REPUBLIC OF KENYA OFFICE OF THE AUDITOR-GENERAL REPORT OF THE AUDITOR-GENERAL ON THE FINANCIAL STATEMENTS OF EASTERN AFRICAN REGIONAL TRANSPORT, TRADE AND DEVELOPMENT FACILITATION PROJECT CREDIT NO.5638-KE (IDA) FOR THE YEAR ENDED 30 JUNE 2018 KENYA NATIONAL HIGH YS A.V,,QRt* II# MINISTRY OF TRANSPORT, INFRASTRUCTURE, HOUSING & URBAN DEVELOPMENT Quality,HighSING,& Utter DonnecPionT PROJECT NAME: EASTERN AFRICA REGIONAL TRANSPORT, TRADE & DE VELOPAIENT FACILITATION PROJE CT (SECOND PHASE PROGRAM) IMPLEMENTING ENTITY: KENYA NATIONAL HIGHWAYS AUTHORITY PROJECT CREDIT NUMBER: LOAN ID 5638-KE PROJECT No P-1 48853 ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED Prepacred in acodance with the Cas IIc 30,h2018 Public Sector Accouin tillp- n eI Iternational PROJECT NAME: EASTERN AFRICA REGIONAL TRANSPORT, TRADE & DEVELOPMENT FACILITATION PROJECT (SECOND PHASE PROGRAM) Reports and Financial Statements For the financial year ended June 30, 2018 CONTENTS PAGE 1. PROJECT INFORMATION AND OVERALL PERFORMANCE 2. STATEMENT OF PROJECT MANAGEMENT RESPONSIBILITIES..............................................................viii 3. REPORT OF THE INDEPENDENT AUDITORS ON THE EASTERN AFRICA REGIONAL TRANSPORT, TRADE & DEVELOPM ENT FACILITATION PROJECT...................................................................................ix 4. STATEMENT OF RECEIPTS AND PAYMENTS FOR THE PERIOD ENDED 30TH JUNE 2018.................... 1 5. STATEMENT OF FINANCIAL ASSETS AND LIABILITIES AS AT 30TH JUNE 2018 ................................... 2 6 STATEMENT OF CASHFLOW FOR THE PERIOD 30TH JUNE 2018 7 STATEMENT OF COMPARATIVE BUDGET AND ACTUAL AMOUNTS 4 8 N O TES TO THE FIN AN CIA L STA TEM EN TS .................................................................................................. 5 10 PROGRESSES ON FOLLOW UP OF AUDITOR RECOMMENDATIONSCOM ANNEX I - VARIANCE EXPLANATIONS - COMPARATIVE BUDGET AND ACTUAL AMOUNTS..................14 A N N EX 2A - A N A LY SIS O F PEN D IN G BILLS.........................................................................................................15 ANNEX 3 - SUMMARY OF FIXED ASSET REGISTER 17 PROJECT NAME: EASTERN AFRICA REGIONAL TRANSPORT, TRADE & DEVELOPMENT FACILITATION PROJECT (SECOND PHASE PROGRAM) Reports and Financial Statements For the financial year ended June 30, 2018 1. PROJECT INFORMATION AND OVERALL PERFORMANCE 1.1 Name and registered office Name: Eastern Africa Regional Transport, Trade & Development Facilitation Projection (Second Phase Program) Objective: The objective of the Project is to improve the movement of goods and people along Lokichar to Nadapal Nakodok part of the Eldoret-Nadapal road in the north western part of Kenya, in particular and to enhance connectivity between Kenya and South Sudan. The pastoralist communities, farmers and businesses along the corridor will benefit from: * Employment creation from pastoralist roadside markets. * Reduction of poverty * Road user savings in maintenance costs and travel time * Improvement of safety in travel and improvement of emergency response in the transit corridor including Eldoret-Nadapal-Nakodok which is prone to road accidents and injuries. * The provision of fibre optic cable will improve internet access for economic development activities in the region. * Provision of One Stop Border Post (OSBP) and trade facilitation is expected to reduce delay at the borders, reduce trading costs between Kenya and Sudan and enhance business opportunities. Address: Blue Shield Tower, Hospital Road Upper Hill Nairobi Kenya Contacts: Director General Kenya National Highways Authority Po Box 49712-00100 Nairobi Telephone: (254) 020 495000 E-mail: dg@Kenha.co.ke Website: ww\w\1.kenha.co.ke PROJECT NAME: EASTERN AFRICA REGIONAL TRANSPORT, TRADE & DEVELOPMENT FACILITATION PROJECT (SECOND PHASE PROGRAM) Reports and Financial Statements For the financial year eided June 30, 2018 1.2 Project Information Project Start Date: 20th July 2015 Project End Date: 31s" December 2021 Project Engineer Eng. G.Amingh & Eng. John Ndinika Project Sponsor: International Development Agency (IDA) 1.3 Project