REPUBLIC OF KENYA OFFICE OF THE AUDITOR-GENERAL REPORT OF THE AUDITOR-GENERAL ON THE FINANCIAL STATEMENTS OF KENYA YOUTH EMPLOYMENT AND OPPORTUNITIES PROJECT (IDA CREDIT NO.5812-KE) FOR THE YEAR ENDED 30 JUNE 2018 MICRO AND SMALL E ES AUTHO MSEA PROJECT NAME: KENYA YOUTH EMPLOYMENT AND OPPRTUNITIES PROJECT (KYEOP) IMPLEMENTING ENTITY: MICRO AND SMALL ENTERPRISES AUTHORITY (MSEA) PROJECT CREDIT NUMBER: 5812 -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) Kenya Youth Employment and Opportunities Project (KYEOP) Reports and Financial Statements For the financial year ended June 30, 2018 CONTENTS PAGE 1. PROJECT INFORMATION AND OVERALL PERFORMANCE...............................................................................ii 2. STATEMENT OF PROJECT MANAGEMENT RESPONSIBLITIES....................................................................xiv 3. REPORT OF THE INDEPENDENT AUDITORS ON THE KYEOP PROJECT......................................................xv 4. STATEMENT OF RECEIPTS AND PAYMENTS FOR THE PERIOD ENDED 30TH JUNE 2018......................... 1 5. STATEMENT OF FINANCIAL ASSETS AND LIABILITIES AS AT 30TH JUNE 2018........................................ 2 6. STATEMENT OF CASHFLOW FOR THE PERIOD 30TH JUNE 2018.................................................................... 3 7. STATEMENT OF COMPARATIVE BUDGET AND ACTUAL AMOUNTS........................................................... 4 8. NOTES TO THE FINANCIAL STATEM ENTS .......................................................................................................... 5 i Kenya Youth Employment and Opportunities Project (KYEOP) Reports and Financial Statements For the financial year ended June 30, 2018 1. PROJECT INFORMATION AND OVERALL PERFORMANCE 1.1 Name and registered office Name: The Project official name is Kenya Youth Employment and Opportunities Project (KYEOP). The Micro and Small Enterprises Authority is implementing Component two (2) on job creation Objective: The key objective of the project is to increase employment and earning opportunities for targeted youth. Address: The project headquarters offices are in Nairobi County, Kenya Authority's Headquarters P.O. Box 48823-00100 Nairobi, Kenya 10th Floor Utalii House, Utalii Lane/ Uhuru Highway Nairobi, KENYA Contacts: The Authority's contacts Office of the Chief Executive Officer Telephone: (254)020-3340006/0700-666000 E-mail: msea@mseauthority.qo.ke/ mseakenva(a)qmail.com Website: www.mseauthority.qo.ke 1.2 Project Information Project Start Date: The project effective date 1s September, 2016 Project End Date: The project end date is 3 1st December, 2021 Project Manager: The project manager is Mr. Dena Ringold Project Sponsor: The project sponsor is World Bank (IDA) 1.3 Project Overview Line Ministry/State The Project is under the supervision of the Ministry of Industry, Trade and Department of the Cooperatives project The Implementing Agency is the Micro and Small Enterprises Authority (MSEA) Project number 5812- KE Strategic goals of the The project aims at addressing key constraints and market failures that limit project the demand for the employment and hamper youth productivity once in employment ii Kenya Youth Employment and Opportunities Project (KYEOP) Reports and Financial Statements For the financial year ended June 30, 2018 Achievement of The specific goals of component two (2) on job creation are: strategic goals (i) To provide seed funding for youth led start ups (ii) To increase access to Business Development Services (BDS) for young self-employed entrepreneurs (iii) To support innovative interventions to create jobs for targeted youths (iv)To expand economic opportunities to youth who are hard to serve 111 Kenya Youth Employment and Opportunities Project (KYEOP) Reports and Financial Statements For the financial year ended June 30, 2018 Other important The project is funded by the International Development Association (IDA) background arm of World Bank. The Project total cost is 106.5 million SDR (US$ 150 information of the million) and is to be implemented over five (5) years project Project categories The Overall project has eight categories as per the financing agreement: Category 1: Goods, Non Consulting services , Consultant