REFPUBLIC OF KENYA OFFICE OF THE AUDITOR-GENERAL REPORT OF THE AUDITOR-GENERAL ON THE FINANCIAL STATEMENTS OF WATER AND SANITATION SERVICES IMPROVEMENT PROJECT (IDA GRANT/CREDIT NUMBER: IDA 5103-KE) FOR THE YEAR EN DED 30 JUNE 2018 COAST WATER SERVICES BOAR OIE OF THE ADITOR GENERAL P.O. Box 95202, MOMBASA 19 DEC 2018 * RECEIVED Project Name: WATER AND SANITATION SERVICES IMPROVEMENT PROJECT (WaSSIP) Implementing Entity: COAST WATER SERVICES BOARD PROJECT GRANTICREDIT NUMBER: IDA 5103-KE 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) *1 _ 1 WATER AND SANITATION SERVICES IMPROVEMENT PROJECT (WaSSIP) Reports and Financial Statements For the financial year ended June 30, 2018 TABLE OF CONTENTS CONTENTS P1A-GE 1. Project information and overall performance i- .Statement of project management responsibilities xi 3.Report of the independent auditors on the project 1 4. Statement of receipts and payments 1 5. Statement of financial assets and liabilities 2 6. Statement of cash flows 3 7 Statement of comparative budget and actual amount 4 8 Statement of special(designated) account reconciliation for the year ended 30 June 5 2018 9 Special account statement for the period ended .30 June 2018 1 Notes to the financial statements 72 1 Annexes 2--23 -IH WATER AND SANITATION SERVICES IMPROVEMENT PROJECT (WaSSIP) Reports and Financial Statements For the financial year ended June 30, 2018 1. PROJECT INFORMATION AND OVERALL PERFORMANCE Jame of knplenenting Agency: COAST WATER SERVICES BOARD I Oectve: The objective of the project is to increase access to water supply and sanitation services in the Coast Region. Registered Office and Principal Place of Business: MIKINDANI STREET OFF NKRUMAH ROAD P-0 BOX 90417-80100 MOMBASA, KENYA Telephone: (254)-041-22315230 E-mail: info@cwsb.go.ke Website: www.cwsb.go.ke 1.1 Project Information Project Start Date: 21st June 2012 Project End Date: 31st December 2019 Project Co-ordinator: Mr. David Kanui Project Sponsor: World Bank iii WATER AND SANITATION SERVICES IMPROVEMENT PROJECT (WaSSIP) Reports and Financial Statements For the financial year ended June 30, 2018 1.2 Project Overview Line Ministry/State Department of The project is under the supervision of the Ministry of Water and Sanitation the project Project number P096367 Strategic goals of the project (i)To increase access to reliable, affordable and sustainable water supply and sanitation services, (ii)To improve the water and waste water services in the areas served by Coast Water Services Board. Achievement of strategic goals The project management aims to achieve the goals through the following means:. (i)Rehabilitating selected existing water production, transmission, storage and distribution facilities and wastewater collection, treatment and disposal facilities; (ii)Expanding piped water supply services to under-served areas through the extension of primary and secondary distribution pipes where required (this would include service expansion into urban slums/informal settlements through a balanced program including the involvement of communities in decision making);and (iii)Refining and strengthening the institutional structure, emphasizing on increasing accountability and transparency of the institutional, governance and management framework. Other important background Higher level objectives to which the project contributes include: information of the project Economic Recovery Strategy for Wealth and Employment Creation (ERSWEC) and Vision 2030. The ERSWEC calls for structural reforms to make water supplies and sanitation autonomous (including introducing commercial and private sector principles), mobilize investment for construction and rehabilitation, and enter into partnerships with community based organizations to expand services to the urban poor and rural communities. Vision 2030 identifies infrastructure development as a key enabler to help Kenya achieve its target of 10% and above annual growth. Within water services infrastructure development, water and sanitation investments in Water Services Boards and the strengthening of the sector's regulatory system constitute the main inputs into the strategy. Current situation that the project (a)Rehabilitation and extension of the existing water supply systems in the was formed to intervene Coast Water Services Board service area; and construction of offices for Coast Water Services Board and provision of goods and services required for that purpose. (b) Carrying out by the Coast Water Services Board of a program of activities to strengthen its capacity to carry out its responsibilities; and to strengthen the capacities of Water Service Providers operating within the Coast Water Services Board area to carry out their responsibilities; and provision of goods and services required for that purpose. (c) Preparing and implementing long and medium term drought mitigation plans in the Coast Water Services Board and Northern Water Service Board services areas, all through provision of goods, works and services required for that iv WATER AND SANITATION SERVICES IMPROVEMENT PROJECT (WaSSIP) Reports and Financial Statements For the financial year ended June 30, 2018 purpose. (d) Carrying out studies to strengthen the operational capacity of the Coast Water Services Board, including energy audits, a