REPUBLIC OF KENYA FFICE OF THE AUDITOR-GENERAL THE WORLD BANK RECEIVED IN CD'S OFFICE R E P O R T Receivedby ............ ....................... DaeTm ............. O F Action by ..........................................- c c .........................................- -.....------- --- THE AUDITOR-GENERAL ON THE FINANCIAL STATEMENTS OF KENYA TRANSPORT SECTOR SUPPORT PROJECT (IDA CREDIT NO.4926/5410-KE COMPONENT BI - SUPPORT TO MINISTRY OF ROADS) FOR THE YEAR ENDED 30 JUNE 2016 STATE DEPARTMENT OF INFRASTRUCTURE KENYA TRANSPORT SECTOR SUPPORT PROJECT (KTSSP PROJECT) STATE DEPARTMENT OF INFRASTRUCTURE IDA 4926-KE/5410-KE ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED JUNE 30, 2016 Prepared in accordance with the Cash Basis of Accounting Method under the International Public Sector Accounting Standards (IPSAS) KENYA TRANSPORT SECTOR SUPPORT PROJECT Reports and Financial Statements or the financial year ended June 30, 2016 CONTENTS PAGE 1. PROJECT INFORMATION AND OVERALL PERFORMANCE................................................................1 2. STATEMENT OF PROJECT MANAGEMENT RESPONSIBILITIES........................................................4 3. REPORT OF THE INDEPENDENT AUDITORS ON THE KTSSP PROJECT...........................................5 4. STATEMENT OF RECEIPTS AND PAYMENTS FOR THE YEAR ENDED 30TH JUNE 2016..............6 5. STATEMENT OF FINANCIAL ASSETS AND LIABILITIES AS AT 30TH JUNE 2016..........................7 6. STATEMENT OF CASHFLOW FOR THE YEAR ENDED 30m JUNE 2016 8 7. STATEMENT OF COMPARATIVE BUDGET AND ACTUAL AMOUNTS.............................................9 8. NOTES TO THE FINANCIAL STATEM ENTS......................................................................................... 10 9. PROGRESS ON FOLLOW UP OF AUDITOR RECOMMENDATIONS................................................. 16 1 Financial Statement For the year ended June 30, 2016 PROJECT INFORMATION AND OVERALL PERFORMANCE 1.1 Name and registered office Name: The project's official is Principal Secretary for State Department of Infrastructure. Objective: The key objective of the project is to improve the efficiency of road transport along the Northern Corridor. Address: The project offices are State Department of Infrastructure, Nairobi, Kenya. Contacts: The following are the project contacts Telephone: (02) 27230101 E-mail: ps@roads.go.ke Website: www.roads.go.ke Project Information Project Start Date: 22nd April 2011 Project End Date: 31st December, 2018 Project Manager: Chief Eng. F.Gitau Project Overview Line Ministiy/State The project is under the supervision of State Department of Department of the project Infrastructure. Project number P124109 Strategic goals of the The strategic goals of the project are as follows: project (i) Improve the Institutional capacity (ii) Better arrangements in the Urban Transport Sub-Sector Achievement of strategic The project management aims to achieve the goals through the following goals means: (i) Support and enhance operations of N.C.A and E.B.K. (ii) Study the role and impact of the new constitution regarding state Department of Infrastructure visa-vis the different Departments and Authorities under team (iii) Facilitate the Monitory and Evaluation for the Project (iv) Training Manpower in KRB, ERD, State Law and SDol and (v) Inventory of unclassified roads and recommendation thereof for maintenance and Management KENYA TRANSPORT SECTOR SUPPORT PROJECT Reports and Financial Statements For the financial year ended June 30, 2016 Current situation that the The project was formed to intervene in the following areas: project was formed to (i) Challenges faced in implementation of nutrip project. intervene (ii) Coming into effect of the new constitution Bankers The following are the bankers for the current year: 1. Central bank of Kenya Haile Salasie Avenue P.o Box 60000-00200 Nairobi Kenya 1.2 Auditors Auditor General Office of Auditor General Anniversary Towers, University Way P.O. Box 30084 GPO 00100 Nairobi, Kenya Roles and Responsibilities The project manager and the key stakeholders involved in the project are:- Names Title designation