Services, Training and Incremental Operating Costs; a) Part A. 1 (a) A.2 (a) to implemented by MPYG total cost SDR 12,070,000 b) Part A. 1 (b) A.2 (b) to implemented by MLEAA (NITA) total cost SDR 41,170,000 Category 2: Goods, Non Consulting services , Consultant Services, Training and Incremental Operating Costs under part B of the Project ( Excluding business start-up grants and Business Plan Competition Awards and Innovation Awards); a) MITC (MSEA) (Part B.1 and B.2 (a) total cost SDR 9,370,000 b) MPYG (Part B.2 (a) and B.2 (b) total cost SDR 41,170,000 Category 3: Business start-up grants under part B.1 of the project to be implemented by MITC(MSEA) at a total cost of SDR 8,520,000 Category 4: Business Plan Competition Awards under Part B.2(a) of the project to be implemented by MPYG at a total cost of SDR 9,940,000 Category 5: Innovation Awards under part B.2(b) of the project to be implemented by MPYG at a total cost of SDR 852,000 Category 6: Goods, Non Consulting services, Consultant Services, Training and Incremental Operating Costs under part C of the Project to be implemented by MLEAA at a total cost of SDR 9,590,000 Category 7: Goods, Non Consulting services , Consultant Services, Training and Incremental Operating Costs under part D of the Project to be implemented by MPYG at a total cost of SDR 12,640,000 Category 8: Refund of preparation at a total cost of SDR 1,565,000 Current situation that The project was formed to intervene in the following areas: the project was (i) Unemployment among the youth in the country formed to intervene (ii) Marginalisation of youth in some counties (iii) Lack of equity in Job opportunities for youth in the country Project duration The project started on 1st September, 2016 and is expected to run until 31st December, 2021 iv Kenya Youth Employment and Opportunities Project (KYEOP) Reports and Financial Statements For the financial year ended June 30, 2018 1.4 Bankers The following are the bankers for the current year: Kenya Commercial Bank of Kenya P.0 Box: 30012- 00100 Kipande House Nairobi, Kenya 1.5 Auditors The project is audited by: Auditor General Office of the auditor General Anniversary Towers, University Way P.O.Box 30084 GOP 00100 Nairobi, Kenya 1.6 Roles and Responsibilities List the different people who will be working on the project. This list would include the project manager and all the key stakeholders who will be involved with the project. Also, record their role, their positions, and their contact information. v Kenya Youth Employment and Opportunities Project (KYEOP) Reports and Financial Statements For the financial year ended June 30, 2018 Names Title designation Key qualification Responsibilities Nobby C. Macharia Project Coordinator Mr. Nobby Macharia (i) Oversee the holds and Master management of all Business project activities Administration and outputs of (MBA) in Entrepreneurship Component 2 from Kenya (ii) Supervise all Methodist University and a Bachelor of technical and Science (BSc) in support staff Agriculture from the within the project. University of Nairobi. He has over (iii) Facilitate 25 years of collaboration with experience working other Components in the promotion and of KYEOP under development of other agencies. Micro Small and Medium Enterprises (iv)Coordinate (MSMEs). development of TORs for all contracts under BDS, Grants, and Business Plan Competition. vi Kenya Youth Employment and Opportunities Project (KYEOP) Reports and Financial Statements For the financial year ended June 30, 2018 John Masha Project Manager (i) Support the MSEA PIU project coordinator with the day-to-day management of all project activities and outputs. (ii) Establish systems to ensure effective and efficient delivery or all operational outputs for Component 2 targets; (iii) Supervise all technical and support staff within the project. vii Kenya Youth Employment and Opportunities Project (KYEOP) Reports and Financial Statements For the financial year ended June 30, 2018 Lydiah Musyimi Business Plan (i) Coordinate the Competition (BPC) development of and Monitoring and Terms of Evaluation (M &E) Reference (TOR) coordinator for the consultancy in BPC (ii) Coordinate the selection of the successful firm to manage the process; (iii) Design and