REPUBLIC OF KENYA OFFICE OF THE AUDITOR-GENERAL REPORT OF THE AUDITOR-GENERAL ON THE FINANCIAL STATEMENTS OF THE JUDICIAL PERFORMANCE IMPROVEMENT PROJECT FOR THE YEAR ENDED 30 JUNE 2016 Project Name: Judicial Performance Improvement Project Implementing Entity: The Judiciary PROJECT CREDIT NUMBER: 5181OKE ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED JUNE 30, 2016 Prepared in accordance wimh the Cash Basis of Accounting Method under ( S International Public Sector Accounting Standards 0IPSAS) Judicial Performance Improvement Project Reports and Financial Statements For the financial year ended June 30, 2016 CONTENTS PACE 1. PRO. EC T INFORMATION AND OVERALL PERFORMANCE . 2. STATEMENT OF PROJECT MANAGEMENT RESPONSIBILTIES - 3. REPORT OF THE INDEPENDENT AUDITORS ON THE JUDICIAL PERFORMANCE IMPROVEMENT PROJECT v 4. STATEMENT OF RECEIPTS AND PAYMENTS FOR THE PERIOD ENDED 30TH JUNE 1016Errorl Bookmark not defined. 5. STATEMENT OF FINANCIAL ASSETS AND LIABILITIES AS Al 30T1 JUNE 2016............. ................. 2 7. STATEMENT OF COMPARATIVE BUDGET AND ACTUAL AMOUNTS.... ........... ............ .... 8. NOTES TO THE FINANCIAL STATEMENTS. .......................... 5 9. PROGRESS ON FOLLOW UP OF AUDITOR RECOMMENDATIONS......... -.. .......... ........ ........ 12 Jadicial Performance Improvement Project Reports and Financial Statements For the financial year ended June 30, 2016 1. PROJECT INFORMATION AND OVERALL PERFORMANCE 1.1 Name and registered office Name: The project's office is in Nairobi Law Courts, Supreme Court of Kenya, Supreme Court Building Objective: The key objective of the project is to improve the performance of the Judiciary to provide services in the project areas in a more effective and accountable manner Address: The project headquarters offices are Nairobi (city), Nairobi County, Kenya. The address of its registered office is: P.0 Box 30041 00100 Nairobi Contacts: The following are the project contacts Telephone: (254) 02-221221 E-mail: jpipproject@c4gmaicom Website: www.go.ke 1.2 Project Information Project Start Date: The project start date is 30.04-2013 Project End Date: The project end date is 31.12.2018 Project Manager: The project Coordinator is Ms_Nancy Kanyago Project Sponsor: The project sponsor is World Bank 1.3 Project Overview Line Ministry/State The project is under the supervision of the Judiciary. Department of the project Project number -PI05269 Strategic goals of the The strategic goals of the project are as follows: project (i) To improve the performance of the Judiciary to enable it provide services in a more effective, efficient and accountable ii) To support and achieve the priority areas of the Judiciar Transformation (iii) To contribute to Kenvya's vision 2030 development strategy for Judicial Performance Improvement Project Reports and Financial Statements For the financial year ended June 30, 2016 transforming Kenya into a middle income country Achievement of The project management aims to achieve the goals through the following strategic goals means: (i) Court administration and case management (ii) Judicial training and staff development (iii) Court infrastructure (iv) Project management Current situation that The project was formed to intervene in the following areas: the project was (1) Improve timeliness of Judiciary services fortned to intervene (ii) Enhance performance and quality decision making (iii) Increase access to courts and legal information Proj ect duration The project started on 30' April 2013 and is expected to run unti 31 _ December 2018 1.4 Bankers The Following are the bankers for the current year: (i) Equity Bank P.0 Box 75104 - 00200 Nairobi (ii) Central Bank of Kenya P.0 Box 60000 - 00200 Nairobi 1.5 Auditors The project is audited by the Auditor General. Kenya National Audit Office, Anniversary Towers P.O.Box 30084-00100 Nairobi 1.6 Roles and Responsibilities Names Title designation, Anne Amadi Accounting Officer . Nancy Kanyago Project Coordinator hi Judicial Performance Improvement Project Reports and Financial Statements For the financial year ended June 30, 2016 1.7 Funding summary The Project is for a duration of six years from 2013 to 2018 with an approved budget of USS 120M equivalent to Kshs 10.5B as highlighted in the table below: Below is the funding summary: Source of funds Donor Amount received to date - Undrawn balance to date Commitment- (30.06.2016) (30.06.2016) Donor Donor Donor currency Kshs Donr Kshs nKshs USD currency currency USD (A) (A') (B) (B') (A)-(B) (A')-(13') (i) Loan International Development 12,000,000 5B 21,630,706 2,067,302 478 98,369,294 8,432 697 522 Association - Total 120,000,000 10.5B 21,630,706 2,067,302.478 98,369 294 8.32,697,52 1.8 Summary of Overall Project Performance: Implementation Progress * Rehabilitation of Kangerna and Kitui complete and rehabilitation; upgrading of ten courts commenced and underway: Engineer, Chuka, Kigurno, Molo, Tamu, Oyugis, Nyamira, Nyando and Vihiga, and Makindu * Construction five new courts is ongoing : Nakuru,Siaya,Garissa,,Nanyuki and Kibera * 