REPUBLIC OF KENYA OFFICE OF THE AUDITOR-GENERAL REPORT THE WORLD BANK Received by Date .* .C Time THE AUDITOR-GENERAL ON THE FINANCIAL STATEMENTS OF NATIONAL URBAN TRANSPORT IMPROVEMENT PROJECT (IDA NO.5140KE) FOR THE YEAR ENDED 30 JUNE 2016 STATE DEPARTMENT OF INFRASTRUCTURE NATIONAL URBAN TRANSPORT IMPROVEMENT PROJECT (NUTRIP PROJECT) STATE DEPARTMENT OF INFRASTRUCTURE IDA 5140 -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) NATIONAL URBAN TRANSPORT IMPROVEMENT PROJECT Aeports and Financial Statements For the financial year ended June 30, 2016 CONTENTS PAGE 1. PROJECT INFORMATION AND OVERALL PERFORMANCE....................................................................... i 2. STATEMENT OF PROJECT MANAGEMENT RESPONSIBILITIES............................................................. iv 3. REPORT OF THE INDEPENDENT AUDITORS ON THE NUTRIP PROJECT............................................... v 4. STATEMENT OF RECEIPTS AND PAYMENTS FOR THE YEAR ENDED 30TH JUNE 2016.......................1 5. STATEMENT OF FINANCIAL ASSETS AND LIABILITIES AS AT 30TH JUNE 2016....................................2 6. STATEMENT OF CASHFLOW FOR THE YEAR ENDED 30TH JUNE 2016....................................................3 7. STATEMENT OF COMPARATIVE BUDGET AND ACTUAL AMOUNTS........................................................3 8. NOTES TO THE FINANCIAL STATEM ENTS.................................................................................................... 4 9. PROGRESS ON FOLLOW UP OF AUDITOR RECOMMENDATIONS .........................................................10 NATIONAL URBAN TRANSPORT IMPROVEMENT PROJECT Reports and Financial Statements For the financial year ended June 30, 2016 1. 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: 3rd August, 2013 Project End Date: 31st December, 2018 Project Manager: Chief Eng. Patrick M. Mwinzi Project Overview Line Ministry/State The project is under the supervision of State Department of Infrastructure. Department of the project Project number P126321 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 The project management aims to achieve the goals through the following strategic goals means: (i) Training for staff across the State Departments Involved (ii) Facilitate for effective Monitory and evaluation of the project Current situation that The project was formed to intervene in the following areas: the project was (i) Build capacity for newly established National Construction Authority formed to intervene (NCA) as well as Engineers Board of Kenya (EBK) (ii) Strengthen capacity of SDol staff to carry out its responsibilities effectively 1 NATIONAL URBAN TRANSPORT IMPROVEMENT PROJECT Reports and Financial Statements For the financial year ended June 30, 2016 Bankers The following are the bankers for the current year: Kenya Commercial Bank Capital Hill, Branch Nairobi, Kenya 1.2 Auditors Office of Auditor General Kenya National Audit Office 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 Chief Eng. P. Mwinzi Project Team Leader Ensure proper management of implementation Eng. F. Gitau Deputy Team Leader Ensure proper management of Project Alfred M. Maaga Project Accountant Ensure proper funds flow and timely reports Funding summary The Project is for duration of 6(six) years from 2012 to 2018 with an approved budget of US$M 3.6 equivalent to Kshs 307 Million in respect to State Department of Infrastructure as highlighted in the table below: 11 NATIONAL URBAN TRANSPORT IMPROVEMENT PROJECT Reports and Financial Statements For the financial year ended June 30, 2016 Below is the funding summary: Source of funds Donor Commitment- Amount received to Undrawn balance to date date - (30 06 2016) (30 06 2016) Donor Kshs Donor Kshs Donor Kshs currency currency currency (A) (A') (B) (B') (A')-(B') Loan World Bank 3,600,000 306,900,000 389,453.65 76,350,916 306,510,546.35 230,549,084 Miscellaneous -- -- -- 1,730,855 -- (1,730,855) receipt Total 3,600,000 306,900,000 389,453.65 78,081,771 306,510,546.35 228,818,229 