develop measures of monitoring the performance of Component 2 activities in meeting their objectives. (iv) Update the program key performance indicators (inputs, outputs, outcomes) for monitoring the project, their target values and specify the timing and format of reporting; (v) Continuously update the projects Results Framework in line with GoK and World Bank guidelines; (vi)Ensure timely and regular reporting, analyze progress and performance as well as highlight areas of concern to the Project viii Coordinator Kenya Youth Employment and Opportunities Project (KYEOP) Reports and Financial Statements For the financial year ended June 30, 2018 Caroline Kungu Coordinator, Communication, (i) Act as a point Business Marketing and of contact for Development Entrepreneurship the Project Services. Development Management Unit (PMU) for Sub- component 2.1 of the project. (ii) Support development and administration of the Entrepreneursh ip Aptitude Test; (iii) Support coordination of all outreach programmes for this component; (iv) Support in selection and contracting of BDS providers; lx Kenya Youth Employment and Opportunities Project (KYEOP) Reports and Financial Statements For the financial year ended June 30, 2018 Joseph Kimwele Head of Finance Masters in Finance (i) Prepare statements and Bachelor and financial degree in reports and ensure Accounting and timely submission Certified Public to the World bank Accountant of and Treasury Kenya (CPA (K) (ii) Co-ordinate the and over ten years' release of funds, experience in public supervise direct finance disbursement and management. operations of the special account; (iii) Developin g and implementing World Bank financial management system as outlined in the PAD; (iv)Preparation of Annual work program, budgets, and allocation of funds; (v) Establish records of actual disbursements and compile data showing current and cumulative actual expenditure and commitments under the project; x Kenya Youth Employment and Opportunities Project (KYEOP) Reports and Financial Statements For the financial year ended June 30, 2018 Caroline Kioko Grants Coordinator Master's Degree in (i) Act as a point of Entrepreneurship, contact for the Bachelor's degree Project in environmental Management Unit studies and (PMU) for Sub- community component 2.1 development (ii) Support Over ten years' development and experience in administration of entrepreneurship the Entrepreneurship Aptitude Test; (iii) Support coordination of all outreach programmes for this component; (iv) Support coordination of grants beneficiary selection activities and disbursement; 1.7 Funding summary The Project is for duration of five years from 2016 to 2021 with an approved budget of US$ 25.2 M for component two (2) equivalents to KShs 2.58 Billion as highlighted in the table below: xi Kenya Youth Employment and Opportunities Project (KYEOP) Reports and Financial Statements For the financial year ended June 30, 2018 Below is the funding summary: Source Donor Commitment- Amount received to Undrawn balance to date offunds date - (30"' June, (30/6/18) 2018) Donor KShs Donor KShs Donor KShs currency(U,$) currency currency (A) (A' (B) _(B') (A)-f(B) (A')-fB') ()Loan IDA (KYEOP) MITC 25,197,183 2,587,750,694.1 944,843 97,035,375.8 24,252,340 2,563,498,354 Total 25,197,183 2,587,750,694.11 944,843 197,035,375.8 124,252,340 12,563,498,354 * The Exchange rate is oUSD /KSH 102.7 SAs per the financing agreement SDR 17,890,0 o(USD 25,197,183) was allocated to MSEA 1.8 Summary of Overall Project Performance: * Budget performance against actual amounts for current year and for cumulative to- date, The Authority was allocated a budget of Kshs 140 million during the 2017/18 financial year, having a total actual expenditure of Kshs 86.9 million. However, during the 2016/17 financial year, out of the allocated budget of Kshs 70 million, the Authority received only Kshs 11,491,000 leaving unreceived balance of Kshs 58,509,000 which was received in the 2017/18 FY. Hence, the cumulative receipts amounted to 154.2 million against actual cumulative expenditure of Kshs 88.2 million. * Physical progress based on outputs, outcomes and impacts since project commencement, The project commenced in September 2017 and was negatively