customer identification survey and infrastructure mapping for all Water Service Providers; and preparation of a communication strategy all through provision of the services required for the purpose. (e) Implementing a Resettlement Policy Framework, Project duration The project was started on 21st June 2012 and was extended to end on the 31st December 2019 I WATER AND SANITATION SERVICES IMPROVEMENT PROJECT (WaSSIP) Reports and Financial Statements For the financial year ended June 30, 2018 1.3 Bankers Designated Account: CFC STANBIC BANK WAIYAKI WAY, WESTLANDS PO BOX 305509-00100 NAIROBI Account No- 010- 000- 048- 8105 Project Account KENYA COMMERCIAL BANK TREASURY SQUARE P.O. BOX 90254- 80100 MOMBASA Account No. 114-321-8191 1.4 Auditors AUDITOR-GENERAL KENYA NATIONAL AUDIT OFFICE ANNIVERSARY TOWERS P.O BOX 30084 -00100 NAIROBI vi WATER AND SANITATION SERVICES IMPROVEMENT PROJECT (WaSSIP) Reports and Financial Statements For the financial year ended June 30, 2018 1.5 Roles and Responsibilities Names Title designation Responsibilities o KMBA(Finance),Bcom, Accounting Officer Jacob K Torutt Chief Executive Officer( CPA(K).DIP.Corp Governance BSc. Civil Engineering Project Coordinator David Kanui Project Engineer MBA(Finance), Bcom(Finance) Head of Finance Harriet Ngeera Finance Manager CPA(K),CPS(K),CREDIT Management(Professional) Martin Tsuma Technical Manager BSc.Electro-mechanical Engineering Head of Technical MSc. Procurement & Head of Procurement Stanslus Jira Procurement Officer Logistics,BPSM,DSM Kibibi Shee Pjct Accountant B.com(Accounting),CPA (K) Head Project Accounting Bsc. Telecommunication fnformation Head of ICT Salim Ali ICT Officer Technology(TIT),MSc. Data Communication(Ongoing)_ _ 1.6 Funding Summary The Project was for a duration of five years from 2012 to 2017, but due to delays in two of the major works undertaken by Coast Water Services Board and Athi Water Services Board, it was extended by two years, to end on the 3l5 December 2019, with an approved budget of US$ 90,721,800.00 equivalent to Kshs. 7,552.589.85 at exchange rate of Kshs.83.25 to the USD.as highlighted in the table below. This exchange c Kshs.83.25 rate was applicable at the signing of the contract but point rates are used to transfer Inds irom Treasury to the project. Similarly payments in foreign currencies are exchanged at rates rutg en that transaction date. Source of Amount received (30th June Undrawn balance funds 2018) (301" June 2018) USD Kshs USD Kshs USD Kshs (A) )(A)(3 A-(B) (A') (B) (i) Grant World Bank- 90.721.800 7,552,589,850 82,317,077 6,744,516,774 8,404,722 808,073,075 (ii) Counterpart funds Government of Kenya 6,863,652 571,399,029.00 6,712,703 558,766,190 150,948 12,632,838 Total 97,585,452 8,123,988,879 89,029,780 7,303,282,964 8,555,670 820,705,913 VIi WATER AND SANITATION SERVICES IMPROVEMENT PROJECT (WaSSIP) Reports and Financial Statements For the financial year ended June 30, 2018 1.7 Summary of Overall Project Performance: 1.7.1. Budget Performance Against Actual Amounts for Current Year and for Cumulative to-Date. The project is past mid-implementation stage and progress is being made in the consultancy and works execution stages to complete the project. From a financial point of view we have spent 89% of the funds signed. During the financial year under review several works, consultancies and goods contract were completed and several others are on defect liability period. There has been a delay in release of funds from National Treasury, which resulted to non payment of contractors and consultants invoices in good time. The implementation of the project is generally satisfactory and the project is on track to be completed and achieve its objective, given the two year extension that was granted by the World Bank. Status of Approved budget and Actual expenditure for the last five Years Financial Project required Treasury % reduction Actual Pending bills Year budget approved budget Expenditure Kshs Kshs Kshs Kshs Kshs 2012/2013 2,176,000,000 1,000,000,000 54 99,177,290 201312014 2,500,000,000 1,000,000,000 60 599,291,164 2014/2015 2,289,252,000 1,000,000,000 56 1,482,509,130 68,535,982 2015/2016 3,650,962,000 1,000,000,000 73 1,216,286,142 160,809,677 26 2017 3,862,000,000 3,862,000,000 0 1,405,526,304 2- 2z18 1,362,000,000 2,294,130,500 0 2,293,391,499 15,840,214,000 10,156,130,500 36% 7,096,181,529 viii 71 WATER AND SANITATION SERVICES IMPROVEMENT PROJECT (WaSSIP) Reports and Financial Statements For the financial year ended June 30, 2018 1.7.2. Physical Progress Based on Outputs, Outcomes and Impact Since Project Commencement. Most of the contracts under this project are completed and this has seen the board increasing its bulk water supply. Among the major contracts that contributed to this factor are: Baricho Immediate Works involving drilling of three high yielding boreholes and their attendant electromechanical works, Baricho Lot 3 involving the Construction of Two major pipelines from Kakuyuni to Gongoni and Kakuyuni to Kilifi. These two pipelines would enable Mombasa and Kilifi have two separate dedicated transmission lines that would supply water to these two towns and hence increase its supply. An additional 22,000m3/d of water is expected to be produced from the Baricho wellfield- Rehabilitation of network