of advertising revenue collection tender
Table 5: Analysis of time given to prospective bidder
Table 6: Sanctions available in the contract
Table 7: Sanctions available in the councils by-laws
Table 8: Actions taken due to non compliance with terms of contract
Table 9: Expected number of councils to be inspected per month by PMO-RALG
Table 10: Councils inspected by PMO-RALG inspectorate unit
Table 11: Key issues reported by PMO-RALG in the inspected councils
Table 12: : Functional Area percentage score
List of Figures
Figure 1: Flow of revenue collection activities as organised in Local Government Authorities

(LGAs)
Figure 2: Flow of activities to procure revenue collection agent in LGAs.
Figure 3: Institutional framework for management of outsourced revenue administration in LGAs
Appendices
Appendix 1: Audit questions and sub questions

Appendix 2: Documents reviewed by audit team
Appendix 3 Risk identied in the visited councils
Appendix 4: Evaluation report by assessment team engaged by PMO-RALG
Appendix 5: Council Performance Evaluation
Appendix 6: Statistics of contracts that show clauses that allow access to information
Appendix 7: Sanctions available in the contracts with revenue collection agent for late remittance
of agreed amount
Appendix 8: Sanctions available in the councils by laws relating to revenue collection agent for late
remittance of agreed amount
Appendix 9: Review of the Internal auditors report
Appendix 10: Focus group discussion team participants
Appendix 11: Computation of auditors estimates
Appendix 12: Reviewing of contracts
Appendix 13: Councils issued bid documents in the procurement process
Appendix 14: Computation of the Percentage difference between estimated amount and bid and
contract (agreed) amount
iii
PREFACE
The Public Audit Act No. 11 of 2008, Section 28 authorizes the Controller and Auditor General (CAG)
to carry out Performance Audit (Value-for-Money Audit) for the purpose of establishing the economy,
efciency and effectiveness of any expenditure or use of resources in the Ministries, Department,
Agencies (MDAs), Local Government Authorities (LGAs) and Public Authorities and other Bodies which
involve enquiring, examining, investigating and reporting as deemed necessary under the circumstances.
I have the honour to submit to His Excellency the President of the United Republic of Tanzania, Dr. Jakaya
Mrisho Kikwete and through him to Parliament the Performance Audit Report on the Management of
Outsourced Revenue Collection Function by LGAs in Tanzania.
The report contains ndings, conclusions and recommendations that have focused mainly on planning
before outsourcing revenue collection function, procurement process of revenue collection agent, contract
administration and monitoring of performance of the collecting agents. It also covers enforcement of
sanctions that directly concerns the PMO-RALG in ensuring that the outsourced revenue collection
function by LGAs is efciently and effectively managed.
The management of PMO-RALG has been given the opportunity to scrutinise the factual contents and
comment on the draft report. I wish to acknowledge that the discussions with the auditees have been
very useful and constructive.
My ofce intends to carry out a follow-up at an appropriate time regarding actions taken by the auditees
in relation to the recommendations in this report.
On completion of the audit, the ofce subjected the report to Dr. Honest Ngowi, Mr. Paul Nsimbila, Mr.
John Lubuva, and Mr. Joseph Chikongoye who came up with useful inputs for improving the output of
this report.
This report has been prepared by Wendy Massoy, Rebecca Mahenge, Ndyanao Mgweno, Levina
Kishimba and Darius Cosmas. I would like to thank my staff for their assistance in the preparation of this
report. My thanks should also be extended to the auditees for their fruitful comments on the draft report.
Ludovick S. L. Utouh
Controller and Auditor General
Dar es Salaam,
January 2012
iv
ACRONYMS/ABBREVIATIONS
AFROSAI-E - African Organization of Supreme Audit Institution for

English Countries
CAG - Controller and Auditor General
CBG - Capacity Building Grant
CBOs - Community Based Organizations
CC - City Council
CD - Council Director
DC - District Council
DLG - Director of Local Government
ESRF - Economic and Social Research Foundation
INTOSAI - International Organization of Supreme Audit Institution
LG - Local Government
LGA - Local Government Authorities
LGMS - Local Government Management Services
M&E - Monitoring and Evaluation
MC - Municipal Council
MDAs - Ministries, Department and Agencies
MoF - Ministry of Finance
NAOT - National Audit Ofce Tanzania
NGOs - Non Government Organizations
PMO-RALG - Prime Ministers Ofce Regional Administration and Local Government
PMU - Procurement Management Unit
PPPs - Public Private Partnerships
PPR - Public Procurement Regulations
PPRA - Public Procurement Regulatory Authority
RAS - Regional Administration Secretary
REPOA - Research on Poverty Alleviation
RS - Regional Secretariat
TC - Town Council
TNA - Training Needs Assessment
TRA - Tanzania Revenue Authority
TShs - Tanzanian Shillings
VFM - Value for Money
v
EXECUTIVE SUMMARY
Many Local Government Authorities (LGAs) in Tanzania have outsourced their revenue collection during
recent years in order to improve collection activities of the Council. The reason behind this was to boost
revenue collected and lower the councils administrative cost. However, this has not been the case.
Instead, the amount of LGAs revenue has been decreasing in most councils which also has experienced
serious problems with revenue collection agents in complying with the terms of the signed contracts.
Based on the above problems, the Controller and Auditor General (CAG) of Tanzania decided to
conduct a performance audit to assess whether the LGAs in Tanzania Mainland efciently manage
the outsourcing of revenue collection function and the management of the performance by revenue
collection agents.
The audit specically focused on how LGAs plan before outsourcing, conduct the procedures used
to procure revenue collection agent including contract administration and sanctions in place and their
enforcement. Monitoring and evaluation conducted by central government was also included in the
audit.
The audit covered the examination period 2007/20082009/2010. Various sources of revenue were
selected for examination in 14 local government councils.1
All councils need to put more efforts in the whole process when deciding to outsource their revenue
collection in order to maximize their revenue collection potentials, and hence promote good service
delivery to their communities and the national economy generally. The following is the summary of Major
Findings, Conclusions, and Recommendations arising from this performance audit:
Major findings
In order to safeguard the councils interest, a decision on outsourcing of revenue collection as well
as outsourcing activities needs to be preceded by a proper examination of market conditions for
the concerned activity. Once a decision on outsourcing is taken, it also implies changing conditions
for management of the outsourced activities (activity that was previously done by the Council). The
responsible authorities at operative level, the LGAs, get new roles with new tasks and this is equally
applicable to authorities at higher levels. The main impression derived from the conducted audit is that
these pre conditions have not been at hand in the 14 examined LGAs.
Poor planning before outsourcing decision

Examination of the potential market for outsourcing is not efciently done by the councils. There is
no documented evidence to show that councils had searched for availability of potential contractors
to take their roles. Also, the new roles of the supervisor for the contract management for the revenue
collection agents are not clearly dened by the councils management.
Procedures to procure private collector not efficiently done

Revenue collection agents were not efciently obtained because of limited competition between potential
bidders and also lack of transparency of criteria for evaluation of the bids. Close to half of the tenders
were published just on Councils notice boards.
1 The examined councils were Arusha Municipal Council, Bagamoyo District Council, Igunga District Council, Kibaha Town Council,
Meru District Council, Misungwi District Council, Mpanda District Council, Mpanda Town Council, Mundi District Council, Mwanza City
Council, Nkasi District Council, Njombe Town Council, Tabora Municipal Council and Tanga City Council.
vi
Contracts not adequately safeguarding interests of the councils

Contracts are not prepared with the intention of protecting the interests of the Councils. The Council
Director cannot sue the revenue collection agent for failure to submit any amount in excess of what they
have agreed.
Inadequate monitoring of performance of private revenue collector

Performance of the revenue collection agent is not efciently monitored. This is because no operational
reports were submitted by the revenue collection agent to the councils. No periodic reconciliation was
conducted by the councils between receipts used by private revenue collection agents against remitted
amount. The submission of the operational or periodical reports was not a condition enshrined in the
contracts signed between the councils and the revenue collection agents.
Sanctions not adequately enforced and regulated

Sanctions were seldom enforced although they were clearly stipulated in some by-laws and contracts
between the councils and the private revenue collection agents. Also, no penalties were imposed to
revenue collection agents who remitted less than the agreed amounts or remitted late.
Internal audit not addressing outsourced revenue collection problems

Few reports addressed outsourced revenue collection function. Internal auditors rarely reported on
revenue collection faced by agents problems.
Outsourced revenue collection inadequately monitored by higher authorities

No assessment was conducted by the Finance Section in the Local Government Management Service
Department (LGMSD) and PMO-RALG on the progress reports submitted by Councils on a quarterly
basis. The section only prepared and analyzed individual and consolidated reports that showed budget
versus actual collection. There is a need for the PMO-RALG to exercise its supervisory and control role
in ensuring that the Councils performance are up to acceptable standards.
Conclusion
Audit ndings lead to the conclusion that LGA do not plan properly before decision for outsourcing
the revenue collection function to private contractors is made. Procedures used to procure revenue
collection agents are not transparent and efciently done. Contracts between the Councils and the
revenue collection agents do not focus on safeguarding the interests of the Councils. Monitoring of
therevenue collection agents is not efciently conducted. Sanctions are inadequately regulated and
enforced. Periodic monitoring and evaluation by higher authorities (PMO-RALG/MoF) is not efciently
and effectively conducted.
Recommendations
Based on the audit ndings and conclusions, the audit recommends the following:
Council Directors are recommended to consider:

Proper planning before a decision on outsourcing the revenue collection function to private collectors
including proper examination of market conditions for the concerned activity.
Appropriate procurement process is followed to obtain a competitive successful bidder. This includes
well prepared standard tender documents, provision of enough time for bidders to submit their bids,
and proper evaluation process with qualied technical staff.
Contracts between councils and private revenue collector are properly prepared and managed to
safeguard the interests of the council.
vii
Performance of the revenue collection agent is closely monitored including submission of the
monthly, quarterly reports by the agents.
Sanctions are appropriately regulated and enforced.
For the central government and the Regional Administrative Secretary (RAS) ofces, it is recommended
that they provide technical support advice and the required leadership to the LGAs on the issues related
to revenue outsourcing.
PMO RALG is recommended to provide capacity building to Council staff and councillors to enable
proper management of the outsourced revenues. PMO-RALG is also recommended to demand reports
on outsourced revenue collection from LGAs for proper follow up and easy of evaluation of the Councils
performance.
The PMO-RALG in collaboration with the Public Procurement Regulatory Authority (PPRA) is
recommended to develop standard bidding documents and contract documents on outsourced
revenues in LGAs. This will bring consistency in the revenue collection operation of Local Government
Authorities.
For the Ministry of Finance it is recommended that it monitors the Councils own source of revenue and
evaluates the reports submitted by PMO-RALG and provide feedback to the Councils.
viii
CHAPTER ONE
INTRODUCTION
1.1 Background
Management of revenue collection is one of the Local Government Authorities (LGAs) crucial factors
for nancing provision of good services to the citizens. The LGAs capacity to raise revenue is important
for their nancial sustainability and ability to promote the well-being of their local communities. However,
according to LGAs nancial reports for the years 2005/2006 to 2008/2009, LGAs own source revenue
collection in Tanzania is generally less than 10 % of their resources spent and 3-5 % of the total revenues
spent in Tanzania. This is shown under section 2.1 below.
Many LGAs in Tanzania have reformed their revenue collection systems in order to improve these
activities. The reforms include mainly outsourcing of revenue collection. This represents an opportunity
for the LGAs to implement the much needed changes aiming at revenue enhancement and cost savings.
Revenue sources include taxes, licenses, permits, fees and charges2.
By 2000, most of the LGAs in Tanzania Mainland used the private sector to collect revenue on their
behalf. One of the reasons for that it was expected that outsourcing of revenue collection to private
collectors would have lead to a more predictable revenue stream for the Councils and also lower
administrative costs.
Another reason was to avoid the problem of political interference in revenue collection. Furthermore,
there was an assumption that revenue collection agents would be able to more easily re non-performing
or corrupt staff as compared to LGAs. However, the Councils experience is that these expectations
have not always been realized3.
According to a report issued by the Research on Poverty Alleviation (REPOA)4 one of the key issues
when outsourcing revenue collection is the assessment of the actual revenue potential for various tax
bases. Currently, this assessment by Councils is done mostly on an ad hoc basis, often based on the
previous years reported revenue collections. In addition, the assessments reected in the contracts are
in many cases outdated and do not reect changes over time of the revenue base.
Outsourcing revenue collection is considered to be more effective in increasing the rate of compliance.
When a contractor collects revenue, it becomes his or her daily activity and may develop skills on
how to improve compliance5. However, Councils have continuously experienced problems with private
collectors in complying with the terms of contract. This has also resulted in increased amount of revenue
not remitted by private collecting agents as shown in Table 1 below.
2 The primary function of tax is to raise revenues for LGAs, while local licenses and permits primary purpose is typically regulatory. The
revenues raised from these sources may exceed cost recovery. Local fees and charges are collected exclusively for cost recovery of the
provided service.
3 Research on Poverty Alleviation Special Paper No.09.28 of 2009
4 ibid.
5 Guideline for improvement of revenue performance in local authorities as issued by PMO-RALG
1
Table 1: Accumulated revenue not remitted by collecting agents

Year Revenue not remitted by Total no of councils
collecting agents in Million
(TShs.)
2006/2007 367 12
2007/2008 421 22
2008/2009 1,095 43
2009/2010 2,609 43
Source: NAOT Financial Audit reports
Table 1 above shows that the amount of outstanding revenue has increased parallel to the number of
Councils involved. The amount grew from TShs. 367 Million in 12 Councils in 2006/07 to TShs. 2,609
Million in 43 Councils in 2009/2010.
Based on the above problems, the Controller and Auditor General (CAG) of the National Audit Ofce of
Tanzania (NAOT) has decided to conduct a performance audit to assess whether the LGAs in Tanzania
Mainland efciently and effectively manage the outsourcing of revenue collection function to revenue
collection agents.
1.2 Audit Objective

The purpose of the audit was to determine whether outsourcing of revenue collection was efciently and
effectively managed by the LGAs and whether these processes were properly monitored and evaluated
by responsible higher authorities.
The audit specically focused on how LGAs plan before outsourcing (identication of needs and
conditions to outsource), procedures used by LGA to procure private collector, contract administration,
sanctions in place and their enforcement and lastly the monitoring and evaluation conducted by central
government.
The audit work was designed by using ve audit questions as presented below concerning LGAs
management and central government authorities monitoring and evaluation (M&E) of revenue collection.
Central government authorities are mainly the Prime Ministers Ofce Regional Administration and
Local Government (PMO-RALG) and Ministry of Finance (MoF). More detailed sub questions are linked
to these ve audit questions and presented in Appendix 1.
Question 1: Do the councils make proper plans before outsourcing the revenue collection
function to private contractors?
Question 2: Are the procedures used to procure revenue collection agents properly
implemented?
Question 3: Does the preparation of contracts safeguard the interest of the councils?
Question 4: Is implementation of the contracts and the collectors performance efficiently

managed by the councils?
Question 5: Do the higher government authorities (PMO-RALG/MoF) efficiently conduct
periodic monitoring and evaluation?
2
1.3 Audit design
1.3.1 Scope and limitation

