PUBLIC EXPENDITURE AND FINANCIAL ACCOUNTABILITY ASSESSMENT OF BARINGO COUNTY, KENYA Final report November 2018 Kenya - Baringo County Public Expenditure and Financial Accountability Assessment of Baringo County, Kenya - Based on PEFA methodology 2016 The quality assurance process followed in the production of this report satisfies all the requirements of the PEFA Secretariat and hence receives the ‘PEFA CHECK’. PEFA Secretariat November 15, 2018 CURRENCY EQUIVALENTS1 Currency unit: Kenya shillings (Ksh) Euro 1 = Ksh 112 (as of end April 2017) US$1 = Ksh 103 (as of end April 2017) FISCAL YEAR July 1 - June 30 1 source: Central Bank of Kenya. Table of Contents Acronyms ....................................................................................................................................................... i Executive Summary ..................................................................................................................................... iii 1. Introduction ......................................................................................................................................... 1 1.1 Rationale and purpose .................................................................................................................. 1 1.2 Assessment management and quality assurance ......................................................................... 2 1.3 Assessment methodology ............................................................................................................. 4 2. Background information ...................................................................................................................... 6 2.1 Economic context.......................................................................................................................... 6 2.2 Fiscal and budgetary trends .......................................................................................................... 7 2.3 Legal and regulatory arrangements for PFM .............................................................................. 10 2.4 Institutional arrangements for PFM ........................................................................................... 12 2.5 Other important features of PFM and its operating environment ............................................. 14 3. Assessment of PFM performance ...................................................................................................... 16 3.1 Pillar I. Budget reliability ............................................................................................................. 17 3.2 Pillar II. Transparency of public finances .................................................................................... 22 3.3 Pillar III. Management of assets and liabilities ........................................................................... 29 3.4 Pillar IV. Policy-based fiscal strategy and budgeting................................................................... 34 3.5 Pillar V. Predictability and control in budget execution ............................................................. 40 3.6 Pillar VI. Accounting and reporting ............................................................................................. 53 3.7 Pillar VII. External scrutiny and audit .......................................................................................... 57 4. Conclusions of the analysis of PFM systems ...................................................................................... 63 4.1 Integrated assessment of PFM performance ............................................................................. 63 4.2 Effectiveness of the internal control framework ............................................................................. 67 4.3 PFM strengths and weaknesses .................................................................................................. 69 5. Government PFMR Process ............................................................................................................... 71 5.1 Approach to PFMRs..................................................................................................................... 71 5.2 Recent and ongoing reform actions ............................................................................................ 71 5.3 Institutional considerations ........................................................................................................ 72 Annex 1. Performance Indicator Summary ................................................................................................ 73 Annex 2. Summary of Observations on the Internal control Framework .................................................. 80 Annex 3. Sources of Information by Indicator ............................................................................................ 83 Annex 3A: Lists of persons who have been interviewed and provided information ............................. 88 Annex 4. Subnational Government Profile ................................................................................................. 90 Annex 5: Calculation Sheet Templates for PI-1, PI-2, and PI-3 ................................................................... 94 List of Tables Table 2.1: Basic economic data and indicators for the county of Baringo ................................................... 7 Table 2.2: Overview of selected fiscal indicators .......................................................................................... 8 Table 2.3: Aggregate fiscal performance data for the last three fiscal years (in percentage of total revenues) ...................................................................................................................................................... 9 Table 2.4: Budget allocations by function (as a percentage of total expenditures) ..................................... 9 Table 2.5: Budget allocations by economic classification (as a percentage of total expenditures) ........... 10 Table 2.6: Structure of the public sector (turnover in Ksh, millions) - FY2015/16 ..................................... 13 Table 2.7: Financial structure of the county government - actual budget (in Ksh, millions) - FY2015/16 . 13 Table 3.1: Aggregate expenditure outturn (Ksh, millions) .......................................................................... 18 Table 3.2: Expenditure composition outturn by function (Ksh, millions) ................................................... 19 Table 3.3: Expenditure composition outturn by economic type (Ksh, millions)......................................... 20 Table 3.4: Aggregate revenue outturn (percentage) .................................................................................. 21 Table 3.5: Actual revenue in percentage of initial budget by source (Ksh, millions).................................. 22 Table 3.6: Categories of nonfinancial assets - FY2013/14 to FY2015/16.................................................... 32 Table 3.7: Submission of audit reports to the legislature ........................................................................... 59 Acronyms AFROSAI-E African Organisation of English-speaking Supreme Audit Institutions AFS Annual Financial Statement(s) AIE Authority to Incur Expenditure AMS Agricultural Mechanization Services ATC Agricultural Training Center BPS Budget Policy Statement CBK Central Bank of Kenya CBIRR County Governments Budget Implementation Report CBROP County Budget and Review Outlook Paper CEC County Executive Committee CFSP County Fiscal Strategy Paper CIDPs County Integrated Development Plans CoB Controller of Budget CoG Council of Governors COSO Committee of Sponsoring Organization CRA Commission on Revenue Allocation DANIDA Danish International Development Agency DFID U.K. Department for International Development ECDE Early Childhood Development and Education ERAWASCO Eldama Ravine Water and Sanitation Company EU European Union GDP Gross Domestic Product HRIS Human Resources Information System ICT Information and Communication Technology IDA International Development Association IDRC International Development Research Centre IFAC International Federation of Accounts IFMIS Integrated Financial Management Information System IFRS International Financial Reporting Standards IMF International Monetary Fund IPPD Integrated Payroll Personnel Database IPPF International Professional Practice Framework IPSAS International Public Sector Accounting Standards ISSAIs International Standards of Supreme Audit Institutions ITRC Intergovernmental Technical Relations Committee KADP Kenya Accountable Devolution Program KDSP Kenya Devolution Support Programme KENAO Kenya National Audit Office KIPPRA Kenya Institute for Public Policy Research and Analysis KNBS Kenya National Bureau of Statistics KRA Kenya Revenue Authority i KSG Kenya School of Government LAPFUND Local Authority Provident Fund LAPTRUST Local Authority Provident Trust M&E Monitoring and Evaluation MCA Member of the County Assembly MDA Ministry, Department, and Agency MoF Ministry of Finance MTEF Medium Term Expenditure Framework NHIF National Hospital Insurance Fund NSSF National Social Security Fund OAG Office of the Auditor General OCOB Office of the Controller of Budget PBB Programme-Based Budget PEFA Public Expenditure and Financial Accountability PFM Public Financial Management PFMR Public Financial Management Reform PoS Point of Sale PPDA Public Procurement and Asset Disposal Act PPARB Public Procurement Administrative Review Board PPOA Public Procurement Oversight Authority PPP Public-Private Partnership PPRA Public Procurement Regulatory Authority PSASB Public Sector Accounting Standards Board RFP Request for Proposal RFQ Request for Quotation SCOA Standard Chart of Accounts Sida Swedish International Development Cooperation Agency SOP Standard Operating Procedure SRC Salaries and Remuneration Commission TSA Treasury Single Account USAID U.S. Agency for International Development ii Executive Summary Background The main rationale of this assessment is to give a better understanding of how the public finance management (PFM) systems work, how the processes and the institutions are organized, and to what extent they provide an entry point for PFM reform (PFMR) efforts in Baringo County. This Public Expenditure and Financial Accountability (PEFA) assessment will become a benchmark for the upgrade of the PFM system in Kenya’s counties that are still in the early stage of development. This PEFA assessment was organized and commissioned by multiple local and international institutions when the process of devolution in Kenya was considered completed for all 47 counties. The report has been prepared as a joint work of all organizations involved in the assessment, as outlined in the narrative below. The key contribution of the local organizations, managed and monitored by the Kenya Institute for Public Policy Research and Analysis (KIPPRA), has been to collect the relevant data and obtain evidence for the complete and appropriate assessment of all 31 indicators. The specific indicator HLG-1 applicable to subnational governments is also included in the assessment. The assessment period covered is FY2013/14, FY2014/15, and FY2015/16 depending on the indicator and dimension of the assessment. The field work assessment took place in April 2017, which is what is referred to in the report as “the time of the assessment� Main outputs of the assessment Fiscal discipline Overall revenue and expenditure performance were on average in line with budgeted amounts given the equitable shares allocated as national transfers. They account for nearly 95 percent of the county revenue and are a factor of stability in financial performance. Conditional grants are consistently overbudgeted, whereas the own source revenue forecasts have been realistic in the last two fiscal years except at the inception (the first year after the devolution) when they were over projected. Generally, deviations in all budget categories were more pronounced in FY2013/14, which was the first year of county operation and was affected by unrealistic projections. The slow procurement process and shortage of technical staff to supervise projects also caused deviations. Particular measures have been taken by the county to improve collection and increase the own source revenue streams. The budget is prepared in accordance with National Treasury guidelines that require budget proposals to be presented using an administrative, economic, and the program-based approach. However, no information about revenue outside financial reports is produced. The County Treasury uses an integrated financial management information system (IFMIS) to facilitate transaction processes and reporting. IFMIS users have passwords and the system maintains a log of users together with their functions. Any changes to reports must be approved by departmental heads to enhance financial data integrity. Budget documents such as the County Fiscal Strategy Paper (CFSP), County Budget and Review Outlook Papers (CBROPs), Annual Development Plans (ADPs), and budgets are prepared on time. Quarterly budget reports are also availed for the public, but not in good time, and they do not cover all public resources and expenditure. In addition, in-year reports do not present budget execution along with all the data with which they should be compared, which hampers the efficient follow-up of services delivery. iii Financial reports for budgetary units are prepared annually and budget implementation reports are prepared each quarter. Coverage and classification of data allows direct comparison to the original budget for the main administrative headings. They include information on revenue, expenditures, and cash balances. The county of Baringo is yet to develop systems to monitor the newly established public corporations and develop procedures and selection criteria for public investment. Currently, there are no standard procedures and rules for project selection, implementation, and monitoring. Contingent liabilities (related to car loan and mortgage scheme) are well managed and most of them are presented in financial reports, but the debt inherited from the defunct authority is not recognized and disclosed. The county has not developed standard operating procedures for disposal of assets because the counties were prohibited from disposing public assets until full transition is effected. Debt management capacity of the county government is weak because of lack of a debt management unit and strategy. The county operated a well-managed automated payroll control system, that is, the integrated payroll and personnel database (IPPD), which integrates personnel database and payroll. Changes to the personnel records and payroll are updated at least monthly, in time for the following month’s payments. Staff hiring and promotion are controlled by a list of approved staff positions and usually subject to payroll audit carried out only once during the assessment period. Only the County Public Service Board and the County Assembly Service Board are allowed to change personnel records and payroll for the County Executive and County Assembly through written approval of the County Secretary and the Clerk, respectively. The procurement at the county of Baringo does not achieve value for money service. Reportedly, 80 percent of procurement is done according to competitive methods, but there is no evidence for that. A major area of weakness in procurement is that procurement plans, contract awards, data on resolution of procurement complaints, and annual procurement statistics are not made available to the public. The independent procurement complaints body that exists at the national level can resolve procurement cases. Strategic resource allocation The budget preparation process is based on a comprehensive and clear budget circular. Ceilings are established during the CFSP preparation but are fixed only after the budget calendar has been issued. Some departments prepare medium-term strategic plans, but the budget documents do not present any evidence that proposals in the annual budget estimates are aligned with the strategic plans of these departments. The County Treasury does not prepare its own macroeconomic forecasts but adopts the macroeconomic indicators from the national government. The county government prepares forecasts of revenue and expenditure for the budget year and the two following fiscal years but does not present the underlying assumptions for the forecasts. Further, no fiscal impact analysis is performed in the CFSP. The CBROP briefly explains the reasons for deviation from the objectives and targets set but does not provide an explanation of the changes to expenditure estimates between the second year of the last medium-term budget and the first year of the current medium-term budget, even at the aggregate level. iv There are no procedures to assess the economic impact and viability of projects with regard to public investment. Neither cost-benefit analysis is performed nor is monitoring mechanism for public investment projects in place. Public asset management is not fully established. While records of financial assets are published annually in financial statements, records of nonfinancial assets are not comprehensive. Efficient service delivery The Revenue Unit of Baringo County does not provide taxpayers with clear access to information on the main revenue obligation areas, rights, redress processes, and procedures. Also, the county does not have a risk-based approach in the Revenue Department to maximize public revenue collection. In addition, no independent body has been put in place to carry out revenue audits and fraud investigations. Budget execution is well managed and followed with the support of the computerized system, IFMIS. Responsibilities are clearly laid down for most key steps and the IFMIS is used in all departments for budget execution. However, it was difficult to confirm whether there is compliance with payment rules and procedures due to scarcity of data. Internal audit applies the International Professional Practice Framework (IPPF), as stipulated in the PFM Act, 2012, with a risk analysis approach and covers all the departments in the County Executive. Three levels of reviews are applied before reports are released. It was not possible to verify to what extent the audit plans have been implemented. Responses to internal audit reports are usually provided within one month after the report is issued, but this has not been evidenced by the internal audit function at the county. Hearings on external audit findings are supposed to be conducted in public, but no evidence was provided. Committee reports are provided to the full chamber of the County Assembly. They are not published on an official website but are easily accessible to the public. The scrutiny is supposed to be completed over a period of six months, but no evidence was provided by the County Assembly. The County Assembly reviews budget documents covering fiscal policies, medium-term fiscal forecasts, and medium-term priorities as well as details of expenditure and revenue but cannot follow and issue recommendations on the efficiency of services delivery. The assessment identified the following as ongoing key reforms that are aimed at enhancing governance, administration, and decision making for better service delivery at the county level: (a) policy on monitoring and evaluation to enhance project supervision and reporting, (b) framework on citizen participation for prioritization of development projects in all sub counties and even at ward levels, (c) policy on disposal of assets, (d) framework to roll out education to all residents of Baringo County on their rights and obligations as taxpayers, and (e) framework on how the public corporations will be monitored and prepare their annual financial reports. There are two major reforms that are relevant to all counties in Kenya, and they are related to the integration of the IPPD with the IFMIS module at the national level and the design of a framework for all county governments to move to accrual-basis International Public Sector Accounting Standards (IPSAS). v The table below gives an overview of the scores for each of the PEFA indicators. Scoring Dimension Ratings Overall PFM Performance Indicator Method i. ii. iii. iv. Rating Subnational PEFA indicator HLG-1: Transfers from a M1 D D D* D higher level of government Pillar I. Budget reliability PI-1 Aggregate expenditure outturn M1 D D PI-2 Expenditure composition outturn M1 C D A D+ PI-3 Revenue outturn M1 C D D+ II. Transparency of public finances PI-4 Budget classification M1 C C PI-5 Budget documentation M1 D D Central government operations outside financial PI-6 M2 D* D* D* D reports PI-7 Transfers to subnational governments M2 n.a. PI-8 Performance information for service delivery M2 D A D* D D+ PI-9 Public access to fiscal information M1 D D III. Management of assets and liabilities PI-10 Fiscal risk reporting. M2 n.a. n.a. D* D PI-11 Public investment management M2 D D D D D PI-12 Public asset management M2 C D D D+ PI-13 Debt management M2 D n.a. D D IV. Policy-based fiscal strategy and budgeting PI-14 Macroeconomic and fiscal forecasting M2 C C D D+ PI-15 Fiscal strategy M2 D A C C+ Medium-term Perspective in expenditure PI-16 M2 C D D D D+ Budgeting PI-17 Budget preparation process M2 D* D C D+ PI-18 Legislative scrutiny of budgets M2 A C D C D+ V. Predictability and control in budget execution PI-19 Revenue administration M2 D D D D D PI-20 Accounting for revenue M1 A A D D+ PI-21 Predictability of in-year resource allocation M2 C C A B B PI-22 Expenditure arrears M1 B C C+ PI-23 Payroll controls M1 B A A B B+ PI-24 Procurement management M2 B D* D* A C+ PI-25 Internal controls on non-salary expenditure M2 A A D* B PI-26 Internal audit M1 D* C D* D D vi Scoring Dimension Ratings Overall PFM Performance Indicator Method i. ii. iii. iv. Rating VI. Accounting and reporting PI-27 Financial data integrity M2 B n.a. C B B PI-28 In-year budget reports M1 C D* C D PI-29 Annual financial reports M1 C C D D+ VII. External scrutiny and audit PI-30 External audit M1 B D D A D+ PI-31 Legislative scrutiny of audit reports M1 D* D* D* D* D vii 1. Introduction The subnational Public Expenditure and Financial Accountability (PEFA) assessment seeks to ascertain the performance of the PFM system of county governments using the PEFA methodology. So far, the Government of Kenya has gained experience in the application of the PEFA methodology by undertaking four national PEFA assessments over the years, the latest of which was carried out in 2017 and the report is due for completion in 2018. However, this is the first subnational assessment to be carried out in Kenya following the adoption of a devolved system of government. It is notable that the national and subnational PEFA assessments are being done almost concurrently, and this is important because both levels of government share the same public finance management (PFM) system, implying that evidence-based reform agenda can be implemented simultaneously after areas of improvements are identified. The subnational assessments, which covered 6 out of 47 counties, have been jointly financed by the World Bank and International Development Research Centre (IDRC) through the Kenya Institute for Public Policy Research and Analysis (KIPPRA). 1.1 Rationale and purpose The main rationale of this assessment is to give a better understanding of how the PFM systems work, how the processes and the institutions are organized, and to what extent they provide an entry point for PFM reform (PFMR) efforts in Baringo County. This assessment will then be used to leverage existing capacity-building efforts, that is, the PFMR Strategy, the National Capacity Building Framework, the World Bank Kenya Accountable Devolution Program (KADP), and the Kenya Devolution Support Programme (KDSP). The findings will further facilitate identification of capacity needs, especially in terms of human capacity gaps in different components of the PFM system in the counties, for which KIPPRA seeks to strengthen as part of its capacity-building and policy development mandates. The assessment will also be useful in identifying priorities for PFMRs in the future to ensure a sustainable, effective, and transparent allocation and use of public resources. The PEFA assessment will become a benchmark for the upgrade of the PFM system in Kenya’s counties that are still in the early stage of development. Currently, the fiscal discipline and the efficient allocation of resources according to the priorities of the county of Baringo are viewed as the important prerequisites to deployment of well- functioning PFM. Effective PFM institutions and systems in the county governments are important for the successful implementation of devolution. The PEFA assessments are founded on the principles of openness, accountability, and public participation in public finance contained in Section 201 (a) of the Constitution of Kenya 2010. Therefore, the devolution is not only a cornerstone in the recent government development of Kenya but also a turning point for deployment of a subnational PFM assessment across all counties. This PEFA assessment will provide a baseline of current state of PFM within the county of Baringo and for the entire financial management system and indicate areas of improvements. Objectives of the PEFA Assessment The specific objectives of the PEFA assessment in Baringo County include the following: (a) Assess the state of financial management capacities in the county government. (b) Identify gaps in terms of capacity, systems, policies, and processes in PFM. 1 (c) Provide a basis for defining entry points for PFMR engagements in the counties of Kenya that will be used to leverage existing capacity-building efforts. (d) Facilitate and develop a self-assessment capacity at the county level and build capacities of key staff to carry out assessments in the future. 1.2 Assessment management and quality assurance This PEFA report has been prepared as a collaboration of various persons and organizations who played diverse roles as part of the assessment: (a) the oversight team (members who are listed in Box 1.1) who provided strategic guidance and the authorizing environment to facilitate the undertaking of assessments, (b) the assessment teams (members who are listed in Box 1.1) who were technical staff involved in the actual data collection and scoring across the indicators, and (c) reviewers (as listed in Box 1.1) who performed a quality assurance/peer review of both the concept note and versions of the draft reports. County governments formed part of each team, through representation from the Council of Governors Secretariat. KIPPRA and the World Bank led the process of the assessment. KIPPRA provided technical staff and the financial resources (to mobilize and facilitate the assessment teams to collect data in the counties) and procured venues to host workshops to write the draft reports. The World Bank then contracted the four consultants that provided the technical expertise for the process (this included bearing the costs of their movement to and from the counties) and supported various sensitization/validation workshops with stakeholders. Development partners played a key role in the process as peer reviewers and as the source of funds used by the World Bank under the KADP. The Multi-Donor Trust Fund contributing partners include Sweden, Finland, the European Union (EU), the U.K. Department for International Development (DFID), Danish International Development Agency (DANIDA), and the U.S. Agency for International Development (USAID). The assessment teams collected the relevant data and to obtain evidence for the complete and appropriate assessment of all 31 indicators. The data gathering stage of the assignment was carried out as a field work in Baringo County through meetings and interviews with local government officials. A detailed list of people met (with their position and organization) is presented in Annex 3A. The PEFA Check is a mechanism for confirming the adequacy of the quality assurance processes used in planning and implementing a PEFA assessment. The objective is to increase users’ confidence in the findings of a given PEFA assessment and confirm that the assessment contributes to a pool of reliable information on PFM system performance. The PEFA Check verifies if good practices in both planning and implementing an assessment have been followed. It is a verification of compliance with practices commonly accepted and used in conducting PEFA assessments, as outlined in six formal criteria (see box 1). Through PEFA Check, the Secretariat provides an independent evaluation of whether the quality assurance arrangements included adequate peer�review processes that involved partner countries and engaged PFM institutions Box 1.1. Assessment management and quality assurance arrangements (i) Oversight Team - Chair and Members Organization name Team member details KIPPRA Executive Director (Chair) Dr. Rose Ngugi KIPPRA Dr. Augustus Muluvi 2 KIPPRA Dr. Christopher Onyango KIPPRA Mr. Benson Kiriga KIPPRA Dr. Simon Githuku KIPPRA Dr. Douglas Kivoi World Bank Ms. Christine Anyango Owuor World Bank Mr. Tim Williamson Council of Governors Mr. Joseph Kung’u PFMR Secretariat Mr. Warui Maina/Joel Bett Office of the Controller of Budget (OCOB) Mr. Joshua Musyimi/Grace Kimitei Office of the Auditor General (OAG) Mr. George Nashon Otieno Assessment Manager: Simon Githuku-KIPPRA (ii) Assessment Teams Team A Organization Team B Organization Dr. Bernadette Wanjala KIPPRA Dr. Simon Githuku KIPPRA (Team Lead) (Team Lead) Jean-Marc Philip (Lead World Bank Elisaveta Teneva (Lead World Bank Consultant) Consultant) Samuel Kiautha World Bank Jeremiah Oliech World Bank (Consultant) (Consultant) Duncan Mugo Ndirangu National Treasury Christine Owuor World Bank Meimuna Mohamed Commission on Revenue Joshua Musyoka National Treasury Allocation (CRA) Warui Maina National Treasury Juliah Muguro KIPPRA Fredrick Owino KIPPRA Macklin A. Ogolla CoB Grace Kimitei Controller of Budget (CoB) Nickson Omondi KRA Silvanos Obondi OAG John Mose CRA Robert Ng’ang’a Kenya School of Dr. Douglas Kivoi KIPPRA Government (KSG) Kennedy Okoth Kenya Revenue Authority Paul Odhiambo KIPPRA (KRA) Dr. David Waigwa World Bank Mathew Ngusya OAG Dr. Christopher Onyango KIPPRA Dr. Augustus Muluvi KIPPRA Manaseh Otieno KIPPRA (iii) Review of the concept note and/or terms of reference • First round of comments was addressed in December 2017. • Second and final rounds of comments were addressed in February 2018. • Invited reviewers: The PEFA Secretariat, the World Bank, the OAG, and the National Treasury. • Reviewers who provided comments: Name Organization Jens Kristensen World Bank Timothy Williamson World Bank Dr. Jane Kiringai World Bank Agnes C. Mita OAG Representatives of the County Assembly Baringo County Assembly Representatives of the County Executive Baringo County Executive Warui Maina National Treasury 3 (iv) Secretariat and date(s) of its review(s): First review comments from the PEFA Secretariat on October 14, 2017, and second review comments from the PEFA Secretariat on January 10, 2018. (v) Date(s) of final concept note and/or terms of reference: March 17, 2017 (vi) Review of the assessment report • Date(s) of reviewed draft report(s): November 2017 to October 2018 • Invited reviewers: (a) the PEFA Secretariat; (b) the World Bank (Kathy Whimp, Oleksii Balabushko, and Eric Enagnon); (c) county governments of Baringo, Kakamega, Kajiado, West Pokot, Makueni, and Nakuru; and (d) development partners—the Swedish International Development Cooperation Agency (Sida) (Sweden) • Date of the first draft report: May 5, 2018 • Invited reviewers: The county governments, OAG, OCOB, CRA, the National Treasury, the World Bank, Sida, the PEFA Secretariat • Reviewers who provided comments: The World Bank, Sida, the PEFA Secretariat • Date of the comments: June 8, 2018 • Date of the assessment team’s response: August 28, 2018 • Date of Secretariat’s evaluation of response: September 13, 2018 • Date of the assessment team’s response: October 29, 2018 • PEFA Check received: November 15, 2018 1.3 Assessment methodology Coverage of the assessment This subnational PEFA assessment covers the county of Baringo and is part of the assessment covering one-eighth of the counties in Kenya, that is, six counties. The main criterion used to select the six counties was voluntary expression of interest in being assessed. Kajiado, Baringo, Makueni, West Pokot, Nakuru, and Kakamega expressed their interest in undergoing a PEFA assessment and a commitment to design and implement a reform agenda based on the assessment. An important point to note regarding these selected counties is that the assessment will cover each county and will not provide a comparison between them. Further, the counties that have been selected do not represent a group of counties from which each group will be compared against the other. This PEFA assessment has been financed by the World Bank. The assessment covers the budgetary institutions of the respective county governments. There is no lower-tier subnational government. Time of the assessment The period covered in the assessment was three fiscal years after the introduction of devolved system of government in Kenya, that is, FY2013/14, FY2014/15, and FY2015/16 depending on the indicators and dimensions of the assessment. The field work assessment took place in April 2017, which is the time of assessment for those dimensions that state period as ‘at the time of the assessment’. The assessment applied the PEFA 2016 methodology and specifically the supplementary version meant for subnational entities. The subnational PEFA uses the same indicators as the national one but with some modifications. The main modification is the introduction of ‘HLG’ indicators for assessing transfers and earmarked grants to the counties by the national government. 