reticulation in Mombasa together with improvement of water supply to Mombasa and Malindi informal settlements are also completed. This is meant to provide water to what initially were unserved or underserved areas so that water coverage could be increased. Other key contracts under WaSSIP-AF include Waste Water Master Plan, Water Distribution Master Plan and Drought Mitigation Measures for CWSB and NWSB regions. The project also offers institutional support in terms of capacity building and technical assistance for design and supervision of works. From these projects that commenced in 2009 a lot of improvement has taken place in terms of increased water volumes being produced and reduced non-revenue water. Year Water Production (M) Water Sold (M ) Non-revenue water{%) 2011 36,299,691 28,368,233 22% 2012 39,461,932 30,912,895 22% 2013 44,657,597 34,314,297 23% 2014 44,416,007 36,835,343 17% 2015 44,131,811 37,473,128 15% 2016 44,859,718 38,333,719 15% 2017 43,450,564 39,826,940 9% 2018 40,527,356 35,056,960 13% ix WATER AND SANITATION SERVICES IMPROVEMENT PROJECT (WaSSIP) Reports and Financial Statements For the financial year ended June 30, 2018 1.7.4. Implementation Challenges and Recommended Way Forward. The project faced a major blow during the financial year under review due to floods, which led to the destruction of various boreholes of the main bulk water supply thus causing acute water shortage in some parts of the coast region. Challenges of power outages which in turn affects bulk water production and hence causing delays in revenue collection from the water service providers. Delays in receiving funds from the national treasury and resettlements compensation issues are among the hindrances to the smooth project completion and implementation. This has led to several changes in completion deadlines. The board has had to approve a number of addendums in some projects which has seen some projects revise their contract prices. Among the recommendations include: a) Improved capacity building of staff by attending short management courses which has greatly improved contract management. b) Flood mitigation measures to be effected and thus avoid delays in project completion and also destruction of major bulk water equipment c) Timely preparation and compensation of people before project starts on the ground. d) Regular site visits and management meetings to review project progress has been introduced and is bearing fruits e) Follow up with Water service providers to pay their bills on time, which enables the board to settle power bills and thus avoiding disconnections. f) Regular follow up with our line ministry on issues of budgeting and disbursements of project funds. Currently the staff have learned and positioned themselves to solve some of the challenges that were experienced in the first project i.e. engaging with our line ministry and the world bank incase of any problem re[ating to the project, Summary of Project Compliance: There are no legal issues so far that have been raised and all procurements and implementations are carried out as per the required Procurement Regulations- I 21X WATER AND SANITATION SERVICES IMPROVEMENT PROJECT (WaSSIP) Reports and Financial Statements For the financial year ended June 30, 2018 STATEMENT OF PROJECT MANAGEMENT RESPONSIBILITIES The Chief Executive Officer for the Coast Water Services Board and the Project Coordinator for Water Supply and Sanitation Project (WaSSIP) 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 30, June 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 Chief Executive Officer for Coast Water Services Board and the Project Coordinator for Water Supply and Sanitation project (WaSSIP) 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 Chief Executive Officer for the Coast Water Services Board and the Project Coordinator for Water Supply and Sanitation project (WaSSIP) 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 30 June 2018, and of the Projects financial position as at that date- The Chief Executive Officer for the Coast Water Services Board arid e Project Coordinator for Water Supply and Sanitation project (WaSSIP) further confirm the completeness of the accounting records maintained for the Project, which have been relied upon in the preparation of he Project financial statements as well as the adequacy of the systems of internal financial control. The Chief Executive Officer for the Coast Water Services Board and the Project Coordinator for Water Supply and Sanitation project (WaSSIP) 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 financal year under audit were used for the eligible purposes for which they were intended and were properly accounted for. J Approval of the Project Financial Statements The Project flnancia' statements were approved by the Chief Executive Officer for the Coast Water Services Board ard te .roject Coordinator for Water Supply and Sanitation project (WaSSIP) on ............. ...... .....---- -. and signed by them . I Chief Executive Officer Project Coordinator Date: ... Z:L .: . .L(4 . Date: .. .. . 