The audit covered an examination period of three years activities during 2007/20082009/2010.
Various sources of revenue were selected for examination namely: market and parking fees, crop cess,
billboard, livestock fees and hotel (guest house) levy. These sources represent the highest number of
the councils outsourced revenues. The outsourcing activities were examined in 14 councils to cover/
represent various categories such as cities, municipals, towns and districts. The cities were Mwanza CC
and Tanga CC; The municipals include Arusha and Tabora MC; The town councils include Kibaha TC,
Mpanda TC, Njombe TC and The District Councils were Bagamoyo DC, Igunga DC, Meru DC, Misungwi
DC, Mpanda DC, Nkasi DC, and Mundi DC. These represent 11 percent of the total number of 133
Councils in Tanzania Mainland which we consider a fair sample for the purpose of this assignment.
1.3.2 Methods and Implementation

Various methods of gathering data and information such as documentary reviews, interviews, physical
observation and focus group discussions have been used in the conduct of this audit.
The management and performance of the outsourcing of revenue collection function was studied
through documentary reviews and interviews at central authorities and the LGAs. Also, the audit team
visited revenue collection points (markets, bus stand, auctions) to observe collection of various sources.
Information/data collected was qualitatively and quantitatively analysed based on simple statistical
analysis.
Various documents were reviewed in order to get a comprehensive, relevant and reliable picture of the
activities concerning outsourcing revenue collection conducted by the LGAs. Documents reviewed were
the Councils strategic plans, Local Government Finance laws, advertisements based on outsourcing
issues, bid documents submitted by revenue collectors, tender documents, evaluation reports for
procuring revenue collection agents, contracts, by laws, Councils internal audit reports and councils
performance reports submitted to PMO-RALG and MoF6.
A number of interviews were also conducted in the 14 visited councils and ministries mainly to conrm
or explain information from the documents reviewed. Structured as well as open ended Interviews
were used by the audit team. Interviews were conducted to give clues to relevant information where
information in the formal documents was unclear or missing. Interviews were also conducted in order
to obtain context and additional perspectives in addition to the picture obtained from documents.
Interviews and discussions were carried out with representatives of Councils senior staff ofcials.
Procurement specialists in the Councils were interviewed as they are the key players in the procurement
process of service provider (private collectors). Legal Ofcers provided legal advice, technical ofcers in
Agriculture, Livestock and Business ofcers of the Councils provided statistical estimates of the revenue
source database. The Revenue Accountant who is responsible for the collection of councils revenue
was also interviewed.
Revenue collection agents were also interviewed to get an understanding on how they were operating.
These were obtained based on their availability when the audit team visited the collection points Revenue
payers available in the collection points were also interviewed to obtain their views on the service of the
private collector and councils. PMO-RALG ofcials were also interviewed to get an understanding on
how they monitor and evaluate councils operations.
6 For more details of documents reviewed refer Appendix Two
3
Other interviews were conducted with Non Governmental Organisation and Community Based
Organizations (NGOs & CBOs) that had conducted various studies on the same theme. They include
Research on Poverty Alleviation (REPOA) and Economic and Social Research Foundation (ESRF). The
objective was to get an exposure on the subject matter under the audit.
The audit team also conducted a physical observation by visiting three kinds of revenue collection
points outsourced to the private sector. The team physically collected two days statistics of vehicles
using Kibaha bus stand and Bagamoyo bus stand. The objective was to come up with the average
daily estimates of vehicles which use the bus stands and required amount to be collected. Also, on
the average the audit team visited markets outsourced in the visited Councils to obtain revenue base.
Other observations were on a sample of billboards to ascertain whether Councils had appropriate
measurements in the councils billboards register.
Focus group discussions were conducted by the audit team. The purpose was to gain knowledge
about management of outsourced revenue collection activities by interviewing groups of people directly
affected by the issue. The group discussions aimed at exploring more regarding subject under audit. It
helped also to understand differences in perspectives as there were various stakeholders as shown in
Appendix 9. Furthermore, the discussions facilitated testing of preliminary audit ndings with participants
and capture their opinions.
1.3.3 Assessment criteria
Planning for outsourcing

By conducting feasibility studies, the Councils planning for outsourcing should ensure that two main
conditions for outsourcing are in place. One condition is that the outsourcing of an activity realizes
value for money for the Council. Another condition is that the council has capacity for procurement,
monitoring and follow up of the outsourced activities.
The contract also should state some ethical standards and other guidance to safeguard the councils
interest for outsourced activities and support the changed role from operator to monitor. In addition, the
procuring entity should present a risk management plan, to ensure that the outsourced activity poses
very low risk on the part of the Council.
Feasibility studies should, according to regulations, be conducted before making decisions on

outsourcing. It should precede project implementation. Decision on the feasibility study concerns
assessment of the required costs for the activity to be outsourced against value to be attained. Objectively
and rationally uncover strengths and weaknesses of the existing business or proposed venture. It scans
opportunities and threats as presented by the environment against resources required. As part of the
study, conducting of the historical background of the business or project by the Council is of important.
Description of the product or service to be outsourced includes analysis of the accounting statements,
details of the operations and management of the activity to be outsourced, marketing research of the
potential contractors, analysis of the nancial data (cash ows), legal requirements and tax obligations.
Procurement process
The Councils procedures for procurement should be competitive in order to acquire best bidders in
the market for the intended assignments. This implies open tendering procedures with established
evaluation criteria for the Councils assessment of the submitted bids. It also implies sufcient bidding
time 30 days7 for potential bidders to prepare and submit their bid documents to the Councils.
7 National competitive bidding standard procurement processing time as stipulated under 3rd Schedule of the PPR 2005 G.N. No. 97
4
Preparation of contracts
The contracts should safeguard the Councils interests and clearly state the agreements between the
Council and the contractor. The contracts should require a proper accounting of collected revenue based
on receipts from tax/fee payers, payment as percentage of collected money and monthly presentation
of nancial and operational reports. The contracts should also imply applicable laws or regulations in
case of conict between the council and the collector.
Implementation of the contracts and performance of the private collectors

A system should be in place for the Councils monitoring, enforcement and evaluation of the contracts
implementation and the private collectors performance.
Monitoring activities should cover three main issues. One is checking of an evidenced account of the
collected revenue compared to the remitted revenue in accordance with the contract. Another one is
follow up of monthly nancial and operational reports provided by the collectors. A third one is planned
inspections of the collectors performance.
Sanctions should be clearly stated and regulated in the contracts and put in use for enforcement of the
contract conditions if these are violated by the contractors.
Evaluations of the system for outsourcing revenue collection should be conducted by the Councils in
order to determine the overall cost for administration of the system and the performance.
Actions taken by higher authorities

Authorities at higher regional and central government levels should exercise two main activities for the
LGAs system with outsourcing of revenue collection. One activity is monitoring and evaluation of the
system for outsourcing of activities. The other activity is service and technical support to safeguard the
Councils interest of LGAs service delivery.
1.4 Data validation process

The PMO-RALG and visited Councils were given an opportunity by the Audit Team to go through the
draft report. They conrmed the accuracy of the information presented in this report.
The audit was conducted in accordance with the International Organization of Supreme Audit Institutions
(INTOSAI) performance auditing standards8. Those standards require the audit team to plan and perform
the audit to obtain sufcient and appropriate evidence to provide a reasonable basis for ndings and
conclusions based on audit objective(s). The audit team believes the evidence obtained provides a
reasonable basis for the ndings and conclusions based on the audit objective.
1.5 Structure of the audit report

Beyond the introductory chapter, this report consists of six chapters.
In chapter 2, a description of the audit area and key actors is presented.
In chapter 3, the management of activities at LGA level where ndings are presented covering
planning of outsourcing function, procurement of revenue collection agents, safeguarding of
contracts as well as monitoring, evaluation and use of sanctions.
In chapter 4, management of activities by higher governments authorities is presented.
In Chapter 5, conclusions are provided; and
In chapter 6, the recommendations to be considered by key actors in order to improve the situation
are narrated.
8 INTOSAIs standards require sufcient and appropriate evidence obtained by planning and performing of the audit as a reasonable
basis for ndings, conclusions and recommendations
5
6
CHAPTER TWO
MANAGEMENT SYSTEM FOR OUTSOURCED REVENUE
COLLECTION ACTIVITIES
2.1 Introduction
Outsourcing of revenue collection function is one of many initiatives in the new Public Private Partnership
(PPP) Policy in Tanzania. The main objective of these policy reforms is better service to the citizens
through combined efforts from the public and the private sectors and other stakeholders.
Outsourcing of service delivery to the private sector became a more common practice in Tanzania in the
mid 1980s. Revenue collection was among the activities outsourced by the LGAs.
For different categories of the Councils, it was more common with outsourcing of different kinds of
revenue. For district Councils it was more common with collection of market fees and produce cess.
For municipal Councils it was more common with outsourcing of livestock and bus stand fees. For city
Councils, it was more with outsourcing of bus stand fee, billboard and parking fees, while for town
councils it was more common with outsourcing of hotel (guest houses) levy and bus stand fees. The
study covers all four categories of councils.
Local government revenue is of importance for public resources spent at the local level9 where it
corresponds to 10-20 % while local government grants account for over 80 %.10 But related to the total
revenue collected by both central and local authorities, the Local Government Revenue represents only
about 3-5 % of the total revenues collected. This means that one out of every ve Tanzanian Shillings
spent in the public sector is spent at the local government level11.
The analysis of actual revenue collection from own source is presented as a percentage of total revenue
as shown in table 2.
Table 2: Actual revenue collection as a percentage of total revenue

2005/06 2006/07 2007/08 2008/09 2009/10
Own source Revenue 7.2% 8.5% 9.2% 8% 7.5%
Other (intergovernmental transfers 92.8% 91.5% 90.8% 92% 92.5%
and Local Borrowing
Total 100 100 100 100 100
Source: LGAs consolidated financial audit report issued by NAOT
Table 2 shows that a percentage of own source revenue to total LGAs revenue is very minimal. For LGAs
to be able to increase their revenue collections and be sustainable, own sources of revenue should be
properly managed. According to LGAs reform, participation of the private sector in the collection of
revenue - though not guaranteed - is assumed to be one way of enhancing LGAs revenue collection.
9 The main sources include local taxes and local non-tax sources
10 Ngowi (2011 - forthcoming)
11 www.logintanzania.net
7
2.2 Changed conditions for responsible authorities

Outsourcing of revenue collection as well as other outsourced activities implies changed conditions
for management of the activities. The responsible authorities at operative level, the LGAs, get a new role
with new tasks and this comes also for responsible authorities at higher government level.
Before a decision on outsourcing of an activity here revenue collection is made, the responsible
authorities, LGAs, have to conduct a proper planning as conditions for outsourcing. These conditions
include examination of a competitive market for the concerned activity. Questions that have to be
addressed are for instance: Is there a market for this issue with alternative and competing service
providers? Are the functions to be outsourced sustainable enough to compete on the market? Conditions
for outsourcing also include a new role for the LGA. That is they now become regulators, procurers and
inspectors instead of service providers. The new roles also set new ethical standards for LGA in order
to safeguard public interest12.
However, a decision for outsourcing has to be preceded by an examination of whether required

conditions for outsourcing are in place and also needs to adapt existing policy and regulation as well as
information available for monitoring and evaluation of the changed performance.
Once a decision of outsourcing is taken, the LGAs are responsible for a proper procurement and
management of the private collectors. This implies invitation of potential bidders in an open and
transparent procurement procedures and allowing for suitable time for bidding with fair competition
between invited bidders. Evaluation of the bids has to be conducted with predictable criteria and
contracts have to be established with clear conditions for both parties.
When the contract is established, the LGAs will be in charge of the new roles with a continuous
monitoring and evaluation of running procedures and also checking on how the procured revenue
collector runs his/her activities.
Authorities at higher government levels will be in charge of two roles with the outsourcing reforms. One
role is to support the LGAs management in the procurement process and another role is to safeguard
the public interest by evaluating the LGAs management on these activities.
Powers for LGAs to raise their own revenue are provided for by the Local Government Finances Act
No.9 of 1982 (as amended). In utilizing such legal provisions, LGAs enact by-laws on the basis of
which they can levy taxes, licenses, fees and charges. On the other hand, the Minister responsible for
local government may impose rating rolls or procedures limiting the Authoritys powers of taxation. In
principle, no local government revenue generation is allowed without referring to the law.
2.3 Government policies and regulations

The system for outsourcing revenue collection activities is governed by various established policies,
laws and regulations as follows:
2.3.1 Outsourcing policies

In order to make outsourcing a success, capacity to package service properly is required within the
Local Authorities. Application of proper, efcient and transparent tendering procedures is required13.
12 Regulation 74 of PPR 2005, G.N. No. 97

13 Regulation 63 of PPR 2005, G.N. No. 97
8
Also LGAs need to have a capacity to regulate and monitor performance14 of the revenue collection
outsourced activities
2.3.2 Laws and regulations

The procurement of the revenue collection agents is governed by the public procurement laws15. The law
requires the LGAs to establish Tender Boards and Procurement Management Units within the Council
as management instruments for the control and handling of the procurement proceedings under the
responsibility of the Council Director. The Council Director is responsible to the Council through the
Finance Committee.
2.4 Organization and actors for revenue collection

There are several actors in the whole process of outsourcing revenue collection in LGAs. These are
categorised at Council, regional and central government levels as follows:
2.4.1 Council level

Council Director16 (CD)
The CDs have the overall responsibility for the collection of revenue and are completely separated from
the Central Government. The CDs decide on outsourcing the collection function to private agents.
The CDs are responsible to ensure that there is proper management of the contracts entered with the
procured revenue collection agents.
Council management
The Councils management have the role of ensuring that they plans, organizes, controls and direct
revenue collection activities in their area of jurisdiction17. The management sets revenue targets and
determines a course of action for achieving those targets. Organization is the function of management
that involves developing an organizational structure and allocating human resources to ensure the
accomplishment of objectives.
Department of Finance in revenue section (Under CD)

The departments of nance have the primary role of providing nancial oversight for the LGAs. They are
also responsible for the development of the councils annual budget with the council staff, and they also
approve and monitor its implementation. Within this department, there is a Revenue Accountant and
Council Treasurer.
Contract (Project) manager

The contract manager has the overall responsibility for the day to day supervision of the implementation
of the contracts with the revenue collection agents. This includes monitoring contract performance
and report at service/business outcome level as is appropriate. He/She is also responsible for providing
periodical performance reports.
Revenue collection agents (Contractors)