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 project has complied with the financing agreements with World Bank. 111 NATIONAL URBAN TRANSPORT IMPROVEMENT PROJECT Reports and Financial Statements For the financial year ended June 30, 2016 2. STATEMENT OF PROJECT MANAGEMENT RESPONSIBILITIES The Principal Secretary for the State Department of Infrastructure and the Project Team Leader for NUTRIP 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 NUTRIP 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 NUTRIP 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 NUTRIP 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 NUTRIP 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 De ment of Infrastructure and the Project Team Leader for NUTRIP project on __) 2016 and signed by them. rincipal Secretary rae Team Leader iv NATIONAL URBAN TRANSPORT IMPROVEMENT PROJECT Reports and Financial Statements For the financial year ended June 30, 2016 3. REPORT OF THE INDEPENDENT AUDITORS ON THE NUTRIP PROJECT V REPUBLIC OF KENYA Telephone: +254-20-342330 P.O. Box 30084-00100 Fax: +254-20-311482 NAIROBI E-mail: oag@oagkenya.go.ke Website: www.kenao.go.ke OFFICE OF THE AUDITOR-GENERAL REPORT OF THE AUDITOR-GENERAL ON NATIONAL URBAN TRANSPORT IMPROVEMENT PROJECT (IDA NO.5140KE) FOR THE YEAR ENDED 30 JUNE 2016-STATE DEPARTMENT OF INFRASTRUCTURE REPORT ON THE FINANCIAL STATEMENTS I have audited the accompanying financial statements of National Urban Transport Improvement Project(IDA NO.5140KE) set out on pages 1 to10, which comprise the statement of financial assets and liabilities at 30 June 2016, and the statement of receipts and payments, statement of the cash flows, statement of comparative budget and actual amounts for the year then ended, and a summary of significant accounting policies and other explanatory information in accordance with the provisions of Article 229 of the Constitution of Kenya, Section 35 of the Public Audit Act, 2015 and Financing Agreement Credit No. 5140-KEdated 26 September 2012 between the International Development Association 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 these 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 International Standards of Supreme Audit Institutions. Those standards require compliance with ethical requirements and that the audit be planned and performed to obtain reasonable assurance about whether the financial statements are free from material misstatement. Report of the Auditor-General on the Financial Statements of National Urban Transport Improvement Project (IDA NO.5140KE) 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 entity's preparation and fair presentation of the financial statements in order to designaudit 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 by the management, as well as evaluating the overall presentation of the financial statements. I believe that the audit evidence obtained is sufficient and appropriate to provide a basis for my qualified audit opinion. Basis for Qualified Opinion Special Account Reconciliation The statement of receipts and payments reflects total receipts from development partners for the year as Kshs.48,744,572 while the special account statement prepared and submitted by National Treasury reflects Kshs.8,000, 736.46 withdrawn to finance project activities. The variance of Kshs.40,743,835.54 has not been explained or reconciled. Qualified Opinion In my opinion, except for the effects of the matter described in the Basis for Qualified Opinion paragraph, the financial statements present fairly, in all material respects, the financial position of the 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 Financing Agreement. In addition, the special account statement does not present fairly, the special account transactions and the closing balance has not been reconciled with the books of account. REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS As required by the 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, Report of the Auditor-General on the