17 rX REPUBLIC OF KENYA hone: 25420-342330 P.O. Box 30084-00100 E-mail: oag@oagkenya.go.ke NAIROBI Website: wwwkenao.go.ke OFFICE OF THE AUDITOR-GENERAL REPORT OF THE AUDITOR-GENERAL ON WATER AND SANITATION SERVICES IMPROVEMENT PROJECT (IDA GRANT/CREDIT NUMBER: IDA 5103-KE) FOR THE YEAR ENDED 30 JUNE 2018 - COAST WATER SERVICES BOARD REPORT ON THE FINANCIAL STATEMENTS Qualified Opinion I have audited the accompanying financial statements of Water and Sanitation Services Improvement Project (IDA Credit No.5103 KE) set out on pages 1 to 23, 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, statement of comparative budget and actual amounts and statement of special account 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 the Financing Agreement No.5103-KE dated 21 June 2012 between the International Development Association (IDA) and the Republic of Kenya. I have obtained all the information and explanations which, to the best of my knowledge and belief, were necessary for the purpose of the audit. 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 the 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 Financing Agreement No.5103-KE dated 21 June, 2012. In addition, the special accounts statement presents fairly, transactions for the year and the ending balance have reconciled with books of accounts. Basis for Qualified Opinion 1.0. Acquisition of Non-Current Assets Included in statement of receipts and payments and as disclosed in Note 8.5 to the financial statements for the year ended 30 June 2018 is acquisition of non-current assets of Kshs.73,720,247 paid by the Project. Included in this figure is purchase of office equipment amounting to Kshs.68,613,628. This was for the supply, installation and maintenance of billing system for six Water Service Providers (WSPs) in Mombasa, Kwale, Kilifi, Malindi, Taita Taveta and Tana-River was awarded on 26 October, 2016 and the contract delivery date was 26 February, 2017 at a contract sum of Kshs.81,374,583.67. To date, Kshs.68,613,628 has been paid. However, as at the time of audit in September, 2018, the status of the project was as follows: Report of the Audor-General on the Financial Statements of Water and San ition Sevices Improvement Project (IDA Credit No.5103 KE) for the year ended 30.hme 2018 - Coast Water Services Board PromotmngAccountazblity in the Publit Sector The Board did not provide evidence of needs assessment or requisition by the user water companies for audit review of the billing system. The contract period lapsed on 26 February, 2017, yet no action has been taken to extend the contract period or take other disciplinary action against the supplier. Project Site Status Before Status As at The Time of Implementation Audit 20/9/2018 1 Kwale Water Kwale Water Company The system was rejected by the Company declined the offer to be Water Company because it was supplied with the system in the process of acquiring one before the contract was of its own and already the signed. However, the contract procuring process was on-going. remained unchanged and diverted to Mazeras Bulk Water Unit 2 Kilifi Water The Water Company procured The Water Company continues Company their own billing system in using the system called Sulis. All 2016. the equipment under the new project is lying idle in the company's premises 3 Malindi Water The Water Company procured The Water Company continues Company their own billing system in to use the system called Sulis. 2012. All the equipment under the new project is lying idle in the company's premises 4 Tana River The Water Company has The system is yet to be fully Water Company never used any billing system. operational since configurations are still being done by supplier. Consequently, the propriety and value for money of office equipment of Kshs.68,613,628 for the year ended 30 June 2018 could not be ascertained. 2.0 Drought Mitigation The statement of receipts and payments for the year ended 30 June 2018 reflects drought mitigation amount of Kshs.487,915,466 paid by the project as detailed in Note 8.11 to the financial statements. This includes rehabilitation of Bura Irrigation Scheme Water Supply amount of Kshs.5,004,707. The rehabilitation work was awarded to a contractor at a contract sum of Kshs.90,905,144.40 with a commencement date of 18 April 2016 for a period of 12 months up to 17 April 2017. However, the contract was terminated on 30th November 2017 due to slow progress. The overall progress of project implementation as assessed by the consultant was 66.64% when the contract was terminated and a total amount of Kshs.39,954,023.25 had been paid. Report of the Auditor-General on the Financial Statemens f Water and Sanitation Services Improvement Project (IDA Credit No.503 KEi for the year ended 30 June 2018 - Coast Water Serices Board 2 An out of court settlement of Kshs.1 1,972,181 was paid to the contactor in September 2018 to withdraw a court case. Consequently, the propriety and value for money of drought mitigation cost totaling Kshs.39,954,023.25 paid up to the year ended 30 June 2018 and the out of court settlement of Kshs.11,972,181 paid after the year end could not be confirmed. The audit was conducted in accordance with International Standards of Supreme Audit Institutions (ISSAls). I am independent of Water and Sanitation Services Improvement 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. Other Matter 1.0. Budgetary Controls and Performance The Water and Sanitation Services Improvement Project (WaSSIP - AF) had a final budget