These are engaged in collecting revenue on behalf of the Councils on agreed terms and conditions. As
a general requirement of the nance laws, the revenue collection agents have the following duties:
furnish in writing, to the local government authorities concerned, a nominal roll of all ratable persons
in the area he/she has been appointed,
14 Regulation 121 and 123 of PPR 2005, G.N. No. 97
15 Public Procurement Act No. 21 of 2004
16 Refers to City Director, Municipal Director, Town Director and District Director
17 The management functions of planning, organizing, leading, and controlling are widely considered to be the best means of describing
the managers job ( http://www.web-books.com/eLibrary/NC/B0/B58/005MB58.html - 13.08.2011)
9
collect and receive tax/fee from each person liable for the payment of the rates,
use receipt books obtained from the Council in collecting the revenue and to monthly provide the
Councils with nancial and operational reports,
pay (remit) all amounts so collected to the local government authority within the stipulated time
frame,
Report to the local government authority concerned, the name of any person who fails to pay the
amount due from him.
Revenue collection agents are required to use receipts obtained from the Council and return the receipt
books once nished for verication and control purposes. Similarly, the revenue collection agents are
also required to furnish monthly performance reports to the Councils. These contracts should require
the revenue collection agents to keep and maintain proper records and books of account in respect of
revenue collection and shall upon request furnish the principal with monthly nancial and operational
reports.
2.4.2 At Regional level

The Regional Secretariat (RS) is headed by the Regional Administrative Secretary (RAS) in every region.
RS is an extended arm of the Prime Ministers Ofce Regional Administration and Local Government
(PMO-RALG) and the Ministry of Finance (MoF) at the central level. RS provides supportive supervision,
assesses Council plans as well as their implementation reports (technical and nancial reports), monitors
and evaluates the Councils and advises them accordingly. RS also provides the central government
level with information on the LGAs for decision making.
Local Government Management Service (LGMS)

The LGMS has the responsibility of coordinating all councils in the region in the issues of administration,
nances, inspection as well as issues regarding Councils own revenue sources. Technical staff within
the section have responsibilities for the provision of expertise in planning, coordination and statistics
management in the region.
2.4.3 Activities at Central Government level

The Prime Ministers Ofce Regional Administration and Local Government (PMO-RALG) has the overall
responsibility for nancial management of LGAs18. The PMO-RALG has the following responsibilities
over LGAs:
Issue local budget guidelines, procedures and instructions and develop local budgets
Provide technical support and capacity building
Monitor local revenue collection (receive quarterly performance reports through RAS, conduct
routine and ad hoc inspections19, and audit local government budgets)
The Ministry of Finance (MoF) has the following responsibilities related to revenue in the country:
Manages the overall revenue, expenditure and nancing of the Government
Provides the Government with advices in relation to the budget process of the government at both
levels.
The Tanzania Revenue Authority (TRA) under the MoF has the following roles
Administers the countrys tax laws
Assesses, collects and accounts for major taxes at the government central level
Manages directly and indirectly revenue collected by any central actor for the Government.
18 The Local Government Finances Act of 1982
19 LGA inspection is a management tool for both local and central Government players whose objective is to provide the LGAs with
constructive recommendations and information that would enable them to better meet their obligations and objectives.
10
The procurement role is regulated by the Public Procurement Regulatory Authority (PPRA) whose main
functions among others include:
Prescribes regulations, guidelines and procedures for public procurements.
Monitors procurement by public sector agencies/organizations.
Summary of System Organisation

The institutional framework for management of the outsourced revenue collection agents can be
summarised as shown in Figure 1.
Figure 1: System Graph Outsourcing revenue collection function
Source: Audit Findings
11
2.5 Steps and procedures at large
2.5.1 Collecting revenue

The procedure used in collecting revenue in the Councils is as shown in Figure 2 below:
Figure 2: Flow of revenue collection activities as organized in LGAs
Source: Audit findings
The Figure above shows that LGAs are responsible for estimating the overall amount needed to be
generated, means of collection and how to regulate performance of the collector. Likewise, private
collectors have the responsibility of collecting and reporting to the Council (principal).
12
2.5.2 Procurement of private collectors

The procedure for engaging collection agents has a number of steps to be conducted. These are
summarized below:
Figure 3: Flow of activities to procure revenue collection agents in LGAs
Source: Audit findings
Figure 3 above shows that identication of the need to outsource should be established by the Councils
justied by a feasibility study. Outsourcing decision requires Councils to solicit for collection agent with
the focus of safeguarding public interest. This can be achieved through proper conditions stated in
the contracts and a proper monitoring and follow up of these conditions. Overall assessment of the
outsourced activity conducted by evaluation is of importance to determine the cost against benet
obtained.
2.5.3 Preparation of contracts in the Councils

The responsibility for the preparation of bid documents which includes sample of the contract to be
entered with successful bidder rests with the head of the procurement units of the respective Councils.
The sample contract enables prospective bidders to be informed about the general and specic clauses
of the contract before deciding to compete for the task.
13
The contracts are (or should be) important tools in illustrating what is agreed on between the Councils
and the contractors. The Councils awareness and responsibility to safeguard the Councils (and the
public) interest should be reected in the conditions of the contract. The Councils use of sanctions
must be based on clauses with agreements in the contracts. The contracts is thus serve as important
tools for monitoring and inspections of private collector performance.
Legal ofcers of LGAs as technical staff have the responsibility of providing advice in the preparation
of contracts with the assistance of the subject matter technical staff depending on the source to be
outsourced.
2.5.4 LGAs monitoring capacity for collectors performance

According to PPR, before outsourcing the revenue collection activity, Councils are required to ensure
that they have the expertise within the Council to proceed with outsourcing activity. This is based on the
fact that Councils has ceased to perform the collection role and has become supervisors/managers of
the contractors.
Monitoring and managing contractors performance should be a priority when the value and the risks
associated with the procurement are high. Having competent experts relevant to the sources to be
outsourced at the councils would ensure that councils can manage and monitor the performance of the
private agents during the contract period.
2.5.5 Managing the contract

Managing contracts involves tasks from creation to the end of the contracts lifecycle. It starts with
the procurement planning and ends up in the evaluation and the contract negotiation. The Councils
management have the overall responsibility for an effective management of the contract where contract
administration is one of the key broad areas20.
20 Regulation 121 and 123 of PPR 2005, G.N. No. 97
14
CHAPTER THREE
MANAGEMENT OF ACTIVITIES AT
LOCAL GOVERNMENTS AUTHORITIES

In this chapter ndings of activities at local government level are presented. The presentation is based
on examination of 14 Local Government Authorities (LGAs). The presentation addresses four items of
importance for an efcient management of governmental activities outsourced to private agents. These
items are linked to the audit questions concerning the LGAs in this audit and related to the following
aspects:
Planning before outsourcing revenue collection
Procurement of revenue collection agent
Preparation of contracts
Implementation of the contracts and the collectors performance.
3.1 Planning before outsourcing

Proper planning for making decisions on outsourcing of revenue collection implies good preparation
of the decision on outsourcing. This is done by conducting feasibility studies covering the Councils
assessment of the value of outsourcing and of their capacity to manage the outsourced activities.
Proper planning also includes an assessment of conditions for outsourcing (as presented in chapter 2.2)
as well as the associated risks with outsourcing and how to manage them.
3.1.1 Inadequate feasibility study conducted by Councils
Decision on outsourcing not properly prepared

None of the 14 examined Councils had conducted proper feasibility studies before deciding to outsource
any of their revenue collection. Thus, the actual conditions for a proper implementation of outsourced
activities were not clearly identied. The main reason for this situation was, according to interviews with
Councils staff, lack of awareness on the importance of feasibility studies and their preparation21 before
deciding on outsourcing the revenue collection function.
3.1.2 Councils capacity to monitor the revenue collectors performance not adequately
conducted
A change of role from executor to regulator and inspector requires preparation before decisions are
made. This includes assessment of market conditions for the outsourced activity as well as the Councils
competence in managing the new role and existence of ethical standards required to safeguard the
public interest.
However, the visited Councils did not make any assessment of conditions for a potential market for
outsourcing of the revenue collection function. In addition, no specic person has been identied to
assume the new role. Revenue Accountant is the one responsible for administering the private revenue
collector. This is done through the collection of revenues remitted by the revenue collection agents.
However, most of the Revenue Accountants are not familiar with the contract clauses and therefore
are not very effective in contributing in supervising revenue collection by outsourced revenue collection
agents. This is because contracts are under the councils legal ofcer who is also the custodian.
21 LGAs must conduct feasibility study to make sure the outsourcing of the activity will realize the value for money on the part of the
council(PPR 2005 Regulation 74(4)
15
Moreover, according to the interview with Council ofcials, one major role for the Council Trade Ofcer is
to supervise and monitor revenue collection agents. But this duty is not performed as required. According
to interviews with Council ofcials, daily performance supervision of revenue collection agents would
disturb them as the collectors are only required to remit the agreed amount on the specied time frame.
Ethical standards not sufficiently incorporated in the contracts

In order to safeguard and act on behalf of the Councils interests, documented ethical standards are
required while engaging a private revenue collector. But this is not the case in the visited Councils.
Only 35 contracts (37%) among 95 contracts reviewed mentioned about ethical issues. LGAs lack
documented ethical standards in dealing with outsourced activities regardless of the presence of
the Ethics Committee in the Councils. The audit team observed that neither of the LGAs had any
documented guidance for monitoring, supervision or evaluation of the outsourced activities.
However, according to best practice guidelines for evaluation, the evaluation of the private revenue
collection agents is important in a result oriented environment. It provides feedback on the efciency,
effectiveness and overall performance of public policies and could be critical to policy improvement and
innovation. It also contributes to governance accountability22.
3.1.3 Lacking risk assessment with outsourcing

Before making an agreement with any private revenue collection agents, the procuring entity is required
to present a risk management plan in order to ensure that the outsourced activity poses low risk on the
part of the Council. However, the performance audit team could not nd any document conrming the
existence of any such plan. Different kinds of risks were raised during the interviews conducted with
Councils management staff. The exemplied risks are illustrated in table 3 below:
Table 3: Analysis of risks assessed by Councils

S/N Risk associated with Number of Councils
1. Tax payers1 5
2. Private Collector2 14
3 Councils ofcials3 1
4 Other4 13
Source: Interview with Councils official23
According to interviews with Council ofcials the same kind of risks have been experienced year after
year, yet Councils do not have strategies in place on how to overcome these risks before outsourcing.
This is because of lack of awareness and knowledge on the importance of conducting risk assessment
before outsourcing.
3.2 Procurement of Revenue Collection Agents

Once there is a decision on outsourcing of revenue collection, proper implementation of the procurement
procedures is of great importance. Councils procedures for procuring revenue collectors need to be
open and competitive in order to acquire the best bidders in the market. Equally important, is evaluation
criteria established by the Council for assessment of the submitted bids clearly and openly are
presented in the tendering document.
22 PUMA Policy Brief No. 5 best practice guidelines for evaluation Public Management Service May 1998
23 For more detail please refer to appendix three
16
Similarly, potential bidders need to be given sufcient time 30 days to prepare their bid documents
and submit them to the Councils for further processing. However, the study found the following:
3.2.1 Lack of open competition between potential bidders

To ensure the widest possible participation in the process of acquiring private collectors, publication
of invitation of tender must be published in the Council journal or website, local newspapers with wide
circulation and/or any appropriate media outlet24. However, this is not always the case. A review of 98
tenders showed the following modes used in publishing the results of the procurement process:
Table 4: Modes of advertising revenue collection tender

Mode of Publication Number of Tender
Publication in one News Paper and Notice Board 55 tenders
Publication in two News Paper 0
Publication in Notice Board only 43 tenders
Total 98 tenders
Source: Councils Evaluation report
Table 4 shows that close to half of the published tenders are advertised only on Councils notice boards.
This limits many potential bidders to access the information. Tender announcements were not accessed
adequately by potential bidders which limited the eld of potential bidders and reduced competition.
This was because - according to interviews held with councils ofcials - newspapers were normally not
received timely. It took two days for citizens to get current newspapers. Based on that, many Councils
decided to advertise through notice boards within the Councils25.
3.2.2 Inadequate information to potential bidders

To provide an open, fair and competitive procurement procedure, conditions for procurement as well
as criteria for evaluation of bids have to be explicitly stated in the tendering documents and also be
included in the advertisement.
This was not the case for most of the reviewed tenders. For 111 out of 142 tenders evaluated, evaluation
criteria were not stated in the advertisements. This might result into Councils receiving more bids from
incapable bidders. Similarly, potential revenue collection agents might lose the tender on the basis of
criteria not stated initially. The use of criteria not advertised may favour few bidders or end up awarding
contracts to unqualied revenue collectors.
In addition, Councils rarely use standardized bid documents with clear information on required
documents. The Procurement Management Unit is responsible for the preparation and issue of the
bidding document.
Reviewing of the revenue collection tender advertisement shows that just four out of the 14 visited
Councils had clearly stated that prospective bidders were required to obtain bid documents from the
Council26. Other Councils stated that prospective bidders were required to pay a certain non-refundable
amount without clearly stating the amount in the document.
24 PPA 2004 section 61, PPR 2005 Regulation 9, 26, 27

25 This was observed in Nkasi DC, Mpanda DC, and Mpanda TC.
26 The said four councils are Mundi DC, Mpanda TC, Arusha MC and Kibaha TC
17
The main reasons for not issuing a standard bid document as given by the Procurement Management
Unit staff was that all necessary information is included in the advertisement, hence no need to issue a
bid document. According to interviews with staff from the Procurement Management Unit in the visited
councils, preparation of bid document would require them to sell it for Tshs. 50,000 per document while
the amount to be generated is very small. For that reason, bidders were required to pay non -refundable
amount of only Tshs. 20,000 without being given bid document.
Similarly, for those councils that issued bid documents, sample of contracts that would be entered
between LGAs and successful bidder was missing. Sample contracts would enable the prospective
bidder to be aware of the general and specic conditions of the contract. According to interview with
procurement management unit staff sample contract was not included because they were not aware
that it was part of the bid document27.
3.2.3 Insufficient time to prepare bids

The audit team reviewed 98 bids issued to analyse whether sufcient time (30 days) was given to
potential bidders by the Council so as to have wide participation of bidders and also, to give bidders
ample time to prepare their bids i.e. conducting their own feasibility study. The following was average
time provided:
Table 5: Analysis of time given to prospective bidders

Average No. of Days Number of Bids
No time frame 1 tender
Less than 30 43 tenders
30 27 tenders5
More than 30 27 tenders
Total 98 tenders
Source: Tender advertisements
The table shows a wide spread result of bidding time. While one tender did not have time frame at all,
close to half of the tenders provided the bidders with less than 30 days to prepare and submit their bids.
Lack of adequate time to potential bidders to prepare and submit their bid documents may make it
difcult for a potential bidder to conduct appropriate feasibility study before submitting his tender. This
may result into over ambitious bids or engagement of unqualied revenue collection agents.
3.3 Management of outsourced revenue collection contracts

The contract is an important illustration of what is agreed on between the Councils and the contractors
in order to safeguard the Councils estimates. The contracts are also an important tool for monitoring
and inspecting revenue collection agents performance and for use of sanctions in case of violation of
the contract conditions.
27 All councils except Mwanza CC, Misungwi DC claimed that they did not nd the importance of attaching sample of contract in a bid
document.
18
3.3.1 Contracts not always prepared by technical staff

