REPUBLIC OF KENYA OFFICE OF THE AUDITOR-GENERAL WORLD BANK IBRD / IDA REPORT i JAN 2019 RE CkIV EDr Financial Management Unit OF THE AUDITOR-GENERAL ON THE FINANCIAL STATEMENTS OF CASH TRANSFER PROGRAM FOR ORPHANS AND VULNERABLE CHILDREN - IDA GRANT NO.TF097272 FOR THE YEAR ENDED 30 JUNE 2018 STATE DEPARTMENT FOR SOCIAL PROTECTION Cash Transfer for Orphans and Vulnerable Children (CT-OVC) Programme Financial Statements for the period ended June 30, 2018 Project Name: CASH TRANSFER FOR ORPHANS AND VULNERABLE CHILDREN (CT-OVC)PROGRAMME Implementing Entity: MINISTRY OF EAST AFRICA COMMUNITY, LABOUR AND SOCIAL PROTECTION (SOCIAL PROTECTION SECRETARIATE) PROJECT GRANT/CREDIT NUMBER NO. TF097272 ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED JUNE 30, 2018 Prepared in accordance with the Cash Basis of Accounting Method under the International Public Sector Accounting Standards (IPSAS) Cash Transfer for Orphans and Vulnerable Children (CT-OVC) Programme Financial Statements for the period ended June 30, 2018 Cash Transfer for Orphans and Vulnerable Children (CT-OVC) Programme Financial Statements for the period ended June 30, 2018 Table of Contents Ta b le o f C o n te n t ................................................................................................................................ i PROJECT INFORMATION AND OVERALL PERFORMANCE ................................................. iii STATEMENT OF PROJECT MANAGEMENT RESPONSIBILITIES.............................................viii REPORT OF THE INDEPENDENT AUDITORS ON THE CASH TRANSFER FOR O RPHANSAND VULNERABLECHILDREN PROJECT ............................................................... x STATEMENT OF RECEIPTS AND PAYMENTS FOR THE PERIOD ENDED 30TH JUNE 2 0 18 .......................................................................................................................................................... STATEMENT OF FINANCIAL ASSETS AND LIABILITIES AS AT 30TH JUNE 2018.................2 STATEMENT OF CASHFLOW FOR THE PERIOD 30TH JUNE 2018 2 STATEMENT OF COMPARATIVE BUDGET AND ACTUAL AMOUNTS 4 NOTES TO THE FINANCIAL STATEMENTS UNDRAWN EXTERNAL ASSISTANCE 7 NOTES TO THE FINANCIAL STATEMENTS ATE Cash Transfer for Orphans and Vulnerable Children (CT-OVC) Programme Financial Statements for the period ended June 30, 2018 PROJECT INFORMATION AND OVERALL PERFORMANCE 1.1 Name and registered office The project's official Name: Cash Transfer for Orphans and Vulnerable Children (CT-OVC) Programme. Physical Address :( Headquarters) NSSF Building, Nairobi (city), Nairobi County, Kenya. P. 0. Box 46205-00100 GPO, Nairobi. Contacts Telephone: (254) 722 319 186 E-mail: et ovc@gmail.com OR ct ovc@yahoo.com Project Coordinator John Gachigi 1.2 Project Information Project Start The project start date is March,31st 2009 Date: Project End The project end date is 31st December 2018 Date: Project The project manager is John Gachigi Manager: Project The roject s onsor is World Bank Grant No.TF097272 iii Cash Transfer for Orphans and Vulnerable Children (CT-OVC) Programme Financial Statements for the period ended June 30, 2018 Sponsor: 1.3 Project Overview Line The project is under the supervision of the - Ministry of Ministry/State Labour and Social Protection Department of the project Project number TF 097272 Strategic goals The strategic goals of the project are as follows: of Project (i) Strengthening the capacity of families to protect and care for the Orphans and Vulnerable Children (ii) Mobilizing and supporting community response (iii) Ensuring access to essential services including education, healthcare, Birth registration and others for OVC (iv) Improving Government Policy and Regulations. (v) Creating a supportive environment through advocacy and social mobilization (vi) Developing and improving the capacity to monitor and evaluate programme effectiveness (vii) Strengthening, supporting and coordination of institutional Structures. Achievement The project management aims to achieve the goals of strategic through the following means: goals (i) Increase social safety net access to extremely poor OVC households in Kenya iv Cash Transfer for Orphans and Vulnerable Children (CT-OVC) Programme Financial Statements for the period ended June 30, 2018 (ii) Build the capacity of the Government systems to effectively deliver The safety net project to the vulnerable groups. Current The project was formed to intervene in the following situation that areas: the project was formed to (i) Address cases of vulnerable group and children intervene and be integrated to Families. This was to be achieved by giving households bi-annual cash subsidy to take care of the vulnerable persons Project The project started on 31 st March 2009 and is expected to duration run until 31 st October 2018 1.4Bankers The following are the bankers for the current year: (i) Co-operative Bank of Kenya Limited -011411333228000 (ii) Central Bank of Kenya Limited - 1000311304 1.5 Auditors The project is audited by Office of Auditor General v Cash Transfer for Orphans and Vulnerable Children (CT-OVC) Programme Financial Statements for the period ended June 30, 2018 1.6 Roles and Responsibilities Names Title Key qualification Responsibilities designation John Gachigi Senior Masters Head of Social Assistant Assistance Director Unit(Project Coordinator) Moses Muga Chief MSC Com. CPA(K) Project Accountant Accountant Judy Oduor Principal Bachelor's Degree Head of Tuda Children Compliance and Officer Grievances Sydney Paul Senior Bachelor's Degree Head of Payments Achia Children Officer vi Cash Transfer for Orphans and Vulnerable Children (CT-OVC) Programme Financial Statements for the period ended June 30, 2018 1.71Funding summary The Project is for duration of - years from 2009 to 2018 with an approved budget of US$ 79,284,446 equivalent to Kshs 8,340,726,732 as highlighted in the table below: Below is the funding summary: Donor Donr MUDonrM Kss- Ksh - Ksh 9.