600 officers and staff trained on Registry Operation Manual * Daily Court Returns template developed and rolled out * 13 4x4s, cars. vans and buses procured List the implementation challenges and recommended way forward. * Lengthy procurement processes leading to delays in awarding of tenders. * Slow internal processes including delays in submission of requests by implementing units. * Inadequate capacity by the implementing units especially on planning, budgeting and reporting. * Delays in hiring staff to replace IFA affected implencntation>progress of the project. Judicial Performance Improvement Project Reports and Financial Statements For the financial year ended June 30, 2016 2. STATEMENT OF PROJECT MANAGEMENT RESPONSIBILITIES The Judiciary and the Project Coordinator for Judicial Performance Improvement 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, 2016. This responsibility includes: (i) maintaining adequate financial management arrangement and ensuring that these continue to be effective throughout the reporting period; (ii) maintaining proper accounting records, which disclose with reasonable accuracy at any time the financial position of the Project; (iii) designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of the financial statement, and ensuring that they are free from material misstatements, whether due to error or fraud; (iv) safeguarding the assets of the Project; (v) selecting and applying appropriate accounting policies; and (vi) making accounting estimates that are reasonable in the circumstances. The Judiciary and the Project Coordinator for Judicial Performance Improvement 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 Judiciary and the Project Coordinator for Judicial Performance Improvement 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, 2016 and of the Project's financial position as at that date. The Judiciary and the Project Coordinator for Judicial Performance Improvement 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 Judiciary and the Project Coordinator for Judicial Performance Improvement Project confirm that the Project has complied fully with applicable Government Regulations and the terns of external financing covenants, and that Project funds received during the financial year/period under audit were used for the elgible 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 Judiciary and the Project Coordinator for Judicial Performance Improvement Project on _ 2016 and signed by them. Chief Registrar Procct (oordinator REPUBLIC OF KENYA Telephone: +254-20-342330 P.O. Box 30084-00100 Fax: +254-20-311482 NAIROBI E-mail: oag@oagkenya.go.ke Website: www.kenao.go.ke OFFICE OF THE AUDITOR-GENERAL REPORT OF THE AUDITOR-GENERAL ON THE JUDICIAL PERFORMANCE IMPROVEMENT PROJECT FOR THE YEAR ENDED 30 JUNE 2016 REPORT ON THE FINANCIAL STATEMENTS I have audited the accompanying financial statements of the Judicial Performance Improvement Project set out on pages 1 to 12, which comprise the statement of financial assets and liabilities as at 30 June 2016, and the statement of receipts and payments, statement of cash flows and statement of comparison of budget and actual amounts for the year then ended, and a summary of significant accounting policies and other explanatory information in accordance with the provisions of Article 229 of the Constitution of Kenya, Section 35 of the Public Audit Act, 2015 and Section II B. (3) of the Financing Agreement No.5181-KE dated 5 December 2012 between the International Development Association (IDA) and the Government of Kenya. I have obtained all the information and explanations which, to the best of my knowledge and belief, were necessary for the purpose of the audit. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Public Sector Accounting Standards (Cash Basis) and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. The management is also responsible for the submission of the financial statements to the Auditor-General in accordance with the provisions of Section 47 of the Public Audit Act, 2015. Auditor-General's Responsibility My responsibility is to express an opinion on these financial statements based on the audit and report in accordance with the provisions of Section 48 of the Public Audit Act, 2015 and submit the audit report in compliance with Article 229(7) of the Constitution. The audit was conducted in accordance with International Standards of Supreme Audit Institutions (ISSAls). Those standards require compliance with ethical requirements and that the audit be planned and performed to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the Report of The Auditor-General on the Financial Statements on the Judicial Perfbrmance Improvement Project for the year ended 30 June 2016 Promoting A ccountability in the Public Sector auditor's judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Project's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the management, as well as evaluating the overall presentation of the financial statements. I believe that the audit evidence obtained is sufficient and appropriate to provide a basis for my qualified audit opinion. Basis for Qualified Opinion 1. Underutilization of Budget Allocations The statement of comparative budget and actual amounts reflects a final budget of Kshs.2,259,103,000.00 and actual on comparable basis of Kshs.1,010,717,110 leading to an under-utilization by Kshs.1,248,385,890 or 55% of the total budget. It is therefore not clear whether the project will achieve its intended objective. 