The head of the Procurement Management Unit is required under PPR GN 97 of 2005 to prepare bid
document which includes among others a sample of contracts that Councils will enter with a successful
bidder. Legal ofcer as a technical staff is required to provide advice on prepared contracts with the
assistance of the subject matter technical staff depending on the source to be outsourced. However,
reviewed contracts revealed some weaknesses as shown under section 3.3.2 which gives an impression
that the technical staff were not involved as expected.
3.3.2 Contracts do not always safeguard public interest

A review of the contracts entered with revenue collection agents revealed weaknesses as follows:
97 out of 98 contracts did not have clauses that require a proper accountability of the collected revenue.
Thus, those Councils did not know how much was collected. Most of contracts, except one, have got
provisions for xed sum which is to be paid by the agency to the council instead of percentage collected.
Most of the contracts28 do not have clauses for the application of law in case of conict. This is a very
important provision which has to be included in the contracts.
Contracts used are not based on the standard document and provided by PPRA
3.3.3 Terms and conditions of the contracts not adequately implemented by both parties
Contract implementation requires both parties to observe terms and conditions of the contracts. Among
the terms and conditions which legally bind the Councils and the revenue collection agents are such as:
the private revenue collectors have to, upon request, provide the Councils with monthly nancial and
operational reports in order to observe the trend of revenue collection.
Councils must conduct ad hoc inspections and routine inspections to the revenue collection agents
to know how they conduct their activities
Councils must implement sanctions against defaults in the implementation of contract requirements.
However, the audit revealed that terms and conditions of the contracts have not been adequately
implemented by both parties. The revenue collection agents were not asked by the Councils to submit
operational reports as required by the contract. Also, it was revealed that routine inspections were not
conducted by the council as required by the contracts. The Councils only conduct ad hoc inspections
in very limited bases and whenever the agents failed to remit the agreed amounts on time. Inspections
are rarely conducted when the agents remit the xed agreed amounts in time.
3.3.4 No specific person (team) appointed to supervise contract implementation

As explained in section 2.4.1, the Contract Manager has a signicant role in the management of the
private revenue collectors performance. Similarly, the Local Authority Financial Memorandum of 1997
under Order 281 requires the Council Director to appoint a Contracts Ofcer to be specically responsible
for the management of each contract and the monitoring of contractors performance.
However, among the 14 Councils visited, the audit found out that Revenue Accountant was responsible
in the issues of outsourced revenue collection after the private revenue collector had been awarded the
work. This has been a normal practice simply because the person designated as Revenue Accountant
is automatically assigned all revenue issues. There is no specic team chosen by the Council Director to
closely supervise the agents performance as is required through Order No. 281 of the Local Authority
Financial Memorandum of 1997.
28 Contracts were reviewed by the audit team with the assistance from legal department in the audit ofce.
19
3.4 Monitoring and follow up of contracts and collectors performance

Councils need an established system for monitoring and evaluation of the revenue collectors performance
to ensure that the Councils interests are safeguarded. This implies checking of the revenue collectors
reporting to the Councils. It also implies monitoring and evaluation of the contracts and the collectors
performance as well as enforcing sanctions when conditions in the contracts are violated. Under this
case, ndings show that:
3.4.1 Inadequate control of collection agents records

One important part of the Councils monitoring is a proper accountability of the collectors collected
amount of revenue. With this purpose the collectors are required to use receipts obtained from the
Councils and to monthly furnish the Councils with nancial and operational reports.
However, this was not always the case. In two of the 14 visited Councils, the collectors used their
own receipts for collection of parking fees and billboards, which collected big amounts29. According to
interviews with the Revenue Accountants in the visited Councils, the revenue collection agents returned
used revenue receipt books to the Councils. But a reliable assessment of the actual collected amount
could not be based on the receipts in cases where the agents used their own receipt books.
In addition, Councils do not keep updated taxpayers register. Only in one of the 14 visited Councils, the
audit team found a register of revenue collection which was outdated30. Other Councils did not maintain
any register at all.
This resulted in a situation where the Councils did not have any access to proper information on the
amount of revenue that was collected. The Councils have to rely on the private collectors own information.
3.4.2 Poor monitoring and no specific person appointed for supervision

Contracts should be closely monitored to ensure that Councils benet from whatever has been agreed
as for the contract terms. This can be done through an appointed Contract Manager whose main
responsibility will be to ensure that the Councils can manage and monitor the performance of the private
revenue collection agents during the contract period.
The contracts provide that the MC/DC can appoint any servant to supervise the collection agent. In
principal good practice requires the Accounting Ofcer (Council Director) to appoint a specic person to
supervise the implementation of the contract in collaboration with the relevant departments or teams.
The proposed team may consist of ofcers from Council Treasurer, business and technical department.
However, this practice has not been adapted. In the visited 14 Councils no specic person was identied
for the role as a Contract Manager or administrator. All contracts do not have a contact person from the
MC/DC to closely supervise the conduct of the Agent. The Revenue Accountant, who by implication
administers the contract, has the role of supervising all revenue sources of the Council. This includes
and is restricted to preparation and checking of the daily/weekly/monthly remittances of revenue
reports by the collection agent as per agreement31.
29 Arusha MC collector used his own receipts on parking fees, and Tanga CC collector used his receipts on billboards.
30 Arusha MC maintained a register of Billboards customer but it was not current. Other council namely Mwanza CC, Tanga CC
outsourced billboard revenue collection but did not maintained a register. Similarly Tabora MC and Igunga DC outsourced hotel levy r
evenue collection but did not also maintain a register.
31 For all 14 visited councils, revenue accountant interviewed were observed to deal with revenue collection issues.
20
3.4.3 Inadequate reporting to concerned Councils by revenue collectors

Implementation requirements of the contracts are stipulated in the contract agreement between the
parties. For good practice, contractors have to, upon request, provide the Council (principal) with
monthly nancial and operational reports in order to observe the trend of revenue collection.
Interviews conducted with the private collectors32 revealed that they were not asked to submit any
reports to the Council. They claimed that they were only required to remit the agreed amount in time.
The audit team on the other hand, was able to obtain only one report from 2009. This was provided
by one collector to the Council of Bagamoyo DC33. It was a 4 month report about implementation of
revenue collection enhancement. In the report the collector asked the Council to assist in implementing
issues/weaknesses on Councils revenue activities.
However, neither report had been submitted by the private collector in the 98 contracts reviewed nor
any evidence that the Councils Revenue Accountant had accessed private collectors records.
3.4.4 No routine based inspections and few actions taken by the Councils
A system for planned inspections is of importance for the Councils so as to enable them to trace and
identify weaknesses and problems that have to be addressed and corrected.
According to interview with Councils ofcials, routine or planned inspections are not conducted.
Inspections are just done on ad hoc basis and are not conducted where the collection agents remit the
agreed amount of revenue on time. Even when the agreed amount of revenue was remitted regardless
of time, no inspections have been conducted. According to the Councils ofcials, this is due to lack of
enough staff to conduct the inspections.
Inspections are carried out when there are complaints from the agent or from the revenue payers.
Inspections are also conducted on ad-hoc basis when the collection agent requests for a reduction of
the monthly remittance.
In addition, some contracts between the Councils and the engaged revenue collection agents provide a
room for reviewing the amount to be remitted by the collectors. In 24 out of 98 examined contracts the
councils allowed reviewing of the amount to be remitted. If the Council decided to review the amount to
be remitted, then an evaluation had to be conducted. This evaluation is supposed to include inspection
of private collectors activities as well as the cost against benets for the engagement of the private
revenue collector. However, the audit team established no evaluation has been conducted to form a
basis for reviewing.
3.4.5 Sanctions are not adequately incorporated in the contracts and councils by laws
A set up system of sanctions is the Councils tool to enforce the agreements in the contract in cases
when this is required. Defaults that need sanctions include non-remittance, untimely remittance, and
use of parallel/carbon receipts as well as submission of fake cheques. Sanctions to be applied are such
as imposing penalty and termination of the revenue collection contract.
Regulation of sanctions for revenue collection is set through contracts entered between the Councils
and the private collectors and also through the Councils by-laws. According to these two kinds of
documents, all the sanctions to be imposed to defaulters needs to be clearly highlighted.
32 Audit team was able to interview 10 private collectors from different councils (Bagamoyo DC-1, Kibaha TC-1, Mundi DC-1, Njombe
TC-1, Mwanza CC-1, Misungwi DC-1, Mpanda TC-1, Arusha MC-1, , Tanga CC-1, Tabora MC-1.)
33 IMANI SUPERDEALER CO. LTD. Report on Implementation of revenue collection enhancement, REF: ISC/BGM/20/12/2009 of 30th
October, 2009
21
However, review of sanctions available in the contract between revenue collection agents and Councils
relating to late remittance in the visited Councils revealed as follows:
Table 6: Sanctions available in the contract

Bank guarantee Fine Terminate Sue
Number of Councils with 7 7 9 3
sanctions relating to:
Number of Councils silent 7 7 5 11
Source: Review of Councils contracts
Similarly, the review of sanctions available in Councils By laws relating to private revenue collection
agents for late remittance showed the following:
Table 7: Sanctions available in Councils By-laws

Fine Imprisonment Sue
Number of Councils with sanctions 6 5 1
relating to:
Number of Councils silent 8 9 13
Source: Review of Councils Bylaws
Table 7 shows that out of the 14 Councils visited, only a few Councils had by laws that stipulated nes to
be imposed to revenue collection agents or imprisonment for non compliance with contractual terms34.
The analysis of whether contracts with revenue collection agents stipulates clearly that Councils by laws
are part of the contracts as shown below:
Number of Councils Councils Name

Contracts that mention by-law is 1 Tanga,
part of contract
Contracts that mention collector 6 Mpanda DC, Nkasi, Igunga,
must follow by-laws Mwanza, Mpanda TC, Arusha
Contracts that are silent 7 Mundi, Njombe, Tabora, Misungwi,
Kibaha, Bagamoyo, Meru
The contracts reviewed from the Councils visited revealed that only one Council has mentioned in its
contracts that the Council by-laws are part of the contract. Six Councils reported that in conducting
their activities, revenue collection agents must follow the Councils by-laws while contracts from seven
councils did not mentioned that Councils by-laws are part of the contract and that the revenue collection
agents are required to follow Council by-laws when they are conducting their activities.
Similarly, an examination of 98 contracts entered for the year 2007/08 to 2009/10 showed that 64
contracts had collectors who remitted less collected revenue or remitted collected revenue late. Table 8
shows a summary of the actions taken by Council in the implementation of the 64 contracts as a result
of the non compliance with contractual terms.
34 Refer Appendix Eight for more details
22
Table 8: Actions taken due to non compliance with terms of contract

Penalty Termination of Open/File a No action Total
the Contract case
Remittance not in time - - - 28 28
Remitting less amount - - - 8 8
Remittance less amount - 4 2 21 27
and not in time
Use of parallel/carbon - - - 1 1
receipts
Total - 4 2 58 64
Source: Auditors analysed data
Table 8 shows that sanctions were used for less than 10 percentages (6 contracts) of the contracts with
non compliance. However, the audit team observed that internal audit reports of the councils visited
have not revealed this issue.
23
24
CHAPTER FOUR
MANAGEMENT OF ACTIVITIES BY HIGHER AUTHORITIES
In this chapter, ndings on monitoring and evaluation of outsourced revenue collection by higher
government authorities at regional and central levels are presented.
A key task for the higher government authorities is to support LGAs through capacity building and
improvements of management of performance activities, including outsourced activities. The following
presentation addresses the two main items related to higher authorities:
monitoring and evaluation of LGAs management of performance of outsourced activities as revenue

collection
Service and technical support for safeguarding and improvement of LGAs performance.
The main actors at the regional level are the Regional Secretariats (RS) headed by the Regional
Administrative Secretary (RAS). The main actors at the central government level are the Prime Ministers
Ofce-Regional Administration and Local Government (PMO-RALG) and the Ministry of Finance (MoF).
4.1 Activities at regional level

The Regional Secretariat plays the role of providing supportive supervision, assessing Councils plans as
well as their implementation reports (technical and nancial reports), monitoring and evaluating councils
and advising them accordingly. RS also provides the central level with information for decision making.
An efcient monitoring and evaluation conducted by RS and RAS should address the following:
development of LGAs management of performance including management of outsourced activities
provide decision makers and authorities at central government level with appropriate information on
activities at the local government level.
4.1.1 LGAs management of performance not addressed

The Councils estimates for their own source revenue were forwarded to the PMO-RALG through RAS.
The role of RAS is to review all estimates and provide advice, if needed, before sending such estimates
to the PMO-RALG. However, the advice provided had not been documented by the RAS or Councils
Directors. This was because most of the reports from Councils were not received timely by the RAS
ofce. The late submission of the reports to the RAS by the Councils hinders the RS sufcient time to
work on the reports and advice them accordingly
Further, it has been observed by the audit team that RAS ofcials focused mainly on the fund from
the Central Government received by the Councils Directors. The said fund is the allocated sum from
Treasury to the Councils for their development activities which is not related to the amount obtained
from council revenue collection.
Inspections were conducted by RAS in collaboration with PMO-RALG in few Councils from 2008 to
2010 and focused on general issues like weaknesses in planning. No inspection has been conducted
which focused on the management of own source revenue collections and therefore less actions have
been taken by Councils based on the reported issues. Inspection teams lacked documented evidence
to testify that the team reviewed a list of revenue collectors and enquired about the process for their
appointment; reviewed revenue collection registers and noted date and the completeness for each
main area of revenue collection.
25
The existence of the above mentioned weaknesses in planning, monitoring and reporting of the
outsourced revenue collection function in the visited Councils implied that inadequate information
was obtained from the inspections conducted by RS on outsourcing activities in order to improve
performance.
4.1.2 No appropriate information to central level

Monitoring and evaluations done gave much focus to the management of the funds disbursed by the
Central Government. According to interviews conducted with ofcials from RS ofces, this was because
own revenue sources contributed less amount to LGAs funding of operations. Issues like whether the
outsourcing of revenue collection function is properly procured were also given very little weight during
the evaluations.
4.2 Activities at ministerial level
4.2.1 Lack of appropriate support to LGAs management of performance

PMO-RALG has issued annual planning and budgeting guidelines to LGAs for the preparation of budget
for the nancial year 2007/2008 to 2009/201035. The PMO-RALG projected own source revenue was
based on 5 % annual increase of the previous year. However, the MoF Guidelines for the preparation of
medium term plan and budget framework for 2009/10 2011/12 requires District and Town Councils
to increase revenue from their own sources by at least 15%, while Municipal and City Councils should
raise their revenues by at least 20% above last years target.
As mentioned earlier, no assessment has been conducted by the nance section at the PMO-RALG on
the quarterly progress reports submitted by Councils on a quarterly basis. The section only prepared
and analyzed an individual and consolidated report showing Councils budget estimate versus actual
collections of revenue. This reporting was just for information purposes and not explanatory by itself.
Less action was taken based on the provided information.
Similarly, the Finance Section in the PMO-RALG- LG Division is responsible for strengthening nancial
systems of LGAs by reviewing relevant laws, regulations and rules to suit policy matters. However, this
section lacks a mechanism for monitoring performance of the procured service that could form a basis
for reviewing the system in use for better performance.
According to PMO-RALG plans for the year 2010/2011 2012, the Directorate of Local Government
has an objective of enhancing LGA nancing. One of the targets under the Director of Local Government
(DLG) was capacities in revenue collection (including outsourcing) developed and operational in 133
LGA by 2012. Activities that were planned include identication of the problems of local revenue
collection, preparation of a programme for improvements (including outsourcing) and to document and
disseminate best practices of outsourcing local revenue collection by December 2009. However, none
of the set targets have been adequately achieved.
4.2.2 Inspections not used for improvements