* A9A). ' . *8 (9B). ( A A)-(' (I) Grant DFID Trust Fund 79,284,446 8,340,726,732 75,055,954.98 7,895,889,316 4,228,491 444,837,416 IDA CREDIT 636,588.86 66,969,172.50 Transfers Total 79,284,446 8,340,726,732 75,692,543.84 7,962,858,488.50 4,228,491 444,837,416 1.8Summary of Overall Project Performance: 1. The Program has been gradually expanded its scope/support from 500 households pre-pilot in 2009 now reaching 353,000 households as at June 2018. 2. The Program has increased school enrolment and attendance and reduced rates of mortality and morbidity vii Cash Transfer for Orphans and Vulnerable Children (CT-OVC) Programme Financial Statements for the period ended June 30, 2018 STATEMENT OF PROJECT MANAGEMENT RESPONSIBILITIES The Principal Secretary, State Department for Social Protection and the Project Coordinator for Cash Transfer for Orphans and Vulnerable Children (CT-OVC) Programme 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 (period) 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 Principal Secretary, State Department for Social Protection and the Project Coordinator for Cash Transfer for Orphans and Vulnerable Children (CT-OVC) Programme 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, State Department for Social Protection and the Project Coordinator for Cash Transfer for Orphans and Vulnerable Children (CT-OVC) Programme 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 Principal Secretary viii Cash Transfer for Orphans and Vulnerable Children (CT-OVC) Programme Financial Statements for the period ended June 30, 2018 for the Ministry of East African Affairs, Labour and Social Protection and the Project Coordinator for CT-OVC Programme further confirms 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, State Department for Social Protection and the Project Coordinator for CT-OVC Programme 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 Principal Secretary for the Ministry of Labour, Social Security and Services and the Project Coordinator for CT-OVC Programme on t 202018 and signed by them. Principal Secretary Project Coordinator Project Accountant: Nelson Marwa John Gachigi Moses 0. Muga Sospeter, CBS ICPAK Member Number: 14266 ix 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 CASH TRANSFER PROGRAM FOR ORPHANS AND VULNERABLE CHILDREN - IDA GRANT NO.TF097272 FOR THE YEAR ENDED 30 JUNE 2018 - STATE DEPARTMENT FOR SOCIAL PROTECTION REPORT ON THE FINANCIAL STATEMENTS Qualified Opinion I have audited the accompanying financial statements of Cash Transfer Program for Orphans and Vulnerable Children - IDA Grant No.TF097272 set out on pages 1 to 21, which comprise the statement of financial assets and liabilities as at 30 June 2018, and the statement of receipts and payments, statement of cash flows and 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 and Section 35 of the Public Audit Act, 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, except for the effect of the matters described in the Basis for Qualified Opinion section of my report, the financial statements present fairly, in all material respects, the financial position of Cash Transfer for Orphans and vulnerable children 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 amended Financing Agreement No.TF097272 dated 19 December, 2013. Basis for Qualified Opinion 1. Assets Management A review of the Project's financial statements for the year ended 30 June 2018 revealed non-financial assets procured during the year amounted to Kshs.65,995,380. However, the Project did not have a complete fixed asset register contrary to the Part XII of PFM Act, 2012 on assets management. Further, as reported in 2016/2017, cash receipts of Kshs.66,9689,173 transferred from the closed IDA counterpart project and assets procured in its lifetime have not been disclosed. In addition, it was therefore not possible to physically verify the existence and location of the assets bought under the project. Report of the Auditor-General on the Financial Statements of Cash Transfer Program for Orphans and Vulnerable Children - IDA Grant No.TF09 7272/bor the year ended 30.June 2018 - State Departmentfbr Social Protection Promoting Accountability in the Public Sector In the circumstances, it has not been possible to confirm the existence, ownership, location, safety, valuation or whether the assets acquired using project funds are being utilized for the intended purposes. 2. Failure to Provide Cash Transfer Reconciliation Reports by the Service Providers (PSPs) In accordance with the contract agreements signed between the State Department of Social Protection and the individual service providers the latter are required to provide reconciliation reports for the funds received and disbursed to the beneficiaries. However, the following banks did not provide reconciliations as required: * Kenya Commercial Bank (KCB) Limited. * Post Office and Savings Bank. * Co-operative Bank of Kenya Limited. Further, the service providers did not show the status of State Department's dedicated bank account into which the beneficiaries' funds were transferred. Consequently, accountability of the project funds given to the service providers and timeliness of payments to beneficiaries could not be ascertained. 