Financial Statements of National Urban Transport Improvement Project (IDA NO.5140KE) for the year ended 30 June 2016-State Department of Infrastructure 2 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 National Urban Transport Improvement Project (IDA NO.5140KE) for the year ended 30 June 2016-State Department of Infrastructure 3 NATIONAL URBAN TRANSPORT IMPROVEMENT PROJECT Reports and Financial Statements For the financial year ended June 30, 2016 4. STATEMENT OF RECEIPTS AND PAYMENTS FOR THE YEAR ENDED 30TH JUNE 2016 Note 2015/16 2014/15 CUMULATIVE Kshs Kshs Kshs RECEIPTS Loan from external development partners 8.1 48,744,572 17,606,344 76,350,916 Miscellaneous receipts 8.2 1,730,855 1,730,855 Total receipts 48,744,572 19,337,199 78,081,771 PAYMENTS Purchase of goods and services 8.3 7,830,383 4,064,200 14,971,520 Other grants and transfers and payments 8.4 28,589,364 5,967,511 34,556,874 TOTAL PAYMENTS 36,419,747 10,031,711 49,528,394 SUPLUS DEFICIT 12,324,824 9,305,488 28,553,377 The accounting policies and explanatory notes to these financial st tements are an integral pai the financial Projec Prin ipal Secretary Leader Date Date NATIONAL URBAN TRANSPORT IMPROVEMENT PROJECT Reports and Financial Statements For the financial year ended June 30, 2016 5. STATEMENT OF FINANCIAL ASSETS AND LIABILITIES AS AT 30TH JUNE 2016 Note 2015/16 2014/15 Kshs Kshs FINANCIAL ASSETS Cash and Cash Equivalents Bank Balances 8.6 28,553,377 16,228,553 Total Financial Assets 28,553,377 16,228,553 REPRESENTED BY: Cash and cash equivalents b/fwd 16,228,553 6,923,064 Surplus/Deficit for the year 12,324,824 9,305,488 NET FINANCIAL POSITION 28,553,377 16,228,552 The accounting policies and explanatory notes to these financial statements form an integral part of the financial statements. The financial statements were approved on 2016 and signed by: Prinpal Secretary rojectTyfit Leader Date Date 2 NATIONAL URBAN TRANSPORT IMPROVEMENT PROJECT Reports and Financial Statements For the financial year ended June 30, 2016 6. STATEMENT OF CASHFLOW FOR THE YEAR ENDED 30TH JUNE 2016 2015/16 2014/15 Notes Kshs Kshs Receipts for operating income Miscellaneous receipts - 1,730,855 Payments for operating expenses Purchase of goods and services 8.3 7,830,383 4,064,200 Other grants and transfers and 5,967,511 Payments 8.4 28,589,364 Net cash flow from operating activities (36,419,747) (8,300,856) Cashflow from borrowing activities Loan from external development partners 8.1 48,744,572 17,606,344 Net cash flow from financing activities 48,744,572 17,606,344 Net increase in cash and cash equivalent 12,324,824 9,305,488 Cash and cash equivalent at 6,923,064 beginning of the year 16,228,553 Cash and cash equivalent at 28,553,377 16,228,553 end of the year 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 2016 and signed by: cretary Project Te Leader Date Date 3 NATIONAL URBAN TRANSPORT IMPROVEMENT PROJECT Reports and Financial Statements For the financial year ended June 30, 2016 7. STATEMENT OF COMPARATIVE BUDGET AND ACTUAL AMOUNTS Actual on Receipts/Payments Original Comparable % of Item Budget Adjust-ments Final Budget Basis Variance Variance a b c=a+b d e=d-c f=e/c % Receipts Proceeds from borrowings 100,000,000.00 - 200,000,000.00 48,744,572 151,255,428 75% Miscellaneous receipts - - - 0 Total Receipts 100,000,000.00 0 200,000,000 48,744,572 151,255,428 75% Payments Purchase of goods and services 50,000,000.00 - 100,000,000.00 7,830,383 92,219,617 92% Other payments 50,000,000.00 - 100,000,000.00 28,589,364 71,410,636 71% Total Payments 100,000,000.00- 200,000,000.00 36,419,747 163,580,253 63% Note: The significant budget utilization/performance differences in the last column are explained in Annex 1 to these financial statements. Project Team Principal Secretary Leader Date Date 4 NATIONAL URBAN TRANSPORT IMPROVEMENT PROJECT Reports and Financial Statements For the financial year ended June 30, 2016 8. NOTES TO THE FINANCIAL STATEMENTS The principal accounting policies adopted in the preparation of these financial statements are set out below: i 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 recognizes transactions and events only when cash is received or paid out by the Project. ii Recognition of revenue and expenses The Project recognizes 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 recognizes all expenses when the event occurs and the related cash has actually been paid out by the Project. iii 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. 