impacted by the political environment in the country such that little activities were undertaken until beginning of April 2018 when the project issued grants to 1000 youths in selected five counties. So, the impact based on the grants issuance will be assessed in the current financial year. * Comment on value-for-money achievements, As explained earlier, the project assessment on value for money achievements will be analysed in the current financial year 2018/19 when Monitoring and Evaluation will be done and its results analysed. * Indicate the absorption rate for each year since the commencement of the project. During the 2016/17 financial year, out of the allocated budget of Kshs 70 million, the Authority received only Kshs 11,491,000 leaving unreceived balance of Kshs 58,509,000. The actual expenditure for the 2016/17 financial year amounted to Kshs 5,825,416 giving an absorption rate of about 8%. xii Kenya Youth Employment and Opportunities Project (KYEOP) Reports and Financial Statements For the financial year ended June 30, 2018 * List the implementation challenges and recommended way forward. The major challenge witnessed so far is the low absorption rate for the funds allocated under the project. This was majorly witnessed during the beginning of the project around September 2017 when the political environment was so unfavorable for the project implementation. The procurement process has also been a bit slow due to the required World Bank and government public procurement and disposal guidelines and procedures to be adhered to. However, most of the procurements and activities have been put on a back to back in the Work plan for the 2018/19 financial year so as to fast track them to recover the lost timelines. 1.9 Summary of Project Compliance: The project has adhered to the procedures as per the World Bank Financial Management requirements, Government of Kenya Financial Regulations, Fiduciary framework and accountability. xiii Kenya Youth Employment and Opportunities Project (KYEOP) Reports and Financial Statements For the financial year ended June 30, 2018 2. STATEMENT OF PROJECT MANAGEMENT RESPONSIBILITIES The Principal Secretary, Ministry of Industry Trade and Cooperatives and the Project Coordinator for KYEOP project are responsible for the preparation and presentation of the Project's financial statements, which give a true and fair view of the state of affairs of the Project for and as at the end of the financial year (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, Ministry of Industry Trade and Cooperatives and the Project Coordinator for KYEOP project accept responsibility for the Project's financial statements, which have been prepared on the Cash Basis Method of Financial Reporting, using appropriate accounting policies in accordance with International Public Sector Accounting Standards. The Principal Secretary, Ministry of Industry Trade and Cooperatives and the Project Coordinator for KYEOP project are of the opinion that the Project's financial statements give a true and fair view of the state of Project's transactions during the financial year/period ended June 30, 2018, and of the Project's financial position as at that date. The Principal Secretary, Ministry of Industry Trade and Cooperatives and the Project Coordinator for KYEOP project further confirm the completeness of the accounting records maintained for the Project, which have been relied upon in the preparation of the Project financial statements as well as the adequacy of the systems of internal financial control. The Principal Secretary, Ministry of Industry Trade and Cooperatives and the Project Coordinator for KYEOP project confirm that the Project has complied fully with applicable Government Regulations and the terms of external financing covenants, and that Project funds received during the financial year/period under audit were used for the eligible purposes for which they were intended and were properly accounted for. Approval of the Project financial statements The Project financial statements were approved by the MSEA Ag. Chief Executive Officer and the Proj ect nator for the Kenya Youth Employment and Opportunities Project (KYEOP) on 2018 and signed by them. Ag. Chief Executive Officer Project