4 Sources of information The main documents that have been used in the assessment are (a) the Constitution, (b) the Strategy for Public Financial Management Reforms in Kenya 2013–2018 (2016), and (c) the PFM Act, 2012. The exhaustive list of all documents and materials used and referred to in this PEFA assessment is provided in Annex 3. 5 2. Background information 2.1 Economic context An overview of the Kenyan Economy Kenya has a unitary but devolved system of government consisting of the national and 47 county governments, as provided in the Constitution. All the counties do not have detailed economic data such as gross domestic product (GDP) growth, inflation rates, and so on. However, the Kenya National Bureau of Statistics (KNBS) has developed county-specific statistical abstracts. The National Treasury and the World Bank are set to undertake a compilation of county-specific GDPs. The Kenyan economy has sustained its robust growth in the past decade, supported by significant structural and economic reforms. The economy grew by 5.7 percent, 5.9 percent, and 4.7 percent in 2015, 2016, and 2017, respectively. The leading sectors in growth during 2017 included tourism, building and construction, transport, and information and communication technology (ICT). On the other hand, the agriculture sector declined tremendously to 1.6 percent from 5.1 percent the previous year due to drought coupled with pests and diseases. Inflation rate in 2017 was 8.0 percent, a rise from 6.3 percent recorded in 2016. The inflationary pressure was mainly attributed to significant increases in oil and high food prices. Economic growth is expected to accelerate during 2018 due to improved political stability and a favorable macroeconomic environment. In addition, the ongoing investments in infrastructure, improved business confidence, and strong private consumption are likely to support a strong growth. Besides, the favorable climatic conditions are likely to boost agriculture production and electricity and water sectors and hence support manufacturing growth. On the other hand, rising oil prices and depressed growth of credit to the private sector, which started in 2016, is likely to undermine the growth prospects. However, the adverse effects are likely to be offset by the strong favorable factors, resulting in better growth in 2018. Overview of Baringo County economy Baringo is a rural area county that is sparsely populated. The main economic activities include pastoralism, beekeeping, mixed farming, and sand harvesting. Table 2.1 contains detailed economic data for Baringo County. Economic performance data has been included as far as it is available for this county. The World Bank and the National Treasury of Kenya will soon be embarking on developing county GDP data. The data for the following table is based on World Bank data, the Annual Development Plans (ADPs), and the authors’ calculations. 6 Table 2.1: Basic economic data and indicators for the county of Baringo Indicator Area (km2) 11,015 No. of constituencies 6 Population 555,561 Population density per km2 50 Main economic activities Pastoralism, beekeeping, mixed farming, sand harvesting Early Childhood Development and Education Centers: 880 Public 708 Private 172 No. of primary schools: 687 Pubic 601 Private 86 No. of secondary schools: 159 Pubic 147 Private 12 No. of health facilities 184 Doctor-to-population ratio 46,049 Source: CRA, County Integrated Development Plan (CIDP), and Baringo County Statistical Abstract, 2015. The Constitution assigns the task of service delivery in key sectors like water, health, and agriculture, among others, to county governments, with the national government doing policy formulation in some of the sectors. The functions devolved to the county government are tax collection and administration, transport and regional development, health, and education, whereas the functions of defense and overall coordination and oversight as well as external audit and social security are with the national government. The population of Baringo County is increasingly growing. The last country census indicates that 555,561 live in the county, and according to the Department of Health data, the population in 2015 was 649,065. The population of the county was projected to be 723,411 by 2017. This implies that the county will have to invest in more social and physical infrastructure to match the needs of the growing population. A large number of people are below 40 years old. Nearly 60 percent are self-employed and are engaged in small- scale farming. The main challenges for growth and development of Baringo County are defined in the priorities and objectives of the government, as outlined in the first CIDP covering four years, 2013–2017, as well as in the Second Medium-Term Plan 2013–2017. Hence, the goals of the county are in the development of the social and economic, environmental, and transport sectors. The CIDP outlines a number of projects to be undertaken in these areas. 2.2 Fiscal and budgetary trends According to Article 203 (2) of the Constitution of Kenya 2010, a minimum of 15 percent of total revenue collected by the national government should be disbursed to county governments every fiscal year. Counties are also supposed to collect their own revenues to fund their operations. Table 2.2 gives an overview of selected fiscal indicators that are currently available. 7 Table 2.2: Overview of selected fiscal indicators Budget performance Exchequer issues (K Sh, millions) 5,136.18 Expenditure to exchequer issues (%) Recurrent expenditure 96.5 Development expenditure 79.7 Expenditure to budget allocation (absorption rate (%) Recurrent expenditure 96.5 Development expenditure 53.9 Overall absorption rate 79.4 Revenue Annual target (K Sh, millions) 300.00 Actual revenue (K Sh, millions) 279.32 Revenue performance (%) 93.0 Conditional grants Annual allocation (K Sh, millions) 178.31 Actual receipts (K Sh, millions) 150.83 % of actual receipts 84.6 Expenditure by economic classification Personal emoluments (%) 48.0 Operations and maintenance (%) 24.8 Development expenditure (%) 27.2 Source: The OCOB’s County Governments Budget Implementation Review Report (CBIRR), September 2016. The Division of Revenue Act and County Allocation of Revenue Act provide the amounts disbursed to each county every year on the basis of the population rate. The current allocation formula applied by the CRA is such that 45 percent of resources are allocated in accordance with population density. The remaining 55 percent of resources are allocated in the following manner: geographical size 8 percent, poverty levels 20 percent, equal shares 25 percent, and fiscal responsibility 2 percent. The available data shows that the county of Baringo is faced with the challenge of budget absorption, which is relatively high at 79.4 percent. As required by the PFM Act, 2012, development expenditures should be at least 30 percent of the budget. In this respect, the county underperformed with only 27 percent of its expenditure spent on development. The development of a conditional grant framework to overcome challenges related to budgeting, accounting, and reporting these grants at the county level is under way. Section 132 of the PFM Act, 2012, defines the rules for the submission and consideration of the revenue- raising measures in the County Assembly. Each financial year, the County Executive shall pronounce the revenue-raising measures. This is formalized by submitting a County Finance Bill to the County Assembly, setting out the revenue-raising measures together with a policy statement expounding on those measures. The approved bill becomes the County Appropriation Act once enacted by the County Assembly and signed by the Governor. Table 2.3 shows aggregate fiscal performance of the county for the last three fiscal years using economic classification of government expenditure. 8 Table 2.3: Aggregate fiscal performance data for the last three fiscal years (in percentage of total revenues) Economic head 2013/14 2014/15 2015/16 Total county revenue 100 100 100 (a) Exchequer release (transfer from the national government) 93 93 93 (b) Conditional grants (domestic and foreign grants) 0 1 2 (c) Transfers from other governments entities — — — Other revenue (own source) 6 6 5 Total expenditure 81 94 78 Compensation of employees 40 47 38 Use of goods and services 16 16 12 Acquisition of assets 20 26 23 Interest — — Subsidies — — Transfers to other government units — Other grants and transfers (scholarships) 5 4 6 Social benefits — 1 Other expenses — — — Budget surplus 18 6 22 Source: CBROP. Table 2.3 shows that aggregate fiscal discipline has been respected for the last three years, as the budget presented a surplus in two consecutive fiscal years. The county also inherited a debt from the previous government, but it did not generate any debt since its creation. The share of own source revenue is gradually increasing with a shortfall in the last fiscal year. The share of salaries is also getting lower with time but is still above the required maximum, whereas the development expenditure is steadily increasing but is below the required minimum of 30 percent. Allocation of resources Table 2.4 shows the budget allocation by function for the three fiscal years assessed in this report. The trend of allocating higher budgets for the functions of strategic importance, which the county identified in the CIDP and the Medium-Term Expenditure Framework (MTEF), is not clearly noticeable. Table 2.4: Budget allocations by function (as a percentage of total expenditures) Functional head 2013/14 2014/15 2015/16 County Assembly 15 9 10 County Executive 9 7 6 County Treasury 4 5 7 Transport and Infrastructure 10 10 10 Industry, Commerce and Tourism 5 5 4 Education 7 10 9 Health 30 26 32 Housing and Urban Development 0 4 4 Agriculture 6 9 7 Youth, Gender, Social Security 3 3 3 Water and Irrigation 8 9 8 Environment and Natural Resources 1 1 1 County Public Service Board 1 — — 9 Functional head 2013/14 2014/15 2015/16 Eldama ravine town 1 — — Kabarnet town 2 — — Total 100 100 100 Source: CBROPs. Table 2.5: Budget allocations by economic classification (as a percentage of total expenditures) Economic head 2013/14 2014/15 2015/16 Compensation of employees 49 50 48 Use of goods and services 20 17 15 Consumption of fixed capital 24 28 29 Interest — — — Subsidies — — — Grants 6 5 — Social benefits — 1 — Other expenses — — 8 Total expenditure 100 100 100 Source: Annual Financial Statements (AFS) 2015/16. 2.3 Legal and regulatory arrangements for PFM The Constitution introduced significant changes to the political system of governance of Kenya. There are presently two levels of government, namely, national and county governments. The legal and regulatory framework providing support for PFM in the county of Baring is derived from the Constitution, various acts, and regulations outlined as follows: (a) Chapter 11 and 12 of the Constitution on devolved governments and principles of public finance respectively. Institutional arrangements for PFM include the CRA (Article 216), the National Treasury (Article 225 (1)), CoB (Article 228), Auditor General (Article 229), Salaries and Remuneration Commission (Article 230), Central Bank of Kenya (CBK) (Article 231), Parliament (Article 93), and County Assemblies (Article 176 (1)). Article 227 (2) provides for the creation of a framework for procurement and asset disposal by all public entities through an Act of Parliament. (b) The PFM Act, 2012. Part IV of this act details responsibilities with respect to PFM of public funds in the counties. This act covers all PFM aspects including, but not limited to, budget making process and public participation, Treasury Single Account (TSA), financial accounting and reporting, and internal auditing, among others. Section 103 creates the County Treasury whose general responsibilities and powers in relation to public finance are spelled out in Sections 104 and 105. According to Section 106, upon request, the National Treasury can second public officers to the County Treasury to enhance its capacity. Section 107 places the role of enforcing fiscal responsibility principles as contained in Chapter 12 of the Constitution on the County Treasury. The County Treasury is responsible for some of the key documents related to public finance such as the budget, County Fiscal Strategy Paper (CFSP), and County Budget and Review Outlook Paper (CBROP) and thereafter present them to the County Assembly. 10 (c) The PFM Regulations (2015) for county governments. Some highlights include strengthening intergovernmental fiscal relations, restricting wages to 35 percent of realized revenue, and providing that a minimum of 30% of the total budget should be allocated to development. (d) The Public Procurement and Asset Disposal Act (PPDA) (2015). The act provides for procedures for efficient public procurement and procedures for asset disposal by public entities. Regulations are under development. (e) The Public Audit Act (2015) provides for the organization, functions, and powers of the OAG, which are spelled out in accordance with the Constitution. The Auditor General is required to present audit reports to Parliament and relevant County Assemblies six months after the end of an FY. Under Section 4, the OAG was established, replacing the Kenya National Audit Office (KENAO). Section 10 provides explicitly for the independence of the Auditor General. Section 11 significantly reinforces the process for selecting competent persons to the position of the Auditor General in case of any vacancy. Framework for the devolved system of government The Constitution of Kenya 2010 introduced two levels of government, namely, the national and county governments. The legal and regulatory framework providing support for PFM in the county government of Kajiado, specifically Chapter(s) 11 and 12, devolved governments and principles of public finance, respectively. A fundamental change was the major devolution of central government responsibilities to 47 newly created county governments (Chapter 11, Articles 174–200). Part 2 of the fourth schedule enlists 14 roles and functions of the county governments: 1. Agriculture 2. County health services 3. Control of air pollution, noise pollution, other public nuisances, and outdoor advertising 4. Cultural activities, public entertainment, and public amenities 5. County transport 6. Animal control and welfare 7. Trade development and regulation 8. County planning and development 9. Pre-primary education, village polytechnics, home craft centers, and childcare facilities 10. Implementation of specific national government policies on natural resources and environmental conservation 11. County public works and services 12. Firefighting services and disaster management 11 13. Control of drugs and pornography 14. Ensuring and coordinating the participation of communities and locations in governance at the local level and assisting communities and locations in developing the administrative capacity for the effective exercise of the functions and powers and participation in governance at the local level The county governments comprise the Executive, headed by elected Governors and the County Assemblies comprising elected members. The counties are also represented by Senators who are elected and constitute the Senate, which is the upper house of Parliament. Institutional arrangements for PFM include the CRA (Article 216), the National Treasury (Article 225 (1)), CoB (Article 228), Auditor General (Article 229), Salaries and Remuneration Commission (Article 230), CBK (Article 231), Parliament (Article 93), and County Assemblies (Article 176 (1)). Article 227 (2) provides for the creation of a framework for procurement and asset disposal by all public entities through an Act of Parliament. Generally, internal and external controls are performed at the national level. Internal control is carried out by the COB through the integrated financial management information system (IFMIS) while external control is performed by the OAG. The legal framework under the 2012 PFM Act and its regulations also apply to the county government. The Policy on Devolved System of Government (2015) has identified institutional, intergovernmental, and resource-related challenges to be overcome to improve implementation and service delivery. 2.4 Institutional arrangements for PFM County governments According to the County Government Act, 2012, a county comprises the County Executive headed by a Governor and a County Assembly comprising members of the County Assembly (MCAs) representing the wards. The Governor is responsible for the general policy and strategic direction of the county. The Constitution transferred various powers and functions (including limited fiscal authority) to the counties. This is in recognition of fiscal decentralization as a mechanism for enhancing delivery of social services at the grassroots and promoting enhanced accountability. Moreover, a central objective of the Constitution was to promote good governance in PFM through the establishment of sound institutional and regulatory environment at both national and county levels. Members of the County Executive are nominated by the Governor, but their appointment has to be approved by the County Assembly. Part IV of the PFM Act, 2012, gives the county government the responsibility of managing public finances in the county. Section 103 of PFM Act, 2012, establishes the County Treasury comprising the County Executive Committee (CEC) member in charge of finance, the Chief Officer, and department(s) of the County Treasury responsible for financial and fiscal matters. According to Section 103 (3), the CEC member for finance shall be the head of the County Treasury. The Chief Officers are the chief accounting officers in their respective departments. In addition to its primary function of passing legislation, the County Assembly also approves nominees to other county public service offices. Most of the MCAs are elected during a general election, but some are also nominated by political parties. The County Assembly oversees the County Executive in terms of use of public finances. Key public finance documents such as the budgets, CFSP, and CBROPs have to be 12 presented by the County Executive for approval. All funds including the emergency funds and any other by the County Executive must be approved by the County Assembly. The County Government Act, 2012, also outlines the structure and operation of county governments comprising sub counties, wards, and villages. The structure of the public sector and public finances in Baringo County is presented in Tables 2.5 and 2.6. Table 2.6: Structure of the public sector (turnover in K Sh, millions) - FY2015/16 Year Government subsector Public corporation subsectorc Social Extra Nonfinancial Budgetary security Financial public budgetary public unit fundsb corporations unitsa corporations 1st tier subnational - 280 n.a. n.a. n.a. n.a. county government (12 units) Source: AFS 2015/16. Note: a. There are a number of extrabudgetary units in the county of Baringo, but their financial statements have not been provided (see PI-6). b. Social security funds are governed at the national government level. c. There are two public corporation companies, currently in the process of establishment, but their financial statements are not audited yet (see PI-10.1). Table 2.7: Financial structure of the county government - actual budget (in K Sh, millions) - FY2015/16 2015/16 County government Budgetary Extra budgetary Social security Total unit units funds aggregated Revenue 4,860 n.a. n.a. 4,860 Expenditure 4,804 n.a. 4 4,808 Transfers to County 333 n.a. n.a. 233 Assembly Liabilities n.a. n.a. n.a. n.a. Use of goods and services 683 683 Acquisition of assets 1,300 n.a. n.a. 1,300 Financial assets 2,084 n.a. n.a. 2,084 Source: AFS 2015/16. Key features of internal control Internal control is performed through the IFMIS and reengineering of the IFMIS was a major improvement for the reinforcing of the control. Access to the IFMIS is now complete at the county levels, but the IFMIS Office is still configuring aspects of the IFMIS to meet specific needs of ministries, departments, and agencies (MDAs) and the counties. Presently, the IFMIS is not comprehensively used at the county level. According to the OAG, manual processes are still being used for preparing and approving local purchase orders and contracts. Also, payments vouchers are being prepared manually and then uploaded into the IFMIS instead of being prepared within the IFMIS on the basis of invoices and receipts of goods and services. The integration of systems within the IFMIS has not yet been completed for the following modules: (a) Procurement - the module ‘Procurement to Pay’ available at the national level is not used by the county. 13 (b) Revenue - the county has its own IT-based tax administration system to collect some of the revenues, which is not integrated with the IFMIS. (c) Payroll - the county government uses the integrated payroll and personnel database (IPPD) management system for human resource management, which is not integrated with the IFMIS, and the payroll is prepared in the IPPD and then manually extracted. 2.5 Other important features of PFM and its operating environment According to Transparency International, bribery remains a challenge in Kenya, affecting most specifically security, administration of justice, and land services. The devolution process is expected to reduce the level of corruption in this domain. The external audit oversight on budget implementation is exercised by the OAG. It is a national-level institution delegating authority to its regional branches, known as hub offices, which cover the respective counties. These hub offices of the OAG perform only audit field work and file and store the audit working papers whereas all other audit activities such as quality review and audit opinion are handled at the external audit headquarter. Public participation in Kenya is considered a crucial point in the Kenyan Constitution and it is reflected in the legal framework of both at national and subnational levels. Strengthening public participation is a key focus of Kenya’s devolution. The public is provided with the opportunity to take part in decision-making processes in the government. Public participation in Kenya is especially important in the following processes: (a) budgeting (consultation is supposed to be held with civil societies on strategic development spending in the county), (b) legislative (the public should have access to legislative scrutiny of the budget and the audit report at the County Assembly), and (c) tendering (the public should have access to all information concerning public procurement process). The Kenyan Constitution is supplemented by other acts demanding inclusive and participatory engagement of citizens in matters of planning and budgeting processes: (a) County Public Participation Bill. In most counties, the bill is still in the process of approval, and the status of this bill at the county of Baringo has not been confirmed. (b) PFM Act Sections 10, 35, 125, and 175 provide for public participation in the budget process, the preparation of the strategic plan, and the annual budget estimates. (c) County Government Act Sections 87–90 make public participation in county planning processes compulsory, which includes timely access to information and reasonable access to planning and policy-making process, and rights to petition. (d) Urban Areas and Cities Act, 2011. For that purpose, designated persons may publish guidelines for public participation. (e) The PPDA 2015 Sections 68(3), 125(5), 138, and 179 emphasize transparency of the procurement process including requirements for procuring entities to publicly avail procurement records, to publish notices of intention to enter into contract on websites and public notice boards. In the county of Baringo, the civil societies are organized through various social media with the objective to participate in the formulation of the budget and all other county activities designed for public services. 14 For this purpose, working meetings are organized by the county. However, the representatives of the civil societies, who the assessment team met, still see this opportunity only as formality required by the Constitution. The information provided to the public is not comprehensive and easy to follow so that the civil societies can effectively take part in the discussion. Citizen budgets are not prepared and the hearings at the County Assembly have been described as not accessible. 15 3. Assessment of PFM performance Subnational PEFA indicator HLG-1: Transfers from a higher level of government This indicator assesses the extent to which transfers to the subnational government from a higher-level government are consistent with the originally approved high-level budgets and are provided according to acceptable time frames. HLG-1.1. Outturn of transfers from higher-level government The transfers constitute the majority of the revenue fund of the counties in Kenya. They are allocated by the National Treasury on the basis of the county population applying a specific formula. Each county government transfer allocation (appears as exchequer releases in budget documentation) is provided to the respective County Revenue Fund, in accordance with a payment schedule approved by the Senate and published in the gazette by the Cabinet Secretary in terms of Section 17 of the PFM Act. The county governments’ allocations are included in the budget estimates of the national government and are submitted to Parliament for approval. The County Treasury reports on the actual transfers received by the county government from the national government. According to AFS, the main sources of revenue for the county governments in Kenya are equitable share, conditional grants, and own source revenues. The table below presents the breakdown of the estimated equitable shares and the actual transfers to the county from the national government. The performance of the equitable share was 91 percent, 85 percent, and 100 percent for 2013/14, 2014/15, and 2015/16, respectively, with an average of 92 percent for the three financial years of the assessment. The reasons for the deviation are true across most counties, and it is the overestimation of budget in all revenue items in the first years after the devolution. Estimate and actual transfers for the last 3 fiscal years (K Sh, millions) 2013/14 2014/15 2015/16 Economic head Budget Actual % Budget Actual % Budget Actual % Grants 433 27 6 97 53 55 274 138 50 Equitable share 3,385 3,088 91 4,659 3,962 85 5,327 5,327 100 Total revenue 3,680 2,978 81 4,757 4,015 84 5,601 5,465 98 Source: CBROPs. The outturn of transfers to Baringo County was 81 percent in FY2013/14, 84 percent in FY2014/15, and 98 percent in FY2015/16. The score is D because the actual transfers have been more than 85 percent of the total budget estimates only in one year of the assessment. HLG-1.2. Earmarked grants outturn In addition to the transfers from the national government, there are conditional allocations (appear as proceeds from domestic and foreign grants in the budget documentation) from national government revenue to each county government to be utilized for specific purposes, including development expenditure, which are outlined in the County Allocation of Revenue Act. The County Treasury reports on the actual conditional grants received by the county government from the national government. 16 Estimate and actual transfers for the last 3 fiscal years (K Sh, millions) 2013/14 2014/15 2015/16 Economic head Budget Actual % Budget Actual % Budget Actual % Grants 433 27 6 97 53 55 274 138 50 Source: CBROPs. The earmarked grants appear as conditional grants in the budget documentation of the county. They are provided for specific development spending. The grants were earmarked mainly to development of the health sector and for road construction and rehabilitation. In FY 2013/14, the actual grants received were only 6 percent of the original budget, while in FY2014/15, they were 55 percent, and in FY2015/16, 50 percent. The average outturn for the three years was 37 percent, thus making a difference between original budget and actual of 63 percent. The difference between original budget and actual was more than 10 percent in two of the three years, which justifies score D. HLG-1.3. Timeliness of transfers from higher-level government According to the PFM law, equitable share estimates must be included in the Budget Policy Statement (BPS), which must be presented and adopted by Parliament in February or March. Then, transfers have been released quarterly across the year through the IFMIS. The transfers that constitute the key element of the county revenue are disbursed from the National Treasury evenly across the year in each of the last three years. However, the actual dates of disbursements were not provided. Mass media coverage shows that there were delays due to nonfunctioning of the IFMIS. The score for the component is D*. Summary of scores and performance table Subnational PEFA indicator HLG-1: Transfers from a higher level of D Brief justification for score government (M1) HLG-1.1 Outturn of transfers from higher- D The transfers have been more than 85% only in the last level government year of the assessment. HLG-1.2 Earmarked grants outturn D In FY2013/14 the grants received were 6% of original budget; in 2014/15, 54%; and in 2015/16, 50%. The difference between original budget and actual was more than 10% in two of the three years. HLG-1.3 Timeliness of transfers from higher- D* Actual transfers have been distributed quarterly across level government the year through the IFMIS, but actual dates of transfer have not been provided. 