Overview Line Ministry/State The project is under the supervision of the Ministry of Transport, Department of the Infrastructure, Housing & Urban Development project Project number P-148853 Strategic goals of the The objective of the Project is to improve the movement of goods and project people along the Lokichar Nadapal/Nakodok part of the Eldoret- Nadapal/Nakodok road in the north western part of Kenya, in particular, and to enhance connectivity between Kenya and South Sudan, in general: Projects Components The Projects have the following components & Description i) Component 1: Upgrading Selected Critical Road Infrastructure a) Upgrading of approximately 80 km of the Lokitaung junction - Kalobeiyei River section of the Eldoret-Nadapai/Nakodok road and (ii) related supervision costs. b) Upgrading of approximately 80 kn of the Lokitaung junction- Lodwar section of the Eldoret-Nadapal/Nakodok road; and (ii) related supervision costs. c) Upgrading of approximately 50 am of the Lodwar - Loichangamatak section of the Eldoret-Nadapai/Nakodok road; and (ii) related supervision costs. d) Construction of a bridge at Kainuk on Muruni River; and (ii) related supervision costs. e) Upgrading of approximately 40 km of the Loichangamatak - Lokichar section of the Eldoret-Nadapai/Nakodok road; and related supervision costs. F Implementing the Resettlement Action Plans (RAPs) along the Eldoret Nadapal/Nakodok road. ii) Component 2: Facilitation of Regional Transport, Trade and iii) Development Component 3: Institutional Development and Program Mlanagenient iv) Component 4: Enliancing Internet Connectivity PROJECT NAME: EASTERN AFRICA REGIONAL TRANSPORT, TRADE & DEVELOPMENT FACILITATION PROJECT (SECOND PHASE PROGRAM) Reports and Financial Statements For the financial year ended June 30, 2018 Other important Project Project IDA % background Component Cost(USD) Financing(USD) Financing(USD) information of the Upgrading project Costing and Critical Road Financing USD Infrastructure 594 426 72 Facilitation of Regional Transport, Trade and Development 31 27 87 Institutional Development and Program 3.5 3.5 100 Management Total 628.5 456.5 73 1.4 Bankers National Bank of Kenya Ltd Hill Branch Po Box 72866-00200 Nairobi 1.5 Auditors Auditor General Office of the Auditor General P.o Box 30084-0100 Nairobi 1.6 Roles and Responsibilities Names Title designation Key qualification Responsibilities Eng. David.A.Muchilwa Director Development Qualified Oversight . Deputy Director Team Coordinator & Construction Construction Specialist . . Deputy Director Special Team Coordinator & . Project (EARTTDP) Construction Specialist .Monitoring & Eng .Jula Ondeyo Assistant Director Qualified Evalaton S Evaluation Specialist iI Isaac Kamotho Assistant Director Qualified Financial Specialist Mr Walter Nyatwanga DepLty Director Qualified Safeguards Specialist Mr R Kilel Assistant Director Qualiled Procuremncuet Specialist PROJECT NAME: EASTERN AFRICA REGIONAL TRANSPORT, TRADE & DEVELOPMENT FACILITATION PROJECT (SECOND PHASE PROGRAM) Reports and Financial Statements For the financial year ended June 30, 2018 1.7 Funding summary The Project duration is from 20"' July 2015 to 31st December 2021 with an approved budget of USD 628,551,724 equivalent to Kshs 63,547,962,124 at exchange rate of Kshs 101.10 per USD as highlighted in the table below: Amount received to date Undrawn balance to date Source of funds Donor Commitment-(30621)306218 (30 06 2018) (30 06 2018) USD Kshs USD Kshs USD Kshs (A) (A ') (B) (B') (A) - (B) (A ')-(B') (i)Loan 456,551,724 46,158,383,724 53,457,763 5,404,697,443 403,093,961 40,753,686,281 (ii)Counterpart funds GOK 172,000,000 17,389,578,400 4,144,782 419,046,543 167,855,218 16,970,531,857 Total 628,551,724 63,547,962,124 57,602,545 5,823,743,986 571,006,431 57,724,218,138 1.8 Summary of Overall Project Performance: Budget performance against actual amounts for current year and for cumulative to-date Budget 2017/2018 Actual 2017/2018 Performance % 2,530,888,673 1,355,209,666 54% The status report is as follows PROJECT DESCRIPTION PROGRESS REPORTED TO DATE 1. Project Name: Upgrading of Physical progress, 1.5% Kalobeiyei River Nadapal (88 ki) road section Contract type: Works Contractor: China Railway No. 5 Amount certified KES. 203,171,739.60 and USD. Engineering Group Ltd 7.95 5.0 10.00 Contract Signed: 28' iMarch, 2017 Commencement Date: I I "' July, 2017 Amount paid KE7S. 203. 