of Kshs.1,362,000,000 and the actual expenditure of Kshs.2,306,391,499 resulting to an overall over absorption of Kshs.944,391,499 or 69 % as detailed below: - Receipts Budgeted Actual Over Over Under Under Amount Expenditure Absorption Absorption Absorption Absorption (Kshs) (Kshs) (Kshs) (%) (Kshs) (%) Acquisition of 124,435,338 124,435,338 100% non-current assets Purchase of 1,362,000,000 1,269,618,421 92,381,579 7% Goods and Works Purchase of 376,710,315 376,710,315 100% Consultancies Trainings 13,486,954 13,486,954 100% Drought 521,629,560 521,629,560 100% Mitigation Bank Charges 510,911 510,911 100% Int_a 1.362,000,000 [ 2,306.391.499 1.036,773.078 92, 381579 1 The expenditure budget availed was not itemized and only one expenditure item under purchase of goods and works of Kshs.1,362,000,00 was listed. Further, there is need for Report of the Auditor-General on the Financial Statements of Water and Sanitation Services Improvement Project (IDA Credit No.5103 KE) for the year ended 30 June 2018 - Coast Water Services Board 3 the management to prepare a detailed statement of comparative and actual amounts to capture the detailed budget items other than consolidating under one item. Consequently, it was not possible to compare detailed specific actual expenditure with allocated budget per item. Report on Compliance with Lawfulness and Effectiveness in use of Public Money As required by Article 229(6) of the Constitution, except for the matters noted in the basis for qualified opinion and other matter sections of my report, 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 Systems As required by Section 7 (1) (a) of the Public Audit Act, 2015, based on the procedures performed, except for the matters noted in the basis for qualified opinion and other matter sections of my report, 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 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. In preparing the financial statements, management is responsible for assessing the Water and Sanitation Services Improvement Project's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the applicable basis of accounting unless the management either intends to liquidate the Water and Sanitation Services Improvement Project's 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 Report of the Auditor-General on the Financial Statements of Water and Sanitation Services Improvement Project (IDA Credit .o.5103 KE for the Year ended 30 June 2018 - Coast Water Services Board 4 in compliance with the authorities which govern them, and that public money is applied in an effective manner. Those charged with governance are responsible for overseeing the Water and Sanitation Services Improvement Project's 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. 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 review is planned and performed to express a conclusion with limited assurance as to 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 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. The nature, timing and extent of the compliance work is limited compared to that designed to express an opinion with reasonable assurance on the financial statements. Further, in planning and performing the audit of the financial statements and review 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. Report of the Auditor-General on the Financial Statements of Water and Sanitation Services Improvement Project (IDA Credit No 5103 KE) for the year ended 30 June 2018 - Coast Water Services Board 5 Because of its inherent limitations, internal control may not prevent or detect misstatements and instances of noncompliance. 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 Water and Sanitation Services Improvement Project's policies and procedures may deteriorate. As part of an audit conducted in accordance w"j4s/ I jeXercise professional judgement and maintain professional skepticism throughout the,auTCNE 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. * 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 Water and Sanitation Services Improvement Project's 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 Water and Sanitation Services Improvement Project's 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 Water and Sanitation Services Improvement Project's 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. Report of the Auditor-General on the Financial Statements of Water and Sanitation Services Improvement Project (IDA Credit Vo_5103 KE),fbr the year ended 30 June 2018 - Coast Water Services Board 6 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.O. Ouko, CBS AUDITOR-GENERAL Nairobi 27 November 2018 Report of the Auditor-General on the Financial Statements of Water and Sanitation Services Improvement Project (IDA Credit No.5103 KE) for the year ended 30 June 2018 - Coast Water Services Board 7 WATER AND SANITATION SERVICES IMPROVEMENT PROJECT (WaSSIP) Reports and Financial Statements For the financial year ended June 30, 2018 4. STATEMENT OF RECEIPTS AND PAYMENTS FOR THE PERIOD ENDED 30 JUNE 2018 Cumulative Notes 2018 2018 2018 2017 2017 to date Direct Direct Total Kshs Payments Kshs Payments Kshs Kshs Ks RECEIPTS Transfer from Government of 8.2 Kenya 94,087,465 - 94,087,465 115,256,693 - 571,766,190 Proceeds from IDA 8.3 