3.1 Pillar I. Budget reliability A budget is reliable if it is implemented in accordance with the approved estimates before the beginning of the financial year. To determine the extent to which this is the case, three indicators, namely, aggregate expenditure outturn, expenditure composition outturn, and revenue outturn, were examined for FY2013/14, FY2014/15, and FY2015/16. 17 PI-1 Aggregate expenditure outturn This indicator measures the extent to which aggregate budget expenditure outturn reflects the amount originally approved, as defined in government budget documentation and fiscal reports. Table 3.1 presents the budgeted and actual total expenditure for 2013–2015. The total expenditure outturn during FY2013/14, FY2014/15, and FY2015/16 was 68 percent, 83 percent, and 81 percent, respectively. This reveals a low absorption rate, especially for FY2013/14, because it was the first year of implementation of the devolved system of government in Kenya. In addition, the largest share of the variance was emanating from low absorption of the development expenditure. Slow implementation by departments was due to the slow procurement process, especially that related to bill of quantities (BQs). The main reason is that the county did not have adequate human and technical capacity to design and supervise projects, for example, engineers, architects, and so on. Table 3.1: Aggregate expenditure outturn (Ksh, millions) Fiscal year Budget Actual Total expenditure deviation (%) 2013/14 3,645 2,522 68 2014/15 4,815 4,013 83 2015/16 5,901 4,778 81 Source: CBROPs. Expenditure data for the last three financial years has been made available, is included in the calculation in Table 3.1. The score is D. Summary of scores and performance table PI-1 Aggregate expenditure outturn D Brief justification for score (MI) 1.1 Aggregate expenditure outturn D Aggregate expenditure outturn for the last 3 fiscal years ranged between 68% and 83%. PI-2. Expenditure composition outturn This indicator measures the extent to which reallocations between the main budget categories during execution have contributed to variance in expenditure composition. According to the data provided, the variation between the budgeted and the actual expenditures exceeded 10 percent for the last three fiscal years. PI-2.1. Expenditure composition outturn by function The information on expenditure by administrative classification was obtained from the CBROPs for the respective fiscal years. According to Table 3.2, variance in expenditure composition by program, administrative, or functional classification was 27 percent, 12 percent, and 12 percent for FY2013/14, FY2014/15, and FY2015/16, respectively. Low levels of absorption were notable in the departments of education and ICT, agriculture, and transport and infrastructure. The score is C. 18 Table 3.2: Expenditure composition outturn by function (K Sh, millions) 2013/14 2014/15 2015/16 Functional head Budget Actual Budget Actual Budget Actual County Assembly 552 424 444 376 578 530 Office of the Governor 330 256 350 289 360 307 County Public Service Board 23 13 — — — — County Treasury 131 107 256 231 404 385 Agriculture, livestock, fisheries 230 122 430 308 413 308 Transport and infrastructure 367 199 465 346 593 361 Health 1,090 1,002 1,257 1,257 1,880 1,658 Industrialization commerce, 167 79 241 215 208 180 tourism, and enterprise development Education and ICT 238 103 496 406 535 405 Water and irrigation 284 88 457 282 490 321 Lands, housing, and urban 10 16 213 152 220 178 development Environment and natural resources 34 18 64 52 65 50 Youth, gender, labor, and social 100 32 142 100 155 95 services Eldama ravine town 28 21 — — — — Kabarnet town 61 40 — — — — Composition variance (%) 27 12 12 Source: CBROPs PI-2.2. Expenditure composition outturn by economic type The main source of variance was from a reduction in expenditure on consumption of fixed capital and an increase in spending on compensation of employees in FY2013/14 and FY2014/15. In FY2015/16, in addition to the increased spending on compensation of employees, there was significantly increased spending on transfer to other government units. The extent of variance between actual and budgeted expenditures by composition of expenditures is presented in Table 3.3. Actual expenditure deviated from the original budget appropriation by 41 percent, 25 percent, and 28 percent during FY2013/14, FY2014/15, and FY2015/16, respectively. The result is heavily influenced by fluctuations in use of goods and services and consumption of fixed capital. The score is D. 19 Table 3.3: Expenditure composition outturn by economic type (K Sh, millions) 2013/14 2014/15 2015/16 Economic head Budget Actual Budget Actual Budget Actual Compensation of employees 1,208 1,267 2,000 1,995 2,321 2,161 Use of goods and services 575 5,245 960 675 859 683 Consumption of fixed capital 1,520 627 2,052 1,126 2,479 1,300 Interest 0 0 0 0 0 0 Subsidies 0 0 0 0 0 0 Grants 342 164 190 190 0 0 Social benefits 0 0 28 28 0 0 Other expenses 0 0 0 0 99 344 Composition variance (%) 41 25 28 Source: AFS. PI-2.3 Expenditure from contingency reserve Article 206 of the Constitution provides for the establishment of a contingency fund at the national level. It enables the legislation and regulations as specified in Sections 19–24 of the PFM Act, 2012. In Kenya, the budgeting and accounting treatment of contingency items relates to exceptional events that cannot be foreseen, such as earthquake, famine, and so on. This treatment holds true for both national and subnational levels. According to Section 110 of the PFM Act, 2012, the CEC Member for Finance can establish the emergency fund with the approval of the County Assembly. This fund should not exceed 2 percent of the total county government revenue of the last audited financial statements of the previous fiscal year in accordance with Section 113 of the PFM Act, 2012. Contingency fund share of budget expenditure was on average 0.4 percent for the last three completed fiscal years and was less than 2 percent in both FY2014/15 and FY2015/16. The score is A. Some reforms being undertaken in this area include freezing of employment to contain wage bill emanating from health sector (about 50 percent). The county has many health facilities built using CDF and Economic Stimulus Project that were inherited by the county government. An important development is use of e-mail for internal communication to cut printing cost. Summary of scores and performance table PI-2 Expenditure composition D+ Brief justification for score outturn (MI) 2.1 Expenditure composition C Variance in expenditure for FY2013/14, FY2014/15, and FY2015/16 outturn by function was 27%, 12%, and 12%, respectively 2.2 Expenditure composition D Variance in expenditure composition by economic classification outturn by economic type averaged 32% for the last 3 fiscal years and was more than 15% for the 3 years 2.3 Expenditure from A Actual expenditure charged to a contingency vote was on average contingency reserve 0.4% for the last 3 fiscal years 20 PI-3. Revenue outturn This indicator measures the change in revenue between the originally approved budget and the end-of- year outturn. The main sources of revenue for the county governments in Kenya are equitable share, conditional grants, and own source revenues. These revenues are described as follows: • Equitable share: This constitutes the revenue raised by the national government and equitably allocated to all county governments in accordance with Article 203 of the Constitution. The allocation should be at least 15 percent of national revenue based on the most recently audited accounts of revenue received, as approved by the National Assembly. • Conditional grants: This is provided for under Article 202 of the Constitution of Kenya and constitutes additional allocations from the national government’s share of revenue, either conditionally or unconditionally. Conditional allocations are tied to the implementation of specific national policies with specific objectives by the national government. • Own source revenue: According to Article 209 of the Constitution of Kenya, a county may impose property rates and entertainment taxes, and county governments may impose charges for the services they provide, but the taxation and other revenue-raising powers of a county shall not be exercised in a way that prejudices national economic policies; economic activities across county boundaries; or the national mobility of goods, services, capital, or labor. This performance indicator is focused on the own source revenue, which is the only revenue directly collected and retained by subnational governments. The equitable shares and the conditional grants are covered in HLG-1 and HLG-2, respectively. PI-3.1. Aggregate revenue outturn The overall performance of the revenue outturn for the Baringo County Government is as summarized in Table 3.4. A comparison of the actual receipts against the budgeted revenues in aggregate budget has not been very successful. In all three years, the actual revenue received was between 92 percent and 116 percent only in FY2015/16. The county has never exceeded its projections for the last completed fiscal years under this assessment. The performance, though below the threshold, has been improving in both the budgeted and the actual revenue collected. The score is C. Table 3.4: Aggregate revenue outturn (percentage) FY Total revenue deviation Composition variance 2013/14 78 24 2014/15 98 19 2015/16 93 32 Source: CBROPs. PI-3.2. Revenue composition outturn The revenue composition performance outturn is shown in Table 3.5. According to the Constitution and the PFM Act, 2012, all earmarked funds are sent to the county governments from the national government. They are not directly provided to the county. The score is D. 21 Table 3.5: Actual revenue in percentage of initial budget by source (K Sh, millions) 2013/14 2014/15 2015/16 Source of revenue Budget Actual % Budget Actual % Budget Actual % Own source revenue 260 202 78 256 250 98 300 280 93 Source: CBROPs. The actual own source revenue was between 92 percent and 116 percent of the budgeted revenue in two of the three years. The county achieved 98 percent and 93 percent for FY2014/15 and FY2015/16, respectively. The county’s own source revenue forecasts were realistic in the last two fiscal years except at the inception (the first year after the devolution), when they were over projected. The reason for the lower-than-budgeted own source revenue is that revenue potentials had not been exploited by the county, such as land rates and plot rents as well as uncollected revenue from education establishments. The following are the recent or ongoing reform activities at the county of Baringo to improve its own source revenue: • Parking charges. The county initially was not charging on parking. • Automation of collection of all own revenue streams. The county has signed a service agreement with the CBK, to which they pay 4 percent of what the county collects. • Improvement in tourism revenue through upgrade of roads and tourist attraction points. • Terms of service the revenue collectors have improved and training of the staff. • The county has initiated discussions with KRA to collect land rates on behalf of the county. • The county has partnered with the county’s Livestock Management Council to market the livestock. Summary of scores and performance table PI-3 Revenue D+ Brief justification for score outturn (M2) 3.1 Aggregate C Actual county revenue for the last three fiscal years (2013/14, 2014/15, revenue outturn and 2015/16) was 78%, 98%, and 93%, respectively. The aggregate revenue outturn was 98% and 93% in two consecutive years. 3.2 Revenue D The county achieved revenue variance composition of 24% in FY2013/14, composition 19% in FY2014/15, and 32% in FY2015/16. In none of the three years, the outturn revenue composition outturn was less than 15%. 3.2 Pillar II. Transparency of public finances There are six performance indicators under this pillar: budget classification, budget documentation, central government operations outside financial reports, transfers to subnational governments, performance information for service delivery, and public access to fiscal information. These indicators measure whether the budget and fiscal risk oversights are comprehensive and whether the fiscal and budget information is accessible to the public. 22 PI-4. Budget classification This indicator assesses the extent to which the government budget and account classification is consistent with international standards. PI-4.1. Budget classification The budget classification system provides the conditions to track county government spending. Sections 164 and 165 of the PFM Act, 2012, require reporting to be done according to the guidelines issued by the Public Sector Accounting Standards Board (PSASB), which are in line with the International Public Sector Accounting Standards (IPSAS). To this end, the government issued standard chart of accounts (SCOA), which the county government uses as a guideline in classification of the budget items. The budgets include the classification of programs such as health, agriculture, education, administration, roads, and so on. These have then been broken down into various expenditure heads within programs. This means that the county budget classification has been implemented at two levels: programs and specific units/projects. The budget classification has further been done in terms of recurrent and development expenditure and according to the functions already highlighted earlier. The score is C. Summary of scores and performance table PI-4 Budget C Brief justification for score classification (M1) 4.1 Budget C Budget formulation, execution, and reporting are based on administrative and classification economic classification using 2-level classifications under SCOA that produce consistent documentation comparable with those standards. PI-5. Budget documentation This indicator assesses the comprehensiveness of the information provided in the annual budget documentation, as measured against a specified list of basic and additional elements. In assessing this indicator, basic and additional elements of budget documents have been considered. Under basic elements, county governments are not permitted to have surplus or deficit budget and thus prepare a balanced budget in accordance with the PFM Act, 2012. Forecast of fiscal deficit/surplus is provided in the fiscal policy and budget framework within the CFSPs. The PFM Regulation No. 26 of 2015 on county governments provides for the preparation of the CFSP. The PFM Regulation No. 27 of 2015 on county governments specifies the contents of the CFSP to include, but not limited to, updated forecasts for the current budget year and three consecutive years. Quarterly budget implementation reports and CBROPs depict the actual and budgeted expenditure. However, the budget does not have the outturns. While the aggregation of both revenue and expenditure was done according to the main heads of classifications used (including data for the current and previous years as presented in the CFSP and CBROPs), the documents are not attached as part of the budget. The county government complies with the rest of the basic elements as indicated in the following table. 23 No. Basic elements Criteria 1 Forecast of the fiscal deficit or surplus or accrual operating result Yes 2 Previous year’s budget outturn, presented in the same format as the budget proposal No 3 Current fiscal year’s budget presented in the same format as the budget proposal. This can Yes be either the revised budget or the estimated outturn 4 Aggregated budget data for both revenue and expenditure according to the main heads of No the classifications used, including data for the current and previous years with a detailed breakdown of revenue and expenditure estimates. (budget classification is covered in PI-4) Items of financial assets other than cash are not present in the county books. However, cash at bank at the end of the year is incorporated as part of rollover fund for development projects in the budgets. While the county takes note of fiscal pressures and risks in their CFSP, no mention of contingent liabilities is made. These too are not incorporated in the budgets or the financial statements. Explanation of budget implications of new policy initiatives and major new public investments is not done as a preview to budget estimates. The supporting documents are prepared well in advance in accordance with the budget circular. All these documents are approved by the County Assembly. The budget is accompanied by the County Revenue Allocation Act, Programme-Based Budgets (PBBs), CIDP (a five-year plan), ADP, and CFSP, which puts a ceiling on the departmental allocation, and the CBROP analyzes the previous year’s outturns. Thus, the county government complies with all the elements except provision of macroeconomic assumptions, budget implications of new policy initiatives, and quantification of tax expenditure. Deficit financing and debt stock are however not applicable. The score is D. No. Additional elements Criteria 1 Deficit financing, describing its anticipated composition n.a. 2 Macroeconomic assumptions, including at least estimates of GDP growth, inflation, n.a. interest rates, and the exchange rate 3 Debt stock, including details at least for the beginning of the current fiscal year presented n.a. in accordance with GFS or other comparable standards 4 Financial assets, including details at least for the beginning of the current fiscal year Yes presented in accordance with GFS or other comparable standards 5 Summary information of fiscal risks, including contingent liabilities such as guarantees, No and contingent obligations embedded in structure financing instruments such as public- private partnership (PPP) contracts and so on (in CFSP) 6 Explanation of budget implications of new policy initiatives and major new public No investments, with estimates of the budgetary impact of all major revenue policy changes and/or major changes to expenditure programs 7 Documentation on the medium-term fiscal forecasts Yes 8 Quantification of tax expenditures No Summary of scores and performance table PI-5 Budget documentation (M1) D Brief justification for score 5.1 Budget documentation D Scored 2 basic elements and 2 additional elements 24 PI-6. Central government operations outside financial reports This indicator measures the extent to which government revenue and expenditure are reported outside county financial reports. Entities with individual budgets not fully covered by the main budget are considered extrabudgetary in accordance with the GFS Manual 2014 of the International Monetary Fund (IMF). PI-6.1. Expenditure outside financial reports The county has a number of entities that according to the performance indicator would be considered extrabudgetary: 1. Agricultural Mechanization Services (AMS): This entity was inherited from the national government and offers farmers agricultural services, for example, harrowing at a subsidized rate of K Sh 2,500 from the commercial rate of K Sh 3,500 per acre. The revenue generated is part of the annual budget under the Department of Agriculture covering operations such as salaries, fuel, repairs, and so on. 2. Agricultural Training Center (ATC) based in Eldama Ravine: The center was also inherited from the national government and provides agricultural services including training and conference facilities. It also owns demonstration farms complete with breeding animals and crops. It is under the County Department of Agriculture. All the related revenues and expenditures are budgeted for and reported in the county’s AFS. This is, therefore, not an extrabudgetary item. 3. Water companies: The county government is establishing two water companies: Chemsusu Water and Sanitation Company and Kirandic Water and Sanitation Company. They were yet to be reflected in the county’s budget at the time of the assessment. 4. Early Childhood Development and Education (ECDE): The ECDE Centers are governed by the county through the Education county coordinator and each subcounty coordinator. The county has had a number of newly built and established units, constructed from budgeted funds alongside the salaries of the teachers paid by the county from budgeted fund under the Department of Education. The ECDE is free and does not earn income for the County. Currently, externally funded projects support health facilities. The donor is DANIDA who appoints a designated project accountant to monitor and report on project-related expenditure. All expenditures related to the county budgetary units are included in the AFS. Evidence was not provided, and therefore the score is D*. PI-6.2. Revenue outside financial reports Although it was reported that there is no revenue outside the county financial statements, it has not been confirmed and evidenced if the extrabudgetary units prepare financial reports and submit them to the County Executive. No data were provided, and hence the score is D*. PI-6.3. Financial reports of extra budgetary units No financial reports for extra budgetary unit were provided. The score is D*. 25 Summary of scores and performance table PI-6 Central government operations outside D Brief justification for score financial reports (M2) 6.1 Expenditure outside financial reports D* No evidence has been provided for this dimension. 6.2 Revenue outside financial reports D* No evidence has been provided for this dimension. 6.3 Financial reports of extra budgetary units D* No information evidence has been provided for this dimension. PI-7. Transfers to subnational governments This indicator assesses the transparency and timeliness of transfers from county governments to subcounty governments with direct financial relationships between them. It considers the basis for transfers from the county government and whether subcounty governments receive information on their allocations in time to facilitate budget planning. Hence, the system for allocating transfers as well as timeliness of information on transfers is not applicable since there is no lower-tier government after the county government. Therefore, there are no transfers from the County Executive to a lower level of government. The county of Baringo has no fiscal relationship with a lower level of a subnational government. Summary of scores and performance table PI-7. Transfers to sub county governments n.a. Brief justification for score (M2) 7.1 System for allocating transfers n.a. There are no sub governments under the county level. 7.2 Timeliness of information on transfers n.a. There are no sub governments under the county level. PI-8. Performance information for service delivery This indicator examines the service delivery performance information in the executive’s budget proposal or its supporting documentation in year-end reports. It determines whether performance audits or evaluations are carried out and assesses the extent to which information on resources received by service delivery units is collected and recorded. PI-8.1. Performance plans for service delivery The county prepares a PBB annually that specifically outlines program areas with specific input and output indicators. The PBB for the next fiscal year was not provided nor was it found published on the website of Baringo County. The score is D. PI-8.2. Performance achieved for service delivery The output and outcomes of the budgets are explained in the quarterly reports that indicate the funds spent. Performance results are directly linked to the performance objectives stated in annual budget documents. The actual results are consistent with the planned outputs and outcomes and any deviation in actual performance is explained. The Quarterly Budget Implementation Status Reports (four reports) are published for FY2015/16 (as well as FY2016/17 and FY2017/18) on the website of the county. The 26 report states progress achieved and provides recommendations for further steps for all nine ministries. The score is A. PI-8.3. Resources received by service delivery units No evidence has been provided to show details on utilization of funds by service delivery units, and therefore the score is D*. PI-8.4. Performance evaluation for service delivery Evaluation of the performance is done. The monitoring and evaluation (M&E) for the effectiveness and efficiency of usage of funds and the project has been performed, and social audits have been carried out by Centre for Enhancing Democracy and Governance, which is an independent body. While challenges and way forward are enumerated in the project implementation reports and the PPB, this is not done at the program level as per the budgets. No efficiency ratios are calculated to confirm the usage of funds and even absorption as budgeted for. The score is D. Summary of scores and performance table PI-8 Performance information for service D+ Brief justification for score delivery (M2) 8.1 Performance plans for service delivery D The performance plans for service delivery are to appear in the PBB. The PBB for the next fiscal year was not found published on the county website. 8.2 Performance achieved for service A The county prepares and publishes Quarterly Budget delivery Implementation Status Reports, which are published at the website of the county—www.baringo.go.ke. The reports provide information on objectives and outcomes achieved for all ministries. This information is not presented by function. 8.3 Resources received by service delivery D* No evidence was provided to show if the implementation units provides details on utilization of funds. 8.4 Performance evaluation for service D No efficiency ratios have been applied to evaluate the delivery performance of service delivery. There is no explanation of variances according to the program units in line with the budget. PI-9. Public access to fiscal information This indicator assesses the comprehensiveness of fiscal information available to the public based on specified elements of information to which public access is considered critical. Article 35 of the Constitution and the PFM Act, 2012, emphasize the importance of public access to information. For instance, Article 131 (6) of the PFM Act, 2012, states that “The County Executive Committee member for finance shall take all reasonably practicable steps to ensure that the approved budget estimates are prepared and published in a form that is clear and easily understood by, and readily accessible to, members of the public.� In assessing this indicator, five basic elements and four additional elements have been considered. The county publishes approved annual budget law within two weeks of passage of the law. In addition, the county makes available to the public the annual budget execution report by August of each fiscal year. 27 No. Basic elements Compliance 1 A complete set of executive budget proposal documents (as presented by the country in No PI-5) is available to the public within 1 week of the executive’s submission of them to the legislature. 2 The annual budget law approved by the legislature is publicized within 2 weeks of passage Yes of the law. 3 In-year budget execution reports. The reports are routinely made available to the public No within 1 month of their issuance, as assessed in PI-27. 4 Annual budget execution report. The report is made available to the public within 6 Yes months of the fiscal year’s end. 5 Audited annual financial report, incorporating or accompanied by the external auditor’s No report. The reports are made available to the public within 12 months of the fiscal year’s end. With regard to additional elements, the CFSP presents the broad strategic priorities and policy goals that guide the preparation of the county budget for the next financial year and in the medium term. The CFSP should be prepared by February 28 of every year and published on the website of the county government. No. Additional elements Compliance 1 Pre-budget statement. The broad parameter for the executive budget proposal regarding Yes expenditure, planned revenue, and debt is made available to the public at least 4 months before the start of the fiscal year. 2 Other external audit reports. All nonconfidential reports on government consolidated No operations are made available to the public within 6 months of submission. 3 Summary of the budget proposal. A clear, simple summary of the executive budget proposal No. or the enacted budget accessible to the no budget experts, often referred to as a ‘citizens’ budget’ and where appropriate translated into the most commonly spoken local language, is publicly available within 2 weeks of the executive budget proposal’s submission to the legislature and within 1 month of the budget’s approval. 4 Macroeconomic forecasts. The forecasts, as assessed in PI-14.1, are available within 1 week No of their endorsement. The county circulates information in various ways: 1. Through a quarterly publication named ‘Baringo Today’, which highlights the achievements of the county government and planned activities. The initiative started in 2014 and currently is in its 8th edition. However, it is only done in the English language, though the majority of the local people speak Tugen, Iljamus, and Pokot. 2. Through public participation forums by ward administrators. 3. Through the county website where a number of documents can be obtained, including the CBROP, CIDP, ADP, and CFSP. Summary of scores and performance table PI-9 Public access to fiscal information D Brief justification for score (M1) 9.1 Public access to fiscal information D Only 2 basic elements and 1 additional element were met. 28 3.3 Pillar III. Management of assets and liabilities Effective management of assets and liabilities is necessary to ensure that public investments provide value for money. This requires that county government assets are clearly recorded and managed; fiscal risks are identified; and debts and guarantees are prudently planned, approved, and monitored. There are four indicators under this pillar: fiscal risk reporting, public investment management, public asset management, and debt management. PI-10. Fiscal risk reporting This indicator measures the extent to which fiscal risks to the county government are reported. Fiscal risks can arise from adverse macroeconomic situations, financial positions of subcounty governments or public corporations, and contingent liabilities from the county government’s own programs and activities, including extrabudgetary units. They can also arise from other implicit and external risks such as market failure and natural disasters. Public corporations for the purpose of this indicator are defined in accordance with GFS 2014. In this regard, it is possible that certain institutional units that are legally constituted as corporations may not be classified as corporations for statistical purposes if they do not charge economically significant prices. There are no recent or ongoing reform activities in this area. PI-10.1. Monitoring of public corporations Public corporations are those established under the laws, control, and ownership of the county government. Baringo County is in the process of establishing Chemsusu Water and Sanitation Company and Kirandic Water and Sanitation Company. These two new companies do not have audited AFS yet. Before the establishment of the new companies, the Eldama Ravine Water and Sanitation Company (ERAWASCO) was the one in operation in the county. It, however, provides services in several neighboring counties as well. The company reports to the Rift Valley Services Board, which is a state corporation under the national government. There is no consolidated reporting on the financial performance of the public corporation sector on an annual or any other basis. Monitoring is not performed. The dimension of not applicable. PI-10.2. Monitoring of subnational governments This dimension is not applicable because, in Kenya, there are no subnational units under the county government. PI-10.3. Contingent liabilities and other fiscal risks The Baringo County Government and its various departments quantify most of the contingent liabilities in its financial reports. The contingent liabilities in the county include car loans for the MCAs, car loans for CEC members and Chief Officers, and car loans and mortgages for some staff members of the county. Other contingent liabilities in the county include social security schemes such as National Social Security Fund (NSSF), National Hospital Insurance Fund (NHIF), Local Authority Provident Fund (LAPFUND), Local Authority Provident Trust (LAPTRUST), and small to medium loans provided to business persons. Some reform initiatives include developing a framework on how Chemsusu Water and Sanitation and Kirandic 29 Water and Sanitation Companies will be monitored and their annual financial reports audited. The score is D*. Summary of scores and performance table PI-10 Fiscal risk reporting (M2) D Brief justification for score 10.1 Monitoring of public n.a. The two public corporations owned by the county are still being corporations established. 