171,739-60 and USD. Completion Date: I lI "'July, 2020 795,0 10.00 Contract amount: KEVS. 7,865,03 1,057.15 PROJECT NAME: EASTERN AFRICA REGIONAL TRANSPORT, TRADE & DEVELOPMENT FACILITATION PROJECT (SECOND PHASE PROGRAM) Reports and Financial Statements For the financial year ended June 30, 2018 PROJECT DESCRIPTION PROGRESS REPORTED TO DATE Time lapsed 10 Months Consultant: International Consultants & Technocrats Pvt Ltd with CAS Consultant Ltd. Contract Amount: USD. 3,543,351.00 and KES. 491,355,410.00 2. Project Name: Upgrading of Physical progress, 1.5% Lokitaung Junction to Kalobeiyei River (80 kin) road section Amount certified USD 10,678,788.06 Contract type: Works Contractor: Chongqing International Construction Corporation Contract Signed: 28th March, 2017 Amount paid USD 10,678,788.06 Commencement Date: 1st August, 2017 Completion Date: 1st August, 2020 Contract amount: KES. 8,454,759,874.18 Time lapsed 9.68 months Consultant: Sheladia Associates Inc. in association with Abdul Mullick associates Contract Amount: USD. 2,204,145.00 and KES. 629,802,599.00 3. Project Name: Upgrading of Physical progress, 2% Lodwar - Lokitaung JunctionI to (80 km) road section Contract type: Works Contractor: Third Engineering Amount certified KES. 1,509,210,362_33 Bureau of China Construction Group Co. Ltd Contract Signed: 14t" March, 20 17 Commencement Date: 15th August, Amount paid KES. 1,323.113,719.63 2017 Completion Date: I 5t August, 2020 Contract amount: KES. PROJECT NAME: EASTERN AFRICA REGIONAL TRANSPORT, TRADE & DEVELOPMENT FACILITATION PROJECT (SECOND PHASE PROGRAM) Reports and Financial Statements For the financial year ended June 30, 2018 PROJECT DESCRIPTION PROGRESS REPORTED TO DATE 8,334,773,795.84 Time lapsed 9.25 Months Consultant: Egis International in association with Egis Kenya Contract Amount: KES. 568,958,975.00 and EURO. 1,589,113.00 4. Project Name: Replacement of Physical progress, 0% Kainuk Bridge Contract type: Works Contractor: China Henan International Corporation Group Ltd Amount certified KES. 230,846,051.12 Contract Signed: 6"' October, 2016 Commencement Date: 17"' July, 2017 Completion Date: 17"' October, 2018 Conrc aAmount paid KES. 230,846,051.12 Contract amount: KES. 1,538,973,674.11 Consultant: SAI Consulting Engineers Pvt Ltd in association Time lapsed 10 Months with Wanjohi Mutonyi Consulting Engineers. Contract Amount: KES. 23,693,000.00 and USD. 2,259,346.00 5. Project Name: Upgrading of Physical progress, 3.53% Loichangamatak - Lodwar (50Km) Contract type: Works Contractor: China Railway No. 5 Amount certified KES. 877,039,587.90 Eng. Co. Ltd Contract Signed: 10' November. 2016 Commencement Date: I 0' July. Amount paid KES. 877,039,587.90 2017 Completion Date: 1I0"' July, 2020 Contract amount: KES. PROJECT NAME: EASTERN AFRICA REGIONAL TRANSPORT, TRADE & DEVELOPMENT FACILITATION PROJECT (SECOND PHASE PROGRAM) Reports and Financial Statements For the financial year ended June 30, 2018 PROJECT DESCRIPTION PROGRESS REPORTED TO DATE 6,782,439,479.76 Time lapsed 10.4 Months Consultant: Dohwa Engineering Co. Ltd in J.V with GIBB International. Contract Amount: KES. 421,319,530.00 and USD 2,968,202.00 6. Needs Assessment for Social Progress Evaluation of proposals complete Infrastructure Consulting Services for Delivery Needs Assessment for Social Infrastructure and Social Services 1.9 Summary of Project Compliance: There is no significant case of non-compliance with applicable laws and regulations and essential external financing agreements /covenants was reported during the year PROJECT NAME: EASTERN AFRICA REGIONAL TRANSPORT, TRADE & DEVELOPMENT FACILITATION PROJECT (SECOND PHASE PROGRAM) Reports and Financial Statements For the financial year ended June 30, 2018 2. STATEMENT OF PROJECT MANAGEMENT RESPONSIBILITIES The Director General,KeNHA and the Project Implementation Team Leader for Eastern Africa Regional, Transport, Trade & Development Facilitation 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, 2018. 