Responsibilities Eng. P.M.Mwinzi Project Team Leader Ensure Proper Management of Implementation Chief Eng. F.Gitau Deputy Team Leader Ensure Proper Management of Project Alfred Maaga Project Accountant Ensure Proper Funds Flow and Timely Reports Funding summary The Project was for duration of 6(six) years from 2011 to 2016; Revised to 2018 with an approved budget of US$M 17.47 equivalent to Kes 1.5 Billion in respect to State Department of Infrastructure as highlighted in the table below: 2 KENYA TRANSPORT SECTOR SUPPORT PROJECT Reports and Financial Statements For the financial year ended June 30, 2016 Below is the funding summary:- Sorc f unsDoo Comtet- Ao recevd o Udrw alnetodt dat 30 6 216) (3 6 2016 Loan World Bank 17,470,000 1,489,300,000 1,399,516 130,071,410 16,070,484 128,582,110 Gok- - 39,842,000 - 29,142,000 10,700,000 counterpart Miscellaneous - - - 126,000 Receipt I_I Total 17,470,000 1,518,442,000 1,399,516 159,339,410 16,070,484 139,282,110 Summary of Overall Project Performance: Budget performance against actual amounts for current year and for cumulative to-date. There have been delays due to delay in government procurement procedures. Summary of Project Compliance: We have not had any cases of non-compliance with applicable laws and regulations in the year. The projects has complied with the financing agreements with World bank. KENYA TRANSPORT SECTOR SUPPORT PROJECT Reports and Financial Statements For the financial year ended June 30, 2016 STATEMENT OF PROJECT MANAGEMENT RESPONSIBILITIES The Principal Secretary for the State Department of Infrastructure and the Project Team Leader for KTSSP project are responsible for the preparation and presentation of the Project's financial statements, which give a true and fair view of the state of affairs of the Project for and as at the end of the financial year ended on June 30, 2016. This responsibility includes: (i) maintaining adequate financial management arrangement and ensuring that these continue to be effective throughout the reporting period; (ii) maintaining proper accounting records, which disclose with reasonable accuracy at any time the financial position of the Project; (iii) designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of the financial statement, and ensuring that they are free from material misstatements, whether due to error or fraud; (iv) safeguarding the assets of the Project; (v) selecting and applying appropriate accounting policies; and (vi) making accounting estimates that are reasonable in the circumstances. The Principal Secretary for the State Department of Infrastructure and the Project Team Leader for KTSSP project accept responsibility for the Project's financial statements, which have been prepared on the Cash Basis Method of Financial Reporting, using appropriate accounting policies in accordance with International Public Sector Accounting Standards. The Principal Secretary for the State Department of Infrastructure and the Project Team Leader for KTSSP project are of the opinion that the Project's financial statements give a true and fair view of the state of Project's transactions during the financial year ended June 30, 2016 . And of the Project's financial position as at that date. The Principal Secretary for the State Department of Infrastructure and the Project Team Leader for KTSSP project further confirm the completeness of the accounting records maintained for the Project, which have been relied upon in the preparation of the Project financial statements as well as the adequacy of the systems of internal financial control. The Principal Secretary for the State Department of Infrastructure and the Project Team Leader for KTSSP project confirm that the Project has complied fully with applicable Government Regulations and the terms of external financing covenants, and that Project funds received during the financial year under audit were used for the eligible purposes for which they were intended and were properly accounted for. Approval of the Project financial statements The Project financial statements were approved by the Principal Secretary for the State D partment of Infrastructure