10.2 Monitoring of subnational n.a. This dimension is not applicable because there are no subnational governments units under the county government. 10.3 Contingent liabilities and D* The county government quantifies most significant contingent other fiscal risks liabilities in its financial reports. There is no evidence as to what percentage of the contingent liabilities is quantified. PI-11. Public Investment Management This indicator assesses the economic appraisal, selection, costing, and monitoring of public investment projects by the government, with emphasis on the largest and most significant projects. PI-11.1. Economic analysis of investment proposals The Baringo County Government does not conduct economic analysis of major investment projects. Currently, some form of analysis is done by the departments without consistency and procedure applied. It has been reported that sometimes an external entity undertakes the analysis and review. However, no evidence of such analyses, which can be regarded as economic analyses, was provided. The score is D. PI-11.2. Investment project selection No standardized criteria exist for project selection. The project selection is guided by Vision 2030, the Governor’s Manifesto and CIDPs, and ADPs. There are county flagship projects, subcounty projects, and ward projects. The score is D. PI-11.3. Investment project costing The investment costing in the county only factors capital costs for one year. Recurrent costs are not included in the investment project costing. The county tends to have an overall budget for investment projects without making distinctions on capital and recurrent costs. The score is D. PI-11.4. Investment project monitoring There are no standard procedures and rules for project implementation. Monitoring of investment projects in Baringo County has been reported to be carried out by the respective departments through engineers, ward administrators, and social and county auditors. The implementation progress is published in quarterly reports (last quarter of each fiscal year), midterm review reports, and departmental progress reports. There is no formalized procedure for project monitoring in the county. The score is D. The county of Baringo is undertaking some reform initiatives such as developing a framework for citizen participation and engagement on prioritization of development projects in all sub counties and at ward levels. This will involve having project champions in each subcounty and ward. The county is also 30 developing a framework in which all Chief Officers; technical staff (engineers, architectures, surveyors); and feasibility study staff will be retrained on projects to ensure that there are no delays in project implementation. The county has developed a policy on M&E, which is awaiting implementation. Hiring of statisticians will be undertaken to provide precise statistics per administrative ward, for prioritizing of mega projects, resource allocation, and use in cost-benefit analysis before project implementation. In terms of reforms, a policy on M&E had been prepared to enhance project supervision and reporting in the field. Besides, M&E champions have been nominated in every department and community to assist in project monitoring and reporting. Summary of scores and performance table PI-11 Public investment D Brief justification for score management (M2) 11.1 Economic analysis D The Baringo County Government does not conduct economic analysis for the of investment proposals major investment projects. 11.2 Investment project D There are no standardized criteria for project selection. selection 11.3 Investment project D There is no total cost of projects indicated in budget documents. costing 11.4 Investment project D There are no standard procedures and rules for project implementation and monitoring monitoring, though implementation progress can be found in quarterly reports, department progress reports, and midterm review reports. PI-12. Public Asset Management This indicator assesses the management and monitoring of county government assets and the transparency of asset disposal. PI-12.1. Financial asset monitoring The financial assets, namely, cash and cash equivalent in the bank, cash in hand (petty cash), and outstanding imprests are published annually in the AFS. However, there are no up-to-date records on imprests and arrears. The score is C. PI-12.2. Nonfinancial asset monitoring The Baringo County Government maintains a record of assets (especially purchased goods for office use) and buildings from FY2013/14 to FY2016/17. However, records on land owned by the county are incomplete. There are no records for subsoil assets. The county does not maintain an asset register although it has a record of recently acquired assets such as vehicles. Failure of handover of assets by the defunct local authorities has been a hindrance to effective monitoring of the assets inherited from the same. The county has many redundant, old, and unusable assets and had to hire premises to keep in some of these assets that are due for disposal. Table 3.6 provides a list of nonfinancial assets belonging to Baringo County. The score is D. 31 Table 3.6: Categories of nonfinancial assets - FY2013/14 to FY2015/16 Where Categories Subcategories Comments captured Fixed assets Buildings and structures County assets The information about buildings and structure database is incomplete. Machinery and County Assets The age and model of machinery including ICT equipment (purchased database equipment are indicated but not the current goods) market value. Other fixed assets County Assets n.a. database Inventories — n.a. n.a. Valuables — Nonproduced Land County Assets The database is not complete due to assets database controversy with regard to land ownership in the county. Mineral and energy n.a. n.a. resources Other naturally occurring n.a. n.a. assets Intangible nonproduced n.a. n.a. assets Source: Baringo County asset database from the Assets Unit at the County Treasury. PI-12.3. Transparency of asset disposal There are established procedures and rules under the PPDA 2015 for the transfer or disposal of financial and nonfinancial that are defined at the national level. There are no supplementary procedures established by the subnational government on asset disposal. It was not reported if any assets have been disposed of during the assessment period. The county is working on a framework and policy to guide its disposal of assets hinged on the PPDA 2015 as part of reforms. There was no evidence of reports prepared by the county on asset disposal. Asset disposal is not included in any AFS of the county nor is the fact that there has been no disposal of assets recorded in any budget documents. The score is D. Summary of scores and performance table PI-12Public asset D+ Brief justification for score management (M2) 12.1 Financial asset C The financial assets available include cash and cash equivalent in the monitoring bank, petty cash, and outstanding imprests. There are no up-to-date records. Currently, there are no bonds, securities, receivables, sovereign wealth funds, equity in county-owned corporations, or private institutions. 12.2 Nonfinancial asset D The record of nonfinancial assets is well maintained, especially for monitoring purchased goods and buildings. However, land record is not clear due to controversy of ownership of certain parcels of land. The assets register does not contain age. 12.3 Transparency of asset D The county has not disposed of any assets and this is not reflected in disposal budget documentation. 32 PI-13. Debt management This indicator assesses the management of domestic and foreign debt and guarantees. It seeks to establish whether satisfactory management practices, records, and controls are in place to ensure efficient and effective arrangements. Section 123 of the PFM Act, 2012, requires county governments to develop a debt management strategy. PI-13.1. Recording and reporting of debt and guarantees Counties are allowed to borrow domestically or externally by Article 212 of the Constitution and under Section 140 of the PFM Act, 2012. Borrowing framework is anchored in County PFM Regulation, 2015 (176–196). In addition, Section 140 (d) of the PFM Act, 2012, requires county governments to develop a debt management strategy. A borrowing framework exists, but there is currently an administrative moratorium on county borrowing. The Baringo County Government does not have domestic and foreign debts since the county became operational. About K Sh 2.9 million was allocated and approved in the Supplementary Budget for 2016/17 to service debt. However, inherited debt is not recognized because the handover was not done properly according to the county government. The county governments were not allowed to borrow during the time of the assessment, and hence there were no debt records. The score is D. PI-13.2. Approval of debt and guarantees According to Article 212 of the Constitution on PFM and devolution, county governments are allowed to borrow only if (a) guaranteed by the national government and (b) approved by the County Assembly. According to Article 213 of the Constitution, guarantees by the national government must adhere to the following: • Parliament to enact a law and prescribe how the national government may guarantee loans • Within two months after the end of a fiscal year, the national government to publish a report on all guarantees issued during past year As mentioned earlier, the county has a draft debt management strategy that is yet to be approved by the County Assembly and there are no policies and procedures to provide guidance for undertaking borrowing. Even though the Constitution allows the counties to borrow, the National Treasury had barred the counties from borrowing until after the August 2017 general elections. External borrowing must be approved and guaranteed by the National Treasury. The counties are not allowed to borrow, and therefore this dimension is not applicable. PI-13.3. Debt management strategy The draft debt management strategy has been developed but has not been approved by the County Assembly. The strategy also does not include a risk indicator such as foreign currency risks. The score is D. 33 Summary of scores and performance table PI-13 Debt management (M2) D Brief justification for score 13.1 Recording and reporting of D The Baringo County Government does not have domestic and foreign debt and guarantees debts. Debt is not recorded and not reported in the financial statement. Inherited debt appears in the pending bill (payment to contractors), which is now more than four years old and is cleared as of year-end. Debt management function has not been established. 13.2 Approval of debt and n.a. There is a moratorium on borrowing and majority of the debt guarantees emanates from expenditure arrears. 13.3 Debt management strategy D The draft debt management strategy does not include risk indicator such as foreign currency risks. The strategy is yet to be approved by the Baringo County Assembly. 3.4 Pillar IV. Policy-based fiscal strategy and budgeting Budgets and fiscal strategies should be prepared with due regard to government policies, strategic plans, and adequate macroeconomic and fiscal projections. There are five indicators under this pillar: macroeconomic and fiscal forecasting, fiscal strategy, medium-term perspective in expenditure budgeting, budget preparation process, and legislative scrutiny of budgets. PI-14. Macroeconomic and fiscal forecasting This indicator measures the ability of a county to develop robust macroeconomic and fiscal forecasts, which are crucial to developing a sustainable fiscal strategy and ensuring greater predictability of budget allocations. It also assesses the government’s capacity to estimate the fiscal impact of potential changes in economic circumstances. PI-14.1. Macroeconomic forecasts Section 117 (2) of the PFM Act, 2012, provides that the County Treasury shall align its CFSP with the national objectives in the BPS. In addition, Section 118 (2) (b) requires that the County Treasury specifies, in its CBROP, the updated economic and financial forecasts that show changes from the forecasts in the most recent CFSP. The CFSP should be presented to the County Assembly by February 28 of the budget year. Section 117 (6) of the PFM Act states that the County Assembly should consider the CFSP in 14 days and may adopt it with or without amendments. Further, the County Treasury shall publish and publicize the CFSP after its submission in the County Assembly (Section 117 (8) of the PFM Act). The county uses the national forecasts adopted from the BPS. Both the CFSP and CBROP only provide an overview of the national economic outlook for the main macroeconomic variables but do not provide macroeconomic forecasts. The CFSP includes a brief outlook on key macroeconomic indicators covering the pervious and current years, whereas the CBROP provides a review of the budget year and projections for the two following years. The score is C. PI-14.2. Fiscal forecasts The county prepares both revenue and expenditure forecasts for the budget year and the two following years. The county does not provide different scenarios based on different assumptions. Regarding the own source revenue, the county’s projections have been realistic except for FY2013/14. The county generally projects its revenue streams by an arbitrary figure of 5 percent annually. The forecasts for the 34 equitable share and the conditional grants are provided by the national government in the BPS. The score is C. PI-14.3. Macro fiscal sensitivity analysis The county does not prepare fiscal forecast scenarios. This is because it has not set up the macro working group that prepares the county-specific macroeconomic framework. The score is D. Summary of scores and performance table PI-14 Macroeconomic and fiscal D+ Brief justification for score forecasting (M2) 14.1 Macroeconomic forecasts C The County Treasury has no capacity and data to prepare macroeconomic forecasting. It adopts the macroeconomic indicators from the national government which guide the preparation of the CBROP, CFSP, and budget estimates. The county government uses the national government forecasts of key macro indicators for the budget year and the two following years. 14.2 Fiscal forecasts C The county prepares the expenditure and revenue forecasts as indicated in the CFSPs and budgets but does not provide assumptions. 14.3 Macro fiscal sensitivity D The county does not carry out any sensitivity analysis in relation analysis to own source revenue. PI-15. Fiscal strategy This indicator provides an analysis of the capacity to develop and implement a clear fiscal strategy. It also measures the ability to develop and assess the fiscal impact of revenue and expenditure policy proposals that support the achievement of the government’s fiscal goals. PI-15.1. Fiscal impact of policy proposals Section 132 (3) (c) (e) of the PFM Act, 2012, stipulates that any recommendation on revenue matters should consider the impact of the proposed changes on the composition of tax revenue and the impact on development, investment, employment, and economic growth. The CEC member for Finance prepares the fiscal policy proposals and submits to the County Assembly. Fiscal impacts of policy proposals should be documented in the CFSP and CBROP, but they are not incorporated. No fiscal impact analysis is carried out. The score is D. PI-15.2. Fiscal strategy adoption The county has adopted and submitted to the legislature a current fiscal strategy that includes quantitative or qualitative fiscal objectives that are time based. The CFSP captures the budget year and two subsequent fiscal years. The strategies are published on the county website. The score is A. PI-15.3. Reporting on fiscal outcomes According to the PFM Act, 2012 (section 118), county governments should prepare the CBROP, which presents the recent economic developments and actual fiscal performance and provides an overview of 35 how objectives related to the actual performance. The CBROP should also include reasons for any deviation from the financial objectives in the CFSP together with proposals to address the deviation and the time it would take to address the deviations. The county prepares the CBROPs annually stating the deviation from the financial objectives set in the CFSP, but without providing the reasons or proposals to address the deviation. The CBROP is submitted to the County Assembly together with the budget. In summary, the government has submitted to the legislature along with the annual budget a report that describes progress made against its fiscal strategy, but it does not set out specific initiatives to improve the fiscal outcomes. The score is C. In terms of reforms, the National Treasury has provided for in-year reporting, especially on finances, that has helped the county improve the quality of financial reporting. The county has identified champions from each department who assist the departments with reporting; however, the champions need capacity building to help them improve the quality of reporting. Summary of scores and performance table PI-15 Fiscal strategy (M2) C+ Brief justification for score 15.1 Fiscal impact of policy D The county does not present fiscal impacts of different policy proposals. proposals 15.2 Fiscal strategy A The County Assembly adopted the CFSP for 2015/16 with quantitative fiscal adoption goals that are time based and are available on the county website. The CFSP shows the current fiscal year and two subsequent fiscal years. 15.3 Reporting on fiscal C The county prepares the CBROPs showing the deviation from the set outcomes targets in the CFSP. It is submitted together with the budget to the County Assembly. The CBROP does not provide specific action plan to address the deviations but generic recommendations. PI-16. Medium-term perspective in expenditure budgeting This indicator examines the extent to which expenditure budgets are developed for the medium term within explicit medium-term budget expenditure ceilings. It also examines the extent to which annual budgets are derived from medium-term estimates and the degree of alignment between medium-term budget estimates and strategic plans. PI-16.1. Medium-term expenditure estimates The CFSP provides estimates for two consecutive years presented by function. The CBROP (submitted to the County Assembly for FY2016/17) reviews the actual fiscal performance of the financial year and makes comparison to the budget allocation of the same year providing assumption for the fiscal performance in the next financial year. The score is C. PI-16.2. Medium-term expenditure ceilings MTEF expenditure ceilings are not submitted together with the budget circular. The ceilings are firmed up at the point where the CFSP is approved. The ceilings of the county government are set by the County Treasury considering the submissions of the departmental needs for a given budget. The projections for the two subsequent years are not necessarily consistent with the approved budget. The projections of the conditional and unconditional transfers are provided by the national government in the BPS and firmed 36 up when the Division of Revenue Bill and the County Allocation of Revenue Bill are submitted to the County Assembly for approval. The PBB prepared by the CEC member in charge of Finance for FY2016/17 only captures the current budget and does not include the following two years. The score is D. PI-16.3. Alignment of strategic plans and medium-term budgets The county government of Baringo is guided by the CIDP that is the overarching policy guiding the programs and projects being implemented. The departments draw their programs and projects on an annual basis from the CIDP to make an ADP that is usually finalized by August each year. The majority of the departments provide costed submissions to the County Treasury when compiling the ADPs. However, according to the County Treasury officials, new projects are started before the old ones are completed, leading to the risk of thinly spreading the funds to many projects. Evidences include the CIDP, ADP, PBB, and costed submissions from MDAs. The score is D. PI-16.4. Consistency of budgets with the previous year’s estimates From the documents provided, there are variations from the forecasted estimates and the final approved budgets. The county analyzes the overall budget of the last medium-term budget and the first year of the current medium-term budget at the aggregate level. This is shown in the CBROP, CFSP, and the budget estimates provided. The county does not provide explanations of the deviations where they are large. The score is D. Summary of scores and performance table PI-16 Medium-term perspective in D+ Brief justification for score expenditure budgeting (M2) 16.1 Medium-term expenditure C The budget estimates have the budget year and two estimates subsequent fiscal years allocated by economic and functional classification. 16.2 Medium-term expenditure ceilings D MTEF expenditure ceilings are not submitted together with the budget circular. The ceilings are firmed up at the CFSP level. 16.3 Alignment of strategic plans and D The county prepared ADPs and PBBs, but there were no medium-term budgets medium-term strategic plans. 16.4 Consistency of budgets with the D The county does not analyze the overall budget of the last previous year’s estimates medium-term budget and the first year of the current medium-term budget at the aggregate level. There is no consistency between estimates for overlapping MTEF periods. PI-17. Budget preparation process This indicator measures the effectiveness of participation by relevant stakeholders in the budget preparation process, including political leadership, and whether that participation is orderly and timely. PI-17.1 Budget calendar The budget calendar starts when National Treasury issues the BPS. According to Section 25 of the PFM Act, 2012, the National Treasury is required to submit the BPS to Parliament, by February 15 each year. The budget guidelines issued by the County Treasury largely mirrors the national government circular. It has been reported that the majority of the departments adhered to the time lines. However, the budget 37 calendar has not been provided. It is not possible to compare deadlines as per the PFM Act, 2012, and actual dates of the budget circular, CFSP, CBROP, debt management strategy, and county budget for the last FY. Evidence was not provided, and therefore the score is D*. PI-17.2 Guidance on budget preparation The County Treasury issued the budget circular on August 26, 2015, as per Section 128 of the PFM Act, 2012, which requires the CEC member for finance to set out the guidelines not later than August 30 each year. The circular gives detailed guidelines on how to prepare the budget. It is issued to the budget entities immediately after deliberation by the CEC member for finance. However, the guidelines do not provide ceilings to the departments. The score is D. PI-17.3 Budget submission to the legislature All the budgets for the last three fiscal years were submitted to the County Assembly and approved as per the time lines given in the budget circulars, as evidenced in the transmittal letters provided. The budget estimates for FY2015/16 were submitted on April 30, 2015, and meets the PFM Act, 2012, requirement. The budget for FY2014/15 was submitted on April 29, 2014. The county has not provided evidence when the budget for FY2013/14 was submitted. The County Treasury has attached economists to each department to assist them in policy making and budgeting. This has actually improved the quality of the MTEF reports submissions by the departments. The submission date for the first year of the assessment was not provided, and therefore the score is C. Summary of scores and performance table PI-17 Budget preparation D+ Brief justification for score process (M2) 17.1 Budget calendar D* The county issues a budget calendar at the beginning of every budget cycle as required by the Constitution and the PFM Act. The county has not provided a copy of the budget calendar. 17.2 Guidance on budget D The circulars give detailed guidelines to the departments on how to preparation prepare the MTEF reports and the PBB. However, there are no ceilings in the budget circulars. 17.3 Budget submission to C The budgets for 2 of the 3 fiscal years were submitted by the County the legislature Treasury to the County Assembly by April 30 of each FY. Evidence of the submission date has not been provided for FY2013/14. PI-18. Legislative scrutiny of budgets This indicator assesses the nature and extent of legislative scrutiny of the annual budget. It considers the extent to which the legislature scrutinizes, debates, and approves the annual budget, including the extent to which the legislature’s procedures for scrutiny are well established and adhered to. The indicator also assesses the existence of rules for in-year amendments to the budget without ex ante approval by the legislature. PI-18.1. Scope of budget scrutiny The County Assembly scrutinizes the budget policy documents, that is, the CFSP, CBROP, and detailed MTEF budget estimates in accordance with the PFM Act, 2012. These documents cover fiscal policies 38 (including revenue and expenditure estimates), medium-term fiscal forecasts, and medium-term priorities. The County Assembly checks the policy documents following the MTEF period covering the revenues and expenditures. However, the revenues have been having challenges in meeting the targets. The County Assembly departmental committees prepare their reports, which are then submitted to the Budget Committee for compilation and considerations. The score is A PI-18.2. Legislative procedures for budget scrutiny The Budget Committee reviews the budget proposals following the PFM Act, Section 1. The County Assembly does not have specific guidelines to follow other than the standing orders of the respective committees. The Budget and Appropriations Committee of the County Assembly is mandated with the overall responsibility to drive the process of the budget scrutiny. When the Budget Committee receives the budget, it is then forwarded to the respective departmental committee to scrutinize and give recommendations to the Budget Committee that will compile all the recommendations from all departmental committees. This is evidenced by the Budget Committee reports provided. The Baringo Public Participation Act, 2015, has been passed to guide the public participation exercise. The county has not developed the guidelines for the public participation yet. The score is C. PI-18.3. Timing of budget approval The County Assembly approved the budgets on the following dates: • FY2013/14: September 3, 2013 • FY2014/15: no data provided • FY2015/16: June 23, 2015 There were challenges in implementing the FY2013/14 budget due to conflicts between the County Assembly and the County Executive. The budget was approved in September with amendments. In two of the assessed years, the budget was not approved on time, and the score is D. PI-18.4. Rules for budget adjustments by the executive The County Assembly has not developed any guidelines on budget adjustments. Rules are provided for by the PFM Act, 2012, (135) and (154) and the PFM Regulations 2015 and they have been applied during FY2015/16 when the county government made only one Supplementary Budget. The existing rules provide for administrative reallocation and expansion of expenditure. The score is C. Summary of scores and performance table PI-18 Legislative scrutiny D+ Brief justification for score of budgets (M1) 18.1 Scope of budget A The County Assembly scrutinizes the budget to check its consistence with the scrutiny CIDP, ADP, and CFSP, which include budgetary priorities and medium-term revenue and expenditure estimates and forecasts. 18.2 Legislative C The County Assembly committees are guided by the standing committee rules procedures for budget for budget scrutiny that are adhered to. There is no record of public scrutiny participation. 39 18.3 Timing of budget D The budget was approved on time in only one of the fiscal years assessed. approval 18.4 Rules for budget C Clear rules exist as per the PFM Act, 2012, and they allow administrative adjustments by the reallocation and expansion of expenditures. executive 3.5 Pillar V. Predictability and control in budget execution Indicators of this pillar measure whether the budget is implemented within a system of effective standards, processes, and internal controls, ensuring that resources are obtained and used as intended. There are eight indicators under this pillar: revenue administration, accounting for revenue, predictability of in-year resource allocation, expenditure arrears, payroll controls, procurement, internal control on non-salary expenditure, and internal audit. PI-19. Revenue administration This indicator relates to the entities that administer county government revenues, which may include tax administration, customs administration, and social security contribution administration. It also covers agencies administering revenues from other significant sources such as natural resources extraction. These may include public enterprises that operate as regulators and holding companies for government interests. In such cases, the assessment will require information to be collected from entities outside the government sector. The indicator assesses the procedures used to collect and monitor county government revenues. PI-19.1. Rights and obligations for revenue measures Revenue administration and collection for the Baringo County Government is undertaken by the Revenue Unit which falls under the Finance and Economic Planning Sector of the County. The streams of revenue and the applicable rates are supported by the County Finance Act that is passed annually. The revenue collectors disseminate tax revenue information to taxpayers in accordance with the Baringo County Finance Act 2015. The county government does not provide additional comprehensive information in relation to the obligation of taxpayers. Taxpayers who have complaints channel them to the subcounty revenue officers, and if the complaints are not satisfactorily addressed, they are escalated to the head of revenue at the county headquarters. If the complaints are not addressed, taxpayers can appeal to the Chief Officer, Finance and Economic Planning, which is the final avenue of redress. However, there is no independent body/committee to address tax-related complaints. Therefore, the score is D. The table below presents revenue details for FY2015/16. The revenue of the county is collected mostly at the cash points of the county administration. 