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 Director General,KeNHA and the Project Implementation Team Leader for Eastern Africa Regional, Transport, Trade & Development Facilitation 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 Director General,KeNHA and the Project Implementation Team Leader for Eastern Africa Regional, Transport, Trade & Development Facilitation 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/period ended June 30, 2018, and of the Project's financial position as at that date. The Director General,KeNHA and the Project Implementation Team Leader for Eastern Africa Regional, Transport, Trade & Development Facilitation 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 Director General,KeNHA and the Project Implementation Team Leader for Eastern Africa Regional, Transport, Trade & Development Facilitation 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/period 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 Director General,IKeNHA and the Project Implementation Team Leader for Eastern Africa Regional, Transport, Trade & Development Facilitation Project on ?__ ___ __ _ ___ 2018 and signed by them. Elng. Peter lind in ia Eng. D A.MutchilIa CPA Clianje Ker Director Genecral Dir,oector -)%evelopmienit Deput:y Director (l,'&A) ICPAK Mlemr be No.8279 REPUBLIC OF KENYA Telephone: +254-20-342330 P.O. Box 30084-00100 Fax: +254-20-311482 E-mail: oag@oagkenya.go.ke NAIROBI Website: www.kenao.go.ke OFFICE OF THE AUDITOR-GENERAL REPORT OF THE AUDITOR-GENERAL ON EASTERN AFRICAN REGIONAL TRANSPORT, TRADE AND DEVELOPMENT FACILITATION PROJECT CREDIT NO.5638-KE (IDA) FOR THE YEAR ENDED 30 JUNE 2018 - KENYA NATIONAL HIGHWAYS AUTHORITY REPORT ON THE FINANCIAL STATEMENTS Opinion I have audited the accompanying financial statements of Eastern African Regional Transport, Trade and Development Facilitation Project (Second Phase program) credit No. 5638-KE (IDA) set out on pages 1 to 17 which comprise the statement of financial assets and liabilities as at 30 June 2018, 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 Financing Agreement between the International Development Association(IDA) and the Republic of Kenya dated 20 July 2015. 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. In my opinion, the financial statements present fairly, in all material respects, the financial position of Project as at 30 June 2018 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 dated 20 July 2015. In addition, the Special Accounts Statement present fairly the special accounts transaction and the closing balance has been reconciled with the books of account. Basis for Opinion The audit was conducted in accordance with International Standards of Supreme Audit Institutions (ISSAls). I am independent of the Project Management in accordance with ISSAI 30 on Code of Ethics. I have fulfilled other ethical responsibilities in accordance with the ISSAI and in accordance with other ethical requirements applicable to performing audits of financial statements in Kenya. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion. Report of the 4 uitclor-General on the Financial Statements of Eastern Aftican Regional Transport, Trade and Development Facilitation Project Credit No.5638-KE (IDA for the year ended 30 June 20/8 - Kenya National Highways A4uthority Promoting Accountability in the Public Sector Key Audit Matters Key audit matters are those matters that, in my professional judgement, were of most significance in the audit of the financial statements. There were no Key Audit Matters to report in the year under review. REPORT ON COMPLIANCE WITH LAWFULNESS AND EFFECTIVENESS IN USE OF PUBLIC MONEY As required by Article 229(6) of the Constitution, based on the procedures performed, I confirm that, nothing has come to my attention to cause me to believe that public money has not been applied lawfully and in an effective way. REPORT ON INTERNAL CONTROLS