1,450,931,171 821,610,413 2,272,541,584 1,672,644,724 765,433,832 7,743,494,991 Other Refunds 8.4 3,636,605 - 3,636,605 - - 3,954,258 TOTAL RECEIPTS 1,548,655,241 821,610,413 2,370,265,655 1,787,901,417 765,433,832 8,319,215,440 PAYMENTS Acquisition of Non- 8.5 Current Assets 73,720,247 50,715,091 124,435,338 73,486,928 - 510,619,850 Purchase of Goods 8. and Works 571,024,192 698,594,229 1,269,618,421 606,811,564 630,610,806 4,718,609,383 Purchase of Consultancies 8.7 338,123,315 38,587,000 376,710,315 324,871,700 102,037,548 1,223,470,967 Resettlement8. Compensation - - - - - 1,206,000 Trainings 8.9 13,486,954 13,486,954 6,385,966 - 65,217,476 Operating costs - - - - 230,500 Bank Charges 8.10 510,911 - 510,911 124,482 - 1,562,367 Drought Mitigation 8.11 487,915,466 33,714,094 521,629,560 393,845,664 32,785,478 1,349,291,093 TOTAL PAYMENTS 1,484,781,085 821,610,413 2 306 391 499 1405 526,304 765A33,83 7,870,207.63 SURPLUSI(DEFICIT) FOR THE YEAR 63,874,156 -0 63845 382,375, 113 (0) -449,007,803 The accounting policies and explanatory notes to these financial statements are n integral part of the financial statements. Chief Executive Officer Project Coordinator Date Date WATER AND SANITATION SERVICES IMPROVEMENT PROJECT (WaSSIP) Reports and Financial Statements For the financial year ended June 30, 2018 5. STATEMENT OF FINANCIAL ASSETS AND LIABILITIES AS AT 30 JUNE 2018 Note 2018 2017 FINANCIAL ASSETS Kshs Kshs Cash and Cash Equivalents Bank Balances 8.12 449,079,270 385,205,114 TOTAL FINANCIAL ASSETS -449,079270 -385,205,11 REPRESENTE BY: Cash and cash equivalents b/fwd. 8.13 385,205,114 2,830,001 Surplus (Deficit) for the year 63,874,156 382,375,113 Prior year adjustments 8.14 NET FINANCIAL POSITION 449,079,270 385,205,114 The accounting policies and explanatory notes to these financial statements form an integral part of the financial statements. The financial statements were approved on ........................ and signed by: Chief exeutive officer Project Coordinator Date Date 2 WATER AND SANITATION SERVICES IMPROVEMENT PROJECT (WaSSIP) Reports and Financial Statements For the financial year ended June 30, 2018 6. STATEMENT OF CASHFLOW FOR THE PERIOD 30 JUNE 2018 2018 2017 Kshs Kshs Receipts for Operating Income Transfer from Government En tes 94087,465 115,256,693 Proceeds from Domestic and Foreign Grants Other Refunds 3,636,605 Payments for Operating Expenses Operating Costs Net Cash flow From Operating Activities 97,724,070 115,256,693 Cash flow from Investing Activities Acqtl nof Non-Current Assets (73,720,247) (73,486,928) P-chase of Goods and Works (571024,192) (606,811,564) Purchase of Consultancy Services (338,123,315) (324,871,700) Resettlement Compensation Training Expenses (13,486,954) (6,385,966) Drought Mitigation (487,915,466) (393,845,664) Net Cash Flows from Investing Activities (1,484,270,175) (1,405,401,823) Cash Flow from Borrowing Activities Proceeds from Foreign Borrowings 1,450,931,171 1,672,644,724 Bank Charges (510,911) (124,482) Net Cash Flow from Borrowing Activities 1,450,420,261 1,672,520,242 Net lncreasel(Decrease) in Cash and Cash Equivalent 63,874,156 382,375,113 Cash and Cash Equivalent at Beginning of Year 385,205,114 2,830,001 Cash and Cash Equivalent at end of Year 449,079,269 385,205,114 The accounting policies and explanatory notes to these financial statements rm5r integratpart of the financial statements- The entity financial statements were approved on n... I....ndsi-ned-by: Chief executive officer Project Coordinator ¶ ~ .i.2Ct2I 9' EQ2C)rq Date Date 3 WATER AND SANITATION SERVICES IPROVEMENT PROJECT (WaSSIP) Reports and Financial Statements For the financial year ended June 30, 2018 7. STATEMENT OF COMPARATIVE BUDGET AND ACTUAL AMOUNTS (KSHS) - -- -Actiu-al on %o RecelptsPaymenlts Original Adjustments Final Budget Comparable Variance Item Budget ariaai -- b cabd e=d-c f=c Receipts Transfer from Government Of Ken a 362,000,000 67,869,500 294,130,500 94,087,465 200,043,035 -68% Proceeds from domestic and forei n rants roe s om IDA 1,000,000,000 1,000,000,000 2,000,000,000 2,272,541,584 272,541,584 14% Refunds Total Receipts 1,362,000,000 932,130,500 2,294,130,500 2,366,629,049 72,498,549 3% Payments Acquisition of Non- Current Assets 124,435,338 124,435,338 100% Purchase of Goods and Works 1,362,000,000 1,362,000,000 1,269,618,421 92,381,579 -7% Purchase of Consultanc 376,710315 376,710,315 100% Resettlement 0%' Compensation - 0% Trainings 13,486,954 13,486,954 100% Drought Mitigation 521,629,560 521,629,560 100% Operating Costs- 0% Bank Charges - 510,911 510,911 100% Total Payments 1362,000,000 1362,000,000 2,306,391,499 944,391,499 69% Material variances between actual and budgeted have been explained in annex 1 of the notes to the financial statements- Chief executive officer Project Coordinator Date Date 4 WATER AND SANITATION SERICES LIPROVEMENT PROJECT (WaSSIP) Reports and Financial Statements For the financial year ended June 30, 2018 STATEMENT OF SPECIAL (DESIGNATED) ACOUNT RECONCILIATION FOR THE YEAR ENDED JUNE 30 2018 Credit No: 33 3 KE-DA-CC Bank Account No : c .u5 Held with: O=O ST NBIC BANK, NAIROBI USD KSHS 1 Acount advanced by IDA 111,436,405.73 11,232,789,697.58 Less: 2 To as at Documented 99,805,634.89 10,060,407,996,91 3 Outstanding amount to be 11,630,770.84 1,172,381,700.67 