40 Revenue stream Amount 1 Sales of agricultural goods 65,921,984.00 2 Rents 16,744,873.00 3 Other property income 1,158,190.00 4 Sales of market establishments 37,215,442.00 5 Receipts from administrative fees and charges 38,098,248.00 6 Receipts from administrative fees and charges 2,893,400.00 7 Receipts from sales by nonmarket establishments — 8 Receipts from veterinary services 3,930,042.00 9 Receipts from hospital revenue 69,475,982.00 10 Other receipts not classified elsewhere 46,431,538.29 TOTAL 281,869,699 Source: Audited AFS 2015/16. PI-19.2. Revenue risk management The County Revenue Unit has not put in place a comprehensive, structured, and systematic approach for assessing and prioritizing compliance risks. Classification of taxpayers into small, medium, and large payer categories to effectively and efficiently facilitate prioritization of compliance risks and mitigation measures has also not been done. The county has, however, automated revenue collection, which has helped in improving revenue collection. All revenue collectors are issued with point of sale (PoS) machines. In the field when money is received in cash or by check, the collector captures the details of the payers and the revenue type in the machine. A receipt is generated by the machine and the transaction is also transmitted to the immediate supervisor and the head of revenue at the county headquarter. There is no system to prioritize revenue-related risks, and therefore the score is D. PI-19.3. Revenue audit and investigation The County Revenue Unit has not put in place audit and fraud investigation systems documented in a compliance improvement plan. It is, therefore, not easy to identify risks and follow up to minimize revenue leakages. Further, no audits have been performed at the Revenue Unit. However, revenue audits are included in the annual audits of the entire county carried out by the Internal Audit Unit and the external auditors. The score is D. PI-19.4. Revenue arrears monitoring In the context of the Baringo County Government, revenue arrears refer to revenue payable to the county but still outstanding at the end of a financial year. Revenue arrears are presented by revenue type such as property rates arrears but not according to the length of time these rates have been in arrears. The stock of revenue arrears at the end of FY2015/16 was K Sh 64,575,672. According to 2015/16 financial statements, total own revenue for the year amounted to K Sh 281,869,699. Thus, the percentage of revenue arrears to total own revenue was 23 percent. Out of the outstanding arrears of K Sh 64,575,672, K Sh 52,723,541 was outstanding for over 12 months. Consequently, the percentage of arrears over 12 months to the total arrears was 82 percent. These arrears date from the time the subnational structure came to existence and include inherited arrears from the defunct local authorities. The score is D. Some reform initiatives by the county include the development of a framework to roll out civic education to all residents on their rights and obligations as tax/revenue payers and the obligations of the county 41 government with the revenue collected. The county is also planning to go cashless as far as revenue collection is concerned. Summary of scores and performance table PI-19 Revenue administration (M2) D Brief justification for score 19.1 Rights and obligations for D Apart from the information from the Finance Act, the county does revenue measures not use other channels to provide payers with easy access to comprehensive and up-to-date information on the main obligations revenue, and procedure. Further, the county has not put in place a redress system to deal with complaints, compliments, and appeal. 19.2 Revenue risk management D The County Revenue Unit has not put in place a comprehensive, structured, and systematic approach for assessing and prioritizing compliance risks. 19.3 Revenue audit and D The county government has not put in place an independent body to investigation carry out revenue audits and fraud investigations. 19.4 Revenue arrears monitoring D The percentage of stock of revenue arrears at the end of FY2015/16 to total own revenue is 23%. The rate of arrears over 12 months to the total arrears is 82%. PI-20. Accounting for revenue This indicator assesses procedures for recording and reporting revenue collections, consolidating revenues collected, and reconciling tax revenue accounts. It covers both tax and nontax revenues collected by the county government. PI-20.1. Information on revenue collections All county revenue from various sources is collected using PoS machines. As collection takes place and data is captured in the machine, the transactions are transmitted such that the head of the Revenue Unit at the Finance and Economic Planning Department can view the transactions at the headquarters. At the end of the day, subcounty revenue officers prepare revenue reports and submit them to the head of the Revenue Unit. The subcounty reports are then consolidated on a monthly basis. The daily and monthly reports are then categorized into revenue types. The reports are prepared as per the revenue types in the annual budgets. Revenue data is compiled on a monthly basis. Monthly revenue reports were provided by the officers during the field work. A typical monthly report provides (a) all groups of revenue type for the respective subcounty, (b) the target revenue amount, (c) the actual collected revenue for the period, and (d) percentage of actual against the target. This is provided from the County Revenue Officer to the Chief Officer Treasury. A monthly reconciliation for January 2017 has been reviewed with revenue locations (11 sub counties) and revenue sources (for example, game park fees, market fees, plot rents) for a total amount of actual collected revenue of K Sh 24,063,143 and 75 percent realization. The report was dated February 14, 2017. This information justifies a score A. The head of the Revenue Unit has set up a team to review previous weaknesses and embark on reconciliations of revenue collections, arrears, and transfers to Treasury-controlled accounts. The team will be required to ensure that the reconciliations are up-to-date. PI-20.2. Transfer of revenue collections 42 Revenue collected from various sources is banked on a daily basis and banking slips surrendered to the Revenue Office at the headquarters. Reconciliations between collections and banking are carried out at the end of the month to establish any discrepancy. All revenue collections in various banks are swept in the County Revenue Fund account held at the CBK once every month. The taxpayers pay their revenue obligations directly at the county administration cash points as well as to the county bank accounts. The score is A. PI-20.3. Revenue accounts reconciliation Though it was indicated that revenue reconciliations to Treasury controlled account are carried out monthly, the evidence provided in the form of revenue reconciliation statement did not demonstrate adequate revenue administration in terms of assessments, collections, arrears, and transfers. The evidence was not reliable, and therefore the score is D. Summary of scores and performance table PI-20 Accounting for revenue (M1) D+ Brief justification for score 20.1 Information on revenue A Information on revenue collection is obtained on a monthly basis collections from entities collecting all county revenue. This information is broken down by revenue type and source. 20.2 Transfer of revenue collections A Revenue collected from various sources is banked on a daily basis and reconciliations between collections and banking are carried out at the end of the month. Once every month, all collections in various banks are swept in the County Revenue Fund account at the CBK. 20.3 Revenue accounts reconciliation D The evidence provided did not meet the conditions for revenue account reconciliation in terms of assessments, collections, arrears, and transfers. PI-21. Predictability of in-year resource allocation This indicator assesses the extent to which the central Department of Finance is able to forecast cash commitments and requirements and provide reliable information on the availability of funds to budgetary units for service delivery. PI-21.1. Consolidation of cash balances Section 109 (2) of the PFM Act, 2012, stipulates that each county government shall ensure that all monies raised or received by or on behalf of the county government shall be paid into the County Revenue Fund. Baringo County operates a County Revenue Fund account at the CBK in accordance with the PFM Act, 2012. Revenue collections in all the accounts of the county are consolidated and transferred on a monthly basis to the County Revenue Fund account. However, evidence was not provided to support this. Both the national and county governments do not operate a TSA. Not all 42 bank accounts are at the CBK. The county has 17 accounts at commercial banks, which are consolidated on a monthly basis through bank reconciliation statements. The score is C PI-21.2. Cash forecasting and monitoring Section 120 of the PFM Act, 2012, provides for the management of cash at the county level. A County Treasury shall manage its cash within a framework established by the County Assembly. Every county 43 government entity is required to prepare and submit an Annual Cash Flow Plan under the direction of the County Treasury with a copy to the CoB. The county prepared cash flow forecast for FY2015/16 in compliance with Section 120 (2) of the PFM Act, 2012. No significant updates were made to the cash flow forecast since they were prepared based on realistic revenue projections and expenditure projections supporting the cash inflows. The score is C. PI-21.3. Information on commitment ceilings All budgetary units in the county are able to plan and commit their expenditure for at least six months within each fiscal year. This is made possible because the county prepares annual cash flow forecasts based on realistic revenue and expenditure projections. Through the Vote on Account, the departments are able to enter into spending commitments in the beginning of the year, aggregate limits being 50 percent of the proposed budget (Section 134 of PFM Act, 2012) and PFM Regulations 43 and 44. The budgetary units are provided with reliable information on the actual resources available for commitments. The information is usually gazetted: projection as in the CFSP and the actual requisitions. The budgetary units are able to plan and commit expenditures in accordance with budget appropriations. The score is A. PI-21.4. Significance of in-year budget adjustments During FY2015/16, the county government made only one Supplementary Budget as confirmed in the meetings and per documents provided. Even though the county has not come up with regulations and guidelines, the process of preparations and approval of the Supplementary Budget were done in accordance with Section 135 of the PFM Act, 2012. In-year budget adjustment has been captured in the financial statements provided for FY2015/16. The size of the budget adjustments in the last fiscal year 2015/16 for both recurrent and development expenditure is K Sh 110,514,895 (about 2 percent of the original budget). Generally, all in-year adjustments are gathered in the county’s Supplementary Budget submitted to the County Assembly for approval. The Supplementary Budget is a request for approval of anticipated reallocations. Reallocations do not occur before the County Assembly approves the Supplementary Budget. The score is B. Summary of scores and performance table PI-21 Predictability of in-year B Brief justification for score resource allocation (M2) 21.1 Consolidation of cash C The county consolidates most of its cash balances on a monthly basis balances through bank reconciliation statements. 21.2 Cash forecasting and C Cash flows are prepared annually for the fiscal year. Cash flow monitoring projections are not updated on the basis of actual cash inflows and outflows. 21.3 Information on commitment A Budgetary units plan and commit expenditure for at least 6 months in ceilings advance based on the budgeted appropriations 21.4 Significance of in-year B During FY2015/16, the county government made only 1 budget adjustments Supplementary Budget, which was done fairly transparently, having been subjected to approval by the County Assembly. 44 PI-22. Expenditure arrears This indicator measures the extent to which there is a stock of arrears and the extent to which a systemic problem in this regard is being addressed and brought under control. It contains two dimensions: stock of expenditure arrears and expenditure arrears monitoring. PI-22.1. Stock of expenditure arrears There is no specific legal framework on expenditure arrears. At close of FY2013/14, FY2014/15, and FY2015/16, the county had expenditure arrears amounting to K Sh 406,393,880, K Sh 174,023,700, and K Sh 184,522,541, respectively. Total expenditure at close of the three financial years was K Sh 282,634,271, K Sh 4,013,402,477, and K Sh 4,804,201,934, respectively. The IFMIS does not analyze payments, legal and contractual payment deadlines, and invoices, including suspensions and rejections. Reports on expenditure arrears are prepared manually from other underlying accounting records. The reports are prepared by the accountant in charge of financial reporting. The percentage of stock arrears to total expenditure for FY2013/14, FY2014/15, and FY2015/16 is 14 percent, 4 percent, and 4 percent, respectively. The expenditure arrears include arrears on works, goods, and services payable to various contractors and suppliers. The deadline for payment for each supplier or contractor is provided in the individual contracts signed between the suppliers and contractors and the county. The score is B. PI-22.2. Expenditure arrears monitoring The county government prepares expenditure arrears that include the consolidated balance and composition at the end of every financial year for incorporation in the annual financial reports. This has been done consistently as evidenced by disclosures in the AFS and supporting schedules for the last three completed financial years. The generation of data on the stock and composition of expenditure arrears is performed at the end of each fiscal year during the preparation of the AFS. The reports are, however, not prepared on a quarterly basis to facilitate effective monitoring of the arrears but generated once in a year. A report for FY2015/16 on expenditure arrears has been provided, indicating stock and composition but no age profiles. The score is C. Summary of scores and performance table PI-22 Expenditure arrears C+ Brief justification for score (M1) 22.1 Stock of expenditure B Percentage of stock of expenditure arrears to total expenditure for the last 3 arrears financial years (2013/14, 2014/15, and 2015/16) is 14%, 4%, and 4%, respectively. Out of the 3 financial years, the percentage of arrears to total expenditure is less than 6% for 2 financial years. 22.2 Expenditure arrears C The county government prepares expenditure arrears that include the monitoring consolidated balance and composition at the end of every financial year for incorporation in the annual financial reports. The reports are, however, not prepared on a quarterly basis to facilitate effective monitoring of the arrears and do not cover age analysis. 45 PI-23. Payroll controls This indicator is concerned with the payroll for public servants only: how it is managed, how changes are handled, and how consistency with personnel records management is achieved. Wages for casual labor and discretionary allowances that do not form part of the payroll system are included in the assessment of non-salary internal controls, PI-25. PI-23.1. Integration of payroll and personnel records The county government uses the IPPD management system that is used by the national government. The IPPD system is managed by the Department of Personnel Management of the national government and the Human Resource Unit of the Baringo County Government. However, the IPPD system is not integrated into the IFMIS that has the budget module. All changes affecting payroll are effected monthly and checked against the previous month’s payroll data. Further, staff recruitment is informed by the approved establishment. Approved establishment refers to the optimal staff numbers (levels) for all units of the county departments. This is determined by the departments in charge of County Public Service. No department of the county can employ beyond the approved establishment. The score is B. PI-23.2. Management of payroll changes According to the head of human resource, changes to personnel records and payroll are supported by documentation from various authoring officials. Payroll is usually closed on the 12th of every month. Adjustment instructions received after the 12th are therefore effected in the following month’s payroll. Changes to personnel records and payroll are updated on a monthly basis and in time for the following month’s payments. In a sampled case, the Public Service Board promoted 57 health staff vide memo Ref. BPSB/IM/193/16, dated August 24, 2016. Comparison of three of the promoted staff confirmed that the changes were effected within one month, as evidenced by their respective August and September 2016 pay slips. At the time of assessment, payroll data for February and March 2017 indicated total expenditure of K Sh 164,549,772 and Ksh 164,598,585, respectively. Salary arrears for February and March 2017 were K Sh 2,429,180 and Ksh 2,922,903, respectively. Therefore, the percentage of arrears to the gross salary for the two months is 1.5 percent and 1.8 percent, respectively. There are amendments occasioned by changes to employee status, such as promotions. Amendments that result in salary changes are reflected in the following month’s payroll summary. Every IPPD manager prepares a report to explain the cause of salary variations from the previous month’s salary. The above justifies score A. PI-23.3. Internal control of payroll Authorization of records and payroll changes is restricted to the County Secretary based on approved authority from the County Public Service Board. Changes are only effected by the County Secretary, acting on instructions from the Public Service Board. All changes must be supported by documents from the Public Service Board. Any salary adjustments arising from the changes must be explained in the following month’s payroll summary. Audit trail in the form of manual documents was available and verified during the assessment. At the county level, a clear audit trail in the form of log queries cannot be generated from the IPPD. This was because the system administrator is based at the national government level (Department of Personnel Management). It may therefore be necessary to have administrator access rights to the system at the county level to facilitate generation of IPPD log reports. The score is A. 46 PI-23.4. Payroll audit During the last three completed financial years, payroll audit was carried out only once. The audit was carried out by the Internal Audit Unit during FY2014/15 as per the report dated February 10, 2015. The report covered all the departments of the county government from July 1, 2014 to December 31, 2014. The audit involved examination of manual payroll records and interviews with key payroll staff. The audit revealed various weaknesses as indicated in the report and made recommendations to address the weaknesses. However, it could not be established at the time of the assessment the actions taken by the management since response to the audit report was not availed. The Human Resource Unit has made a proposal to acquire human resources information system (HRIS) to enhance efficiency in its operations as part of reforms. This proposal has, however, not been implemented due to budgetary constraints. The score is B. Summary of scores and performance table PI-23 Payroll controls B+ Brief justification for score (M1) 23.1 Integration of B The county government uses the IPPD management system similar to the system payroll and personnel used by the national government. It integrates personnel database and payroll. records However, the IPPD is not integrated into the IFMIS that has the budget module. 23.2 Management of A Changes to personnel records and payroll are updated on a monthly basis and in payroll changes time for the following month’s payments. Documentation on sampled cases confirmed that in most the cases the process is completed within 1 month. 23.3 Internal control A Authorization of changes to personnel records is restricted to the County of payroll Secretary supported by the documented approval from the Public Service Board. Payroll changes are authorized by the head of human resource acting on approvals from the Public Service Board. 23.4 Payroll audit B During the last 3 completed financial years, payroll audit was carried only once. The audit was carried out during FY2014/15 as per the report dated February 10, 2015. The report covered all the departments of the county government. PI-24. Procurement This indicator examines key aspects of procurement management. It focuses on transparency of arrangements, emphasis on open and competitive procedures, monitoring of procurement results, and access to appeal and redress arrangements. PI-24.1. Procurement monitoring Section 68 of the PPDA 2015, requires the accounting officer of the procuring entity to keep procurement records. Evidence of procurement monitoring records was provided in the document ‘Table 1: List of contracts signed and completed during the period 2015–2016 for the County of Baringo’. The procurement record maintained provides complete data and covers the following details: (a) procurement method; (b) category (work, service, goods); (c) description of contract; (d) value; (e) contract signature date and contract completion date; and (f) supplier/contractor. A detailed procurement plan has also been provided by function/ministry covering sub counties and towns as well. The Baringo County Government had prepared an annual procurement report for FY2015/16 that has details on items procured, value of procurement, name of supplier/contractor that has been awarded, 47 procurement methods, and nature of contract. However, the report did not include all data on goods consumed by the County Executive to ascertain the accuracy and completeness for all procurement methods for goods. Besides, the OAG report has found that there are development expenditure projects where payment has been made but work was stalled, for example, (a) a project for construction of laboratories at school with the Ministry of Education and ICT and (b) Kabarnet Dumpsite—qualified as idle project with the Ministry of Agriculture, Livestock, and Fisheries. The score is B. PI-24.2. Procurement methods Section 92 of the PPDA 2015, provides for procurement methods that include open tender, two-stage tendering, design competition, restricted tendering, direct procurement, request for quotations (RFQ), electronic reverse auction, low-value procurement, force account, competitive negotiations, request for proposals (RFP), framework agreements, and any other procurement method and procedure as prescribed in regulations and described in the tender documents. According to the annual procurement report, Baringo County used five procurement methods: (a) open tender, (b) RFP, (c) RFQ, (d) restricted tender, and (e) direct procurement. There was no information on the proportion of contracts procured by a competitive versus noncompetitive method. Therefore, the score is D*. Restricted tender is defined in Article 102 in the PPDA. This is usually a tender open to restricted prequalified tenderers. PI-24.3. Public access to procurement information Legal and regulatory framework for procurement: The county government, in an effort to make the underpinning legal framework available to the public, has conducted a number of sensitization workshops targeting all contractors in the county for FY2015/16. Further, the PPDA 2015 is available on the Public Procurement Regulatory Authority (PPRA) website. Government procurement plans: The county government prepared the 2015/16 procurement plan in line with the needs of each department. However, this plan was not made available to the public. Bidding opportunities were posted on the county government official website vide http://baringo.go.ke/index.php?option=com_content&view=article&id=3&Itemid=111. Further, these bidding opportunities were posted in leading print media and put on notices at strategic locations. Contract awards (purpose, contractor, and value): Although bidding opportunities were made public, successful and unsuccessful contractors were not made public with associated reasons. Data on resolution of procurement complaints: The county had not put in place a clear mechanism to resolve complaints. However, it was reported that no formal complaints had been forwarded to the county. Section 27 (1) creates a Public Procurement Administrative Review Board (PPARB) that is to address complaints brought to its attention from national and county governments. In the PPDA 2015, Section 167 provides for a redress mechanism for aggrieved procurement candidates or tenderers. Annual procurement statistics: Statistics from the market survey for products are not available. The procurement department indicated that plans were under way by the PPRA to conduct a regional market 48 survey that had delayed. However, the procurement department was considering conducting a county- specific market survey. Any procurement complaints are addressed through the PPARB. Data on resolution of procurement complaints are available on the website of the independent board, the Public Procurement Oversight Authority (PPOA). Clear guidelines on the process followed for any conflict are published and available on the website www.ppoa.go.ke. The decisions of the board are binding to all parties involved. The table below provides a summary on public access to procurement information in Baringo County. In summary, three of the key procurement information elements are complete and reliable for government units. However, it was not possible to ascertain the materiality showing for how many procurement operations this was true. The score is D*. Public access to procurement information Key procurement information to be made available to the public Compliance (1) Legal and regulatory framework for procurement Yes (2) Government procurement plans No (3) Bidding opportunities Yes (4) Contract awards (purpose, contractor, and value) No (5) Data on resolution of procurement complaints Yes (6) Annual procurement statistics No 24.4. Procurement complaints management Procurement complaints are addressed by the PPARB under the PPRA. This is an external higher authority that is not involved in the procurement process. Section 27 of the PPDA establishes an independent PPARB to ensure the proper and effective performance of the functions of the PPRA. There are clear guidelines on the process followed in case of complaints. The decisions of the PPARB are binding to all parties involved—ref to (6). The Procurement Regulations state that “a decision by the Review Board is binding on all parties concerned subject to judicial review where the parties so appeal.� There is a fee payable by the party filing complaints—ref to (2). The schedule of fees can be extracted from the Public Procurement and Disposal Regulations, 2013. However, it was observed that the complaints filed with the board are getting more and more each year, which may imply that the fee is not so material to prohibit access. The process for submission and resolution of complaints is clearly provided for in the PPDA (Section 27), which is publicly available. The PPARB exercises the authority to suspend the procurement process—ref to (4). The PPDA provides grounds for debarment of a person from participating in procurement or asset disposal proceedings. The decisions are issued within the time frame specified in rules—ref to (5): the PPDA requires the PPARB to make a decision within 30 days of the date of submission of an application for review. The PPARB report for FY2015/16 states that all cases filed were heard and determined within an average of 22.5 days. The score is A. Compliance of complaints reviewed by an independent body in accordance with the PEFA criteria is summarized in the table below. 49 Procurement complaints management Complaints are reviewed by a body which Compliance (1) Is not involved in any capacity in procurement transactions or in the process, leading to Yes contract award decisions (2) Does not charge fees that prohibit access by concerned parties Yes (3) Follows processes for submission and resolution of complaints that are clearly defined and Yes publicly available (4) Exercises the authority to suspend the procurement process Yes (5) Issues decisions within the time frame specified in the rules/regulations Yes (6) Issues decisions that are binding on every party (without precluding subsequent access to an Yes external higher authority) Some of the reform efforts by the county include the sensitization of contractors and the department on procurement procedures and the introduction of fueling cards and not bulk buying of fuel. Already, two departments, that is, Health and Agriculture and Livestock, have signed contracts with an oil dealer sourced competitively. Summary of scores and performance table PI-24 Procurement (M2) C+ Brief justification for score 24.1 Procurement monitoring B Comprehensive data is maintained on what has been procured, value, and procurement method for most procurement methods. 24.2 Procurement methods D* Over 80% of procurement has allegedly been done competitively. No evidence has been provided to support this information. 24.3 Public access to D* Only 3 of 6 elements were met by the county, but the materiality could procurement information not be ascertained. 24.4 Procurement complaints A The procurement complaint system meets all criteria. management PI-25. Internal controls on non-salary expenditure This indicator measures the effectiveness of general internal controls for non-salary expenditures. Specific expenditure controls on public service salaries are considered in PI-23. PI-25.1. Segregation of duties The county has a clear segregation of duties throughout the expenditure process. The responsibilities are clearly specified even though there is no standard operating procedure (SOP) for finance. The process is as follows: • Receipt of an invoice • Authority to incur expenditure (AIE) holders authorize payments • Authorization goes to vote book check to verify whether there are funds • Examination 50 • Commitment is made through the IFMIS • County Treasury • Co finance • Invoicing in the system • Validation • AIE holder • Validation • Payment • Internet banking where there are two levels of approval Documents for IFMIS rights and vouchers with different approvals were provided as evidence. The score is A. PI-25.2. Effectiveness of expenditure commitment controls The IFMIS does not allow commitment of funds where a vote does not have funds. Internet banking gives actual balance for utilization. This implies that payment cannot be made if there are no funds. Departments prepare procurement plans based on cash flow projections. Departments prepare quarterly work plans and quarterly and monthly cash flow projections. This is sufficient to effectively limit commitments to projected cash availability and approved budget allocations because once the budget is approved, it is uploaded in the IFMIS. Commitment controls exist when all county entities are prevented from incurring unauthorized commitments through system controls, regulations, and procedures. No evidence of unauthorized commitments was obtained. Priority payments are salaries and essential services including statutory deductions. The score is A. PI-25.3. Compliance with payment rules and procedures Generally, the county complies with the payment procedures having all transfers carried out through the IFMIS. All payment requisitions are made through a specific form that is sent to the financial control. The OAG report for FY2013/14 ascertained ‘unsupported compensation of employee expenses’; however, supporting documents had not been provided to calculate materiality. The FY2014/15 OAG report was with adverse opinion based on increased unbudgeted costs including those related to employees’ expenditures. Reliable evidence was not provided, and therefore the score is D*. 