Coordinator ProjectAccou ant: Name No2- /1 §(k-tg( Name Jo f MAM, Name: 3684 VI e ICPAK Member Number: 10A 31 xiv Kenya Youth Employment and Opportunities Project (KYEOP) Reports and Financial Statements For the financial year ended June 30, 2018 3. REPORT OF THE INDEPENDENT AUDITORS ON THE KYEOP PROJECT xv 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 KENYA YOUTH EMPLOYMENT AND OPPORTUNITIES PROJECT (IDA CREDIT NO. 5812- KE) FOR THE YEAR ENDED 30 JUNE 2018-MICRO AND SMALL ENTERPRISES AUTHORITY REPORT ON THE FINANCIAL STATEMENTS Qualified Opinion I have audited the accompanying financial statements of Kenya Youth Employment and Opportunities Project set out on pages 1 to 14, which comprise the statement of financial assets and liabilities as at 30 June 2018, and 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 and the Financing Agreement Credit No. 5812-KE between the International Development Association (IDA) and the Republic of Kenya dated 4 July 2016. 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 addition, in my opinion, the accompanying special/designated account statement presents fairly, in all material respects, the funds received and disbursements made from the special/designated account of the project for the year period on 30 June 2018 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 Kenya Youth Employment and Opportunities Project as at 30 June 2018, and of its financial performance and its cash flows for the year then ended, in accordance with International Public Sector Accounting Standards (Cash Basis) and comply with the Financing Agreement Credit No. 5812-KE of 4 July, 2016. Basis for Qualified Opinion 1. Un-reconciled Receipts During the year under review, an amount of US$832,899.12 (Kshs.84,034,451.12) was deposited into the project special (designated) account by the world bank while an amount of US$ 832,928 (Kshs.83,687,141 was withdrawn from the special account to finance project activities. However, the project financial statements presented for audit reflect receipts of Kshs.142,666,091 thereby leading to unexplained and unreconciled variance of Kshs.58,978,950 contrary to International Public Sector Accounting Standards which requires full disclosure of information relating to the project. Report of the Auditor-General on the Financial Statements of Kenya Youth Employment and Opportunities Project for the year ended 30 June 2018 - Micro and Small Enterprises Authority PronotingAccountability in the Public Sector In the absence of the reconciliation between the amount disbursed from the special account of Kshs.83,687,141 and the receipts of Kshs.142,666,091 reflected in the financial statements, it has not been possible to ascertain that figures are fairly stated. 2. Cash and Cash Equivalents The project used the bank statement balances to prepare the bank reconciliation statements instead of using the cash book balances. The project bank reconciliation statements exercise was performed by one person and there was no evidence to show whether the same were checked and approved by a senior and authorized person as a management control tool. Posting in the system cashbook had some cases of similar transactions posted twice. In the circumstances, it has not been possible to confirm the accuracy of cash and cash equivalents balance of Kshs.61,463,930 as at 30 June 2018. The audit was conducted in accordance with International Standards of Supreme Audit Institutions (ISSAls). I am independent of Kenya Youth Employment and Opportunities Project in accordance with ISSAI 30 on Code of Ethics. I have fulfilled other ethical responsibilities in accordance with 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 qualified 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. Except for the matters described in the Basis for Qualified Opinion section. I have determined that there are no Key Audit Matters to communicate in my report. REPORT ON LAWFULNESS AND EFFECTIVENESS IN USE OF PUBLIC RESOURCES Conclusion As required by Article 229(6) of the Constitution, based on the audit procedures performed, except for the matter(s) described in the Basis for [Conclusion on Lawfulness and Effectiveness in Use of Public Resources/ Qualified Opinion] section of