3. Deceased Beneficiaries Examination of payroll records for the year under review disclosed that some deceased persons were retained in the list of beneficiaries for prolonged periods before being removed from the payrolls. For instance, some beneficiaries indicated as deceased in September - October 2017 cycle remained in subsequent payrolls up to June 2018 and their caregivers continued to draw funding totalling Kshs.184,000 in various sampled sub-counties as shown in the attached Appendix 1. The management has explained that it has embarked on a strategic intervention to clean up the payroll through a new payment solution and enhanced management information system (MIS). However, it has not been possible to confirm the extent of payments made on account of deceased beneficiaries or if the Project will be able to recover such payments. As a result, undeserving persons may be benefiting at the detriment of deserving households from the grant project. 4. Failure by Service Providers to Submit Reports on Time Barred Transfers to Beneficiaries A review of the project payrolls and the available bank returns showed incidences where beneficiaries had failed to collect cash transferred in their account for a maximum of four cycles which totals Kshs.16,000 for each. In accordance with the rules and procedures of the project operations, when funds remain uncollected for more than four cycles, the same are supposed to be swept back to the State Department's holding account in the respective banks. However, it was observed that the management did not avail for audit verification a report on the funds swept back Report of the Auditor-General on the Financial Statements of Cash Transfer Program for Orphans and Vulnerable Children - IDA Grant No. TF0972 72 for the year ended 30 June 2018 - State Department for Social Protection 2 after expiry of the collection window as well as a reconciliation showing how such funds are dealt with. In the circumstances, it was not possible to confirm if the time barred cash transfers were dealt with in accordance with the project operating procedures. 5. Over-Payment of Bank Commission to Kenya Commercial Bank The contract between Kenya Commercial Bank (KCB) Limited and Government of Kenya Ref.No.MLSS&S/07/2013/2014 of October 2017 stipulates that a commission per transaction of disbursement shall be 2% of the payroll amount and shall be non- refundable. This means that commissions paid to the bank are not based on the actual funds transferred to the beneficiaries but on the total funds received from the State Department as per the payrolls. A comparison between the funds disbursed to the banks against the actual payments to the beneficiaries revealed that the bank may have been overpaid commissions by Kshs.35,498,960 due to the wrongfully drafted agreement as follows: Kenya Commercial Bank (KCB) Limited -- Combined PWSD, OPTC & CT-OVC Payment Cycles Transfer to Bank Amount paid to Difference Kshs. Beneficiary Kshs. Kshs. Jul-Aug 2017 2,502,780,000.00 2,061,736,000.00 441,044,000.00 Sep-Oct 2017 2,399,016,000.00 2,017,824,000.00 381,192,000.00 Nov-Dec 2017 2,364,312,000.00 2,002,324,000.00 361,988,000.00 Jan-Feb 2018 1,462,552,000.00 1,282,360,000.00 180,192,000.00 Mar-Jun 2018 4,359,928,000.00 3,949,396,000.00 410,532,000.00 Totals 13,088,588,000.00 11,313,640,000.00 1,774,948,000.00 Excess Commission 2% of Kshs. 1,774,948,000.00 35,498,960.00 In the circumstances, the State Department need to recover the commission of overpayment of Kshs.35,498,960 for the year under review. The audit was conducted in accordance with International Standards of Supreme Audit Institutions (ISSAls). I am independent of Cash Transfer for Orphans and vulnerable children Project 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 opinion. Key Audit Matters Key audit matters are those matters that, in my professional judgment, are of most significance in the audit of the financial statements. There were no Key Audit Matters to report in the year under review. Report of the Auditor-General on the Financial Statements of Cash Transfer Program for Orphans and Vulnerable Children - IDA Grant No.TF097272 jbr the year ended 30 June 2018 - State Department for Social Protection Other Matters 1. Budget control and Performance 1.1 Receipts The project had budgeted for grants amounting to Kshs.480,648,000 against actual receipts realized from proceeds from domestic and foreign grants totalling Kshs.392,537,200 resulting to a shortfall of Kshs.88,110,800 or 18% as tabulated below: Receipts Budget Actual Excess/(Shortfall) Variance Kshs. Kshs. Kshs. % Proceeds from 480,648,000 392,537,200 (88,110,800) 18 domestic and foreign grants Total 480,648,000 392,537,200 (88,110,800) 18 1.2 Payments The Project had budgeted to spend Kshs.480,648,000 but actual payments for the year under audit totalled Kshs.310,294,337 resulting to underutilization of Kshs.170,353,663 or 20% as shown below: Payments Budget Absorption Over/(Under) Variance Kshs. Kshs. Kshs. % Compensation of 102,800,000 95,316,476 (7,483,524) (7) employees Purchase of goods and 311,852,619 148,982,480 (162,870,139) (52) services Acquisition of non-financial 65,995,381 65,995,381 0 100 assets Total 480,648,000 310,294,337 (170,353,663) (20) The underutilization which mainly occurred under the purchase of goods and services was attributed to closure of the project midway in the financial year and transfer to grants through supplementary budget. 