PMO-RALG has two types of inspections namely routine inspections and ad hoc inspections. Routine
inspection follows inspection manual developed by the PMO-RALG. The manual covers areas in
accountability and management which relate to governance; revenue and assets; planning and
budgeting; procurement and payments; nancial management and audit; monitoring, reporting, and
communication, and human resources.
35 http://www.logintanzania.net/docs/lgabg200809.pdf
26
Similarly, Service delivery, concerns the ability of the Councils to deliver in the core service areas of
social services; and economic and productive services36. The LGA Inspectorate is required to ensure
that each LGA in the country receives a visit from some kind of an inspectorate at least once in a two-
year period. The average number of Councils to be visited per month in two years is six Councils as
analysed below in Table 9:
Table 9: Expected number of Councils to be inspected per month by PMO-RALG

Average number of Councils Period Average number of Council per month
133 Councils 24 Months 6 Councils per Month
Source: PMO-RALG inspection Manual
Inspection team37 according to Checklist No.2 of the inspection manual is required to among other
things to ascertain whether LGAs have made use of provisions for outsourcing revenue collection to
private agents; to review list of revenue collectors and enquire about process for their appointment; to
review revenue collection register and to note date and completeness for each main area of revenue
collection, giving priority to main sources of revenue.
However, the inspectorate unit has a total of six staff. The average number of team members is eight38.
Average time required in one council is seven days. According to inspection manual requirement of
visiting a council at least once in a two year period, the unit has the capacity of visiting six Councils per
month39. Councils visited for three years are as shown in Table 10 below:
Table 10: Councils inspected by PMO-RALG inspectorate unit

Year Number of Regions visited Number of Councils visited
2008 2 10
2009 2 15
2010 2 12
Total 6 37
Source: PMO-RALG inspection reports
Table 10 shows that the PMO-RALG conducted inspections in six regions namely Singida, Tabora,
Kagera, Mwanza, Lindi and Mtwara. Out of which 37 councils were inspected in the year 2008 to 2010.
According to interview held with the inspection unit staff, internal auditors reports submitted by the
Councils forms the basis for the selection of the areas to inspect. The following were the key issues
reported in the inspected Councils as reected in table 11 below:
36 Manual for LGAs Inspectorate Section 10.1 10.9

37 The inspection team comprises of different staff with different background. Inspection manual is used as a guiding tool.
38 Six staff from PMO-RALG (LG Ofcer and Financial specialists) team up with two staff from RAS ofce
39 Two team with three staff from PMO-RALG to team up with staff from RAS ofce
27
Table 11: Key issues reported by PMO-RALG in the inspected Councils

Item Major issues reported
Planning and budgeting Lack of job description for planning ofcers
Non availability of the departmental action plan
Budget committee is not in place as per requirement of the planning
and budgeting guideline
Revenue and assets Lack of strategies to increase revenue
Increase in revenue collection though varying in percentage as
comparing with the previous year
Revenue collection register not in place
Monitoring, reporting and No specic ofcers dedicated to monitoring
communication No calendar for periodic review
Progress reports are not comprehensive and analytical enough
Productive and economic Not all economic and productive service delivery standards were in
sectors place for example agriculture, natural resources
Most of the economic and productive sectors did not have by-laws
Source: Review of inspection reports
However, the inspection has so far not covered all Councils within two years as required. According
to interviews held with members of the Inspection team, they have not covered all the Councils due to
human resource available. The required number of human resources was 24, but they were only four.
Similarly, the audit team reviewed the percentage ratio of performance measurement item that had
an effect with the procurement of private revenue collection agent. These were as follows: local
revenue mobilization which assessed the revenue collected; capacity of human resource available; and
procurement issues. The individual item score was as shown in Table 12 in each functional area.
Table 12: Functional Area percentage score

Functional Area Overall score of Issues of concern
the Area
Local Revenue 10% Percentage of revenue collected against planned for the
Mobilization previous nancial year (5% for council collected 80% or
more of the budget amount.
Human Resource 10% Assessing availability of the competent person to
Development perform sector planning (2%); Council has conducted
a comprehensive capacity needs assessment and
incorporated gaps identied (3%)
Procurement 10% If outsourced revenue collection agents properly
procured (1%).
Source: PMO-RALG Manual for evaluating LGAs performance
Table 12 shows that the evaluation score in the assessment of the Councils performance that had an
effect with outsourced revenue had a total of 11%. The assessment of whether outsourced revenue
collection agents were properly procured focused on checking if the tender was advertised, proper
evaluation conducted, approval by the Council Tender Board etc.), and check that the revenue targets
set by the Council for the collectors were met and properly documented.
28
CHAPTER FIVE
CONCLUSIONS
The audit ndings presented in the previous chapters lead to draw the following conclusions.
General conclusion
A successful privatization requires a well functioning market including several competitive players
with a sustainable capacity. In addition, the service that is supposed to be privatized as well as the
organization in charge of the service needs to be well prepared for the transformation. The government
organization that earlier was fully responsible to conduct this service needs training and capacity to
professionally manage procurement issues and oversight functions with integrity and objectivity.
However, none of the 14 examined cases was properly examined for this important pre conditions. In
most cases, these are not handled at all. With such poor pre conditions for the decision on outsourcing,
its not likely that the privatization could succeed. Instead it may cause the risk of creating a private
monopoly or at least a poorly functioning market.
The LGA do not plan properly before making decisions of outsourcing the revenue collection function
to private contractors. Procedures used to procure revenue collection agents are not efciently done.
Contracts between Councils and the revenue collection agents do not focus on safeguarding the
interests of the councils. Monitoring is not efciently conducted. Sanctions are inadequately regulated
and enforced. Periodic monitoring and evaluation by higher government authorities (PMO-RALG/MoF)
is not efciently and effectively conducted.
Specific conclusions
The following are some specic conclusions based on the ndings:
5.1 Lack of proper plan before outsourcing decision
No proper feasibility study was conducted

As shown above, identication of the need to outsource revenue collection by LGA were not supported
by any feasibility studies to assess cost against benets of outsourcing.
According to section 3.1.1 of this report, none of the examined Councils conducted any proper feasibility
study. Examination of the potential market for outsourcing is not efciently done by the Councils. There
is no documented evidence that shows Councils had searched for availability of potential contractors to
take their roles. This situation gives an impression that decision for outsourcing was not clearly justied.
Council management not properly prepared for the new role

Adoption of new role does not necessarily result into reduction of Councils revenue collection staff.
Some staff have continued with the collection (if there is no proper bid or market for outsourcing).
The new role of the supervisor for supervising contracts is not clearly acknowledged by the Councils
management. The same Revenue Accountant monitors and reports on revenue collection of the council
generally. However, inspection was rarely conducted by the Revenue Accountants on the outsourced
revenue collection.
29
5.2 Procedures to procure private collectors not efficiently done

Revenue collection agents were not efciently obtained. As shown in section 3.2.1 of this report, there
were limited competition between potential bidders, as close to half the tenders were published just on
Notice boards and not in newspapers of large circulation. Similarly, information provided to potential
bidders was inadequate for example a sample of contracts was not included in the bid documents. Also
evaluation criteria used was not consistent with the tender advertisement. Insufcient time was provided
for 44 tenders out of 98 reviewed. All these issues have an impact on the number and capability of the
potential revenue collection agents to compete.
5.3 Contracts do not adequately safeguarding interest of the Councils

Contracts are not prepared with the intention of protecting the interest of the Councils. The Principal in
the contract cannot sue the agents for failure to submit any amount in excess of what they have agreed.
This is shown under section 3.3 of the report that most of the contracts have got provisions for xed
sum which is to be paid by the agency to the Council instead of a percentage which would have been
more benecial to the councils. Regardless of the amount collected, the revenue collection agents remit
only the agreed amount. This gives an implication that revenue collection agents may benet from the
collection of revenue without the awareness of the Council.
5.4 Insufficient monitoring of performance of private collector

Performances of the revenue collection agents are not efciently monitored. This is because no
operational reports were submitted by the revenue collection agents in these Councils under review as
shown in section 3.4.1 above. No periodic reconciliation statements were conducted by the Councils
between receipts used by private revenue collection agents against remitted revenue amount.
Similarly, no regular inspections were conducted as a means of checking whether the revenue
collection agents work properly on behalf of the Councils.
Furthermore, the overall performance of the collection agents was not evaluated to determine whether
they had efciently executed their responsibilities or not. Reliance on the used submitted receipt books
by the revenue collection agents provided less room for assessing the revenue collectors overall
performance.
Internal audit not adequately addressing outsourced revenue collection problems

The Internal Auditors mainly reports on untimely remittance by revenue collection agents. No documented
checks had been conducted to test controls over revenue collection by the revenue collection agents.
Nevertheless it was not in their plan.
Sanctions are not adequately enforced and regulated

Sanctions were seldom enforced although they were clearly stipulated in some by-laws and contracts
between the Councils and the private revenue collection agents.
There was no evidence that penalties were imposed to revenue collection agents who remitted less or
not on time.
5.5 Outsourced revenue collection agents inadequately monitored by Higher Government

Authorities
Few Councils were inspected by higher government authorities (PMO-RALG and RS). The Inspection
teams provided more generalized ndings on the inspections conducted. Less action have been taken by
30
Councils based on the reported issues from the few inspections conducted by the Regional Authorities.
No individual performance assessment was conducted by the Finance Section (under PMO-RALG)
on the progress reports submitted by Councils on a quarterly basis specically on the outsourced
collection role. The section was only preparing and analyzing individual and consolidated reports that
showed budget versus actual collections.
The evaluation criteria used to assess performance of the LGAs provide less weight to assess if
procurement of private revenue collection agents was properly made.
31
32
CHAPTER SIX
RECOMMENDATIONS
General recommendation
The audit ndings and conclusions point out that there are many weaknesses in the development of the
Councils estimates. Potential revenue is not fully captured.
Similarly, weaknesses have been noted on the management of the procurement process and also
monitoring of the private revenue collectors performance. The PMO-RALG has the overall responsibility
of ensuring that clear guidance is in place and properly followed.
Therefore, this chapter contains recommendations to the Prime Ministers Ofce Regional Administration
and Local Government (PMO-RALG) regarding the weaknesses pointed out in the previous two
chapters. The audit team believes that these recommendations need to be considered if the outsourced
revenue collection agents are to be better managed to ensure that the 3Es of Economy, Efciency and
Effectiveness are achieved in the use of public resources.
Specific recommendations
The following are specic recommendations to Councils Director
6.1. Planning before engaging outsourced revenue collecting agents

Before a decision on outsourcing the revenue collection function to private contractors is made the
Council Director is advised to conduct a proper planning and examination bearing in mind the following
consideration:
Proper market conditions including competitive operators for the activity to be outsourced
A proper assessment of the potential revenue
The Councils preparation and capacity to change roles from operating to procuring, monitoring and
evaluating the performance of the private revenue collector.
Conduct a feasibility study on the merits of outsourcing the revenue collection role.
Developing a risk management plan before outsourcing and ensuring that it is under implementation.
6.2. Procurement of private revenue collection agents

Provided the Council decides on outsourcing of revenue collection, the Council Directors are
recommended to ensure that an appropriate procurement procedure for outsourcing revenue collection
function is followed. The Council Directors should consider the following:
Tender documents used are of the expected standard and well prepared
Tenders are fairly subjected between potential revenue collection agents and appropriate time is
given to tenderers to prepare and submit their responses.
Proper evaluation teams that include technical staff are formed and appropriate time is provided to
the team to evaluate the tender bids.
Selection of the revenue collection agents is based on appropriate criteria established by the
Councils.
6.3 Contract administration

When engaging revenue collection agents, the Council Directors are recommended to ensure that
contracts between the Councils and the revenue collection agents are properly set and managed to
safeguard the interests of the Councils. This implies the following:
Contracts are prepared by technical staff
33
Contracts contain clauses that safeguard interest of the Councils under specic conditions of the
contract including sanctions for less or non -performing revenue collection agents.
Appointment of a contract manager to supervise the service providers.
6.4 Monitoring the performance of revenue collection agents

When monitoring engaged contractors, the Council Directors are recommended to monitor the
performance by ensuring the interests of the Council is safeguarded. This implies the following:
Closely monitoring of the performance with monthly reports provided by the agents including a full
accountability of the total amount collected and their respective costs for administration.
Inspection on how the revenue collection agents run and manage the operation.
Application of sanctions when the engaged revenue collection agent does not comply with the
contract conditions,
System and practices (and its consequences) is properly evaluated.
6.5 Monitoring and evaluation by higher authorities
Regional Administrative Secretary (RAS)

The Regional Administrative Secretary (RAS) is recommended to ensure that the vital role of supporting
and advising LGAs is properly executed. This implies the following:
Technically support the Councils to enable proper conduct of feasibility studies and procure
appropriate revenue collectors.
Quarterly monitor and evaluate the performance of the LGA in order to provide the MoF and PMO-
RALG with reliable, problem oriented and analyzed information regarding management of the
outsourced revenue issues for their decision making.
Prime Ministers Office Regional Administration and Local Government

When outsourcing the revenue collection function, the Prime Ministers Ofce Regional Administration
and Local Government (PMO-RALG) is recommended to consider the following:
Provide appropriate capacity building to the Council staff to enable proper management of the
outsourced revenue collection function.
Monitor support provided to LGAs by Regional Secretariats
Request for regular and compiled reports from the Regional Secretariats and use this information for
evaluation of the agents performance.
Develop standard bidding documents in collaboration with the Public Procurement Regulatory
Authority (PPRA) to cater for the LGAs procurement of outsourced revenue collection function.
Ministry of Finance (MoF)

The Ministry of Finance is recommended to monitor Councils own source of revenue and evaluate the
reports submitted to them by PMO-RALG and provide feedback to the Councils.
34
REFERENCES
Industry capability network (undated), understanding public sector procurement processes
a suppliers guide to the procurement of ICT goods and services, contract management,
Booklet 6. New Zealand
Monetary Authority of Singapore (2005), Guidelines on outsourcing, Singapore.
Ngowi, H. P. (2005). Public-Private Partnership (PPPs) in the Management of Municipalities in

Tanzania Issues and Lessons of Experience, Mzumbe University.
Ngowi, H. P. (2011- forthcoming). Revenue Collection in Tanzania Mainland and Zanzibar:

Sources, Collection Mechanisms, Issues and Recommended Interventions, Mzumbe University.
Prime Minister Ofce Regional Administration and Local Government, 2010. Local Government
Development Grant System Manual for the Assessment of Councils against minimum
conditions and performance measurement criteria. Dodoma, Tanzania.
Prime Ministers Ofce Regional Administration and Local Government, Annual Assessment of LGAs
for Minimum Conditions and Performance Measures in LGCDG System for FY 2008/200,
Dodoma, Tanzania.
Dodoma, Tanzania.
Dodoma, Tanzania.
Prime Ministers Ofce Regional Administration and Local Government, Guidelines for the preparation
of Local Government Authorities medium term Plans and Budgets for 2008/09 to 2010/11,
Dodoma, Tanzania.
Prime Ministers Ofce Regional Administration and Local Government, Guidelines for the
improvement of Revenue Performance in Local Authorities, Dodoma, Tanzania.
Prime Ministers Ofce Regional Administration and Local Government, Outsourcing within Local
Governments, Dodoma, Tanzania.
Prime Ministers Ofce, Regional Administration and Local Government Strategic Plan 2009/10
2011/12, Dodoma, Tanzania.
PUMA Policy Brief No. 5 (1998) Best practice guidelines for evaluation Public Management
Service.
URT (1982) The Local Government (District Authorities) Act. Government Printers, Dar es salaam,
Tanzania.
35
URT (1982) The Local Government (Urban Authorities) Act. Government Printers, Dar es salaam,
Tanzania.
URT (1982) The Local Government Finances Act. Government Printers, Dar es salaam, Tanzania.
URT (1982) The Local Government Services Act. Government Printers, Dar es salaam, Tanzania.
URT (2004) The Public Procurement Act. Government Printers, Dar es salaam, Tanzania.
URT (2003) The Local Authorities Procurement Regulations. Government Printers, Dar es
salaam, Tanzania.
URT (2004) Public Procurement Act. Government Printers, Dar es salaam, Tanzania.
URT (2005) Public Procurement Regulation General Notice 97. Government Printers, Dar es
salaam, Tanzania.
URT (1997) The Local Authorities Financial Memorandum. Government Printers, Dar es salaam,
Tanzania.
URT (2010) the Public Private Partnership Act No.18. Government Printers, Dar es salaam,
Tanzania.
URT, Presidents Ofce, Regional Administration and Local Government (2005), Local Government
Authorities Internal Audit Manual, Dodoma
36
APPENDIX 1
Appendix 1
Audit Questions and Sub Questions

This report provides the result from applying the following ve audit questions:
1. Does the council make proper plans before outsourcing the revenue collection function to
private contractors?
Sub Questions
1.1. Do the LGAs conduct proper feasibility studies before outsourcing the revenue collection?
1.2. Do the LGAs sufciently assess their own capacity to monitor the performance of the private
revenue collector?
1.3. Do the LGAs appropriately assess the risk and how to manage it before deciding to
outsource?
2. Are the procedures used to procure revenue collection agents effective?

Sub Questions
2.1 Is there proper competition between the potential contractors?
2.2 Are the revenue collection agents selected in a competitive bidding process?
2.3 Is advertisements given sufcient time to enable prospective tenderers to prepare and submit
their responses?
2.4 Are the evaluations of bids based on well established criteria?
3. Does the preparation of contracts safeguard the interests of the council?

Sub Questions
3.1 Are contracts prepared by technical staff in LGAs?
3.2 Do they contain necessary sections to safeguard the interests of councils?
3.3 Are the terms and conditions of contracts implemented by both parties as stated?
3.4 Are the contract managers/Supervisors appointed by Council Directors to supervisor service
providers?
4. Does the Council properly monitor and evaluate the performance of the outsourced
revenue collection agents?
Sub Questions
4.1 Do the councils have appropriate systems for monitoring and reporting on the revenue
collectors performance?
4.2 Do the councils conduct adequate inspections on how the revenue collectors run and manage
their services?
4.3 What kind of problems and irregularities are disclosed by the monitoring? Approximately, how
frequent are these problems?
4.4 Do the councils utilize the information received from monitoring for improvements?
4.5 Are sanctions appropriately regulated and enforced?
37
5. Do the higher authorities (RAS, PMO-RALG/MoF) efficiently and effectively conduct

periodic monitoring and evaluation?
Sub Questions
5.1 Is there appropriate mechanism to monitor performance?

5.2 Are evaluations conducted by the Central level focusing on improving LGAs performance?
38
Appendix 2
DOCUMENTS REVIEWED BY AUDIT TEAM
Part of the Types of documents reviewed Total

audit report number
Planning 1. Studies on revenue sources for council estimates (Projections) 7
Procurement Advertisements from newspapers and council Notice boards 49
process Bid Documents obtained from bidders 7
Evaluation Reports on Outsourced Revenue sources for all councils 36
Meeting Minutes (Tender Board Minutes) 76
Tenders from the newspapers 98
Management of Councils Outsourced revenue collection available contracts 98
contracts Councils Own Source revenue Collection Monthly reports 203
Contract registers 3
Actual remittance records from the councils 102
Monitoring Internal Audit Reports 145
performance
Enforcement of Council By-laws made in Local Government Finance Act 14
sanctions Letters of Notice to agents who defaulted on outsourced revenue 4
collection
Letters of Complaints on revenue related issues 8
Letters of Notice for court cases on outsourced revenue collection 5
Letter of Contract termination on outsourced revenue collection 5
Court cases related to outsourced revenue collection 6
Higher Inspection Manual from PMO-RALG
authorities Inspection reports done by PMO RALG.
Other documents Njombe TC Report on study tour on revenue collection at Arusha
Region done on 20/6/2010-24/6/2010.
Letters related to political interference.
Source: Field data 2011
39
Appendix 3
Risks identified in the visited Councils

Councils ofcials were asked to provide risks that might happen in outsourced revenue collection
environment. Various issues were raised as follows:
S/N Risk Number of Councils
identified the risk
1. Agent not remitting on time 14
2. Political interference 7
3. Bidders bidding high amount to get contract 3
4. Dishonest among ofcials when conducting estimates 1
5. Tax payer defaulting on paying tax 5
6. Agents submitting fake documents during procurement process 1
7 Government policies e.g. environmental policy 2
8. Agents not knowing terms and conditions of the contract. 1
9. Agent using parallel receipt 1
However, the mentioned risks can be classied as risks associated with private collector, councils
ofcial, tax payer and others.
Appendix 4
Utilization of CBG Procurement Internal Audit Planning and

Functional Budgeting
2008/9 2009/10 2008/9 2009/10 2008/9 2009/10 2008/9 2009/10
1 Kibaha TC
2 Bagamoyo DC
3 Mundi DC
4 Njombe TC
5 Nkasi DC
6 Mpanda DC
7 Mpanda TC
8 Tabora MC
9 Igunga DC
10 Misungwi DC
11 Mwanza CC
12 Tanga CC
13 Arusha MC
14 Meru DC x
Source: PMO-RALG synthesis report 2008/2009 2009/2010
Key issues reported by assessment team

Capacity Building Plans should be based on TNA and should be strictly implemented and properly
evaluated and reported.
Revenue collection in District Councils was still very low
The councils should access planning and budgeting guidelines and IPFs in time consistent with
the planning cycle.
Quite a number of Procurement Management Units were not trained.
40
Appendix 5
COUNCILS PERFORMANCE EVALUATION

Council Financial Fiscal Planning Human Procurement Total
Management Capacity and Resource score
Budgeting Development
Max. Score 25 15 27 13 14 94
Tabora MC 22 12 27 11 14 86
Tanga CC 25 13 22 13 12 85
Njombe TC 20 12 23 13 10 78
Kibaha TC 23 12 20 9 13 77
Misungwi DC 20 10 27 9 11 77
Arusha MC 19 10 20 13 14 76
Mundi DC 23 8 22 10 11 74
Mwanza CC 14 12 18 13 12 69
Nkasi DC 20 13 8 6 12 69
Igunga DC 13 10 21 9 8 61
Mpanda DC 15 11 13 10 11 60
Mpanda TC 19 10 10 8 8 55
Bagamoyo 10 7 18 7 11 53
DC
Meru DC 14 3 12 9 9 47
Source: Auditors field data 2011
Evaluation of councils performance as conducted by PMO-RALG evaluation team shows that all
councils scored from 50% (Meru DC) and above. Evaluation of procurement shows that the lowest
has scored 8 (57%) out of 14 points. Ten councils have scored above 50% points on planning and
budgeting. However, no analysis of councils own sources was available to support how council will
generate the said amount.
41
Appendix 6
STATISTICS OF CONTRACTS THAT SHOW CLAUSES THAT ALLOW

ACCESS TO INFORMATION
AVAILABLE CONTRACTS THAT CONTRACTS THAT DO
COUNCILS CONTRACTS ALLOW ACCESS TO NOT ALLOW ACCESS TO
INFORMATION INFORMATION
MUFINDI DC 5
NJOMBE TC 5
NKASI DC 12
MPANDA TC 3
MPANDA DC 20
BAGAMOYO DC 11
KIBAHA TC 4
TABORA MC 8
IGUNGA DC 6
MWANZA CC 9
MISUNGWI DC 4
ARUSHA MC 5
MERU DC 1
TANGA CC 5
TOTAL 98 83 15
CONCLUSION: Out of 98 contracts available, 83 contracts allow councils to easily access information
Source: Review of Contracts

Appendix 7:
Sanctions available in the Contract with private revenue collecting agent for late remittance
Council Bank guarantee Fine Terminate Sue
Mwanza CC Silent Silent
Misungwi Silent Silent Silent
Meru Dc Silent
Arusha MC Silent Silent Silent Silent
Tanga CC Silent Silent Silent
Mundi DC Silent
Njombe TC Silent Silent
Kibaha TC Silent Silent
Bagamoyo DC Silent Silent
Mpanda DC Silent Silent
Mpanda TC Silent Silent
Igunga DC Silent
Tabora MC Silent Silent Silent
Nkasi DC Silent Silent
Source: Contracts review
42
Table above shows that contracts are not well prepared. Clauses that would safeguard councils interest
are not included. Lack of clauses on submission of bank guarantee by successful bidder, payment of
ne for late remittance, termination of contract for non-compliance or suing a collector may result into
councils loosing from non performing collectors.
Appendix 8
Sanction available in Councils by-laws relating to private revenue collection

agents for late remittance
Council Fine Imprisonment Sue
Mwanza CC Silent
Misungwi Silent
Meru Dc Silent Silent Silent
Arusha MC Silent Silent Silent
Tanga CC Silent Silent Silent
Mundi DC Silent Silent Silent
Njombe TC Silent
Kibaha TC Silent Silent Silent
Bagamoyo DC
Mpanda DC Silent
Mpanda TC Silent Silent
Igunga DC Silent Silent Silent
Tabora MC Silent Silent Silent
Nkasi DC Silent Silent Silent
Source: Review of Councils By-laws
Table above shows that most of the by-laws do not have sanctions for non-performing revenue collection
agent. Only one council (Bagamoyo DC) has such sanctions.
43
Appendix 9
INTERNAL AUDIT REPORTS

COUNCIL TOTAL IA REPORT ISSUES RAISED
INTERNAL WITH
AUDIT REVENUE
REPORTS ISSUES
MUFINDI DC 1 1 Fee payers were reluctant to pay fee after increasing of
stall fee and poor market environment.
NJOMBE TC 12 2 Late remittance, revenue books not recorded, cheating

in revenue collection records, delay of banking the
amount of revenue collected
NKASI DC 12 3 Revenue earning books not furnished for audit
purposes, lack of remittance.
MPANDA TC 12 3 Lack of remittance, private collector reported about fee
payers to refuse to pay taxes/fees
MPANDA DC 12 1 Tax defaulters. This was a complaint from tax collector.
BAGAMOYO 2 2 Late of return of receipt books with no denite reason,
DC lack of statistical records for tax/levy payers, lack of
Revenue Collector Cash Book (RCCB) to record the
individual receipts, difculty in knowing the excess
amount collected by the agent as per contract (refer
contract 3/2009/2010 and 4/2009/2010),
KIBAHA TC 14 6 Private collector fails to remit the required amount
TABORA MC 8 1 Private collector did not remit the agreed amount
IGUNGA DC 12 4 Loss of revenue esp. in guest house levy after inspection
done by councils staff
MWANZA CC 12 12 Year 2007/2008, some agents did not remit to the
council
MISUNGWI 12 2 debtors in remittance
ARUSHA MC 12 5 Poor records keeping in revenue collection, non-
appliance of nes, loss of receipt books, delays in
making decisions regarding revenue tenders.
MERU DC 12 2 Improper records, use of councils subsidiary ofcial
receipt instead of agents receipt ofcial receipts which
is later brought to imprest register.
TANGA CC 12 11 Poor revenue collection, revenue department does not
do its duty.
TOTAL 145 55
Source: Review of Internal Auditors (IA) reports
44
Appendix 10
Focus group discussion team participants

The audit team collected data using also a focus group discussion held at the NAOT ofce. The group
composed of the following:
S/N NAME ORGANISATION POSITION
1. EMMANUEL TUTUBA MINISTRY OF FINANCE PRINCIPAL ECONOMIST
(BUDGET)
2. JULIUS MAIRI MINISTRY OF LIVESTOCK SENIOR FISHERIES OFFICER
DEVELOPEMRNT AND
FISHERS
3. WAMOJA DICKOLAGWA RAS - IRINGA ASS LGA
4. CORNELIA MAKONTA MINISTRY OF AGRICULTURE PRINCIPAL AGRICURTURAL

OFFICER
5. JOSEPH MALLYA LOCAL GOVERNMENT FINANCE ADVISOR (NATIONAL)
REFORM PROGRAMME
6. DAVID SALEH BAGAMOYO DC REVENUE ACCOUNTANT
7. S. MUKHANDI PMO-RALG PRINCIPAL ACCOUNTANT
8. BETTY MPEMBENI MINA PRIVATE COLLECTOR
9. M. MWAYA BAGAMOYO DC Ag. DED
10. Dr. PROSPER NGOWI MZUMBE UNIVERSITY SENIOR LECTURER
11. Dr. HENRY CHALU UNIVERSITY OF DAR ES LECTURER
SALAAM
12. AARON LUZIGA MINISTRY OF LIVESTOCK ASISTANT DIRECTOR
DEVELOPEMRNT AND MARKETING INFRASTRUCTURE
FISHERS DEVELOPMENT
13. CLEOPHAS MANYANGU ALAT HEAD OF LEGAL SECTION
14. Dr. RICHARD MUSHI PMO-RALG TECHNICAL ADVISER

GOVERNANCE
45
Appendix 11
Computation of auditors estimates
1. KIBAHA TOWN COUNCIL
Type of Number of
Year Total
Vehicle vehicles
Bus 455 x 1000 455,000
2009- Mini-Bus 488 x 500 244,000
Council
2010
Estimate Hiace 722 x 200 154,000
Grand Total 843,400
Bus 476 x 1000 476,000
Auditors 2011 Mini-Bus 683 x 500 341,500
Estimate Hiace 692 x 200 138,000
Grand Total 956,000
Source: NAOT Auditor Estimates
NB: data was collected in March 2011.
2. BAGAMOYO DISTRICT COUNCIL
22ND 23RD AVERAGE