my report, I confirm that, nothing else 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 The audit was conducted in accordance with ISSAI 4000. The standard requires that I comply with ethical requirements and plan and perform the audit 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. Report of the Auditor-General on the Financial Statements of Kenya Youth Employment and Opportunities Project for the year ended 30 June 2018- Micro and Small Enterprises Authority 2 I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my conclusion. REPORT ON EFFECTIVENESS OF INTERNAL CONTROLS, RISK MANAGEMENTAND GOVERNANCE Conclusion As required by Section 7 (1) (a) of the Public Audit Act, 2015, based on the audit procedures performed, except for the matter(s) described in the Basis for [Conclusion on Effectiveness of Internal Controls, Risk Management and Governance/Qualified Opinion] section 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. Basis for Conclusion The audit was conducted in accordance with ISSAI 1315 and ISSAI 1330. The standards require that I plan and perform the audit to obtain assurance about whether effective processes and systems of internal control, risk management and governance were operating effectively, in all material respects. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my conclusion. 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 continue as a sustainable services, disclosing, as applicable, matters related to sustainability of services and using the applicable basis of accounting unless the Project either 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 way. Those charged with governance are responsible for overseeing the financial reporting process, reviewing the effectiveness of how the entity monitors compliance with relevant Report of the Auditor-General on the Financial Statements of Kenya Youth Employment and Opportunities Project for the year ended 30 June 2018 - Micro and Small Enterprises Authority 3 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 ISSAls 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 audit is planned and performed to express a conclusion 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: Report of the Auditor-General on the Financial Statements of Kenya Youth Employment and Opportunities Project for the year ended 30 June 2018 - Micro and Small Enterprises Authority 4 * 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 sustainability of services, 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 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 to cease 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 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 27 December2018 Report of the Auditor-General on the Financial Statements of Kenya Youth Employment and Opportunities Project for the year ended 30 June 2018 - Micro and Small Enterprises Authority 5 Kenya Youth Employment and Opportunities Project (KYEOP) Reports and Financial Statements For the financial year ended June 30, 2018 4. STATEMENT OF RECEIPTS AND PAYMENTS FOR THE PERIOD ENDED 30TH JUNE 2018 Note 2017/18 2016/17 Cumulative to-date Receipts Receipts Payment and Payments payments made by third payment made by controlled by the controlled third entity by the parties entity KShs KShs KShs KShs KShs RECEIPTS Loan from external development partners 142,666,091 - 11,491,000 - 154,157,091 TOTAL RECEIPTS 142,666,091 - 11,491,000 - 154,157,091 PAYMENTS Compensation of employees 8.4 4,467,280 - - - 4,467,280 Purchase of goods and services 8.5 60,610,003 - 5,825,416 - 66,435,419 Acquisition of non-financial 8.6 assets 21,790,463 - - 121,790,463 TOTAL PAYMENTS 86,867,746 - 5,825,416 - 92,693,162 SURPLUS/(DEFICIT) 55,798,345 0 5,665,584 - 61,463,929 The accounting policies and expla ory no s to t e financial statements are an integral part of the fi c .al sttements. Project Coordinator Head*F' Name: NOY-Na e: Kenya Youth Employment and Opportunities Project (KYEOP) Reports and Financial Statements For the financial year ended June 30, 2018 5. STATEMENT OF FINANCIAL ASSETS AS AT 30TH JUNE 2018 Note 2017/18 2016/17 KShs KShs FINANCIAL ASSETS Cash and Cash Equivalents Bank Balances 8.7 61,463,930 5,665,585 Total Cash and Cash Equivalents 