2. Unresolved Prior Year Matter Unverified Sub-County Treasuries Expenditures As previously reported out of Kshs.304,770,157 relating to purchase of goods and services a total of Kshs.191,418,427.35 stated as relating to District operational expenditures was only supported with returns from the Districts but the original documents were retained in various Sub-County Treasuries across the Country. Report of the Auditor-General on the Financial Statements of Cash Transfer Program for Orphans and Vulnerable Children - IDA Grant No. TF097272 for the year ended 30 June 2018 - State Department for Social Protection 4 Consequently, it has so far not been possible to confirm the validity of the expenditures incurred therein. REPORT ON LAWFULNESS AND EFFECTIVENESS IN USE OF PUBLIC RESOURCES Conclusion 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 resources have not been applied lawfully and in an effective way. Basis for Conclusion My responsibility is to express a conclusion based on the review. The review was conducted in accordance with ISSAI 4000. The standard requires that I comply with ethical requirements and plan and perform the audit so as to obtain assurance about whether the activities, financial transactions and information reflected in the financial statements are in compliance, in all material respects, with the authorities that govern them. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my conclusion. REPORT ON INTERNAL CONTROLS EFFECTIVENESS, GOVERNANCE AND RISK MANAGEMENT SYSTEMS Conclusion 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. Basis for Conclusion The audit was conducted in accordance with ISSAI 1315 and ISSAI 1330. The standards require that I plan and perform the review so as to obtain limited assurance as to whether effective processes and systems of internal control, risk management and governance was maintained in all material respects. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my conclusion. REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS As required by World Bank Grant No. TF097272, 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; Report of the Auditor-General on the Financial Statements of Cash Transfer Program for Orphans and Vulnerable Children - IDA Grant No.TF097272 jbr the year ended 30 June 2018 - State Department/fbr Social Protection 5 ii. in my opinion, adequate accounting records have been kept by the Project, so far as appears from the examination of those records; and, iii. The project financial statements are in agreement with the accounting records and returns. Responsibilities of Management and Those Charged with Governance 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 maintaining effective 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 and for its assessment of the effectiveness of internal control, risk management and governance. In preparing the financial statements, management is responsible for assessing the ability to sustain services, disclosing, as applicable, matters related to sustainability of services and using the applicable basis of accounting unless the management either intends to liquidate the Project or to cease operations, or have no realistic alternative but to do so. 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. In addition to the responsibility for the preparation and presentation of the financial statements described above, management is also responsible for ensuring that the activities, financial transactions and information reflected in the financial statements are in compliance with the authorities which govern them, and that public resources are applied in an effective manner. Those charged with governance are responsible for overseeing the financial reporting process, reviewing the effectiveness of how the entity monitors compliance with relevant legislative and regulatory requirements, ensuring that effective processes and systems are in place to address key roles and responsibilities in relation to governance and risk management, and ensuring the adequacy and effectiveness of the control environment. Auditor-General's Responsibilities for the Audit 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. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISSAIs will always detect a material misstatement and weakness when it exists. Report of the Auditor-General on the Financial Statements of Cash Transfer Program for Orphans and Vulnerable Children - IDA Grant No. TF0972 72 for the year ended 30 June 2018 - State Department for Social Protection 6 Misstatements can arise from fraud or error and are considered material if, 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. In addition to the audit of the financial statements, a compliance audit is planned and performed to express a conclusion with assurance about whether, in all material respects, the activities, financial transactions and information reflected in the financial statements are in compliance with the authorities that govern them and that public resources are applied in an effective way, in accordance with the provisions of Article 229(6) of the Constitution and submit the audit report in compliance with Article 229(7) of the Constitution. Further, in planning and performing the audit of the financial statements and audit of compliance, I consider internal control in order to give an assurance on the effectiveness of internal controls, risk management and governance processes and systems in accordance with the provisions of Section 7 (1) (a) of the Public Audit Act, 2015 and submit the audit report in compliance with Article 229(7) of the Constitution. My consideration of the internal control would not necessarily disclose all matters in the internal control that might be material weaknesses under the ISSAls. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements caused by error or fraud in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Because of its inherent limitations, internal control may not prevent or detect misstatements and instances of non-compliance. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate. As part of an audit conducted 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. * Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the management. Report of the Auditor-General on the Financial Statements of Cash Transfer Program for Orphans and Vulnerable Children - IDA Grant No.TF097272 for the year ended 30 June 2018 - State Department for Social Protection 7 * 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 ability to continue as a going concern or to sustain its services. 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 or to sustain its services. * 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 and business activities of the project to express an opinion on the financial statements. * Perform such other procedures as 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. 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. FCPA Edward R. 0. Ouko, CBS AUDITOR-GENERAL Nairobi 31 December 2018 Report of the Auditor-General on the Financial Statements of Cash Transfer Program for Orphans and Vulnerable Children - IDA Grant No. TF097272 for the year ended 30 June 2018 - State Department for Social Protection 8 Appendices Appendix I Cycle HH ID Deceased Amount Sub-County Beneficiary's Name Kshs. Jan-Feb cycle 57315.1 12703637 ADEMA LEAH 16,000 LUGARI KHAYAKA Jan-Feb cycle 50413.5 00006431 ADUMO ALUWOTO 16,000 ISIOLO NORTH Jan-Feb cycle 60279.4 00016234 BIRIK RIJKIA MAALIM 16,000 MANDERA EAST Jan-Feb cycle 55685.6 12911217 CHEGEM HELLEN 16,000 TURKANA SOUTH NAUKOT Jan-Feb cycle 18907.5 2654479 KATULE MBANDI 12,000 TAVETA ROSE Jan-Feb cycle 59977.7 5399900 LAGO IBRAHIM ABDI 16,000 BURA Jan-Feb cycle 49106.1 8263689 MURUMU CHARLES 8,000 KANDARA WANYOIKE Jan-Feb cycle 52416.1 2202957 MWACHOMBO IDDI 16,000 MSAMBWENI MOHAMEDI Jan-Feb cycle 31393.2 12438204 NDUNGU RACHAEL 8,000 GILGIL WAMBUI Jan-Feb cycle 22328.2 5168708 NGUGI JANE 16,000 NAIVASHA WAITHERA Jan-Feb cycle 29936.5 13477481 NJAGI COSMAS NJUE 16,000 RUNYENJES Jan-Feb cycle 34134.5 14451049 OGETO RONALD 12,000 WEST MUGIRANG MORARA Jan-Feb cycle 30188.8 2066306 OLE-KET MIRIAM 16,000 TESO SOUTH ATOO Report of the Auditor-General on the Financial Statements of Cash Transfer Program for Orphans and Vulnerable Children - IDA Grant No. TF0972 72 for the year ended 30 June 2018 - State Department/fbr Social Protection 9 Cash Transfer for Orphans and Vulnerable Children (CT-OVC) Programme Financial Statements for the period ended June 30, 2018 STATEMENT OF RECEIPTS AND PAYMENTS FOR THE PERIOD ENDED 30TH JUNE 2018 Note 2017/18 2016/17 Receipts and Payments Receipts and payments made by payment controlled by third controlled by Cumulative to- the entity parties the entity date KSH KSH RECEIPTS Proceeds from domestic and foreign 1 grants(World Bank) 392,537,200 838,758,520.00 7,895,889,316 Refunds from IDA Credit 66,969,172.50 66,969,172.50 TOTAL RECEIPTS 392,537,200 905,727,692.50 7,962,858,488.50 PAYMENTS Compensation 2 of employees 95,316,475.50 51,493,306.95 178,909,235.45 Purchase of goodsand 3 services 148,982,480.00 304,770,157.00 1,357,276,857.10 Acquisition of non-financial 4 assets 65,995,380.75 126,705,987.00 192,701,367.75 Other grants and transfers 5 and payments 958,470,574.00 6,131,448,295 TOTAL 1,441,440,024,9 PAYMENTS 310,294,336 5 7,860,335,755.30 SURPLUS/DEFICIT 82,242,864 - (535,712,332.45) 102,522,733.20 The accounting policies and explanatory notes to these financial statements form an integral part of th fin ncial statements. The financial statements were approved on I t, 2018 and signed by: Principal Secretary Project Coordinator Project Accountant: Nelson Marwa John Gachigi Moses 0. Muga Sospeter, CBS ICPAK Member Number: 14266 Cash Transfer for Orphans and Vulnerable Children (CT-OVC) Programme Financial Statements for the period ended June 30, 2018 STATEMENT OF FINANCIAL ASSETS AND LIABILITIES AS AT 30TH JUNE 2018 FINANCIAL ASSETS 2017/18 2016/2017 Note KSH KSH Cash and Cash Equivalents Bank Balances 6 102,522,733.30 20,266,419.55 District Fund 13,450.00 Total Cash and Cash Equivalents 102,522,733.30 20,279,869.55 TOTAL FINANCIAL ASSETS 102,522,733.30 20,279,869.55 REPRESENTED BY Fund balance b/fwd 6 20,279,869.55 555,992,202.00 Balance Due From Credit Surplus/Deficit for the year 82,242,863.75 (535,712,332.45) NET FINANCIAL POSITION 102,522,733.20 20,279,869.55 The accounting policies and explanatory notes to these financial statements form an integral part f tNe financial statements. The financial statements were approved on S ite- 2018 and signed by: Princ pal Secretary Project Coordinator Project Accountant: Nelson Marwa John Gachigi Moses 0. Muga Sospeter, CBS ICPAK Member Number: 14266 2 Cash Transfer for Orphans and Vulnerable Children (CT-OVC) Programme Financial Statements for the period ended June 30, 2018 STATEMENT OF CASHFLOW FOR THE PERIOD 30TH JUNE 2018 2017/18 2016/17 Not e KSH KSH Receipts for operating activities Transfer from IDA Credit 1 66,969,172.50 Proceeds from domestic and foreign grants 1 392,537,200 838,758,520.00 392,537,200 905,727,692.50 Payments for operating activities Compensation of employees 2 95,316,475.50 51,493,306.95 Purchase of goods and services 