and the Project Team Leader for KTSSP project on 2._) ,I__ -)] 2016 and signed by them. rincipal Secretary Project eam Leader 4 REPUBLIC OF KENYA Telephone: +254-20-342330 P.O. Box 30084-00100 Fax: +254-20-311482 -inail: oag@oagkenya.go.ke NAIROBI Website: www.kenao.go.ke OFFICE OF THE AUDITOR-GENERAL REPORT OF THE AUDITOR-GENERAL ON KENYA TRANSPORT SECTOR SUPPORT PROJECT (IDA CREDIT NO.4926/5410-KE COMPONENT B1 - SUPPORT TO MINISTRY OF ROADS) FOR THE YEAR ENDED 30 JUNE 2016- STATE DEPARTMENT OF INFRASTRUCTURE REPORT ON THE FINANCIAL STATEMENTS I have audited the accompanying financial statements of Kenya Transport Sector Support Project IDA Credit No.4926/5410-KE - State Department of Infrastructure set out on pages 6 to 15, which comprise the statement of financial assets and liabilities as at 30 June 2016, and the statement of receipts and payments, the statement of cash flows, and the statement of comparison of budget and actual amount for the year then ended, and a summary of significant accounting policies and other explanatory information in accordance with provisions of Article 229 of the Constitution of Kenya, Section 35 of the Public Audit Act, 2015 and the amended and restated Financing Agreement dated 31 March 2014 between International Development Association(IDA) and the Republic of Kenya. I have obtained all the information and explanations which, to the best of my knowledge and belief were necessary for the purpose of the audit. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Public Sector Accounting Standards (Cash Basis) and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. The management is also responsible for the submission of the financial statements to the Auditor-General in accordance with the provisions of Section 47 of the Public Audit Act, 2015. Auditor-General's Responsibility My responsibility is to express an opinion on the financial statements based on the audit and report in accordance with the provisions of Section 48 of the Public Audit Act, 2015 and submit the audit report in compliance with Article 229(7) of the Constitution. The audit was conducted in accordance with the International Standards of Supreme Audit Institutions. Those standards require compliance with ethical requirements and that the audit be planned and performed with a view to obtaining reasonable assurance that the financial statement are free from material misstatement. Report of the Auditor-General on the Financial Statements of Kenya Transport Sector Support Project (IDA Credit No.4926/5410-KE Component BI - Support to Ministry of Roads)for the year ended 30 June 2016- State Department of Infrastructure Promoting Accountability in the Public Sector An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the project's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the project's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the financial statements. I believe the audit evidence obtained is sufficient and appropriate to provide a basis for my audit opinion. Opinion In my opinion, the financial statements present fairly, in all material respects, the financial position of the Kenya Transport Sector Support Project as at 30 June 2016, and of its financial performance and its cash flows for the year then ended, in accordance with International Public Sector Accounting Standards (Cash Basis) and comply with the Financing Agreement. Credit No. 4926/5410 - KE. In addition, the Special Account Statement present fairly, the special account transactions and the closing balance has been reconciled with the books of accounts. REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS As required by International Development Association (IDA), I report based on my audit that:- i. I have obtained all the information and explanations which, to the best of my knowledge and belief, were necessary for the purpose of the audit; and, ii. in my opinion, proper books of account have been kept by the project, so far as appears from my examination of those books; and, iii. The project's statement of financial position is in agreement with the books of account. FCPA Edward R. 0. Ouko, CBS AUDITOR-GENERAL Nairobi 29 December 2016 Report of the Auditor-General on the Financial Statements of Kenya Transport Sector Support Project (IDA Credit No.4926/5410-KE Component BI - Support to Ministry of Roads) for the year ended 30 June 2016- State Department of Infrastructure 2 KENYA TRANSPORT SECTOR SUPPORT PROJECT Reports and Financial Statements For the financial year ended June 30, 2016 1. STATEMENT OF RECEIPTS AND PAYMENTS FOR THE YEAR ENDED 30TH JUNE 2016 Note Cumulative 2015/16 2014/15 to-date Kshs Kshs Kshs RECEIPTS Loan from external development partners (IDA) 2. 