Documented Represented by: 4Ending Special Account Balance as at 148,9.46 10720539 30th June 2018 Amount claimed but not credited as at 30th June 2018 6 Amount withdrawn and not claimed 1,142,273.38 115,141,156.70 7 Service Charges 8 Interest earning Total advances to Special Account 11,630,710.84 1,172,381,700.67 year ended 30th June 2018 The exchange rate used is that of 30th June 2018 Kshs.100.8000 to the USD. The amount appearing on line 6 are eligible for financing by the World Bank and shall be documented in the subsequent IFR's 5 WATER AND SANITATION SERVICES 11PROVE11ENT PROJECT (11aSSIP) Reports and Financial Statements For the financial year ended June 30, 2018 ACCOUNT STATEMENT FOR THE PERIOD ENDING 30T JUNE 2018 ACCOUNT No: C 488105 DEPOSITORY BANK- SANBIC BANK-NAIROBI ADDRESS: ..A`YAKI WAY, WESTLANDS NAIROBI RELATED LOAN: PART 2 COAST WATER SERVICES BOARD CREDIT AGREEMEN 5103-KE CURRENCY: USD Account Activity: USD T KSHS Beginn:ng baaceof 1July 2017 as 4,889,952.11 505,441,546.50 per CBK Ledger Account Add: Total Amount deposited by World Bank 12,623,665.35 1,272,465,467.28 Total Interest earnings Total amount refunded to cover ineligible expenditure Deduct Total Amount withdrawn 7,025,120.00 711,781,631.00 Total Service Charge Ending balance on 30th June 2018 10,488,497.4 1,066,125,382.78 NOTE: The ending balance aS per the Central Bank of Kenya Ledger Account and off-shore Special Account as at 30th June 2018 have been reconciled and a copy of the supporting Reconciliation Statement is attached 6 WATER AND SANITATION SER1ICES LMPROVE11ENT PROJECTa i afi) Reports and Financial Statements "'" TEFor the financial year ended June 30, 2018 8. NOTES TO THE FINANCIAL STATEMENTS: SIGNIFICANT ACCOUNTING POLICIES The prinial a nT licies adopted in the preparation of these financial statements are set out below: 8.1 Statement of Compliance and Basis of Preparation The financial statements have been prepared in accordance with and comply with International Public Sector Accounting Standards (IPSAS) with particular emphasis on Cash Basis Financial Reporting under the Gash Basis of Accounting. The financial statements comply with and conform to the form of presentation prescribed by the Accounting Standards Board of Kenya. The financial statements are presented in Kenya Shillings, which is the functional and reporting currency of the Project and all values are rounded to the nearest one Shilling. The accounting policies adopted have been consistently applied to all of the years presented. The financial statements have been prepared on the cash basis following the Government's standard chart of accounts. The cash basis of accounting recognises transactions and events only when cash is received or paid out by the Project. i. Recognition of Revenue and Expenses The Project recognises all revenues from the various sources when the event occurs and the related cash has actually been received by the Project. In addition, the Project recognises all expenses when the event occurs and the related cash has actually been paid out by the Project. ii. In-kind Donations In-kind donations are contributions made to the Project in the form of actual goods and/or services rather than in money or cash terms- These donations may include vehicles, equipment or personnel services. Where the financial value of in-kind donations can be reliably determined, the Project includes such value in the statement of receipts and payments both as revenue and as an expense in equal and opposite amounts; otherwise, the donation is not recorded. The Board did not pay out or receive any donations this financial year. iii. Cash and Cash Equivalents Cash and cash equivalents comprise cash on hand and cash at bank, short-term deposits on call and highly liquid investments with an original maturity of three months or less, which are readily convertible to known amounts of cash and are subject to insignificant risk of changes in value. Bank account balances are as they reflect at Kenya Commercial Bank at the end financial year. For the purposes of these financial statements, cash and cash equivalents also include short term cash imprests and advances to authorised public officers and/or institutions which had not been surrendered or accounted for at the end of the financial year. There were neither unsurrendered imprests by nor any advances to implementing staff as at 30th June 2018 in this project. IV. Pending Bills Pending bills consist of unpaid liabilities at the end of the financial year arising from contracted goods works or services during the year. The board had no pending during the financial year under review. 