61,463,930 5,665,585 TOTAL FINANCIAL ASSETS 61,463,930 5,665,585 REPRESENTED BY Fund balance b/fwd 5,665,585 _ Surplus/(Deficit) for the year 55,798,345 5,665,585 NET FINANCIAL POSITION 61,463,930 5,665,585 The accounting policies and explanatory notes to these financial statements for an tegral part of the financial statements. The financial statements were approved on 2018 and signed by: Project Coordinator Hea ne Name: NName: 2 Kenya Youth Employment and Opportunities Project (KYEOP) Reports and Financial Statements For the financial year ended June 30, 2018 6. STATEMENT OF CASHFLOW FOR THE PERIOD 30TH JUNE 2018 2017/18 2016/17 Note KShs KShs Receipts for operating activities Transfer from Government entities 8.3 142,666,091 11,491,000 Payments for operating activities Compensation of employees 8.4 (4,467,280) Purchase of goods and services 8.5 (60,610,003) 5,825,416 Net cash flow from operating activities (65,077,283) 5,825,416 CASHFLOW FROM INVESTING ACTIVITIES Acquisition of Assets 8.6 (21,790,463) Net cash flows from Investing Activities (21,790,463) NET INCREASE IN CASH AND CASH EQUIVALENT 5,665,584 Cash and cash equivalent at BEGINNING of the year 5,665,585 - Cash and cash equivalent at END of the year 61,463,930 5,665,585 The accounting policies and explanatory notes to these financial statements forj integral part of the financial statements. The enti ncial state were approved on 2018 and sig ed by: Project Coordinator Head Fina c Name: t0Y /LAC(2(4 Nam It- 3 Kenya Youth Employment and Opportunities Project (KYEOP) Reports and Financial Statements For the financial year ended June 30, 2018 7. STATEMENT OF COMPARATIVE BUDGET AND ACTUAL AMOUNTS Actual on Budget % of Receipts/Payments Original Final Comparabl Utilization Utiliza Item Budget Adjustments Budget e Basis Difference tion f-d/c a b c=a+b D e=c-d Receipts Loan from external dLnfometearnes 574,000,000 434,000,000 140,000,000 142,666,091 (2,666,091) 101.1 development partners Total Receipts 574,000,000 434,000,000 140,000,000 142,666,091 (2,666,091) Payments Compensation of mpoesan o7,000,000 0 7,000,000 4,467,280 2,532,720 63.8 employees Purchase of goods 60,610,003 45.6 and services acqueis 567,000,000 434,000,000 133,000,000 50,599,534 Acquisition of non-2170436. financial assets Total Payments 574,000,000 434,000,000 140,000,000 86,867,746 53,132,254 Note: The significant budget utilisation/performance differences in the last column are explained in Annex 1 to these financial state nts. Project Coordinator Head an Name: X 4 Kenya Youth Employment and Opportunities Project (KYEOP) Reports and Financial Statements For the financial year ended June 30, 2018 8. 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 Kenya Youth and Opportunities Project under National Government of Kenya. The financial statements encompass 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 External assistance is received through grants and loans from multilateral and bilateral development partners. 5 Kenya Youth Employment and Opportunities Project (KYEOP) Reports and Financial Statements For the financial year ended June 30, 2018 SIGNIFICANT ACCOUNTING POLICIES (Continued) 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 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 recognised 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 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. 6 Kenya Youth Employment and Opportunities Project (KYEOP) Reports and Financial Statements For the financial year ended June 30, 2018 SIGNIFICANT ACCOUNTING POLICIES (Continued) * 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. 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 financial statements, cash and cash equivalents also include short term cash imprests and advances to authorised 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 7 Kenya Youth Employment and Opportunities Project (KYEOP) Reports and Financial Statements For the financial year ended June 30, 2018 SIGNIFICANT ACCOUNTING POLICIES (Continued) 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 AIE holders. This is an enhancement to the cash accounting policy. Other accounts receivables are disclosed in the financial statements. 