51 Summary of scores and performance table PI-25 Internal controls on non-salary expenditure B Brief justification for score (M2) 25.1 Segregation of A There is segregation of duties along the expenditure as evidenced by signed duties payment vouchers and right to the IFMIS and Internet banking. 25.2 Effectiveness of A The county government has a cash flow projection prepared for the whole expenditure commitment year guided by requisitions. Expenditure commitment controls exist limiting controls commitments to approved budget allocations for most types of expenditure. 25.3 Compliance with D* The majority of payments have been claimed to be compliant with regular payment rules and payment procedures. No data was provided to verify how many payments are procedures compliant with regular payment procedures. PI-26. Internal audit This indicator assesses the standards and procedures applied in internal audit. PI-26.1. Coverage of internal audit The legal framework defining the background for internal audit consists of Section 155 of the PFM Act, 2012, and PFM Regulation No. 153 of 2015 for the county governments. The PFM Regulation specifies the mandate of the internal auditors, which states the following: • Review and evaluate budgetary performance, financial management, transparency and accountability mechanisms and processes in county government entities, including the County Assembly • Have a duty to give reasonable assurance through the audit committee on the state of risk management, control, and governance within the organization • Review the effectiveness of the financial and nonfinancial performance management systems of the entities The County Internal Audit Department covers all the departments in the County Executive. The high-risk areas identified, for example, revenue and cash, cut across all the county departments. The percentage of the county entities that were subject to internal audit over the last three financial years has been reported to be 75 percent. However, no evidence has been provided to justify this calculation. Therefore, the score is D*. PI-26.2. Nature of audits and standards applied The Internal Audit Department applies International Professional Practice Framework (IPPF) as stipulated in law. There are three levels of review before reports are released. Risk assessment is made to define the audit subject and object. The types of audits performed in the last three fiscal years are value for money audit, financial audit, and system audit. There is no formalized quality assurance procedure in place. The score is C. 52 PI-26.3. Implementation of internal audits and reporting The reports released have been matched to the Audit Plan to ensure that planned audits are undertaken. However, no evidence on how much of the Annual Audit Plans had been implemented over the last three fiscal years. The score is D*. PI-26.4. Response to internal audits Responses to the internal audit reports are provided within one month of the report being issued. The Internal Audit Department follows up to ensure implementation. Documentary evidence of management response to internal audit recommendations was not provided. Responses to internal audit reports for FY2014/15 and FY2015/16 were provided within one month of the report being issued. However, there were no responses to the internal audit report for FY2013/14. The score is D. Summary of scores and performance table PI-26 Internal audit D Brief justification for score (M1) 26.1 Coverage of D* The County Internal covers all the departments in the County Executive. The internal audit percentage of the county entities that were subject to internal audit over the last three financial years is 75%. No evidence was provided to justify the percentage of audited county entities. 26.2 Nature of audits C The Internal Audit Department applies the IPPF, as stipulated in the law in and standards applied Kenya. No formalized quality assurance. 26.3 Implementation of D* It has not been evidenced how much of the Annual Audit Plan has been internal audits and implemented over the last 3 FYs. reporting 26.4 Response to D In FY2014/15 and FY2015/16, responses to the internal audit reports were internal audits provided within 1 month of the report being issued. Documentary evidence of management response to internal audit recommendations has not been provided. However, for FY2013/14, there were no responses to internal audit reports. 3.6 Pillar VI. Accounting and reporting Indicators under this pillar measure whether accurate and reliable records are maintained and information is produced and disseminated at appropriate times to meet decision-making, management, and reporting needs. There are three indicators under this pillar: financial data integrity, in-year budget reports, and annual financial reports. PI-27. Financial data integrity This indicator assesses the extent to which treasury bank accounts, suspense accounts, and advance accounts are regularly reconciled and how the processes in place support the integrity of financial data. 53 PI-27.1. Bank account reconciliation The PFM Act, Section 90 (1), requires bank reconciliations to all active accounts to be prepared every month and submitted to the County Treasury with a copy to the OAG not later than the 10th of the subsequent month. Any discrepancy noted during reconciliation should be investigated immediately. The county government prepares monthly bank reconciliations for all active bank accounts. These include the key accounts held in the CBK as well as the others in commercial banks. These are bank accounts of budgetary and extrabudgetary units. Different fund accounts, for example, SME, have their own administrators who prepare monthly bank reconciliations. Copies of the monthly bank reconciliations are provided to the OAG within the required deadline. The score is B. PI-27.2. Suspense accounts The County Treasury does not have suspense accounts. It is not required by law to have a suspense account. The PFM Act, Section 107(2b), states that “to account for revenue and expenditure transactions in clearance /suspense accounts, the accounting officer shall ensure that monthly reconciliations are performed to confirm the balance of each account.� This dimension is not applicable. PI-27.3. Advance accounts The county has two types of imprests: (a) temporary Imprest, which is advanced to officers going for official trips and is accounted for in seven days after returning to duty station, and (b) standing Imprest, which is advanced to AIE holders and is replenished upon retirement and surrender. Outstanding imprests are deducted immediately in the subsequent month following the close of the financial year. Imprest account is reconciled annually and presented in the AFS. Section 93(8) of the PFM Act, 2012, clarifies that a second imprest should not be given to an officer before the first one is settled. The score is C. PI-27.4. Financial data integrity processes Sections 109(1) and 110 of the PFM Act, 2012, require the establishment of the IFMIS, with appropriate access controls put in place in the system to minimize breach of information confidentiality and data integrity. The County Treasury uses the IFMIS and Internet banking to record and process budget data. Access and changes are restricted to system users who have rights (password) to the system. Rights to the system are assigned from the National Treasury upon request by the county through a letter. The system records all processes and they are traceable in an audit trail. There is a restricted IFMIS through segregation of duties and login passwords. However, there is no operational unit to verify financial data integrity. The score is B. Summary of scores and performance table PI-27 Financial data integrity B Brief justification for score (M2) 27.1 Bank account B The active bank accounts of the county are reconciled to the cash reconciliation books once a month. 27.2 Suspense accounts n.a. The county does not have any suspense accounts. 54 27.3 Advance accounts C The accounts are reconciled annually as a note to the AFS (Note 13), but they are cleared more than 2 months after the year-end. 27.4 Financial data integrity B The county uses the IFMIS and Internet banking to record and processes process budget data. Both systems have phases of verification and approval to enhance data integrity. A copy of schedule showing the stages of processes and approvers has been obtained. Change of system users is done by the National Treasury. Copies of letters requesting passwords for new system users were obtained. However, there is no operational unit to verify financial data integrity. PI-28. In-year budget reports This indicator assesses the comprehensiveness, accuracy, and timeliness of information on budget execution. In-year budget reports must be consistent with budget coverage and classifications to allow monitoring of budget performance and, if necessary, timely use of corrective measures. PI-28.1. Coverage and comparability of reports The PFM Act, 2012, requires budget execution monthly financial statement and nonfinancial budgetary reports to be submitted to the County Treasury. The CBROP is prepared in accordance with Section 118 of the PFM Act, 2012. According to this act, the county should prepare quarterly implementation reports to give an overview of budget execution. It compares budget estimates and actual expenditures among all departments of the County Executive and the County Assembly. Quarterly Budget Implementation Status Reports show departmental budget implementation analysis comparison between the approved budget estimates and actual expenditures in the County Assembly and County Executive services for the main administrative headings. Quarterly Budget Implementation Status Reports show • Departmental budget implementation analysis comparison between the approved budget estimates and actual expenditures in the County Assembly and County Executive services (analyzed per department under the County Executive) and • Expenditure analysis comparisons between approved budget estimates and actual expenditures outlining the absorption rates. The score is C. PI-28.2. Timing of in-year budget reports The PFM Act (166), 2012, requires counties to prepare quarterly reports and deliver copies to the National Treasury, COB, and CRA while the County Treasury circular requires preparation of reports of performance of the entire budget during the implementation phase. Quarterly budget execution reports are submitted to the CRA and the National Treasury, but the actual dates of these submission have not been provided. The AFS are prepared annually and submitted to the OAG by September 30 each year. Information on expenditures is captured at the payment stage. The score is D. 55 PI-28.3. Accuracy of in-year budget reports The annual budget estimates, CBROP, CSFP, and Quarterly Budget Implementation Status Reports give the status of all budget items per line ministry. The county uses the IFMIS to record budget reports. Changes to these reports must be sought from the National Treasury IFMIS Department. There is no analysis of budget execution by the respective budget classification on a half-yearly basis. Information on expenditure, which is covered at both commitment and payment stages, can be produced at any given time in the IFMIS. The score is C. Summary of scores and performance table PI-28 In-year budget D Brief justification for score reports (M1) 28.1 Coverage and C Quarterly Budget Implementation Status Reports show departmental budget comparability of implementation analysis comparison between the approved budget estimates and reports actual expenditures in the County Assembly and County Executive services for the main administrative headings. 28.2 Timing of in- D* Quarterly Budget Implementation Status Reports are submitted to the required year budget reports institutions, but the submission dates have not been provided. 28.3 Accuracy of in- C Analysis of payment and commitment is done through the IFMIS (vote book year budget reports balances). Expenditure is captured at the payment stage only. There is no budget execution analysis on a half-yearly basis. PI-29. Annual financial reports This indicator assesses the extent to which AFS are complete, timely, and consistent with generally accepted accounting principles and standards. This is crucial for accountability and transparency in the PFM system. PI-29.1. Completeness of annual financial reports The county is applying IPSAS cash disclosing in the AFS revenue, expenditure, and cash balances, but there are no assets and liabilities. The county AFS includes a summary statement of appropriation with the original budget and the adjustments that are comparable with the actuals for a given FY. There are no assets and liabilities disclosed in the AFS, and this justifies score C. PI-29.2. Submission of reports for external audit Section 68 of the PFM Act, 2012, requires that all entities prepare AFS for each financial year within three months after the end of the financial year and submit them to the CoB and the OAG for audit. The consolidated set should be submitted within four months after the end of FY, that is, by the end of October. The AFS are supposed to be submitted within three months after the year-end, that is, by September 30. The AFS are prepared annually and are usually submitted by September 30 every year. This is in line with the PFM Act, 2012. The date on the submitted AFS for FY2013/14 and FY2014/15 is September 30, but the AFS for FY2015/16 were prepared in January 2017 and submitted only on May 5, 2017 (evidence being a stamp ‘Received’ at the OAG on the audited AFS). The OAG has reported that the practice of returning the (submitted within the formal deadline) AFS is very common due to errors. Since the AFS for FY2015/16 56 were returned by the OAG for correction, they were actually submitted more than six months later. The score is C. PI-29.3. Accounting standards The PSASB adopted IPSAS and International Financial Reporting Standards (IFRS) for use by public sector entities in July 2014. Retrospective application for the year ended June 2014 was encouraged by the PSASB. The use of the IFRS and IPSAS was, therefore, formally adopted and applied for the first year in the year ending June 30, 2014. FY2015/16 is the third year of implementation of the standards, as prescribed by the PSASB in 2014. The county governments and their respective entities apply IPSAS cash basis standards. The county prepares AFS as per the IPSAS cash basis standards according to the requirements of the PSASB. The cash basis IPSAS enhances comprehensive and transparent financial reporting of the cash receipts, cash payments, and cash balances of the county government. Application of IPSAS cash basis standards implies comparability of the government's financial statements. The OAG states in the Annual Audit Report “the financial statements are prepared in accordance with and comply with International Public Sector Accounting Standards (IPSAS) with particular emphasis on Cash Basis Financial Reporting under the Cash Basis of Accounting and applicable government legislations and regulations. The financial statements comply with and conform to the form of presentation prescribed by the Public Sector Accounting Standards Board of Kenya.� The standards used in the preparation of the AFS are not disclosed in notes, and therefore the score is D For reforms, the PSASB in Kenya is designing a framework for all county governments to move to accrual basis IPSAS. Summary of scores and performance table PI-29 Annual financial reports (M1) D Brief justification for score 29.1 Completeness of annual C The county applies IPSAS cash showing disclosure of revenue, financial reports expenditure, and cash, but no assets and liabilities in the AFS. 29.2 Submission of reports for C The AFS were submitted by September 30 for FY2013/14 and external audit FY2014/15 but more than 6 months after deadline for FY2015/16. 29.3 Accounting standards D The county prepares AFS as per the IPSAS cash-based standards according to the requirements of the PSASB. The standards used in the preparation of the statements are not disclosed and do not appear as notes in the AFS. Variations between international and national standards are not discussed and gaps are not explained in the reports of the OAG. 3.7 Pillar VII. External scrutiny and audit There are two indicators under this pillar: external audit and legislative scrutiny of audit reports. These indicators assess the arrangements for scrutiny of public finances and follow-up on the implementation of recommendations by the executive. 57 PI-30 External audit This indicator examines the characteristics of the external audit. PI-30.1 Audit coverage and standards The audits are conducted in accordance with International Standards of Supreme Audit Institutions (ISSAIs) by the OAG. The maintenance of effective control measures and compliance with laws and regulations are the responsibility of the management. The responsibility of the Auditor General is to report on the weaknesses that were identified during the external audit. The types of audits performed are financial audits of the county entities such as providing an opinion on the financial statements and compliance audit activities, ensuring regularity and propriety of transactions and the functioning of internal control and procurement system. The OAG employs the quality assurance system to assess whether its audits adhere to the adopted audit standards. These reviews are performed by independent, peer reviews or through the professional organization—the African Organisation of English-speaking Supreme Audit Institutions (AFROSAI-E). It assisted in the development of a Quality Assurance Manual, whereas the Quality Control Manual was developed by the OAG. The AFROSAI-E conducted its first peer review in 2003 and then in 2009, 2012, 2014, and 2016. Independent quality assurance reports are prepared by the reviewers. The audit reports for July 1, 2013–June 30, 2014, and July 1, 2014–June 30, 2015, have been made available. These audits were undertaken to assess the adequacy and reliability of the systems of management and financial controls instituted by the management of the county government in running its affairs with emphasis on the utilization of public resources. The audit for July 1, 2015–June 30, 2016, was outstanding at the time of the assessment (April 2017) and was released by the OAG only in August 2017. All county budget entities have been audited in the last three completed financial years with the exception of the public corporations as discussed in PI-10.2, which do not appear in the AFS. The score is B. PI 30.2 Submission of audit reports to legislature The PFM Act, 2012, notes that it is not the responsibility of the County Executive to forward the audit reports to the County Assembly and to the Senate (for oversight) but should be done directly by the OAG. The act specifies that the financial audit reports should be completed by the end of December, thus allowing the OAG to carry out the external audit within three months. Very often this deadline is not respected for the simple fact that the submitted financial statements are often returned to the Executive to adjust errors, which prevents the OAG from conducting a reliable audit. So, it is a common practice that the already submitted financial statements are amended after the end of September. Table 3.7 summarizes when the reports were submitted to the OAG and received at the County Assembly of Baringo for scrutiny, as well as when they were submitted by the OAG to the County Assembly. The audited AFS for FY2013/14 and 2014/15 show the date when the AFS were issued by the County Executive, which is September 30. There is no record as to when they were received at the OAG. Since the OAG audited the financial statement dated September 30, it was assumed they were considered complete by the external auditor. The audited AFS for FY2015/16 show a stamp ‘Received’ at the OAG on May 5, 2017, and therefore the assumption is that they were returned to the County Executive for corrections and this delayed the audit. Otherwise, the audit was completed within the six-month deadline. 58 Table 3.7: Submission of audit reports to the legislature Date received at County FY Date AFS submitted to OAG Date submitted by OAG Assembly 2015/16 May 5, 2017 Not provided August 30, 2017 2014/15 September 30, 2015 Not provided October 17, 2016 2013/14 September 30, 2016 Not provided August 18, 2015 Source: OAG. The audit report for FY2015/16 was completed by the OAG in August 2017. The audit report discussed as of the time of the assessment at the Senate was the one for FY2014/15. There are various reasons for the long delays, including (a) submission of erroneous and non-auditable AFS that the County Executive tends to revise after the end-September legal deadline for submitting them to the OAG, which seems to be the practice at the national level as well as in other counties; (b) limited capacity of the OAG with only 800 audit staff; (c) delayed funding to the OAG from the Treasury; and (d) no risk-based audit approach employed at the OAG. The score is D. PI 30.3 External audit follow-up The audit opinions and summary findings of the external audits of both FY2013/14 and FY2014/15 have been provided. The county government’s responses to these findings were obtained during the assessment. The delay in response to audit issues is brought about by delays in audit completion. The previous Public Audit Act, 2003, did not provide for external audit follow-up. The latest edition of the Public Audit Act, December 2015, explicitly covers the audit process, including response to audit findings and follow-up. In this regard, the PSASB has prepared a template to formalize the response to the audit findings, but it is still early to assess its effectiveness. The audit processes and types are prescribed in Section 31 of Part IV of the Public Audit Act, 2015. It is required that the OAG has an inception meeting with the auditee to discuss the scope of audit and check that the previous year audit recommendations in the previous year’s Management Letter are implemented. The accounting officer of the audited budget entity is supposed to submit a response to the Auditor General within 14 days, indicating remedial actions that have been taken in response to the issues raised in the letter. If no response is received, the Auditor General finalizes the letter. Since the revised Public Audit Act came into force in January 2016, the follow-up process has become more formalized. The PSASB, established in Sections 192–195 of the PFM Act, 2012, prepared a template in FY2015/16 for preparing AFS. This template provides for monitoring of the actions taken by the audited budget entity in response to the recommendations of the audit reports. The template came into effect during FY2016/17 and the audit process is still ongoing. Thus, its effectiveness cannot be determined. As is the case for the Internal Auditor General’s Office, the OAG uses TeamMate as a tool for documenting its audit activities. The score is D. PI 30.4 Supreme Audit Institution independence This dimension assesses whether the Supreme Audit Institution (SAI) operates independently from the Executive with respect to procedures for appointment and removal of the head of the SAI, the planning of audit engagements, arrangements for publicizing reports, and the approval and execution of the SAI’s budget. This independence is supposed to be assured by law and the SAI has unrestricted and timely access to records, documentation, and information. 59 The OAG is established as an independent office under Articles 229, 248, and 253 of the Constitution. In accordance with the Constitution, the Auditor General is nominated and appointed by the President with the approval of the National Assembly. The statutory duties and responsibilities of the position are provided in Article 229 of the Constitution and in the Public Audit Act, 2015. The OAG operates independently from the Executive with respect to procedures for appointment and removal of the head of the OAG, the planning of audit engagements, arrangements for publicizing reports, and the approval and execution of the OAG’s budget. This independence ensures unrestricted and timely access to records, documentation, and information. The Public Audit Act, 2015, confirms the OAG’s independence from the executive branch of the national government. Thus, OAG independence is ensured by the Constitution and law. Since the Public Audit Act, 2015, came into force in January 2016, the follow-up process has become more formalized. The PSASB (established in Sections 192–195 of the PFM Act, 2012) and elaborated on under Financial Regulation 111 of 2015. The Board of the National Treasury developed a template in FY2015/16 for preparing AFS. Section 27 of the template (available on the National Treasury’s website) provides for monitoring the actions taken by an MDA in response to the recommendations of audit reports. A matrix contains the following in column form: a list of issues raised by the OAG in its Management Letter to the respective MDA, management comments, the name of the MDA staff in charge of resolving the issue, status of resolving the issue, and expected date for resolving the issue. The template came into effect in FY2016/17. The audit process is still ongoing, so it is not possible to assess how well this new process has worked. The nature of the Auditor General’s functions requires guaranteed independence. This aspect has been recognized by the International Organization of Supreme Audit Institutions (INTOSAI), in the so-called Mexico Declaration on SAI Independence, recognizing eight core principles. The essential requirements for proper public sector auditing have been adopted in Kenya. It is worth noting that the OAG’s budget is negotiated with officials of the National Treasury. This has not resulted in pressure to make changes or withhold funds. The OAG has unrestricted and timely access to records and documentation, but the fact that its budget is submitted first to the Ministry of Finance (MoF) may endanger its financial autonomy. However, the score is A for its other attributes and for consistency with the national PEFA assessment. Summary of scores and performance table PI-30 External audit D+ Brief justification for score (M1) 30.1 Audit coverage B Since 2011, the OAG has been employing ISSAIs on all external audits of national and standards and county governments. The percentage of the audited county government entities over the last three completed financial years has not been reported by the OAG. However, the audit reports show that all county budgetary units have been audited, with the exception of the public corporations. 30.2 Submission of D The audit reports for FY2013/14, FY2014/15, and FY2015/2016 were submitted to audit reports to the the legislature with significant delay. legislature 30.3 External audit D Summary of external audit findings implementation and follow-up report for follow-up FY2013/14 and FY2014/15 have been obtained. The delay in response to audit issues has been brought about by delays in audit completion. 60 30.4 Supreme Audit A The external audits of the county are executed by the OAG, which is an Institution (SAI) independent constitutional body with its own systems and procedures and is independence hence independent of the county. PI-31. Legislative scrutiny of audit reports This indicator focuses on legislative scrutiny of the audited financial reports of the county government, including institutional units, to the extent that either (a) they are required by law to submit audit reports to the legislature or (b) their parent or controlling unit must answer questions and take action on their behalf. Evidence was not provided, and therefore the score is D*. PI-31.1. Timing of audit report scrutiny The audit scrutiny was completed in six months, but no evidence was availed. The score is D*. PI-31.2. Hearings on audit findings The county confirmed that in-depth hearings on key findings of audit reports take place regularly with responsible officers from all audited entities that received a qualified or adverse audit opinion or a disclaimer. Once the audit report is received from the Auditor General, it is tabled in the County Assembly and submitted to the relevant committees. Once the County Assembly committee has the report, it summons the relevant parties. Within two to four weeks of submission to relevant committees, follow- up should be made and a final report prepared for submission to the assembly. The final report is then discussed and adopted. No records have been provided on hearings on audit findings. The score is D*. PI-31.3. Recommendations on audit by the legislature The audit reports usually contain recommendations to the County Executive for implementation. These reports are also used by the County Assembly for follow-up. PI-31.4. Transparency of legislative scrutiny of audit reports The hearings are held in public. The committee proceedings are open to the public unless in exceptional circumstances, where the County Assembly has determined that there are justifiable reasons for the exclusion of the public. Further, audit reports are discussed in the full chamber of the house. The committee reports are however not published on official website(s). Besides, it is not clear whether the County Assembly has a library where the public can access these reports. There is neither data on the number of hearings on the audit reports for the last three completed years nor records on hearings conducted in public. The score is D*. 61 Summary of scores and performance table PI-31 Legislative scrutiny of D Brief justification for score audit reports (M2) 31.1 Timing of audit report D* Reportedly, the scrutiny of the audit report is completed over six scrutiny months. No evidence has been provided to support that practice. 31.2 Hearings on audit findings D* Reportedly, in-depth hearings are carried out on the audit findings. No evidence has been provided to support that practice. 31.3 Recommendations on D* The audit reports usually contain recommendations to the Executive audit by the legislature for implementation. The County Assembly uses them for follow-up. No evidence has been provided on recommendations issued by the legislature to the Executive. 