3 148,982,480.00 304,770,157.00 Other grants and transfers 5 958,470,574.00 Adjustments during the year Receivables -13,450.00 Net cash flow from operating activities 148,238,244.50 (409,019,795.00) CASHFLOW FROM INVESTING ACTIVITIES Acquisition of Assets 4 65,995,380.75 126,705,987.00 Net cash flows from Investing Activities (65,995,380.75) (126,705,987.00) CASHIFLOW FROM BORROWING ACTIVITIES Balance due form IDA Credit 0 0 Net cash flow from financing activities 0 0 NET INCREASE IN CASH AND CASH EQUIVALENT 82,242,864 (535,725,782.45) Cash and cash equivalent at BEGINNING of the year 20,266,420 555,992,202.00 Cash and cash equivalent at END of the year 102,522,733 20,266,420.00 The accounting policies and explanatory notes to these financial statements form an integral part of the fVan ial statements. The entity financial statements were approved on St *2- 2018 and signed by: rincipal Secretary Project Coordinator Project Accountant: Nelson Marwa John Gachigi Moses 0. Muga Sospeter, CBS ICPAK Member Number: 14266 3 Cash Transfer for Orphans and Vulnerable Children (CT-OVC) Programme Financial Statements for the period ended June 30, 2018 STATEMENT OF COMPARATIVE BUDGET AND ACTUAL AMOUNTS Receipts/Payments Original Adjustments Final Actual on Budget % of Item Budget Budget Comparable Utilization Utilization Basis Difference a b c=a+b d e=c-d f=d/c % Receipts Proceeds from 82% domestic and 1,467,528,000 (986,880,000) 480,648,000 392,537,200 88,110,800 foreign grants Total Receipts 1,467,528,000 (986,880,000) 480,648,000 392,537,200 88,110,800 Payments Compensation of 93% employees 194,600,000 (91,800,000) 102,800,000 95,316,476 7,483,525 Purchase of goods 48% and services 1,160,687,800 (848,835,181) 311,852,619 148,982,480 162,870,139 Acquisition of non- 100% financial assets 112,240,200 (46,244,819) 65,995,381 65,995,381 - Other grants and transfers Total Payments 1,467,528,000 (986,880,000) 480,648,000 310,294,336 135,257,975 The significance deviation on budget utilization was due to closure of the project midway the financial year and budget transfer to grant through supplementary budget. trincpal Secretary Project Coordinator Project Accountant: Nelson Marwa John Gachigi Moses 0. Muga Sospeter, CBS ICPAK Member Number: 14266 4 Cash Transfer for Orphans and Vulnerable Children (CT-OVC) Programme Financial Statements for the period ended June 30, 2018 NOTES TO THE FINANCIAL STATEMENTS The principal accounting policies adopted in the preparation of these financial statements are set out below: 8.1. Basis of Preparation 8.1.1. Statement of compliance and basis of preparation The financial statements have been prepared in accordance with Cash-basis IPSAS financial reporting under the cash basis of Accounting, as prescribed by the PSASB and set out in the accounting policy note below. This cash basis of accounting has been supplemented with accounting for; a) receivables that include imprests and salary advances and b) payables that include deposits and retentions. The financial statements comply with and conform to the form of presentation prescribed by the PSASB. The accounting policies adopted have been consistently applied to all the years presented. 8.1.2. Reporting entity The financial statements are for the Project xxx under National Government of Kenya. The financial statements encompass 5 Cash Transfer for Orphans and Vulnerable Children (CT-OVC) Programme Financial Statements for the period ended June 30, 2018 the reporting entity as specified in the relevant legislation PFM Act 2012. 8.1.3. Reporting currency The financial statements are presented in Kenya Shillings (KShs), which is the functional and reporting currency of the Project and all values are rounded to the nearest Kenya Shilling. 8.2. Significant Accounting Policies a) Recognition of receipts The Project recognises all receipts from the various sources when the event occurs and the related cash has actually been received by the Government. * Transfers from the Exchequer Transfer from Exchequer is be recognized in the books of accounts when cash is received. Cash is considered as received when payment instruction is issued to the bank and notified to the receiving entity. * External Assistance 6 Cash Transfer for Orphans and Vulnerable Children (CT-OVC) Programme Financial Statements for the period ended June 30, 2018 External assistance is received through grants and loans from multilateral and bilateral development partners. Donations and grants Grants and donations shall be recognized in the books of accounts when cash is received. Cash is considered as received when a payment advice is received by the recipient entity or by the beneficiary. In case of grant/donation in kind, such grants are recorded upon receipt of the grant item and upon determination of the value. The date of the transaction is the value date indicated on the payment advice. Proceeds from borrowing Borrowing includes Treasury bill, treasury bonds, corporate bonds, sovereign bonds and external loans acquired by the Project or any other debt the Project may take on will be treated on cash basis and recognized as a receipt during the year they were received. UNDRAWN EXTERNAL ASSISTANCE These are loans and grants at reporting date as specified in a binding agreement and relate to funding for the Project currently under development where conditions have been 7 Cash Transfer for Orphans and Vulnerable Children (CT-OVC) Programme Financial Statements for the period ended June 30, 2018 satisfied or their ongoing satisfaction is highly likely and the project is anticipated