33,565,820.00 3,690,387.00 130,071,410.00 Miscellaneous receipts 3. 3,000.00 84,000.00 126,000.00 Receipts from Government of Kenya (GoK) 4. 0 29,142,000.00 Total receipts 33,568,820.00 3,774,387.00 159,339,410.00 PAYMENTS Purchase of goods and services 5 . 34,168,024.55 21,074,383.55 132,907,493.55 Acquisition of non-financial assets 6. - - 25,727,910.00 TOTAL PAYMENTS 34,168,024.55 21,074,383.55 158,635,403.55 SURPLUS/DEFICIT FOR THE YEAR (599,204.55) (17,299,996) 704,006.45 The accounting policies and explanatory notes to these financial statements are an integral part of the financial statements. Principal Secretary Po t Cooidinator Date' Date 6 KENYA TRANSPORT SECTOR SUPPORT PROJECT Reports and Financial Statements For the financial year ended June 30, 2016 2. STATEMENT OF FINANCIAL ASSETS AND LIABILITIES AS AT 30TH JUNE 2016 Note 2015/2016 2014/2015 Restated Kshs Kshs FINANCIAL ASSETS Cash and Cash Equivalents Bank Balances 7. 2,213,085.65 2,812,290.20* TOTAL FINANCIAL ASSETS 2,213,085.65 2,812,290.00 REPRESENTE BY: Cash and cash equivalents b/fwd 8. 2,812,290.20 18,603,208.00 Surplus/Deficit for the year (599,204.55) (17,299,996.00) Prior Year Adjustment 9. 1,509,078.20 NET FINANCIAL POSITION 2,213.085.65 2,812,290.20 The accounting policies and explanatory notes to these financial statements fo map integral part of the fi ancial statements. The financial statements were approved on a ( 2016 and signed by: Princ al Secretary Date Date *Cash and Cash Equivalent of Kshs.2,812,290.20 due to prior adjustment 7 KENYA TRANSPORT SECTOR SUPPORT PROJECT Reports and Financial Statements For the financial year ended June 30, 2016 3. STATEMENT OF CASHFLOW FOR THE YEAR ENDED 30TH JUNE 2016 Receipts for operating income 2015-2016 2014-2015 Transfer from Government entities Restated Proceeds from domestic and foreign grants - - Miscellaneous receipts 3,000.00 84,000 Payments for operating expenses Compensation of employees 18,892,952.80 - Purchase of goods and services 12,999,151.10 (21,074,384) Social security benefits 12,550.00 Transfers to other government entities 2,263,370.65 Other grants and transfers Other payments Net cash flow from operating activities (34,165,024.55) (20,990,384.00) CASHFLOW FROM INVESTING ACTIVITIES Acquisition of Assets Net cash flows from Investing Activities CASHFLOW FROM BORROWING ACTIVITIES Proceeds from Foreign Borrowings 33,565,820.20 3,690,387.00 Net cash flow from financing activities NET INCREASE IN CASH AND CASH (599,204.55) (17,299,996.00) EQUIVALENT Prior Year Adjustment 1,509,078.20 Cash and cash equivalent at beginning of the year 2,812,290.20 18,603,208.00 Cash and cash equivalent at end of the year 2,213,085.65 2,812,290.20 The accounting policies and explanatory notes to these financial statements form an integral part of the financial statements. The entity financial statements were approved on 21'2-2016 and signed b Project CoordWtor Date DatZ2 8 KENYA TRANSPORT SECTOR SUPPORT PROJECT Reports and Financial Statements For the financial year ended June 30, 2016 4. STATEMENT OF COMPARATIVE BUDGET AND ACTUAL AMOUNTS A dj us tm Actual on en Comparable % of Receipts/Payments Item Original Budget ts Final Budget Basis Variance Variance a b c=a+b d e=d-c Receipts Proceeds from domestic and 100,000,000.00 200,000,000.00 33,565,820.00 166,434,180.00 173 foreign grants Proceeds from GoK 03 Miscellaneous receipts 3,000.00 3,000.00 1003 Total Receipts 100,000,000.00 200,000,000.00 33,568,820.00 166,431,180.00 17/ Payments Purchase of goods and services 82. 