2. Acquisition of Non-Financial Assets 2.1 Lack of Title Deeds and Valuation Audit review of eight (8) construction projects at various stations valued at Kshs.1,021,423,949 financed by the Project revealed that the construction projects were being under-taken on parcels of land without title deeds. The Judiciary therefore did not have absolute ownership of the land on which the buildings are being constructed. As a result, the ownership and valuation status of these parcels of land could not be confirmed. 2.2. Incomplete Construction Works 2.2.1. Construction at Nyando and Mohoroni Law Courts The Judiciary entered into a contract for the proposed rehabilitation works and ancillary services for Nyando and Muhoroni Law Courts. The contracts were competively offered to Phillmark Systems at a contract sum of Kshs.74,827,121 and Kshs.74,902,949 respectively. The contract commencement dates were 4 September 2017 for Nyando and 8 June 2016 for Muhoroni which was later revised to 2 January 2017 for Nyando and 8 October 2016 for Muhoroni. However, these two contracts were observed to be behind schedule by 30 weeks even after the extension of the contract period. Further, information gathered from correspondences dated 23 November 2016 by the contractor and addressed to the Chief Registrar of the Judiciary, indicates some kind of misunderstanding between the contractor and the consultant which if not addressed may lead to delays or stalling of the contracts. Report of The Auditor-General on the Financial Statements on the Judicial Performance Improvement Projectfor the year ended 30 June 2016 2 As per the contractor, the valuation certificate No.5 of 29 September 2016 for an amount of Kshs.5.2 million had not been released by the project architect as at the time of audit leading to delayed payments and delayed completion of works. Consequently, there is a risk of costs escalating or projects stalling if the matters are not addressed. 2.2.2. Nyamira Law Courts The Judiciary entered into a contract for the proposed rehabilitation works for the existing court buildings and ancillary services at Nyamira Law Courts Station which was awarded to M/s J N Investments Limited at a contract sum of Kshs.118,305,748. The contract commencement date was agreed as 18 June 2015 with original completion date supposed to be 17 June 2016. However, the contract period was extended to 19 December 2016. The original contract duration was supposed to be 52 weeks (1 2months) which was extended by an additional (24) weeks to (6months). Minutes of a meeting held on 26 October 2016, reflect that the amount of work done was indicated as 65% complete. As at the time of audit inspection in November 2016, the construction was still ongoing. Although the works were noted to be satisfactory, there was no indication that the project's revised completion date of 19 December, 2016 will be met as the 35% may not be done in one month. In the circumstances, the projects' objectives may not have been attained and value for money may not be realised due to the implementation delays. 3. Unsupported expenditure The Judiciary entered into a contract with Colour Print Limited for printing 103 000 copies of the Law Reports under Judicial Performance Improvement projects (JPIP) vide Tender No.JPIP/NCB/02/2013-2014. The expected supplier was notified on 24 July 2014 and contract signed on 21 August 2014. The expected delivery period was 35 days after approval of the final proof/sample and the expenditure was provided for in 2013/2014 fiscal year. However, delivery no. 83173 for 1684 copies was done on 21 August 2015 through invoice No.79330 dated 20 August 2015 amounting to Kshs.2,780,288 paid one year later. Even though the Judiciary availed documents on the intended parties for distribution of the printed reports, there was no evidence of the number of law reports received in the stores, distributed and received by the targeted groups. Further, no explanation was given for the delay in the delivery of these law reports. 4. Undelivered Computer Equipment. The Judiciary through the Judiciary Performance Improvement Project (JPIP) entered into a contract No.ICB No. JPIP/02/2013-2014/2 with Computech Kenya Limited for the supply of computers and related accessories at a contract sum of USD 161,536.10. The computers were to be supplied as follows:- 50 Laptop computers 15.6" i7 USD 62,664.50 96 Laptop Computers 13.3 15 USD 87,193.92 Report of The A uditor-General on the Financial Statements on the Ahdicial Perfrmance Improvement Project for the Year ended 30 June 2016 3 and 36 Tablet computers 10.1" USD 11,677.68 A scrutiny of the payment voucher revealed that the Judiciary paid Kshs.13, 686,493 as per delivery notes no's 7122, 6821 and 6850 being supply of 92 Laptops iS, 4 laptops i5 and 50 laptops i7. However 36 tablet computers were not delivered at the time of audit. In the circumstances, the propriety and value for money of the expenditure of USD.1 1,677.68 could not be ascertained. 