TYPE MARCH MARCH TOTAL PER DAY CHARGE AMOUNT
COASTER 76 64 140 70 500 35,000
HIECE 89 84 173 86.5 500 43,250
TAXI 9 13 22 11 1000 11,000
BAJAJ 8 17 25 12.5 500 6,250
CAR PARKING 25 23 48 24 1000 24,000
TOILET 48 53 101 50.5 100 5,050
TOTAL 124,550
Average amount obtained per day 124,550/=
Average amount obtained per month 3,736,500/=
COUNCILS ESTIMATE AUDITORS ESTIMATE DIFFERENCE

3,150,000 3,736,500 586,500
46
3. IGUNGA DISTRICT COUNCIL
Year Livestock Number Amount

2008 2009 Cattle 15,056 24,089,600
Sheep: 11,662 8,746,500
Goat: 3,870 2,902,500
35,738,600
Council estimates 26,520,000
Actual collection 29,172,000
4. ARUSHA MUNICIPAL COUNCIL
Billboards fee
Year Auditors Estimate Council Estimates Amount in Actual

Contract Collection
2007-2008 500,540,403 335,990,000 185,447,191
Source: Council Billboards feasibility study
Parking fee
2,733 lots X 200 fee = 546,600

546,600 X 8 hours = 4,372,800
4,372,800 X 26 days = 113,692,800
113,692,800 X 12 month = 1,364,313,600
Year Auditors Council Amount in Contract Actual Collection
Estimate Estimates
2009-2010 1,364,313,600 419,000,000 52,900,000 p/m 529,405,000
Source: Field data
5. MWANZA CITY COUNCIL
Auction fee
Year Livestock Number Amount

2008 2009 Cattle 3983 5,975,125
Sheep: 1497 748,500
Goat: 745 372,500
Total P/M 7,096,500
Auditor estimate P/Y 85,158,000
*Price per cattle 1,500/=

*Price per sheep/goat 500/=
47
Appendix 12:
Reviewing of contracts
Sn. Name of the Parties to the Contract period Contract Amount Weakness Legal implication
contract contract
1 Agency Bagamoyo 12 months The agent is required The contract is not clear whether the Difcult in enforcement
agreement District council commencing on the to remit 4100,000 performance bond submitted by agent is
for sh fees and M/S State 1st day of July, 2009 each months plus bank guarantee or insurance bond. See
collection Business any amount in recital para 4
Centre LTD excess thereof End date of the contract is not indicated Always contract should
although there is commencement date be clear. This contract is
and duration. not clear as shown in the
weakness.
The exact amount which agent has to The Principle cannot sue
submit to the principle is not clear. The agency for failure to submit
principle should have carried a feasibility any amount in excess of
48
study to establish how much is to be what they have agreed.
collected. See para 2.4
Para 3.2 states that every
three months Principle shall
evaluate this contract. It
could be worthy if MC could
vanish to VFM auditors the
evaluation reports
2 Agency Mpanda Town Duration of contract 1 1,200,000. Per There is no specic person from the town It is possible for any person
agreement for Council and year from 01/07/2009 months council to make inspections to the books from council or a person
collection of Protas Ringo to 30/6/2009 used by the agent to collect fees. Para 8 pretending that is from the
market fees states that an agent should allow a servant council.

from Council to inspect those books.
Cannot hold accountable the

council because the contract
allows that.
contract contract
3 Kibaha Town Kibaha Town Commencing on 1st Tsh 16,000,000.00 This is one of good contract.
Council Council August,2008 ending Sixteen million
Service and Salu on 30th June, 2009 only per months
Agreement Investment equivalent to Tsh
VFM auditors should be availed by the
for collection 176,000,000 per
review report from the Principal as per
of bus station contractual period
para 3.2, since the para seems difcult to
fees which is one year
implement.
4 Agency Arusha Period of 10 Ths 10,100,000 per -The Contract is not signed If the contract is not signed
contract for Municipal months starts from months cannot be binding between
the collection Council and 01/09/2009 and ends - No applicable Law the parties.
of levy at M/S DRM on 30/06/2010
bus stand in Investments
Arusha MC
Failure to states applicable
law, in case of dispute or
interpretation.
49
5 Agency Tanga Town Starts from 8/ 9/2007 Tshs 850,000 Although the contract provide clause for It can lead to conict of Law.
contract for Council and ends 30/6/2008 applicable law, however in this contact but
collection of Fax Auction also it crate room for applicability of any

fees for the Mart other laws. The clause does not states
advertising laws of which country
5 Agency Misungwi Period of 12 months Tshs 1,760,000 per The clause provided for Agency fee is How much the agent is to be
Contract for District Council from 1/7/2008 to month not clear see para 2.2 . The para states paid is very important to be
collection of and M/S 30/6/2009 that the agent shall be paid amount stated very clear. However
Misasi Auction Robert Lutego of money or any % of the collection in this contract it is not clear
and Markert Co. LTD as herself/himself has opted not to be and it seems like it is an
at Misungwi paid. agent decided how much he
District Council should be paid. In case of
dispute is likely that it will be
so difcult to construe the
meaning of this provision.
contract contract
6 Agency Meru District Period of 6 months Contract sum Para d provide that among other things Failure to adhere to nancial
Agreement for Council and from 01/1/2011 to 8,140,000 per the agent shall make payment to the best practice
the collection Hafaswa 30/6/2011 months cashier at the District council of Meru.
of bus stand Company LTD
fees at Tengeru Good practice could be an agent to
in the Meru deposit the amount to the bank in the
District account of District Council and submit the
deposit slip to the cashier of the council for
the records.
-para K this para states that the Council

or his representative shall be free to
enter into the bus stand any time for
50
inspection. There is no specic person
from the council for that assignment.
Other people even within the

There is no clause for applicable Law in
council can take advantage
case of dispute or interpretation
for their own benet
contract contract
7 Agency Mwanza Period of one year 80% of the collected The contract does not show how much Can be difcult to enforce
Contract for City Council from1/7/2007 and fees the agent will be collecting.
collection and Agatta 30/6/2008
of fees for Auction Mart The contract does not show if there is any
Commercial and General feasibility study which has been conducted
Advertising Brokers to establish how much is required to be
Posters( collected for which 80% is to be paid to
Mabango ya MC by agent.
matangazo ya
Biashara)
There is no clause for applicable law in
case of conict between the parties
8 Agency Tanga City Start date 1/7/2009 Tshs 850,000 Although the contract provide for the Difcult to enforce
Agreement for Council and ends 30/6/2010 applicable law but it does not states of
collection of Chuwa Mult which country. Contract should be clear
bus stand fees Business Trade
51
in Tanga CC
Agency Tanga City Start date 1/7/2008 Tshs 2,000,000 contract does not provide for the Difcult to enforce
Agreement for Council and ends 30/6/2009 applicable law , no clear statement of
collection of Chuwa Mult parties obligations, no clause that shows
billboard fees Business Trade agent will be required to use councils
in Tanga CC receipts, also silent on sanctions to be
taken in case of default
contract contract
9 Agency Nkasi District Period 3 months. Tshs 135,000 for a The heading of the contract is the agency Difcult to enforce
contract for Council and From 1/7/2007 and period of 3 months contract for collection of fee for sh
Nkasi District Mikidadi Twaha 30/9/2007 market,dagaa,soko la machinjio, mnada,
Council Ramadhani gulio/ mazao ya nafaka na kituo cha
mabasi. This is contrary to para I. this
create contradiction.
When the contract is not clear it is the

loophole for deceiving
There is no clause for applicable law

10 Agency Igunga District Period of 6 months Contract sum This is the only contract which at least Although magistrates have
52
Agreement Council and from 1/7/2007 to DC conducts a research to establish how got powers as commissioner
for collection Hardson. W. 31/12/2007 Tshs 510,000 much is to be collected. for oaths in case of contract
of fees from Mrina they cannot preside in court
the source of over the case arose in this
revenue contract. So the right person
Find out about the research report.
could this contract signed
before could be advocate,
legal ofcer of the council
This contract has been signed before

magistrate.
11 Contract Tabora Period of 3 months Tshs 4,005,000 No clause for applicable law
agreement for Municipal from 1/10/2007 to
the collection Council and 31/12/2007
of guest house Musa Amiri
levy Kipusi
contract contract
12 Agency Mpanda Starts from 2/7/2008 Contract sum Nil Nil
agreement for District Council and 31/12/2008 230,000 per months
collection of and Makala
fees for natural Mangasi
products,
plants and
auction at
Mpanda DC
13 Contract for Mundi District Period of 11 from Tshs 1,000,000 It seems according to para 2 of this District Council cannot
collection of Council and 05/08/2008 to contract that the agent decided he will enforce where an agent has
levy at Mundi Marcelina 30/06/2009 pay DC only 1,000,000. Instead of both collected more
DC G.Mashingia agreeing on that amount.
There is no indication that mundi district

council had conducted to research to
53
establish how much an agent will collect
and how much agent will have to submit
to the DC
Para 7 is not very clear because it is just

mention that in case of acts arise out of
this contract which lead to breach of this Difcult to enforce
contract, an agent will claim his damages

by way law. However, the contract does
not states which law will be applicable in
such case and of which country.
contract contract
14 Agency Njombe Town Is an addendum Tshs 2,400,000 per
contract for Council and to the contract months
collection Augustino No.NTC/I/2008/2009,
of bus stand Mgeni for the period of from
and tax stand
01/2/ 2009 to
fee at District
30/6/2009
Council of
Njombe
54
General Comments on the contracts

1. There is a need for the MC/ DC to conduct feasibility study to establish how much can be collected
in a particular source of revenue. Most of contract except one did not show if there is any study has
been carried out .The effect of this is that the MC/DC may be losing revenue because they do not
know how much is collected.
2. Most of contracts except one have got provisions for xed sum which is to be paid by the agency to
the council instead of percentage.
3. Most of the contract does not have clause for the applicable law in case of conict. This is very
important provision which have to be in the contract
4. Most of the contract does not have a contact person from the MC/DC to supervise the conduct of
the Agent. The contracts provide that the MC/DC can appoint any servant to supervise the Agent.
That is not good practice
55
Appendix 13
Council issued bid document in the bidding process
S/N COUNCIL ISSUING BID BID DOCUMENT NOT ISSUED

DOCUMENT
1. Mwanza CC
2. Misungwi
3. Meru Dc
4. Arusha MC
5. Tanga CC
6. Mundi DC
7. Njombe TC
8. Kibaha TC
9. Bagamoyo DC
10. Mpanda DC
11. Mpanda TC
12. Igunga DC
13. Tabora MC
14. Nkasi DC
Source: Audit field data, 2011
As shown in the table above, only ve councils out of fourteen councils issued the standard bid document
given by the PPRA. The main reasons that were given by the procurement management unit staff for
not issuing a standard bid document was that the advertisement normally stipulates what the bidder is
supposed to attach in the bidding process, hence no need to issue a bid document.
56
Appendix 14
Comparison of the Councils Estimates, bidders amount and contract amount

DIFFERENCE
ESTIMATE BIDDERS CONTRACT CONTRACT -
S/N COUNCILS YEAR SOURCE (BID
PER MONTH AMOUNT AMOUNT ESTIMATED
-ESTIMATE)
1 MUFINDI DC 2008/2009 BUS STAND 900,000 1,000,000 1,000,000 100,000 100,000
MUFINDI DC 2008/2009 MARKET 3,228,000 1,100,000 1,100,000 -2,128,000 -2,128,000
MUFINDI DC 2008/2009 BUS STAND 3,500,000 3,500,000 3,500,000 - -
MUFINDI DC 2008/2009 MARKET 2,440,000 4,000,000 2,240,000 500,000 -200,000
2 NJOMBE TC 2007/2008 MARKET 1,220,000 - 1,220,000 - -
NJOMBE TC 2008/2009 B/ STAND 2,790,000 2,155,000 2,400,000 -635,000 -390,000
NJOMBE TC 2008/2009 MARKET 2,440,000 2,500,000 2,440,000 60,000 -
NJOMBE TC 2009/2010 B/ STAND 2,400,000 1,915,000 2,100,000 -485,000 -300,000
NJOMBE TC 2009/2010 MARKET 2,240,000 1,550,000 1,775,000 -690,000 -465,000
3 KIBAHA TC 2007/2008 B/STAND 10,000,000 10,000,000 10,000,000 - -
KIBAHA TC 2007/2008 SAND FEE NIL 2,550,000 9,045,000
KIBAHA TC 2008/09 B/STAND 15,150,000 16,000,000 16,000,000 850,000 850,000
KIBAHA TC 2009/1010 B/STAND 26,093,333 19,200,000 19,570,000 -6,893,333 -6,523,333
4 Tabora M.C 2007/2008 Hotel Levy 2,800,000 4,005,000 4,016,917 1,205,000 1,216,917
Tabora M.C 2007/2008 SLAUGHTER FEE 1,220,000 1,224,000 1,076,000 4,000 -144,000
Tabora M.C 2008/2009 HOTEL LEVY 4,005,000 5,006,000 2,142,000 1,001,000 -1,863,000
Tabora M.C 2008/2009 SLAUGHTER FEE 1,220,000 1,224,000 2,440,000 4,000 1,220,000
Tabora M.C 2009/1020 SLAUGHTER FEE 1,220,000 4,200,000 2,980,000

LIVESTOCK
5 IGUNGA DC 2007/2008 AUCTION 2,210,000 500,000 3,060,000 -1,710,000 850,000
IGUNGA DC 2008/09 HOTEL LEVY 2,880,000 2,142,000 2,142,000 -738,000 -738,000

LIVESTOCK
IGUNGA DC 2008/09 AUCTION 2,210,000 2,440,000 2,440,000 -70,000 230,000
IGUNGA DC 2009/10 HOTEL LEVY 2,322,000 1,650,000 2,000,000 -672,000 -322,000

LIVESTOCK
IGUNGA DC 2009/10 AUCTION 2,431,000 2,800,000 2,800,000 -231,000 369,000
6 MPANDA TC 2007/08 BUZOGWE MARKET 800,000 800,000 800,000 - -
MPANDA TC 2007/08 SOKO KUU MARKET 1,300,000 2,300,000 2,100,000 1,000,000 800,000
MPANDA TC 2007/08 CROP TRANSPORT 2,000,000 2,000,000 2,000,000 - -
MPANDA TC 2008/2009 BUZOGWE MARKET 1,000,000 1,000,000 1,000,000 - -
MPANDA TC 2008/2009 SOKO KUU MARKET 1,600,000 1,600,000 1,600,000 - -
MPANDA TC 2009/2010 BUZOGWE MARKET 2,900,000 1,200,000 -1,700,000
MPANDA TC 2009/2010 SOKO KUU 2,900,000 1,700,000 -1,200,000
57
DIFFERENCE
-ESTIMATE)
7 NKASI DC 2007/2008 CROP PRODUCE 4,100,000 1,180,000 -2,920,000
NKASI DC 2008/2009 AUCTIONS 1,160,000 1,943,000 783,000
NKASI DC 2009/2010 AUCTIONS 877,350 3,189,000 2,311,650