100,000,000.00 200,000,000.00 34,168,024.55 165,831,975.45 Acquisition of non-financial assets Total Payments 100,000,000.00 200,000,000.00 34,168,024.55 165,831,975.45 82.90 Note: The significant budget utilisation/performance differences in th last column are explained in Annex 1 to the cl s,a ts. a ecretary Proje Coordinator Date Date 9 KENYA TRANSPORT SECTOR SUPPORT PROJECT Reports and Financial Statements For the financial year ended June 30, 2016 5. NOTES TO THE FINANCIAL STATEMENTS The principal accounting policies adopted in the preparation of these financial statements are set out below: SIGNIFICANT ACCOUNTING POLICIES 1. Statement of compliance and basis of preparation The financial statements have been prepared in accordance with and comply with International Public Sector Accounting Standards (IPSAS) with particular emphasis on Cash Basis Financial Reporting under the Cash Basis of Accounting. The financial statements comply with and conform to the form of presentation prescribed by the Accounting Standards Board of Kenya. The financial statements are presented in Kenya Shillings, which is the functional and reporting currency of the Project and all values are rounded to the nearest one Shilling. The accounting policies adopted have been consistently applied to all of the years presented. The financial statements have been prepared on the cash basis following the Government's standard chart of accounts. The cash basis of accounting recognises transactions and events only when cash is received or paid out by the Project. i. Recognition of revenue and expenses The Project recognises all revenues from the various sources when the event occurs and the related cash has actually been received by the Project. In addition, the Project recognises all expenses when the event occurs and the related cash has actually been paid out by the Project. ii. In-kind donations In-kind donations are contributions made to the Project in the form of actual goods and/or services rather than in money or cash terms. These donations may include vehicles, equipment or personnel services. Where the financial value of in-kind donations can be reliably determined, the Project includes such value in the statement of receipts and payments both as revenue and as an expense in equal and opposite amounts; otherwise, the donation is not recorded. iii. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and cash at bank, short-term deposits on call and highly liquid investments with an original maturity of three months or less, which are readily convertible to known amounts of cash and are subject to insignificant risk of changes in value. Bank account balances include amounts held at the Central Bank of Kenya and at various commercial banks at the end of the financial year/period. For the purposes of these financial statements, cash and cash equivalents also include short term cash imprests and advances to authorised public officers and/or institutions which had not been surrendered or accounted for at the end of the financial year/period. 10 KENYA TRANSPORT SECTOR SUPPORT PROJECT Reports and Financial Statements For the financial year ended June 30, 2016 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) iv. Pending bills Pending bills consist of unpaid liabilities at the end of the financial year/period arising from contracted goods or services during the year/period or in past years/periods. As pending bills do not involve the payment of cash in the reporting period, they are simply disclosed as an Annex to the financial statements. When the pending bills are finally settled, such payments are included in the statement of receipts and payments in the year in which the payments are made. v. Budget The budget is developed on the same accounting basis (cash basis), the same accounts classification basis, and for the same period as the financial statements. The Project's budget was approved as required by Law and National Treasury Regulations, as well as by the participating development partners, as detailed in the Government of Kenya Budget Printed Estimates for the year. A high-level assessment of the Project's actual performance