EFFECTIVENESS, GOVERNANCE AND RISK MANAGEMENT As required by Section 7(1) (a) of the Public Audit Act, 2015, based on the procedures performed, I confirm that, nothing has come to my attention to cause me to believe that internal controls, risk management and overall governance were not effective Responsibilities of Management and Those Charged with Governance 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. In preparing the financial statements, management is responsible for assessing the Project's ability to continue sustaining services, disclosing as applicable, matters related to sustainability of services and using the going concern basis of accounting unless the management either intends to cease operations of the project, or have no realistic alternative but to do so. The management is also responsible for the submission of its financial statements to the Auditor-General in accordance with the provisions of Section 47 of the Public Audit Act, 2015. Those charged with governance are responsible for overseeing the Project's financial reporting process. Auditor-General's Responsibilities for the Audit of the Financial Statements The audit objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes my opinion 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 of Kenya. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISSAls will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, Report of the .A uditor-General on the Financial Statements of'Eastern Afiican Regional Transport. Trade and Development Facilitation Project Credit No. 5638-KE (IDA) for the year ended 30June 2018 - Kenya National Highwavs AuthoritY 2 individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with ISSAls, I exercise professional judgement and maintain professional skepticism throughout the audit. I also: * Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for my opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. * Obtain an understanding of internal control relevant to the audit 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. * Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the management. * Conclude on the appropriateness of the management's use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the project's ability to continue as a going concern. If I conclude that a material uncertainty exists, I am required to draw attention in the auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify my opinion. My conclusions are based on the audit evidence obtained up to the date of my audit report. However, future events or conditions may cause the project to cease to continue as a going concern. * Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. * Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities to express an opinion on the financial statements. * Perform such other procedures I consider necessary in the circumstances. I communicate with the management regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that are identified during the audit. Report of the Auditor-General on the Financial Statements of Eastern Afican Regional Transport, Trade and Development Facilitation Project Credit No.5638-KE (1DA) for the year ended 30 June 2018 - Kenya National Highways AuthoritY, I also provide management with a statement that I have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on my independence, and where applicable, related safeguards. REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS As required by the International Development Association, 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. ii. In my opinion, adequate accounting record have been kept by the project, so far as appears from the examination of those records; and, iii. The project's financial statements are in agreement with the accounting record and returns. FCPA Edward R. 0. Ouko, CBS AUDITOR-GENERAL Nairobi 20 December 2018 Report ofthe A4 uditor-General on the Financial Statements oflEastern. Afiican Regional Transport, Trade and Development Facilitation Project Credit No.5638-KE (1DA) fr the year ended 30 June 2018 - Kenya National Highways Authority 4