to continue to completion. An analysis of the Project's undrawn external assistance is shown in the funding summary * Other receipts These include Appropriation-in-Aid and relates to receipts such as proceeds from disposal of assets and sale of tender documents. These are recognized in the financial statements the time associated cash is received. b) Recognition of payments The Project recognises all payments when the event occurs and the related cash has actually been paid out by the Project. * Compensation of employees Salaries and Wages, Allowances, Statutory Contribution for employees are recognized in the period when the compensation is paid. * Use of goods and services 8 Cash Transfer for Orphans and Vulnerable Children (CT-OVC) Programme Financial Statements for the period ended June 30, 2018 Goods and services are recognized as payments in the period when the goods/services are consumed and paid for. If not paid for during the period where goods/services are consumed, they shall be disclosed as pending bills. * Interest on borrowing Borrowing costs that include interest are recognized as payment in the period in which they incurred and paid for. * Repayment of borrowing (principal amount) The repayment of principal amount of borrowing is recognized as payment in the period in which the repayment is made. The stock of debt is disclosed as an annexure to the consolidated financial statements. * Acquisition of fixed assets The payment on acquisition of property plant and equipment items is not capitalized. The cost of acquisition and proceeds from disposal of these items are treated as payments and receipts items respectively. Where an asset is acquired in a non-exchange transaction for nil or nominal consideration and the fair value of the asset can be reliably established, a contra transaction is recorded as receipt and as a payment. 9 Cash Transfer for Orphans and Vulnerable Children (CT-OVC) Programme Financial Statements for the period ended June 30, 2018 A fixed asset register is maintained by each public entity and a summary provided for purposes of consolidation. This summary is disclosed as an annexure to the consolidated financial statements. c) In-kind donations In-kind contributions are donations that are 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 received for in-kind contributions can be reliably determined, the Project includes such value in the statement of receipts and payments both as receipts and as payments in equal and opposite amounts; otherwise, the contribution is not recorded. d) 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. For the purposes of these 10 Cash Transfer for Orphans and Vulnerable Children (CT-OVC) Programme Financial Statements for the period ended June 30, 2018 financial statements, cash and cash equivalents also include short term cash imprests and advances to authorized public officers and/or institutions which were not surrendered or accounted for at the end of the financial year. Restriction on cash Restricted cash represents amounts that are limited/restricted from being used to settle a liability for at least twelve months after the reporting period. This cash is limited for direct use as required by stipulation. Amounts maintained in deposit bank accounts are restricted for use in refunding third part deposits e) Accounts receivable For the purposes of these financial statements, imprests and advances to authorised public officers and/or institutions which were not surrendered or accounted for at the end of the financial year is treated as receivables. This is in recognition of the government practice where the imprest payments are recognized as payments when fully accounted for by the imprest or AlE holders. This is an enhancement to the cash accounting policy. Other accounts receivables are disclosed in the financial statements. 11 Cash Transfer for Orphans and Vulnerable Children (CT-OVC) Programme Financial Statements for the period ended June 30, 2018 f) Pending bills Pending bills consist of unpaid liabilities at the end of the financial year arising from contracted goods or services during the year or in past years. As pending bills do not involve the payment of cash in the reporting period, they recorded as 'memorandum' or 'off-balance' items to provide a sense of the overall net cash position of the Project at the end of the year. 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. g) Budget The budget is developed on a comparable accounting basis (cash basis), the same accounts classification basis (except for accounts receivable - outstanding imprest and clearance accounts and accounts payable - deposits, which are accounted for on an accrual 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. The Development Projects are budgeted for under the MDAs but receive budgeted funds as transfers and account for 12 Cash Transfer for Orphans and Vulnerable Children (CT-OVC) Programme Financial Statements for the period ended June 30, 2018 them separately. These transfers are recognized as inter- entity transfers and are eliminated upon consolidation. 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. h) Third party payments Included in the receipts and payments, are payments made on its behalf by to third parties in form of loans and grants. These payments do not constitute cash receipts and payments and are disclosed in the payment to third parties column in the statement of receipts and payments. i) 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 13 Cash Transfer for Orphans and Vulnerable Children (CT-OVC) Programme Financial Statements for the period ended June 30, 2018 monetary assets and liabilities denominated in foreign currencies are recognised in the statements of receipts and payments. j) 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. k) 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, 2017. 