31.4 Transparency of legislative D* Reportedly, the hearings are held in public. No evidence has been scrutiny of audit reports provided that the public is aware that the hearing sessions are open. 62 4. Conclusions of the analysis of PFM systems 4.1 Integrated assessment of PFM performance Pillar I: Budget reliability Budget reliability is affected by a low rate of budget execution and a high level of reallocation. Variance in expenditure composition by economic classification was more than 15 percent over the three-year period. Aggregate expenditure outturn was below 85 percent of the approved aggregate budgeted expenditure in the last three years. Actual revenue was close to the target and actually achieved budget surplus over the three years of the assessment, but with significant revenue composition reallocations. The aggregate budget outturn (PI-1) shows deviation of the actual aggregate expenditure from the original. Even though disbursements were made in time, the aggregate expenditure outturn ranged between 68 percent and 83 percent. Such a fiscal result undermines discipline and limits the ability of the county government to control the total budget and manage risk. This also affects the county governments’ ability to effectively plan and allocate resources to strategic policy priorities. The variance in expenditure composition by economic classification averaged 32 percent for the three fiscal years. This variance can be largely attributed to use of goods and services and consumption of fixed capital. The overall score is low due to the huge variance in expenditure composition although the county did not charge any expenditure to a contingency vote. The revenue outturn (PI-3) shows that the change in revenue between the originally approved budget and end-of-year outturn was due to overly optimistic revenue forecasts. This leads to allocations that would eventually require either in-year budget review with reallocation since borrowing was not an option for counties in Kenya. Accurate revenue forecasts are a prerequisite for preparation of a credible budget. However, the county government of Baringo is not in a position to prepare such budgets because macroeconomic forecasts (discussed in PI-14), which are crucial inputs to revenue projections, are not prepared and the forecasts of the main sources of revenues are overstated. Thus, the county government budget still does not provide a reliable basis for policy implementation for the following reasons: (a) overoptimistic and unreliable budget expenditure and revenue estimates and (b) external factors such as local natural disasters (especially draughts) as well as any adverse regional economic condition do affect the budget stability of the county, which is still not mature and well provisioned for economic shocks and political turmoil. Such factors affect the budget reliability and trigger extra pressure on the newly devolved subnational structure and capacity of Baringo County. Pillar II: Transparency of public finances Budget formulation, execution, and reporting are based on administrative and economic classification using GFS standards. Budget documentation that is transferred to the County Assembly contains forecast of the fiscal deficit/surplus, previous and revised budget in the same format as the budget proposal in the budget estimates, and aggregated budget data for both revenue and expenditure. Medium-term fiscal forecasts are established, but there are no survey estimates of the resources received by service delivery units. There is no information related to performance achieved for service delivery. 63 The transparency of public finances is not comprehensive, consistent, and accessible to the public. The budget classification (PI-4) of government budget and accounts is consistent with international standards but is not sufficient (Level 2). This is because it does not allow transactions to be tracked throughout the budget’s formulation, execution, and reporting cycle according to administrative, economic, or functional classification. The transparency of government revenue and expenditure is reduced because there are no reports on the operation of the extrabudgetary units. The published information on service delivery performance and budget documentation is not readily accessible. Low transparency deprives the public of the information they need to hold the County Executive accountable for its budget policy decisions and for the management of public funds. The budget documentation (PI-5) prepared by the county does not cover enough elements to comprehensively assess information provided in the annual budget documentation. The set of documents provided by the County Executive do not sufficiently allow a complete picture of the county government fiscal forecasts, budget proposals, and outturn of the current and previous fiscal years. There are revenues and expenditures (PI-6) not reported in the county government financials. Extrabudgetary units do not report on their performance. This contributes to lower transparency of government operations and hence a gap in the analysis. Information on service delivery performance is not collected and recorded (PI-8). Operational efficiency in public service delivery is a core objective of the PFM system. The inclusion of performance information in budgetary documentation strengthens the accountability of the Executive for the planned and achieved outputs and outcomes of county government programs and services. The lack of performance analysis of planned economic activity and key performance indicators with estimated output and outcome prevents the County Assembly from making thorough and justified consideration of the County Executive’s budget proposal. Public access to fiscal information is not easily provided (PI-9). Only audit reports are published within 12 months of the fiscal year-end. The civil society can gain access to information on budget proposals only hours before the day open for public discussion. Information on planned investment activities is not published. Pillar III: Management of assets and liabilities There is no effective management of assets and liabilities. This is because risks are not identified and monitored, the public investments have not been embarked upon yet, and no financial investment has been made. The asset maintenance practice was inherited from the previous local government structures while asset disposal has not been effected yet, even though clear rules exist. There is no debt management function and the associated fiscal risks are not adequately monitored. With regard to public investment (PI-11), there are no procedures to assess the economic impact and viability of projects. In addition to this, no cost-benefit analysis is performed and there is lack of monitoring practice for public investment projects. Thus, it cannot be ascertained if the projects undertaken by the county would support the county government’s social and economic development objectives. Public asset management (PI-12) is not fully established. While records of financial assets are published annually in financial statements, records of nonfinancial assets are not comprehensive. However, the county maintains recently acquired assets such as vehicles, computers, and office furniture. Reports on disposal of nonfinancial assets are not available since the county is yet to dispose of any. The assets that 64 the county of Baringo keeps record of is (a) cash in hand at the bank and (b) tangible fixed assets mostly inherited from the preceding local government structure that are not subject to age analysis and depreciation. The county has only inherited domestic debt (matured pending bills) and under the current legislation is not eligible to borrow. Pillar IV: Policy-based fiscal strategy and budgeting The county prepares expenditure and revenue forecasts as evident in the CFSP and budget although they do not present scenarios based on varied assumptions. The budget preparation process is based on a comprehensive and clear budget circular. The county government prepares forecasts of revenue and expenditure for the budget year and the two following fiscal years but does not present the underlying assumptions for the forecasts. Ceilings are firmed up at the point where the CFSP is approved. The county government prepares forecasts of revenue and expenditure for the budget year and the two following fiscal years but does not present the underlying assumptions for the forecasts. The County Executive does not prepare its own macroeconomic forecasts or carry out any sensitivity analysis with assumptions. No fiscal impact analysis is performed in the CFSP, which is presented in February to the County Assembly, to explain the potential impact of policy decisions. Ceilings are established during the CFSP preparation but are fixed only after the budget calendar has been issued. The CBROP briefly explains the reasons for deviation from the objectives and targets set but does not provide an explanation of the changes to expenditure estimates between the second year of the last medium-term budget and the first year of the current medium-term budget, even at the aggregate level. Majority of the departments adhere to the budget calendar. The County Assembly review covers fiscal policies, medium-term fiscal forecasts, and medium-term priorities as well as details of expenditure and revenue, following well-defined procedures that include specialized review committees, technical support, and negotiation procedures with the civil societies. Pillar V: Predictability and control in budget execution Budget execution is still not well controlled though good practices exist in revenue accounting and internal control of non-salary expenditure. Effective management of policy and program implementation requires predictability in the availability of resources when they are needed, and controls do not sufficiently ensure that policies, regulations, and laws are complied with during the process of budget execution. The county is not well organized to collect revenue (PI-19), which is an essential component of the PFM system. However, there are no multiple channels of how the taxpayers are informed about their rights and obligations and no clear understanding of what procedures are to be followed in seeking redress. The entities collecting most revenue have been reported to undertake audits and fraud investigations, but this has not been documented in compliance with the established procedures. It cannot be assessed if instances of noncompliance are revealed, reported, and rectified. The information on revenue arrears over 12 months shows total arrears of 82 percent. These arrears date from the time the subnational structure came to existence and include inherited arrears from the defunct local authorities. Revenue accounting is better managed (PI-20). There are procedures for recording and reporting revenue collections, consolidating revenues collected, and reconciliating revenue accounts. This indicates compliance with tax laws and strengthens the fiscal discipline and the administrative capacity to allocate budget resources to strategic priorities. However, reconciliation of arrears has not been done so far. It is 65 not monitored, that is, the difference between what is due and what has been paid in. Therefore, the collection and transfer system functions are as intended, but it is not assured that the level of arrears are monitored and minimized. Accumulation of arrears may disrupt the well-furnished revenue administration system and practice by endangering the reliability of the revenue planning process. The directorate of revenue obtains data at least weekly from all entities collecting all revenues. This information is consolidated into a report and revenue collections are transferred weekly to the Treasury. However, payers do not have sufficient access to information on their rights and obligations. Further, there are no systematic approaches for assessing and prioritizing compliance risks for revenue streams. Also, no audit of revenue from any of the sources has been undertaken. The stock of revenue arrears (PI- 19) is 23 percent of the total revenue collection, while the stock of expenditure arrears (PI-22) averages 6 percent of total expenditure. Payroll controls (PI-23) have been demonstrated to be good. The county uses the IPPD management system that is not integrated into the IFMIS that has the budget module. Changes to personnel records and payroll are updated on a monthly basis and in time for the following month’s payments. The lack of retroactive adjustment and the existence of internal control on the payroll seem to ensure certain degree of data integrity and audit trail. The procurement at the county of Baringo does not achieve value for money service (PI-24). The transparency of the public procurement arrangements is far from being satisfactory. The county procurement plans and the contracts awarded are not made public. It has not been made clear during the assessment which selection procurement method prevails. A not well-functioning procurement system cannot ensure that money is used effectively and whether value for money is achieved in government spending for programs and services. Lack of transparency in procurement affects severely and most noticeably the public at large. The effectiveness of general internal controls for non-salary expenditures is good (PI-25). The segregation of duties is formalized and adhered to. The majority of payments are compliant with regular payment procedures. Expenditure commitment controls are generally in place and mostly limit commitments to projected cash availability, but expenditures arrears do occur even with the current controls. There is regular feedback to management about the performance of the internal control systems (PI-26) through an internal audit function, but it has been found to be not sufficiently adequate. The internal audit function does not use a risk-based approach and does not keep record of data on the percentage of audited budget entities in terms of total planned expenditure and revenue. In the public sector, the function is primarily focused on compliance audit and not so much ensuring the adequacy and effectiveness of internal controls. The focus of audit, the standard audit preparation, and audit process documentation need improvement. Quality assurance is not applied. The internal audit is not sufficient to ensure sound functioning of the internal control environment. Pillar IV: Accounting and reporting The financial data integrity (PI-27) is relatively sound. The key Treasury accounts are reconciled at different times, but not all are cleared at the end of the year, thus making the data not fully reliable. The accounting processes in place support integrity of financial data through the IFMIS where data is processed and verified against documents. The financial data is reviewed by the internal audit, but the audit process is 66 not developed to ensure that areas vulnerable to risk are covered by annual scrutiny. This may negatively affect the internal control system. The budget execution reports (PI-28) are generally comprehensive and accurate while the information on budget execution is prepared in good time, reporting on commitments and payments is prepared separately, and it is not part of the in-year budget reporting. Information on budget execution including revenue and expenditure data exists but is not presented in the format of the budget document. This does not facilitate performance monitoring and makes comparison between budgeted and actual data less traceable. Deviations from budgets go through an adjustment process after the approval of the decision makers adjusting budget execution to better meet objectives and achieve desired outcomes. The AFS (PI-29) are generally complete, timely, and consistent with generally accepted accounting principles and standards and report on revenues, expenditure, assets and liabilities, and a cash flow. The AFS also provide a record of how resources were obtained and used . Pillar VII: External scrutiny and audit The external audit and scrutiny by the legislature is not good enough to hold the county government accountable for its fiscal and expenditure policies and their implementation. The public finances are independently reviewed, but the external follow-up on the implementation of recommendations for improvement by the Executive remains inefficient. The independence of the OAG is guaranteed by the Constitution and the Public Audit Act, 2015. However, there are delays in release of audit reports, hence late scrutiny. No evidence was provided to the effect that recommendations on audits by the county assembly were considered and acted upon by the County Executive. Further, no evidence was provided that audit report scrutiny by the County Assembly is held in public. 4.2 Effectiveness of the internal control framework Control environment Based on the available information provided by the county, the internal control practice in place is not sufficient to contribute to the achievement of the four control objectives: (a) the execution of operations in an orderly, ethical, economical, efficient, and effective manner; (b) fulfilment of accountability obligations; (c) compliance with applicable laws and regulations; and (d) safeguarding resources against loss, misuse, and damage. The national-level internal control framework is to a large extent indicative for the county operation because the subnational functions and operations mirror in regulation and practice to the establishment at the national level. The following is an overview of the internal control activities collected from the preceding sections of the report. It builds on the description of the design of internal controls and the individual assessment of specific control activities as covered by the performance indicators (Chapter 3). Risk assessment The county decisions do not appear to be driven by risk assessment and management activities. Risks facing the county at different stages of the PFM system are analyzed as follows: 67 • Pillar I: Budget reliability: Low expenditure and revenue outturn reduces the credibility of the budget. • Pillar II: Transparency of public finances: Extrabudgetary entities owned by the county do not prepare financial statements (PI-6). This creates the risk of misuse of funds and poor service delivery to the public. There are no service delivery performance reports from various departments/units, thus making it difficult for the public to hold the County Executive to account (PI-8). • Pillar III: Management of assets and liabilities: The risks with regard to contingent liabilities, for example, those associated with car loans and mortgages, are low given that they are insured (PI- 10). There is little guarantee of value for money because there is no economic analysis of investment proposals (PI-11), costing of investment and written procedures for monitoring of the investment performance public investment. There is a risk of the public losing some of the assets because the asset register is incomplete and contains only those that have been acquired since the inception of the county (PI-12). • Pillar IV: Policy-based fiscal strategy and budgeting: Lack of macroeconomic and fiscal forecasts and sensitivity analysis in budgeting creates the risk of having budgets that are prone to amendments (PI-14). • Pillar V: Predictability and control in budget execution: The revenue administration practice does not have an integrated revenue management system in place to detect and prevent potential revenue risks and manage arrears (PI-19). The county does not keep proper accounting of expenditure arrears and thus creates a risk of accumulation (PI-22). The approved staff establishment is not linked to the IPPD, which is also not linked to IFMIS (PI-23). This creates a risk of ghost workers; otherwise, the payment controls are formalized and applied. Procurement practice shows that noncompetitive selection methods are mostly applied, which creates the risk of favoritism and reduces control on the quality of procured services or works and misuse of funds, hence poor public service delivery (PI-24). There is clear segregation of duties between salary and non-salary expenditures. Non-salary expenditures are electronically set up in the IFMIS with various authorization levels and roles assigned to different functions and operational staff. This arrangement provides for all phases of budget implementation to be executed in the IFMIS (PI-25). Control activities Internal control in the county appears to be reasonably well developed. Use of the IFMIS with clear control of payment rules for all operations for budget execution enhances transparency and accountability. The county has an operational Internal Audit Department although with limited human capacity required to audit all functions of the county. In addition, the OAG undertakes regular audits though most of the times limited to the AFS. There is room for improving the county register of assets and liabilities given that it is currently incomplete (it does not include assets such as land and buildings, their age, and current market values. Information and communication The PFM data such as budgets, CIDPs, CFSPs, CBROPs, and ADPs are available on the county website. Nonetheless, there are gaps in what is published on the website. For instance, procurement statistics, 68 internal audit reports, OAG reports, and audit hearing findings from the County Assembly are not available on the website. All budget-related documents undergo public scrutiny through public participation forums. The county has legislation on public participation that will set the rules for interaction with the public at all stages of budget formulation and service delivery. Monitoring Monitoring in the Committee of Sponsoring Organizations (COSOs) terms means the process of assessing the quality of internal control performance over time. Performance monitoring at the county of Baringo is weak—the main tools of budget utilization monitoring are the quarterly reports and the budget execution reports. The county does not have an operational M&E Department. The CBROP is a kind of economic assessment paper. There are no specific reports elaborating on consistency of performance, planned outputs, and achieved outcomes and explaining any deviation. The internal control framework of the county as described having in place only isolated control activities is not efficient to ensure against irregularities and errors. 4.3 PFM strengths and weaknesses Aggregate fiscal discipline The annual budget presents estimates of expenditure for the budget year and the two following fiscal years allocated by administrative, economic, and program classification, which together with the medium- term priorities are reviewed by the County Assembly. Budget credibility is hampered by large deviations in expenditure composition outturn by function and economic classification as well as the variance in revenue outturn composition. This is aggravated by the inability of the county to capture expenditure and revenue outside financial reports. The medium-term perspective in expenditure budgeting is undermined by lack of macroeconomic forecasts, fiscal impact analysis, and inability to link policy formulation and programming of activities to budget estimates. The county does not keep proper accounting records of expenditure arrears with ageing analysis for effective monitoring. The risk management framework is not applied on matters related to revenue collection. However, revenue is collected and banked daily in most cases and consolidated monthly. Personnel record and payroll management is satisfactory as it is automated using the IPPD and any change is recorded and leaves an audit trail. The county uses the IFMIS to facilitate transaction processes and report with clear segregation of duties throughout the expenditure process. There are separate levels of approval of different stages of payment. The system users have passwords and the system maintains an audit trail. Strategic allocation of resources The county has a CIDP that is implemented through ADPs that are linked to annual budgets. However, the departments have not developed their own strategic plans. This implies that the CIDP, ADPs, strategic plans, and the budgets are not linked. Resources and expenditure are allocated within an MTEF with established budget ceilings. The county adopts national macroeconomic forecasts without underlying assumptions in their forecast of revenue and expenditure. This has implications on the accuracy of revenue and expenditure forecasts. There are no established standards for managing public investment 69 through proper selection of viable projects and performance reporting. Thus, the key indicators that are recognized by the development strategy are not incorporated in the budgets. Identification of projects to be implemented in the wards through public participation forums ensures that there is proper prioritization of projects according to the needs of the people. Efficient use of resources for service delivery The county does not undertake any economic analysis of investment projects, implying that public investments can be made with socioeconomic benefits to the people. There is no central planning unit in the county to prioritize and cost public investment projects. In addition, the county does not have an M&E Department to monitor implementation of development projects. Even though the county prepares PBBs, achievement of key performance indicators of departments is not tracked over time. There is an Internal Audit Department that is able to audit most of the activities undertaken by the County Executive. Implementation of internal audit and OAG reports should enhance efficiency and effectiveness of public service delivery. While a database of procured contracts does not keep track of the percentage of procurement methods applied for the selection of contractors. However, no procurement statistics are performed and the public has limited access to information. Only tender bids are announced on the website, whereas information on the county procurement plans, annual procurement statistics, and details of contracts awarded are not made public. An important drawback in the procurement is the fact that the complaint procedure is handled at the national level and fees are charged for consideration of claims. Such an arrangement is not designed to serve the public. There is no electronic portal for information on public procurement. The County Assembly has not been active in its oversight role in the use of public funds. There is no sufficient evidence that public hearings and interrogations on budgetary matters in the County Executive are conducted satisfactorily. Nonetheless, the civil society groups in the county oversee public investments and undertake a social audit of such projects. 70 5. Government PFMR Process 5.1 Approach to PFMRs In Kenya, the national government, through the National Treasury, takes the lead in initiating and implementing PFMRs. The Government of Kenya has undertaken PFMRs since 2006 and has elaborated the subsequent long-term reforms in Vision 2030. The current PFMR Strategy is elaborated in the Strategy for Public Financial Management Reforms in Kenya 2013–2018. The overall goal of this reform strategy is to ensure “a public finance management system that promotes transparency, accountability, equity, fiscal discipline and efficiency in the management and use of public resources for improved service delivery and economic development.� The main areas of emphasis in the strategy include (a) macroeconomic management and resource mobilization; (b) strategic planning and resource allocation; (c) budget execution, accounting, and reporting and review; (d) independent audit and oversight; (e) fiscal decentralization and intergovernmental fiscal relations; (f) legal and institutional framework; and (g) IFMIS and other PFM systems. The IFMIS has been implemented at the national and the county levels to reinforce accountability but still has room for improvement in terms of offering solutions to procurement-related challenges. At the county level, there is a need for a better appropriation and reinforced controls. More operations by-pass IFMIS at the county level compared to the national level. The implementation of a TSA should ensure the national and county governments perform better monitoring of the movement of funds. The PFM Act allows for the establishment of a committee to check on the use of funds and disciplinary measures that can be taken in the event of misappropriation. However, proper monitoring of public resources would be possible if the IFMIS is fully used at the county level and a business intelligence layer is implemented to facilitate data analysis and visualization. 5.2 Recent and ongoing reform actions The key reforms that are still outstanding and are relevant to this PEFA assessment are as follows: • A policy on M&E had been prepared to enhance project supervision and reporting in the field. • Nomination of M&E champions in every department and community to assist in project monitoring and reporting. • Baringo County is developing a framework on how Chemsusu Water and Sanitation Company and Kirandic Water and Sanitation will be monitored and their annual financial reports audited. Plans are also under way to have ERAWASCO report directly to the Baringo County Government. • The county is currently developing a framework in citizen participation and engagement on prioritization of development projects in all sub counties and even at ward levels. This will involve having project champions in every subcounty and ward. The county is also developing a framework in which all Chief Officers; technical staff (engineers, architectures, surveyors); and feasibility study staff are retrained on project implementation cycles from budgeting to implementation to ensure that there are no delays in project implementation 71 • The county is also planning to hire its own statisticians who will be providing precise statistics per ward to assist in prioritization of mega projects, resource allocations, and cost-benefit analysis before project implementation. • The county is working on a framework and policy to guide its disposal of assets hinged on the PPDA (2016). The county has many redundant, old, and unusable assets and has had to hire premises to store some of these assets that are due for disposal. • The revenue office is developing a framework to roll out civic education to all residents of Baringo County on their rights and obligations as tax/revenue payers and on the obligations of the county government toward them after the county has collected revenue from them. The county is also planning to go cashless as far as revenue collection is concerned. • Sensitization of contractors and department on procurement procedures. • Use of fueling cards and not bulk buying of fuel. Two departments, that is, Health and Agriculture and Livestock, have already signed contracts with an oil dealer sourced competitively. 5.3 Institutional considerations The Kenya devolution process is still young, and the county of Baringo still needs to improve the efficiency of public expenditures, while improving domestic resource mobilization. The county heavily relies on equitable transfers and grants. Focus, however, is to be on improving expenditure efficiency. The preceding analysis of Baringo County PFM system indicates that to improve its performance, enhancement of own source revenues is necessary. Further, establishing a predictable flow of central government grants (conditional and unconditional) is also necessary to enable preparation of realistic medium-term fiscal plans. 