BAGAMOYO
9 DC QUARTER 1 FISH AUCTION 3,500,000 4,050,000 4,050,000 550,000 550,000

BAGAMOYO
DC QUARTER 1 SAND FEE 31,104,000 31,104,000 31,104,000 - -

BAGAMOYO
DC QUARTER 2 FISH AUCTION 3,500,000 4,050,000 4,050,000 550,000 550,000

BAGAMOYO
DC QUARTER 2 BUS STAND 2,475,000 1,000,000 2,220,000 -1,475,000 -255,000

BAGAMOYO
DC QUARTER 2 SAND FEE 31,104,000 31,104,000 31,104,000 - -

BAGAMOYO

BAGAMOYO
DC QUARTER 3 BUS STAND 2,457,000 NIL 2,500,000 43,000

BAGAMOYO
DC QUARTER 3 SAND FEE 31,104,000 42,000,000 42,000,000 10,896,000 10,896,000

BAGAMOYO

BAGAMOYO
DC QUARTER 4 BUS STAND 2,475,000 NIL 2,500,000 25,000

BAGAMOYO
DC QUARTER 1 FISH AUCTION 4,100,000 4,100,000 4,100,000 - -

BAGAMOYO
DC QUARTER 1 BUS STAND 2,500,000 2,755,000 2,755,000 255,000 255,000

BAGAMOYO

BAGAMOYO

BAGAMOYO

BAGAMOYO

BAGAMOYO
DC QUARTER 3 SAND FEE 34,700,000 35,000,000 35,000,000 300,000 300,000

BAGAMOYO

BAGAMOYO

BAGAMOYO
DC QUARTER 4 SAND FEE 34,700,000 35,000,000 37,000,000 300,000 2,300,000
10 TANGA CC 2008/2009 BILLBOARD 1,666,667 2,000,000 2,000,000 333,333 333,333
TANGA CC 2008/2009 PARKING 758,333 NIL 600,000 NIL -158,333
TANGA CC 2009/10 BILLBOARD 4,668,917 3,500,000 3,500,000 -1,168,917 -1,168,917
11 MWANZA CC 2007/2008 BILLBOARD 10,000,000 12,500,000 10,000,000 2,500,000 -
58
DIFFERENCE
-ESTIMATE)
KIRUMBA FISH
MWANZA CC 2007/2008 MARKET 40,000,000 39,100,000 39,100,000 -900,000 -900,000
MWANZA CC 2007/2008 AUCTIONS 365,000 300,000 560,000 -50,000 195,000
MWANZA CC 2008/2009 BILLBOARD 10,333,333 15,000,000 13,750,000 4,666,667 3,416,667

KIRUMBA FISH
MWANZA CC 2008/2009 MARKETS 40,000,000 39,100,000 42,600,000 -900,000 3,500,000
MWANZA CC 2008/2009 AUCTIONS 365,000 350,000 350,000 -15,000 -15,000
MWANZA CC 2009/2010 BILLBOARD 13,750,000 15,000,000 13,750,000 1,250,000 -

KIRUMBA FISH
MWANZA CC 2009/2010 MARKET 42,600,000 36,000,000 42,600,000 -6,600,000 -
MWANZA CC 2009/2010 CATTLE AUCTIONS 350,000 400,000 400,000 50,000 50,000
12 ARUSHA MC 2007/2008 B/STAND 9,500,000 4,868,000 4,150,000 -4,632,000 -5,350,000
ARUSHA MC 2007/2008 CAR PARKING 25,000,000 28,733,250 25,324,000 3,733,250 324,000
ARUSHA MC 2007/2008 BILLBOARD 27,916,667 26,250,000 26,250,000 -1,666,667 -1,666,667
ARUSHA MC 2008/09 B/STAND 9,583,333 5,500,000 5,500,000 -4,083,333 -4,083,333
ARUSHA MC 2008/09 CAR PARKING 25,000,000 29,500,000 29,500,000 4,500,000 4,500,000
ARUSHA MC 2008/09 BILLBOARD 20,833,333 25,250,000 25,250,000 4,416,667 4,416,667
ARUSHA MC 2009/10 B/STAND 12,750,000 10,100,000 10,100,000 -2,650,000 -2,650,000
ARUSHA MC 2009/10 CAR PARKING 34,916,667 54,893,000 52,900,000 19,976,333 17,983,333
ARUSHA MC 2009/10 BILLBOARD 25,250,000 26,550,000 58,000,000 1,300,000 32,750,000

FERRY TOLL AT
13 MISUNGWI DC 2007/2008 KIGONGO FERRY 175,000 60,000 60,000 -115,000 -115,000

CATTLE AUCTIONS
MISUNGWI DC 2007/2008 700,000 1,350,000 1,350,000 650,000 650,000
FERRY TOLL AT
MISUNGWI DC 2008/2009 KIGONGO FERRY 250,000 570,000 570,000 320,000 320,000
CATTLE AUCTIONS
MISUNGWI DC 2008/2009 1,000,000 1,760,000 1,760,000 760,000 760,000
FERRY TOLL AT
MISUNGWI DC 2009/2010 KIGONGO FERRY 300,000 250,000 250,000 -50,000 -50,000

CATTLE AUCTIONS
MISUNGWI DC 2009/2010 1,100,000 1,040,000 1,040,000 -60,000 -60,000
TENGERU
14 MERU DC 2007/2008 MARKET(Jan-Jun) 3,500,000 4,050,000 550,000

TENGERU MARKET
MERU DC 2008/2009 (Jul-Dec) 6,500,000 5,250,000 -1,250,000
59
Appendix 15
Contract period
Tenders for outsourcing revenue collection function were awarded in specied period. The following
were contractual period given to various private revenue collection agents in the visited councils:
Contractual period
Period Number of Contracts Number of Council
3 months contract 19 4
6 months contract 17 6
Above 6 months contract 53 13
Source: Councils contract with revenue collection agents
Table above reveals that contractual periods varied between contracts and councils. Three months
contract required council to go through procurement process of private revenue collector four times in a
year. According to interview with ofcials from councils with three months contract, they preferred short
period in order to avoid a risk of council loosing due to revenue uctuation. The following were councils
estimates obtained from two District councils with three months contracts.
Quarterly Councils monthly estimated collection in Thousands Tshs.
Source 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Bagamoyo Bus stand* 2,220 2,220 2,220 2,500

DC Aggregate* 31,104 31,104 31,104 31,104
Bus stand** 2,755 2,755 2,750 2,750
Aggregate** 34,700 34,700 37,000 37,000
Nkasi DC Auctions* 410 425 475 475
Market* 180 195 270 270
Auctions** 546 600 486 600
Market** 240 240 260 270
* refers to 2008/2009; ** refers to 2009/2010
Source: Field findings, 2011
As can be seen in the table above relating with Quarterly Councils monthly estimate there was less
differences in terms of expected amount to be remitted by the outsourced revenue collection agent.
Assessment of the percentage increase in terms of monthly collection as estimated by council in each
quarter starting with Quarter 2 revealed the following:
60
Percentage increase on three months contracts Councils monthly estimate
Source 2nd Quarter 3rd Quarter 4th Quarter

Bagamoyo DC Bus stand* 0 0 13%
Aggregate* 0 0 0
Bus stand** 0 0 0
Aggregate** 0 7% 0
Nkasi DC Auctions* 4% 12% 0
Market* 8% 38% 0
Auctions** 10% -19% 23%
Market** 0 8% 4%
Source: Field findings, 2011
Reviewing of whether the agent in the next quarter was different with the previous one showed that
some of the private collectors were the same given the tender to collect the next three months contract.
However, councils incurred costs to advertise and award tender four times in a year. The following are
audit team estimated costs that may be incurred by councils in the whole process:
Audit team analysis of estimated procurement costs
Analysis of the estimated costs Tshs.

Advertisement (PPRA Journal) minimum 250,000
Evaluation team 3 members for 4 days each Tshs.50,000 600,000
Tender Board meeting
Chairman 200,000
Other members (7 members each Tshs.150,000) 1,050,000
Invited members (2 members each Tshs. 100,000) 200,000
Secretariat (2 members each Tshs. 100,000) 200,000
Total 2,500,000
Source: Field data, 2011
The analysis of estimated procurement costs shows that the minimum amount that councils incurred in
the procuring process of the outsourced revenue collector as derived by audit team is Tshs.2,500,000
in each quarter. This is equivalent to Tshs.10,000,000 per year. Comparisons with Nkasi DC estimated
amount as shown in Table shows that the council is incurring more cost against what they expect to
receive. However, Tender Board meeting may have more than one issue to discuss in the meeting.
Similarly, estimation of time take in the whole process of procurement is as shown below:
61
Audit team analysis of estimated days in a procurement process
Total days
Preparation of bid documents 7
Open tender advertisement 30
Evaluation of tender including writing a report 14
Tender Board approval 14
Writing notication letter 7
Signing notication letter 7
Mobilization 7
Total 79
Source: Field data, 2011
The analysis of the estimated required procurement days shows that it takes almost three months from
preparation of bid documents by procurement management unit in the councils to awarding of contract.
The table shows that once a tender has been awarded to a successful bidder by the CED, another
process for procuring a private collector in the coming quarter start.
Analysis of the Councils with one year contract showed that clause that required the contract sum to be
reviewed after every three months was included. In this case procurement process was done only once
while the six months contract the procurement process was done twice a year.
62
Appendix 16
Summary of councils practices in key areas under review
Procurement Process
Tender documents of Kibaha TC, Njombe TC, Arusha MC, and Mwanza CC are issued by the councils
with the list of all necessary documents to be attached by the bidder during the submission of the
tender. This leads to have standard documents that are to be submitted by the bidder rather than
having various tender documents that are not consistent.
Contract Preparation and Administration

Contracts of Kibaha TC and Bagamoyo DC, Mwanza CC, Misungwi DC, and Arusha MC have necessary
clauses that safeguard the councils interest. Moreover, bylaws of Mwanza and Tanga CC are part of the
contracts that guide the private collector.
Mpanda DC has been administering well their contracts. There is positive response on remittance by the
private collector. This implies that the council has closely supervised the private agents.
Monitoring of contract
Monitoring of collectors performance needs a team work from different personnel such as Treasury
Department and technical departments. Having such team makes the monitoring easy as it has all
necessary information about the source.
Mwanza CC uses Department of Fisheries in monitoring of the source Fish Landing Fee by checking
closely loading and unloading. Misungwi DC has prepared a report on Priority areas on Distribution of
Council Resources where the report concentrated on council revenue sources. The report shows how
to raise the council revenue by knowing the potential sources in depth40. Njombe TC has formed a task
force responsible for searching new potential sources but also oversee the performance of the collector.
It has also the risk management policy, however, the policy has not been under implementation.
Mundi DC through its revenue source supervisors such as in charge of Market/bus stand prepare
monthly report about the situation at the site, progress and challenges faced, and performance of the
collector at the site. This makes the council to observe where problems are at a certain source and easy
to rectify them.
Internal audit reports

Internal auditor has a crucial role in improving the councils activities and internal controls through
internal audit reports recommendation. Meru DC had reported the outsourced revenue issues whereby
10 out of 12 reports reported the issues of outsourced revenue collections and provided constructive
recommendations. In Bagamoyo DC as well 3 internal audit reports obtained reported in depth on
revenue collection issues and provided constructive recommendations to the user department.
Generally, these are some of the areas that the mentioned councils have been performing well though
need more improvements. Councils may try to have such practice and see if they are implementable
based on their working conditions. But all councils need to put more effort on all parts when deciding
to outsource in order to increase their revenue, and hence good service delivery to its community and
economy as well.
40 Report on Recommendations of Collection of Own Source Revenue for the year 2010/2011, Misungwi DC Annual Strategies Report,
2010.
63

Management of Outsourced Revenue Collection Function by Local Governments (2012)

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Management of Outsourced Revenue Collection Function by Local Governments (2012)

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THE UNITED REPUBLIC OF TANZANIA

NATIONAL AUDIT OFFICE

PERFORMANCE AUDIT ON THE MANAGEMENT OF

PRIME MINISTERS OFFICE - REGIONAL ADMINISTRATION

A REPORT OF THE CONTROLLER AND AUDITOR GENERAL OF

THE UNITED REPUBLIC OF TANZANIA

National Audit Office

Best Resource Utilization

NATIONAL AUDIT OFFICE

PERFORMANCE AUDIT ON THE MANAGEMENT OF

PRIME MINISTERS OFFICE - REGIONAL ADMINISTRATION

A REPORT OF THE CONTROLLER AND AUDITOR GENERAL

Table 1: Accumulated revenue not remitted by collecting agents

Figure 1: Flow of revenue collection activities as organised in Local Government Authorities

Appendix 1: Audit questions and sub questions

AFROSAI-E - African Organization of Supreme Audit Institution for

Poor planning before outsourcing decision

Procedures to procure private collector not efficiently done

Contracts not adequately safeguarding interests of the councils

Inadequate monitoring of performance of private revenue collector

Sanctions not adequately enforced and regulated

Internal audit not addressing outsourced revenue collection problems

Outsourced revenue collection inadequately monitored by higher authorities

Council Directors are recommended to consider:

Table 1: Accumulated revenue not remitted by collecting agents

Source: NAOT Financial Audit reports

1.2 Audit Objective

Question 4: Is implementation of the contracts and the collectors performance efficiently

1.3 Audit design

1.3.1 Scope and limitation

1.3.2 Methods and Implementation

1.3.3 Assessment criteria

Planning for outsourcing

Feasibility studies should, according to regulations, be conducted before making decisions on

Implementation of the contracts and performance of the private collectors

Actions taken by higher authorities

1.4 Data validation process

1.5 Structure of the audit report

MANAGEMENT SYSTEM FOR OUTSOURCED REVENUE

Table 2: Actual revenue collection as a percentage of total revenue

2.2 Changed conditions for responsible authorities

However, a decision for outsourcing has to be preceded by an examination of whether required

2.3 Government policies and regulations

2.3.1 Outsourcing policies

12 Regulation 74 of PPR 2005, G.N. No. 97

2.3.2 Laws and regulations

2.4 Organization and actors for revenue collection

2.4.1 Council level

Department of Finance in revenue section (Under CD)

Contract (Project) manager

Revenue collection agents (Contractors)

2.4.2 At Regional level

Local Government Management Service (LGMS)

2.4.3 Activities at Central Government level

Summary of System Organisation

Figure 1: System Graph Outsourcing revenue collection function

Source: Audit Findings

2.5 Steps and procedures at large

2.5.1 Collecting revenue

Figure 2: Flow of revenue collection activities as organized in LGAs

Source: Audit findings

2.5.2 Procurement of private collectors

Figure 3: Flow of activities to procure revenue collection agents in LGAs

Source: Audit findings