1) Errors Material prior period errors shall be corrected retrospectively in the first set of financial statements authorized for issue after their discovery by: Restating the comparative amounts for prior period(s) presented in which the error occurred; or ii. If the error occurred before the earliest prior period presented, restating the opening balances of assets, liabilities and net assets/equity for the earliest prior period presented. 14 Cash Transfer for Orphans and Vulnerable Children (CT-OVC) Programme Financial Statements for the period ended June 30, 2018 NOTES TO THE FINANCIAL STATEMENTS 1. PROCEEDS FROM DOMESTIC AND FOREIGN GRANTS During the 12 months to 30 June 2018 we received grants from donors as detailed in the table below: GGrants received 0 -Cumulative to- KSs Ss Sh Grants Received from World Bank Grant-World Gr anl 392,537,200.00 392,537,200.00 838,758,520.00 7,895,889,316.00 Bank Transfer from Taf f66,969,172.50 66,969,172.50 IDA 392,537,200.00 392,537,200.00 905,727,692.50 7,962,858,488.50 Total 2 COMPENSATION OF EMPLOYEES - FY 2017/2018 FY 2016/17 Payments Cumulative to- Payments made made by date by the Entity in third Cash parties Total Payments KShs KShs KShs KShs Basic wages of temporary 95,316,475.50 95,316,475.50 51,493,306.95 178,909,235.45 employees Total 95,316,475.50 95,316,475.50 51,493,306.95 178,909,235.45 NOTES TO THE FINANCIAL STATEMENTS (Continued) 15 Cash Transfer for Orphans and Vulnerable Children (CT-OVC) Programme Financial Statements for the period ended June 30, 2018 3 PURCHASE OF GOODS AND SERVICES FY 2017/18 FY 2016/17 Payments Payme Total Payments KES Cumulative to- made by nts date the Entity in made Cash by third parties 2210100 Utilities, Supplies and Services 2210200 4,357,217 39,695,605.79 Communication, 4,357,217 9,320,735 Supplies and Services 2210300 Domestic 32,882,838 299,572,909.60 Travel and Subsistence, 32,882,838 66,131,588 and Other Transportation Costs 2210400 Foreign Travel 10,780,086.28 and Subsistence, and 1,183,284 1,183,284 7,074,759 other transportation costs 2210500 Printing , 124,017,946.76 Advertising and 13,612,920 13,612,920 25,803,888 Information Supplies and Services Courier & Postal 262,149 262,149.00 Services 2210600 Rentals of 63,967,872.64 Produced Assets 7,021,480 7,021,480 2210700 Training 70,727,560.07 Expenses 7,763,462 7,763,462 43,349,101 2210800 Hospitality 61,561,110.45 Supplies and Servi 6,757,300 6,757,300 17,500,087 2211000 Specialised 3,826,330.99 Materials and Supp 420,000 420,000 2211100 Office and General Supplies and 10,127,540 10,127,540 25,138,104 92,265,047.95 Services 2211200 Fuel Oil and Lubricants 1,274,900 1,274,900 12,449,884 11,614,736.61 2211300 Other Operating Expenses 63,271,040 63,271,040 95,343,755 576,418,907.22 2220100 Routine Maintenance - 310,499 310,499 2,396,107 2,566,593.73 Vehicles 2220200 Routine Maintenance - Other Assets 148,982,480 148,982,480 304,770,157.00 1,357,276,857.10 NOTES TO THE FINANCIAL STATEMENTS (Continued) 16 Cash Transfer for Orphans and Vulnerable Children (CT-OVC) Programme Financial Statements for the period ended June 30, 2018 4 ACQUISITION OF NON-FINANCIAL ASSETS FY 2017/18 FY 2016/17 Payments Paymen Total Payments KES Cumulative made by the ts made to-date Entity in Cash by third parties 3110200 Construction of 4,823,850.00 Building 4,823,850.00 4,823,850.00 3110300 Refurbishment of 8,552,678 8,552,678.00 Buildings Purchase of MV 39,176,700.90 39,176,700.90 39,176,700.90 3111000 Purchase of Office 87,813,605.85 Furniture and General 21,994,829.85 21,994,829.85 65,818,776 Equipment 3111111 Purchase of ICT 52,334,533 52,334,533.00 Equipment's 65,995,380.75 65,995,380.75 126,705,987 192,701,367.75 NOTES TO THE FINANCIAL STATEMENTS (Continued) 5 OTHER GRANTS AND TRANSFERS AND PAYMENTS FY 2017/18 FY 2016/17 Payment s made Payments Cumulative by the made by Total to-date Entity in third Payment Cash parties s Total Payments KShs KShs KShs KShs Grants to Individuals 0 0 958,470,574 6,131,448,295 Total 0 0 958.470.574 6,131,448,295 NOTES TO THE FINANCIAL STATEMENTS (Continued) 17 Cash Transfer for Orphans and Vulnerable Children (CT-OVC) Programme Financial Statements for the period ended June 30, 2018 6 CASH AND CASH EQUIVALENTS CARRIED FORWARD 2017/18 2016/17 KShs KShs Cash equivalents 102,522,733.30 20,266,420.00 Total 102,522,733-30 20.266.420.00 The project has one project accounts spread within the project implementation area and one number of foreign currency designated accounts managed by the National Treasury as listed below: 6.1 A Bank Accounts Project Bank Accounts 2017/18 2016/17 usd KShs Foreign Currency Accounts Co-operative Bank of Kenya [02120134198100] 0 Total Foreign Currency balances Local Currency Accounts KES KES Central Bank of Kenya [1000311304] 182,120.369.65 27,781,500 Total Local Currency balances 182.120.369.65 27.781.500 18 Cash Transfer for Orphans and Vulnerable Children (CT-OVC) Programme Financial Statements for the period ended June 30, 2018 PRIO YEAR AUDIT ISSUES ISSUE RAISED MANAGEMENT RESPONSE ASSIGNED TO STATUS The Auditores could not verify the expenditures in the District Treasuries where the physical vouchers are kept Unvenified Sub County Unrfesub unty due to limited audit time frame. 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