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 them separately. These transfers are recognised 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. During the year no loan disbursements were received in form of direct payments from third parties. 8 Kenya Youth Employment and Opportunities Project (KYEOP) Reports and Financial Statements For the financial year ended June 30, 2018 SIGNIFICANT ACCOUNTING POLICIES (Continued) 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 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, 2018. 1) Errors Material prior period errors shall be corrected retrospectively in the first set of financial statements authorized for issue after their discovery by: i. 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 9 Kenya Youth Employment and Opportunities Project (KYEOP) Reports and Financial Statements For the financial year ended June 30, 2018 8.3 LOAN FROM EXTERNAL DEVELOPMENT PARTNERS During the 12 months to 30 June 2018 we received funding from development partners in form of loE negotiated b the National Treasu donors as detailed in the table below: Loans Received from Bilateral Donors (Foreign Governments) IDA 0 47,025,991 - 47,025,991 11,491,000 143,640,500 - 143,640,500 33,043,642 - 33,043,642 81,044,042 81,044,042 Total - 142,666,091 - 142,666,091 11,491,000 10 Kenya Youth Employment and Opportunities Project (KYEOP) Reports and Financial Statements For the financial year ended June 30, 2018 NOTES TO THE FINANCIAL STATEMENTS (Continued) 8.4 COMPENSATION OF EMPLOYEES KShs KShs KShs KShs KShs Basic salaries of Contractual employees 4,418,400 - 4,418,400 4,418,400 Compulsory national social security schemes 48,880 - 48,880 48,880 Total 4 U67._____ 11 Kenya Youth Employment and Opportunities Project (KYEOP) Reports and Financial Statements For the financial year ended June 30, 2018 NOTES TO THE FINANCIAL STATEMENTS (Continued) 8.5 PURCHASE OF GOODS AND SERVICES KShs KShs KShs KShs SI Utilities, supplies and services - Communication, 4,060,419 4,060,4: supplies and services 4,060,419 - Domestic travel and 21,707,350 subsistence 21,707,350 5,193,050 26,900,4( Foreign travel and subsistence - - Printing, advertising and - information - supplies & services Rent 334,527 - 334,527 - 334,5 Training payments 2,693,517 - 2,693,517 - 2,693,5- Hospitality supplies 4,353,270 and services - 4,353,270 - 4,353,2 Finance costs 101,115 - 101,115 632,366 733,4 Specialised materials and services - - . General Office 3,494,770 Supplies - 3,494,770 - 3,494,7- Grants to beneficiaries 22,392,035 - 22,392,035 - 22,392,0 Routine maintenance- - other assets . . Consultancy 1,473,000 1,473,000 - 1,473,0( Total 60,610,004 12 Kenya Youth Employment and Opportunities Project (KYEOP) Reports and Financial Statements For the financial year ended June 30, 2018 NOTES TO THE FINANCIAL STATEMENTS (Continued) 8.6 ACQUISITION OF NON-FINANCIAL ASSETS KShs KShs KShs KShs KShs Purchase of ICT equipment 11,270,000 - 11,270,000 - 11,270,000 Purchase of office furniture & general 10,520,463 - 10,520,463 - 10,520,463 equipment Total 7 2 13 Kenya Youth Employment and Opportunities Project (KYEOP) Reports and Financial Statements For the financial year ended June 30, 2018 8.7 CASH AND CASH EQUIVALENTS CARRIED FORWARD Local Currency Accounts Central Bank of Kenya [A/c 61,463,930 No...... 5,665,585 Total bank account balances 61,463,930 14 � .� � w °Д \ й � � �s � и bp О � р �.D с�б аи�" � � N � х � .tч •�' � � N � р � � � О •� > р � р +-� г-.� *� s.. � � � � � � N сUб � � �'i � О � О О � О � 'р � .� .. �,и, .� � � V ир � N•� � N N W � � "С� � сд� � N � � N � �" � с� N � �" � р �" � сб О р р � р z � с��б ��� О О� О О� W Г/� � О..С� V] ¢. 4r С/� р. �н �'�' \ �U �О оо О � N N М � N z � о о и �с � 11 � 'р д � Е� .-. .д ,� ^, о � й А �� ° ° с�•�" `n й ,'� м М Q,' � � `n и .-i Е� � N `� ° й W � '� �--� � оо0 О � � � � � N О •� I� и i�i `р � t� О_ О � ,-ч � � � � � � � � М М � � N 0�0 � � � Q� сб а � °о °о о °о °о U о о о о о � � о z °о о °о о о � о 0 � � г� М � °� Ё .� �--� ,-� ,-� о � д � а � i � о (� � и . � � � W y�j � � � � U О й Zн О .._, 'р N � � � � � � � � v р � и � д о�� р о о � •� � �.� а о ьл а� � ~ � � � С � � •° � � W а � °' °' � � о" •� СΡ .-� и, ,� и �-. � z •G� О� С С�'К О � � й р ц�' � ai �1 "С3 Е-� й3., U а� сб F W