7 WATER AND SANITATION SERVICES IMPROVEMENT PROJECT (WaSSIP) Reports and Financial Statements For the financial year ended June 30, 2018 V. Budget The budget is developed on the same accounting basis (cash basis), the same accounts classification basis, and for the same period as the financial statements. The Project's budget was approved as required by Law and National Treasury Regulations, as well as by the participating development partners, as detailed in the Government of Kenya Budget Printed Estimates for the year. A statement of comparative budget against actual amounts for the period under review has been included as an annex to these financial statements. vi. Exchange Rate Differences The accounting records are maintained in the functional currency of the primary economic environment in which the Project operates, Kenya Shillings. Transactions in foreign currencies during the year are converted into the functional currency using the exchange rates prevailing at the dates of the transactions. Vii. Comparative Figures Where necessary comparative figures for the previous financial year have been amended or reconfigured to conform to the required changes in financial statement presentation. Viii. Subsequent Events There have been no events subsequent to the financial year end with a significant impact on the financial statements for the year ended 30 June 2018 8 WATER AND SANITATION SERVICES IMPROVEMENT PROJECT (WaSSIP) Reports and Financial Statements For the financial year ended June 30, 2018 NOTES TO THE FINANCIAL STATEMENTS: 8.2 Receipts from Government of Kenya These represent counterpart funding from the government as follows: Quarter 2018 2017 Cumulative To Date Kshs Kshs Kshs 1 35,733,369 63,000,000 203,555,908 2 16,000,000 13,822,162 126,804,852 3 31,641,097 38,434,531 190,697,067 4 10,712,999 - 50,708,363 94,087e465 115,256,693 571,766,190 Funds were deposited to the WaSSIP-AF project account as a reimbursement to IDA funds paid for Government of Kenya counterpart funded expenses. 9 WATER AND SANITATION SERVICES IMPROVEMENT PROJECT (WaSSIP) Reports and Financial Statements For the financial year ended June 30, 2018 8.3. Proceeds from IDA Grants During the 12 months to 30 June 2018 Coast Water Services Board received grants from the World Bank amounting to USD. 10,488-513.This money remained undrawn from the Designated Account as at the end of the financial year. The project received Kshs.1, 450,931,171 in its account. This was money that had not been transferred to the project account by the end of the 2016/2017 financial year. In total the project has received Kshs. 6.744.516,774.27.This amount includes Kshs.821, 610,413.27 that were paid to project contracts directly by the World Bank as A-1-A. Amount Total Grants 3rIt& Total amount Nameaf Date received Received to Received in Ksh Donor Received in USD date inash 201212013 201712018 201612017 20151201 21121 20141201 USD Kshs Kshs Kshs Kshs Kshs Loans Received World 26.6.13 3,913,067 327,596,360 327,596,360 Bank 10.3.14 6,381,116 549,286,379 549,286,379 157,013,895 16.6.14 1,789,741 157,013,895 31.10.14 500,000,000 500,000,000 15.12.14 8,756,482 280,990,455 280,990,455 5.5.15 5,741,788 100,000,000 100,000,000 26.6.15 6,192,377 119,009,545 119,009,545 9.2.16 15,557,140 1,574,380,560 1,574,380,560 6.5.16 970,127 98,264,164 98,264,164 10.1.17 714,408 72,298,090 72,298,090 31.5.17 4,175,551 422,565,761 422,565,761 20.6.17 2,135,181 216,917,780 216,917,780 _ 16.10.17 4,778,410 21.12.17 4,528,981 739,149,540 739,149,540 13.6.18 1,181,122 A-I-A 7,807,022 765,433,832 765,433,832 A-1-A 7,694,565 821,610,413 821,610,413 TOTAL 82,317,078 6744,516,774 _2,272541,584 2,438,078,556 - 2,033,896,634 10 WATER AND SANITATION SERVICES IMPROVEMENT PROJECT (WaSSIP) Reports and Financial Statements For the financial year ended June 30, 2018 8.4 Other Refunds 2018 2017 Cumulative-To Date Quarter Kshs Kshs Kshs Refunds/Reversais of Cheques 3,636,605 3,954,258 3 4 i,636',6053954258 During the year under review, there were reversals done as a result of erroneous debiting of wassip AF account, thus crediting hack of the account. I.e cheques that were supposed to have been debited to Kissip Account were wrongly debited to Wassip AF account. 8.5. Acquisition of Non-Financial Assets - Cumlativ 2018 2018 2018 2017 to Date Direct Total PaymentsKshs Payment Kss Kshs Kshs Kshs lKshs Purchase of Motor Vehicles 55,821,710 Purchase of Plant and E upmet -51,784,985 102,911,722 Euipment72 Purchase of Motor C ces- 17,990,032_ C cles Purchase of Office Furniture - 8,921,196 Purchase of Office Eu ment 17,898,537 50,715,091 68613,628 120,069,559 73,20 247 50,715,091 124,435,338 73,486,928 510,619,850 The cumulative expenditure for the purchase of Non-Current Assets at the beginning of the financial year 2017/2018 was Kshs.386, 184,512 and at the end of this financial year had accumulated to Kshs.510, 619,850 as shown above. 11 WATER AND SANITATION SERVICES IMPROVEMENT PROJECT (WaSSIP) Reports and Financial Statements For the financial year ended June 30, 2018 NOTES TO THE FINANCIAL STATEMENTS: 8.6 Purchase of Goods and Works 2018 2018 2018 2017 2017 CTmlate To Date Direct Direct Kshs PaymentKs s Payments Kshs Kshs Kshis oMzima Picelne -- 662,364 - 210,320,819 Se-res 28,607,340 28,607,340 43,892,667 20,986,910 686,176,636 2a a1dVoi 0-ices - - - 17,138,432 N ks ___- 7,178,031 - 105,382,140 Re7ab:tation Mazeras Dil n20,595,806 Rehabilitation of Voi Water Supplies.--- 3,637,737 Rehabilitation of Lamu Water Supplies 4,605,832 31,366,772 35,972,604 21,872,511 42,971,995 134,370,153 Rehabilitation of Hola Water Supplies - _-_- - 697,481 Rehabilitation and Extension of Mombasa Water System Lot 2 244,699,445 244,699,445 205,689,521 - 937,914,819 Mombasa Informal Settlement Works Lot 1 16,384,574 16,384,574 19,878,801 - 107,166,868 Mombasa Informal Settlement Works Lot 2 30,152,375 30,152,375 40,322,800 15,509,494 145,727,975 12 WATER AND SANITATION ERNICES LPRO1EMENT FKUJL I