against the comparable budget for the financial year/period under review has been included in an annex to these financial statements. vi. Exchange rate differences The accounting records are maintained in the functional currency of the primary economic environment in which the Project operates, Kenya Shillings. Transactions in foreign currencies during the year/period are converted into the functional currency using the exchange rates prevailing at the dates of the transactions. Any foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statements of receipts and payments. vii. Comparative figures Where necessary comparative figures for the previous financial year/period have been amended or reconfigured to conform to the required changes in financial statement presentation. viii. Subsequent events There have been no events subsequent to the financial year/period end with a significant impact on the financial statements for the year ended June 30, 2016 11 KENYA TRANSPORT SECTOR SUPPORT PROJECT Reports and Financial Statements For the financial year ended June 30, 2016 Grants Received from Bilateral Donors (Foreign Governments) Insert name of foreign Government Grants Received from Multilateral Donors (International Organisations) Insert name of international organization Grants Received from Local Individuals and organisations Insert name of individual or local organisation Total I___ _ __ _ __ __I__ _ __ __ _ __ _I_ _ *. The direct payment grants represent payments for goods and services done directly by the donor on behalf of the project. Projects should ensure that the adequate documents and support document is requested from the donors to support this grant. 2 LOAN FROM EXTERNAL DEVELOPMENT PARTNERS During the 12 months to 30 June 2016 we received funding from development partners in form of loans negotiated by the National Treasury donors as detailed in the table below: Nam of e Donr at Am Las Loa Tota amuti s Loans Received from Bilateral Donors (Foreign Governments)v WORID BANK 15-12-20 15 -22,865,820.00 - 22,865,820.00 130,071,410.0( IDA 10,700,000.00 Total 33,565,820.00 22,865,820.00 130,071IA 410.0( 12 KENYA TRANSPORT SECTOR SUPPORT PROJECT Reports and Financial Statements For the financial year ended June 30, 2016 3 MISCELLANEOUS RECEIPTS 2015/16 2014/15 Cumulative Kshs Kshs Kshs Other receipts not classified elsewhere 3,000.00 84,000.00 126,000.00 3,000.00 84,000.00 126,000.00 4. RECEIPTS FROM GOVERNMENT OF KENYA These represent counterpart funding and other receipts from government as follows: 2015/16 2014/15 Cumulative Kshs Kshs to-date Counterpart funding through Ministry xxx Counterpart funds Quarter 1 Counterpart funds Quarter 2 Counterpart finds Quarter 3 - - - Counterpart funds Quarter 4 - - - Other transfers froni government entities Ministry xx - - - Ministry xy - - - Agency xz - - - Appropriations-in-Aid - - - 13 KENYA TRANSPORT SECTOR SUPPORT PROJECT Reports and Financial Statements For the financial year ended June 30, 2016 5. PURCHASE OF GOODS AND SERVICES 2015/16 2014/15 Kshs Kshs Utilities, supplies and services 18,931,388.85 3,944,280.00 Communication, supplies and services Training expenses 8,635,914.15 12,516,360.00 Hospitality supplies and services Other operating expenses 6,600,721.55 4,613,744.00 34,168,024.55 21,074,384.00 6. ACQUISITION OF NON FINANCIAL ASSETS 2015/16 2014/15 - 25,727,910.00 14 KENYA TRANSPORT SECTOR SUPPORT PROJECT Reports and Financial Statements For the financial year ended June 30, 2016 7. CASH AND CASH EQUIVALENTS 2015/16 2014/15 Kshs Kshs Restated Bank accounts (Note 8A) 2,213,085.25 2,812,290.20 TOTALS 2,213,085.25 2,812,290.20 8. BANK BALANCES 2015/16 2014/15 Restated Kshs Kshs Bank Accounts Local Currency Accounts Central Bank of Kenya [A/c No 1000186267 2,213,085.45 2,812,290.00 TOTALS 2,213,085.65 2,812,290.20 9. Bank Balances brought forward has been adjusted by Kshs. 1,509,078.20 to correct previous years errors arising from long outstanding reconciling items. 15 KENYA TRANSPORT SECTOR SUPPORT PROJECT Reports and Financial Statements For the financial year ended June 30, 2016 PROGRESS ON FOLLOW UP OF AUDITOR RECOMMENDATIONS 16