5. Undelivered Motor Vehicles As earlier reported in Paragraph 236 of the report of the Auditor-General, for the Financial Year 2014/2015, the project awarded a contract to CMC for supply of motor vehicles on 02 April 2014 at a cost of Kshs.14,600,000. The contract was awarded to Global Fleet sales Company of Thailand. However, the delay in delivery occasioned ineligible penalties of Kshs.20,645,562. Further, the vehicles were delivered but the Ministry of Public Works gave their inspection report long after the vehicles were registered contrary to the practice where vehicles are inspected before registration. In addition, Initial Memo dated 6 June 2016 indicated that the vehicles were meant to be distributed to Moyale, Maralal, Wajir and Mandera. However S13 forms were not made available for audit review to ascertain that the vehicles were delivered to the expected destinations. In the circumstances, the Judiciary has not realised value for money from the ineligible expenses of Kshs.20,645,562 and the cost of the undistributed vehicles of Kshs.14,600,000. Qualified Opinion In my opinion, except for the effect of the matters described in the Basis for Qualified Opinion paragraph, the financial statements present fairly, in all material respects, the financial position of the Judicial Performance Improvement Project as at June 30, 2016, and of its financial performance and its cash flows for the year then ended, in accordance with International Public Sector Accounting Standards (Cash Basis) and comply with the Public Finance Management Act, 2012 and the terms of the Financing Agreement No.5181-KE, 2012. FCPA Edward R. 0. Ouko, CBS AUDITOR-GENERAL Nairobi 23 December 2016 Report of'The Auditor-General on the Financial Statements on the JudiCial Perfbrmance improvement Project for the Year ended 30 June 2016 4 Judicial Performance Improvement Project Reports and Financial Statements For the financial year ended June 30, 2016 4. STATEMENT OF RECEIPTS AND PAYMENTS FOR THE PERIOD ENDED 30TH JUNE 2016 Note Cumulative t 2016 2015 date Kshs Kshs Kshs RECEIPTS Loan from external development partners 8.4 1,202,289,840 296,849,385 2,067,302,478 Miscellaneous receipts 8.5 - 3,914,870 3,914.870 Total receipts 1,202,289,840 300,764,255 2,071,217,348 PAYMENTS Purchase of goods and services 8.7 506,209,253 406,545.614 1,155.976823 Acquisition of non-financial assets 8.9 504,507,857 140.412,233 718.480,050 TOTAL PAYMENTS 1,010,717,110 546,957,847 1,874,456,873 SURPLUS/DEFICIT FOR THE YEAR 191,572,730 (246,193,592) 196,760,475 The accounting policies and explanatory notes to these linancial statements are an integral part of the financial statements. Ch ef Registrar Project CoordiOa1or Date Date Judicial Performance Improvement Project Reports and Financial Statements For the financial year ended June 30, 2016 5. STATEMENT OF FINANCIAL ASSETS AND LIABILITIES AS AT 30TH JUNE 2016 Note 2016 2015 Kshs Kshs FINANCIAL ASSETS Cash and Cash Equivalents Bank Balances 8.12A 193,449,134 377,113 Imprests and Advances 8.12D 3,311,341 4,810,632 TOTAL FINANCIAL ASSETS 196,760,475 5,187,745 REPRESENTED BY: Cash and cash equivalents b/fwd 5,187,745 25 1,381,337 Surplus/Deficit for the year 191,572,730 (246,193,592) NET FINANCIAL POSITION 196,760,475 5,187,745 The accounting policies and explanatory notes to these financial statements form an integral part of the financial statements. The financial statements were approved on 2016 and signed by: Chief Registrar Project Coordinator Date Date Judicial Performance Improvement Project Reports and Financial Statements For the financial year ended June 30, 2016 6 STATEMENT OF CASHFLOW FOR THE PERIOD 30"' JUNE 2016 2015 - 2016 2014-2015 Not Kshs Kshs es Receipts for operating income Miscellaneous receipts 8.5 - 3,914,870 Payments for operating expenses Purchase of goods and services 8.7 (506,209,253) (406,545,614) Net cash flow from operating activities (506,209,253) (402,630,744) CASHFLOW FROM INVESTING ACTIVITIES Acquisition of Assets 8.9 (504,507,857) (140,412,233) Net cash flows from Investing Activities (504,507,857) (140,412,233) CASHFLOW FROM BORROWING ACTIVITIES Loan from external development partners 8.4 1,202,289,840 296,849,385 Net cash flow from financing activities 1,202,289,840 296,849,385 NET INCREASE IN CASH AND CASH 191,572,730 (246,193,592) EQUIVALENT Cash and cash equivalent at BEGINNING of the year 5,187,745 251,381,337 Cash and cash equivalent at END of the year 196,760,475 5,187,745 The accounting policies and explanatory notes to these financial statements form an integral part of the financial statements. 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