5 NATIONAL URBAN TRANSPORT IMPROVEMENT PROJECT Reports and Financial Statements For the financial year ended June 30, 2016 iv 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 authorized public officers and/or institutions which had not been surrendered or accounted for at the end of the financial year/period. v 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. vi 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. vii 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 recognized in the statements of receipts and payments. viii 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. 6 NATIONAL URBAN TRANSPORT IMPROVEMENT PROJECT Reports and Financial Statements For the financial year ended June 30, 2016 ix 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. 8.1 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: Name of Donor Date Amount in Loans Loans Total amount in Kshs received loan currency received in received as USD cash direct payment* Kshs Kshs Loans Received from Multilateral Donors (International Organizations) WORLD-BANK 2015/16 48,744,572 Total Total_ 48,744,572 8.2 MISCELLANEOUS RECEIPTS 2015/16 2014/15 Kshs Kshs Other receipts not classified elsewhere 1,730,855 1,730,855 Refund from KTSSP for paying expenditure Erroneously from NUTRIP 1,232,355.00 Refund from Eng. Ondari 498,500.00 1,730,855.00 7 NATIONAL URBAN TRANSPORT IMPROVEMENT PROJECT Reports and Financial Statements For the financial year ended June 30, 2016 8.3 PURCHASE OF GOODS AND SERVICES 2015/16 2014/15 Kshs Kshs Purchase of goods & services 7,830,383.00 4,064,200.00 7,830.383.00 4.064,200.00 8.4 Other grants and transfers and payments 2015/2016 2014/15 Kshs Kshs 22,533,754.65 Other expenditure Training 5,673,551.00 Consultancy 6,026,000.00 284,600.00 Bank Charges 29,610.00 9,360.00 Total 28,589,364.00 5,967,511.00 8.5 Cash and Cash Equivalents C/Fwd 2015/2016 2014/2015 Kenya commercial Bank (A/C NO: 1138520586) 28,553,377.00 16,228,553.00 28,553,377.00 16,228,553.00 8 NATIONAL URBAN TRANSPORT IMPROVEMENT PROJECT Reports and Financial Statements For the financial year ended June 30, 2016 CASH AND CASH EQUIVALENTS C/FWD (Continued) 2015/16 2014/15 Kshs Kshs 8.6 Bank Accounts Kenya Commercial Bank [A/c No. 1138520586] 28,553,377 16,228,553 Total bank account balances 28,553,377 16,228,553 9 NATIONAL URBAN TRANSPORT IMPROVEMENT PROJECT Reports and Financial Statements For the financial year ended June 30, 2016 9. PROGRESS ON FOLLOW UP OF AUDITOR RECOMMENDATIONS The following is the summary of issues raised by the external auditor, and management comments that were provided to the auditor. We have nominated focal persons to resolve the various issues as shown below with the associated time frame within which we expect the issues to be resolved. Status: Timeframe: Reference (Put a date No. on the Issue! Focal Point person to (Resolved/ when you expect external Observations Management resolve the issue (Name Not the issue to be audit Report from Auditor comments and designation) Resolved) resolved) Guidance Notes: (i) Use the same reference numbers as contained in the external audit report; Obtain the "Issue/Observation" and "management comments", required above, from final external (ii) audit report that is signed by Management; Before approving the report, discuss the timeframe with the appointed Focal Point persons within (iii) your entity responsible for implementation of each issue; dicate the status of "Resolved" or "Not Resolved" by the date ing this report to (iv) onal reasury. Pri cipal Secretary Date Date 10