72 Annex 1. Performance Indicator Summary This annex provides a summary table of the performance indicators. The table specifies the scores with a brief explanation for the scoring for each indicator and dimension of the current 2017 PEFA assessment. County name: Baringo Current assessment Pillar Indicator/Dimension Score Description of requirements met Subnational PEFA indicator D HLG-1.1. Outturn of transfers from higher- D The transfers have been at least 90% in 2 of the HLG-1: Transfers from a level government assessed FYs. government (M1) higher level of HLG-1.2. Earmarked grants outturn D The difference between original budget and actual was more than 10% in 2 of the 3 years. HLG-1.3. Timeliness of transfers from D* Actual dates of transfer have not been provided. higher-level government PI-1 Aggregate expenditure out-turn D Aggregate expenditure outturn for the last 3 fiscal years ranged between 68% and 83%. PI-2 Expenditure composition D+ outturn (i) Expenditure composition C Variance in expenditure for 2013/14, 2014/15, Budget Reliability outturn by function and 2015/16 was 27%, 12%, and 12%, respectively. (ii) Expenditure composition D Variance in expenditure composition by economic outturn by economic type classification averaged 32% for the last 3 FYs. (iii) Expenditure from A Actual expenditure charged to a contingency vote contingency reserves. was on average 0.4% for the last 3 FYs. PI-3 Revenue outturn D+ (i) Aggregate revenue outturn C The aggregate revenue outturn has been 98% and 93% in 2 consecutive years. (ii) Revenue composition outturn D In none of the 3 years the revenue composition outturn was less than 15%. PI-4 Budget Classification C Budget formulation, execution, and reporting are based on administrative and economic Transparency of Public Finances classification using two-level classifications. PI-5 Budget Documentation D Scored 2 basic elements and 2 additional elements. PI-6 Central government operations D outside financial reports (i) Expenditure outside financial D* No evidence has been provided. reports (ii) Revenue outside financial D* No evidence has been provided. reports (iii) Financial reports of extra- D* No evidence has been provided. budgetary units PI-7 Transfers to subnational n.a. governments 73 County name: Baringo Current assessment Pillar Indicator/Dimension Score Description of requirements met (i) System for allocating transfers n.a. There is no subgovernment under this level. (ii) Timeliness of information on n.a. There is no subgovernment under this level. transfers PI-8 Performance information for D+ service delivery (i) Performance plans for service D The PBB for the next fiscal year was not found delivery published on the county website. (ii) Performance achieved for A The county prepares and publishes Quarterly service delivery Budget Implementation Status Reports which are published on the website of the county www.baringo.go.ke. (iii) Resources received by service D* No evidence was provided. delivery units (iv)Performance evaluation for D No explanation of variances according to the service delivery program units in line with the budget PI-9 Public access to information D Only 2 basic elements and 1 additional element were met. PI-10 Fiscal risk reporting D (i) Monitoring of public n.a. The 2 public corporations owned by the county corporations are still being established. (ii) Monitoring of sub-national n.a. No subnational units under the county government (SNG) government level. (iii) Contingent liabilities and D* There is no evidence of what percentage of the other fiscal risks contingent liabilities is quantified. PI-11 Public investment management D (i) Economic analysis of D Does not conduct economic analysis for the major Management of assets and liabilities investment proposals investment projects. (ii) Investment project selection D There are no standardized criteria for project selection. (iii) Investment project costing D There is no total cost of projects indicated in budget documents. (iv) Investment project D There are no standard procedures and rules for monitoring project implementation and monitoring. PI-12 Public asset management D+ (i) Financial asset monitoring C The financial assets available include cash and cash equivalent in the bank, petty cash. and outstanding imprests. There are no up-to-date records. (ii) Nonfinancial asset monitoring D Land record is not clear due to controversy of ownership of certain parcels of land. (iii) Transparency of asset D There was no evidence that the county prepares disposal any reports on asset disposal. PI-13 Debt management D (i) Recording and reporting of D Debt is not recoded and not reported in the debt and guarantees financial statement. (ii) Approval of debt and n.a. Borrowing is to be approved by the national guarantees government. 74 County name: Baringo Current assessment Pillar Indicator/Dimension Score Description of requirements met (iii) Debt management strategy D The debt management strategy draft does not include risk indicator such as foreign currency risks. PI-14 Macroeconomic and fiscal D+ forecasting (i) Macroeconomic forecasts C The county government uses the national government forecasts of key macro indicators for the budget year and the 2 following years. (ii) Fiscal forecasts C The county prepares the expenditure and revenue forecasts as indicated in the CFSPs and budgets but does not provide assumptions. (iii) Macro-fiscal sensitivity D The county does not carry out any sensitivity analysis analysis in relation to own source revenue. PI-15 Fiscal strategy C+ (i) Fiscal impact of policy D The county does not present fiscal impacts of proposals different policy proposals. (ii) Fiscal strategy adoption A The County Assembly adopted the CFSP for 2015/16 with quantitative fiscal goals that are time based and are available on the county Policy-based fiscal strategy and budgeting website. (iii) Reporting on fiscal outcomes C The CBROP does not provide specific action plan to address the deviations but generic recommendations. PI-16 Medium term perspective in D+ expenditure budgeting (i) Medium-term expenditure C The budget estimates have the budget year and 2 estimates subsequent fiscal years allocated by economic and functional classification. (ii) Medium-term expenditure D MTEF expenditure ceilings are not submitted ceilings together with the budget circular. The ceilings are firmed up at the CFSP level. (iii) Alignment of strategic plans D The county prepared ADPs and PBBs, but there and medium-term budgets were no medium-term strategic plans. (iv) Consistency of budgets with D The county does not analyze the overall budget of previous year estimates the last medium-term budget and the first year of the current medium-term budget at the aggregate level. PI-17 Budget preparation process D+ (i) Budget calendar D* There is no copy of the budget calendar. (ii) Guidance on budget D There are no ceilings in the budget circulars. preparation (iii) Budget submission to the C Evidence of submission date has not been legislature provided for FY2013/14. PI-18 Legislative scrutiny of budgets D+ (i) Scope of budget scrutiny A The County Assembly scrutinizes the budget to check its consistence with the CIDP, ADP, and CFSP, which include budgetary priorities and 75 County name: Baringo Current assessment Pillar Indicator/Dimension Score Description of requirements met medium-term revenue and expenditure estimates and forecasts. (ii) Legislative procedures for C The County Assembly committees are guided by budget scrutiny the standing committee rules for budget scrutiny that are adhered to. There is no record of public participation. (iii) Timing of budget approval D The budget was approved on time in only one of the fiscal years assessed. (iv) Rules for budget adjustments C Clear rules exist as per the PFM Act, 2012, and by the executive they allow administrative reallocation and expansion of expenditures. PI-19 Revenue administration D (i) Rights and obligations for D The county has not put in place a redress system revenue measures to deal with complaints, compliments, and appeal. (ii) Revenue risk management D No systematic approach for assessing and prioritizing compliance risks (iii) Revenue audit and D No independent body to carry out revenue audits investigation and fraud investigations (iv) Revenue arrears monitoring D The rate of arrears over 12 months to the total arrears is 82%. PI-20 Accounting for revenues D+ Predictability and control in budget execution (i) Information on revenue A Information on revenue collection is obtained on collections a monthly basis from entities collecting all county revenue. (ii) Transfer of revenue A Revenue collected from various sources is banked collections on a daily basis and reconciliations between collections and banking are carried out at the end of the month. (iii) Revenue accounts D The evidence provided did not meet the reconciliation conditions for revenue account reconciliation in terms of assessments, collections, arrears, and transfers. PI-21 Predictability of in-year resource B allocation (i) Consolidation of cash balances C The county consolidates most of its cash balances on a monthly basis through bank reconciliation statements. (ii) Cash forecasting and C Cash flow projections are not updated on the monitoring basis of actual cash inflows and outflows. (iii) Information on commitment A Budgetary units plan and commit expenditure for ceilings at least 6 months in advance based on the budgeted appropriations. (iv) Significance of in-year budget B During FY2015/16, the county government made adjustments only 1 Supplementary Budget. PI-22 Expenditure arrears C+ (i) Stock of expenditure arrears B The percentage of arrears to total expenditure is less than 6% for 2 financial years. 76 County name: Baringo Current assessment Pillar Indicator/Dimension Score Description of requirements met (ii) Expenditure arrears C The reports on expenditure arrears are not monitoring prepared on a quarterly basis to facilitate effective monitoring of the arrears and do not cover age analysis. PI-23 Payroll controls B+ (i) Integration of payroll and B The county government uses the IPPD personnel records management system similar to the system used by the national government. It integrates personnel database and payroll. (ii) Management of payroll A Changes to personnel records and payroll are changes updated on a monthly basis and in time for the following month’s payments. (iii) Internal control of payroll A Payroll changes are authorized by the head of human resource acting on approvals from the Public Service Board. (iv) Payroll audit B During the last 3 completed financial years, payroll audit was carried out only once. PI-24 Procurement C+ (i) Procurement monitoring B Comprehensive data is maintained on what has been procured, value, and procurement method for most procurement methods. (ii) Procurement methods D* Over 80% of procurement has allegedly been done competitively. No evidence has been provided to support this information. (iii) Public access to procurement D* Only 3 of six elements were met by the county information representing, but the materiality could not be ascertained. (iv) Procurement complaints A The procurement complaint system meets all management criteria. PI-25 Internal controls on non-salary B expenditure (i) Segregation of duties A There is segregation of duties along the expenditure as evidenced by signed payment vouchers and right to the IFMIS and Internet banking. (ii) Effectiveness of expenditure A The county government has a cash flow projection commitment controls prepared for the whole year guided by requisitions. (iii) Compliance with payment D* No data was provided to verify how many rules and procedures payments are compliant with regular payment procedures. PI-26 Internal audit effectiveness D (i) Coverage of internal audit D* No evidence was provided to justify the percentage of audited county entities. (ii) Nature of audits and C IPPF is applied, but there is no formalized quality standards applied assurance. 77 County name: Baringo Current assessment Pillar Indicator/Dimension Score Description of requirements met (iii) Implementation of internal D* It has not been evidenced how much of the audits and reporting Annual Audit Plan has been implemented over the last 3 FYs. (iv) Response to internal audits D For FY2013/14, there were no responses to internal audit reports. PI-27 Financial data integrity B (i) Bank account reconciliation B The active bank accounts of the county are reconciled to the cash books once a month. (ii) Suspense accounts n.a. The county does not have any suspense accounts. (iii) Advance accounts C The accounts are cleared more than 2 months after the year-end. (iv) Financial data integrity B The county uses the IFMIS and Internet banking to processes record and process budget data. PI-28 In-year budget reports D (i) Coverage and comparability of C Quarterly Budget Implementation Status Reports reports show departmental budget implementation Accounting and Reporting analysis comparison between the approved budget estimates and actual expenditures in the County Assembly and County Executive services for the main administrative headings. (ii) Timing of in-year budget D* Quarterly Budget Implementation Status Reports reports are submitted to the required institutions, but the submission dates have not been provided. (iii) Accuracy of in-year budget C There is no budget execution analysis on a half- reports yearly basis. PI-29 Annual financial reports D (i) Completeness of annual C The county applies IPSAS cash showing disclosure financial reports of revenue, expenditure, and cash, but no assets and liabilities in the AFS. (ii) Submission of reports for C The AFS were submitted in time for FY2013/14 external audit and FY2014/15 but more than 6 months after the deadline for FY2015/16. (iii) Accounting standards D Variations between international and national standards are not discussed and gaps are not explained in the reports of the OAG. PI-30 External audit D+ External scrutiny and audit (i) Audit coverage and standards B The audit reports show that all county budgetary units have been audited with the exception of the public corporations. (ii) Submission of audit reports to D The audit reports for FY2013/14, FY2014/15, and the legislature FY2015/16 were submitted to the legislature with significant delay. (iii) External audit follow-up D The delay in response to audit issues has been brought about by delays in audit completion. (iv) Supreme Audit Institution A The external audits of the county are executed by (SAI) independence the OAG, which is an independent constitutional 78 County name: Baringo Current assessment Pillar Indicator/Dimension Score Description of requirements met body with its own systems and procedures and is hence independent of the county. PI-31 Legislative scrutiny of audit D reports (i) Timing of audit report scrutiny D* No evidence has been provided to support that practice. (ii) Hearings on audit findings D* No evidence has been provided to support that practice. (iii) Recommendations on audit D* No evidence has been provided on by the legislature recommendations issued by the legislature to the Executive. (iv) Transparency of legislative D* No evidence has been provided that the public is scrutiny of audit reports aware that the hearing sessions are open. 79 Annex 2. Summary of Observations on the Internal control Framework Internal control components and Summary of observations elements 1. Control environment There is a strong regulatory framework in the county that governs both the national and county governments. The Kenya Constitution 2010, the PFM Act, 2012, and the PFM Regulations 2015. Government circulars are issued periodically to ensure compliance with the laws. There are internal audit functions set up for the county governments and the annual external audits are carried out by an Internal Audit Unit and the independent office of the Audit General. The audit reports are submitted to the County Assembly upon completion. There are, however, noted delays in completion of the external audits. 1.1 The personal and professional Chapter 6 of the Kenya Constitution sets out the responsibilities of integrity and ethical values of leadership of all public officers. This includes oath of office of state management and staff, including a officers, conduct of state officers, financial probity of state officers, supportive attitude toward internal restriction on activities of state officers, citizenship and leadership, control constantly throughout the legislation to establish the ethics and anticorruption commission, and organization legislation on leadership. These appear to be understood and internalized by the management and staff. The assessment team was not aware of any reported ethical and integrity issues. 1.2. Commitment to competence No information available from the PEFA assessment. However, from our general understanding of the county, the senior-level staff have necessary academic qualification and experience. 1.3. The ‘tone at the top’ (that is, The PFM Act, 2012, paragraph 104 states that management must management’s philosophy and ensure proper management and control of, and accounting for, the operating style) finances of the county government and its entities to promote efficient and effective use of the county's budgetary resources. This responsibility rests squarely with the county leadership. The tone at the top may not be adequate judging from the work of external auditors where audit findings are not acted upon. The County Assembly, which is a key institution of control, has not also played its oversight role effectively. 1.4. Organizational structure The county has an organization structure with reporting lines and hierarchy. 1.5. Human resource policies and The county organization policies are management by the County practices Public Service Board. The board is responsible for recruitment, staff development, and discipline. The Public Service Commission is set up by Article 234 of the Constitution, which outlines the functions and powers of the Public Service Commission. One of the key mandates of this Commission is to investigate, monitor, and evaluate the organization, administration, and personnel practices of the public service including the county government. 2. Risk assessment The PFM Regulation 165 sets out the role of the accounting officer in risk management. It requires the accounting officer to develop (a) Risk management strategies, which include fraud prevention mechanism and (b) A system of risk management and internal control that builds robust business operations. 80 Internal control components and Summary of observations elements However, the county does not have a risk management policy and a risk register. 2.1 Risk identification Several performance indicators are related to the extent to which risks are identified, notably the following: 11.1. Economic analysis of investment proposals—proposed capital investment projects are not submitted for economic appraisal before approval. 13.3. Debt management strategy—3-year medium-term debt strategy is not updated annually with associated risk, exchange rate, and interest rate factors. 21.2. Cash forecasting and monitoring—as cash flow forecasts are updated quarterly on a rolling basis, based on actual cash flows. 19.2. Revenue risk management—this is rated D as currently not carried out. 2.2 Risk assessment (significance and This has not been put into consideration. One example of a risk likelihood) assessment would be the work in preparing a medium-term debt strategy, updated annually and providing clear targets with associated risks. 2.3 Risk evaluation Risk-based Annual Audit Plans are approved by the entity’s audit committees (and copied to the accounting officer) and are designed to progressively secure key risks in the control environment on time. 2.4 Risk appetite assessment No information available from the PEFA assessment 2.5 Responses to risk (transfer, No information available from the PEFA assessment tolerance, treatment, or termination) 3. Control activities The various functions of departments are set out in the PFM Regulations. In PI-25, internal control was examined. All functions are properly segregated, but there are no formalized activities in place to control the risks of the county operations. 3.1 Authorization and approval The Government Accounting Manual sets out the systems of procedures authorization, policies, standards, and accounting procedures and reports used by the agencies to control operations and resources and enable the various units to meet their objectives. These procedures or activities are implemented to achieve the control objectives of safeguarding resources, ensuring the accuracy of data and enabling adherence to laws, policies, rules, and regulations. There is also an SCOA used by all county departments. 3.2 Segregation of duties (authorizing, Segregation of duties is rated A in PI-25.1. Appropriate segregation of processing, recording, reviewing) duties exists, in accordance with SCOA, IFMIS, and government circulars, which specifies clear responsibilities. 3.3 Controls over access to resources PI-25.3. Compliance with payment rules and procedures, which is and records rated A. The degree of compliance is good. Actual transfer is carried out through the IFMIS. PI-27.4. Financial data integrity processes, which is rated B. Access to records is restricted by password and changes are recorded and result in audit trail. Internet banking via the IFMIS is used to record and process budget data. 81 Internal control components and Summary of observations elements 3.4 Verifications The PFM regulations and finance manual set out the usual internal control instructions for verification—review of transactions to check the propriety and reliability of documentation, costing, or mathematical computation. It includes checking the conformity of acquired goods and services with agreed quantity and quality specifications. The verification procedures should be built into every transaction. This is an internal checking procedure to avoid errors or fraud. 3.5 Reconciliations PI-27.1. Bank account reconciliation is rated B. Monthly bank reconciliation statements are prescribed per law and such are prepared by the county. 3.6 Reviews of operating performance No information available from the PEFA assessment. 3.7 Reviews of operations, processes PI-13.3. Debt management strategy, which is rated D. There is no debt and activities management review practice. There is a draft debt management strategy that does not include risk indicator such as foreign currency risks. 3.8 Supervision (assigning, reviewing No information available from the PEFA assessment. and approving, guidance and training) 4. Information and communication All county governments are required to report quarterly and annually to the CoB, the OAG, and the National Treasury through the production of financial reports in a template provided by the PSASB. 5. Monitoring PI-26. Internal audit found that internal audit has been formally established and Audit Plans are largely completed, but with delays. 5.1 Ongoing monitoring Ongoing monitoring in the county government involves checking the completeness of transaction documents and reports. Transaction documentation has to be complete to substantiate the transaction. Operational and financial reports are tools for monitoring performance, subsequent planning, and decision making. 5.2 Evaluations Example of the evaluations that take place is found in the following performance indicators: 8.4. Performance evaluation for service delivery, which is rated ‘D’ 11.2. Investment project selection, which is rated ‘D’ Major investment projects are not evaluated before they are included in the budget. 5.3 Management responses PI-26.4 examined response to internal audits. Internal audit reports provide recommendations that are presented by the head of the audited unit. Documentary evidence of management response to internal audit recommendations has not been provided. Due to lack of an audit committee and inadequate senior management support, there is no clear follow-up of the management actions. 82 Annex 3. Sources of Information by Indicator The data on aggregate budgeted expenditure was obtained from the original budget. To confirm that the budget was approved, the estimate was compared against the amounts in the respective Appropriation Act. The information on expenditure has been obtained from the economic classifications in the AFS, more specifically the statement of receipts and payments. The shortcoming of comparing budgeted expenditure to actual expenditure by economic classification is that the classification in the approved budget does not match those reported in the financial statements because the financial statements have been prepared based on IPSAS cash. Indicator/dimension Data sources Pillar I: Budget reliability Subnational PEFA indicator HLG-1.1. Outturn of transfers from higher-level • Annual budget estimates approved by the government legislature HLG-1.2. Earmarked grants outturn • Annual budget execution report or AFS HLG-1.3. Timeliness of transfers from higher-level • AFS for the three fiscal years government PI-1. Aggregate expenditure outturn • Annual budget estimates approved by the 1.1 Aggregate expenditure outturn legislature • Annual budget execution report PI-2. Expenditure composition outturn • Annual budget estimates approved by the legislature 2.1. Expenditure composition outturn by function • Annual budget execution report or AFS • AFS for the three fiscal years 2.2. Expenditure composition outturn by economic type 2.3. Expenditure from contingency reserves PI-3. Revenue outturn • Annual budget estimates approved by the 3.1 Aggregate revenue outturn legislature 3.2 Revenue composition outturn • Annual budget execution report or AFS • AFS for the three FYs Pillar II: Transparency of public finances PI-4. Budget classification • Annual budget document for FY2015/16 4.1 Budget classification • GFS codes • Copy of an SCOA PI-5. Budget documentation • Last annual budget estimates and approved 5.1 Budget documentation budget for FY2015/16 • CFSP for FY2015/16 • ADP 2013/14, 2014-15, 2015/16, 2016/17 PI-6. Central government operations outside financial • Information from Treasury reports 6.1 Expenditure outside financial reports 6.2 Revenue outside financial reports 6.3 Financial reports of extra-budgetary units PI-7. Transfers to subnational governments • n.a. 7.1 System for allocating transfers 7.2 Timeliness of information on transfers PI-8. Performance information for service delivery 83 Indicator/dimension Data sources 8.1 Performance plans for service delivery • AFS; 8.2 Performance achieved for service delivery • In-year budget execution reports 8.3 Resources received by service delivery units • CFSP 8.4 Performance evaluation for service delivery • The National Treasury PI-9. Public access to fiscal information • Baringo Today, 8th edition 9.1 Public access to fiscal information • Baringo County Report • Baringo press release Pillar III. Management of assets and liabilities PI-10. Fiscal risk reporting • The National Treasury • AFS 10.1 Monitoring of public corporations • Budget execution reports 10.2 Monitoring of sub-national government (SNG) 10.3 Contingent liabilities and other fiscal risks PI-11. Public investment management • Baringo ADP 2014/15 and 2015/16 11.1 Economic analysis of investment proposals • Baringo CFSP 2014/15 and 2015/16 11.2 Investment project selection 11.3 Investment project costing 11.4 Investment project monitoring PI-12. Public asset management • Consolidated financial statements 2015/16, 12.1 Financial asset monitoring including notes relating to the holdings of financial 12.2 Nonfinancial asset monitoring assets 12.3 Transparency of asset disposal • Asset register of Baringo County PI-13. Debt management 13.1 Recording and reporting of debt and guarantees • Baringo County Debt Strategy 13.2 Approval of debt and guarantees • Debt Management Unit 13.3 Debt management strategy Pillar IV: Policy-based fiscal strategy and budgeting PI-14. Macroeconomic and fiscal forecasting • ADPs for three fiscal years 14.1 Macroeconomic forecasts • CBROP 2014/15 and 2015/16 14.2 Fiscal forecasts • CFSP for three fiscal years 14.3 Macro-fiscal sensitivity analysis • Quarterly Budget Implementation Reports for three fiscal years PI-15. Fiscal strategy • MoF 15.1 Fiscal impact of policy proposals • CFSP for FY2014/15, FY2015/16, and FY2016/17 15.2 Fiscal strategy adoption 15.3 Reporting on fiscal outcomes PI-16. Medium-term perspective in expenditure • Annual budget estimates budgeting • Annual budget documents 16.1 Medium-term expenditure estimates 16.2 Medium-term expenditure ceilings 16.3 Alignment of strategic plans and medium-term budgets 16.4 Consistency of budgets with previous year’s estimates PI-17. Budget preparation process • 2016 CBROP 17.1 Budget calendar • MoF, Treasury 17.2 Guidance on budget preparation 17.3 Budget submission to the legislature 84 PI-18. Legislative scrutiny of budgets • County Assembly 18.1 Scope of budget scrutiny • PFM Act 18.2 Legislative procedures for budget scrutiny 18.3 Timing of budget approval 18.4 Rules for budget adjustments by the executive Pillar V: Predictability and control in budget execution PI-19. Revenue administration 19.1 Rights and obligations for revenue measures • Revenue arrears as at the end of June 2016 19.2 Revenue risk management 19.3 Revenue audit and investigation 19.4 Revenue arrears monitoring PI-20. Accounting for Revenues • Monthly Revenue Report February 2017 20.1 Information on revenue collections 20.2 Transfer of revenue collections 20.3 Revenue accounts reconciliation PI-21. Predictability of in-year resource allocation • Treasury 21.1 Consolidation of cash balances 21.2 Cash forecasting and monitoring 21.3 Information on commitment ceilings 21.4 Significance of in-year budget adjustments PI-22. Expenditure arrears 22.1 Stock of expenditure arrears • Expenditure arrears 2014/15 and 2015/16 22.2 Expenditure arrears monitoring PI-23. Payroll controls • Payroll Audit Report dated February 10, 2015 23.1 Integration of payroll and personnel records 23.2 Management of payroll changes 23.3 Internal control of payroll 23.4 Payroll audit PI-24. Procurement • Procurement plan 24.1 Procurement monitoring • Procurement Monitoring Report 24.2 Procurement methods • Website - PPARB 24.3 Public access to procurement information • PPDA 2015 24.4 Procurement complaints management PI-25. Internal controls on non-salary expenditure • IFMIS modules and segregation of duties 25.1 Segregation of duties • Cash projections 25.2 Effectiveness of expenditure commitment controls • Procurement and payment module 25.3 Compliance with payment rules and procedures PI-26. Internal audit • Internal audit questionnaire 26.1 Coverage of internal audit 26.2 Nature of audits and standards applied 26.3 Implementation of internal audits and reporting 26.4 Response to internal audits Pillar VI: Accounting and reporting PI-27. Financial data integrity • Treasury 27.1 Bank account reconciliation • Accounting directorate 27.2 Suspense accounts 27.3 Advance accounts 27.4 Financial data integrity processes 85 PI-28. In-year budget reports • Annual expenditure reports 2015/16 28.1 Coverage and comparability of reports • Expenditure reports 28.2 Timing of in-year budget reports • Quarterly financial reports 28.3 Accuracy of in-year budget reports PI-29. Annual financial reports • Annual Financial Reports 2013/14, 2014/15, 29.1 Completeness of annual financial reports 2015/16 29.2 Submission of the reports for external audit 29.3 Accounting standards Pillar VII: External scrutiny and audit PI-30. External audit • SAI - OAG audit reports 2013/14, 2014/15, 30.1 Audit coverage and standards 2015/16 30.2 Submission of audit reports to the legislature • Legislation on SAI 30.3 External audit follow-up • SAI 30.4 Supreme Audit Institution independence • External scrutiny reports for three fiscal years PI-31. Legislative scrutiny of audit reports • SAI 31.1 Timing of audit report scrutiny 31.2 Hearings on audit findings 31.3 Recommendations on audit by the legislature 31.4 Transparency of legislative scrutiny of audit reports Other documents and materials that have been used in the assessment include the following: 1. Constitution of Kenya, 2010. 2. Government of Kenya Review of the Strategy for Public Financial Management Reforms in Kenya 2013–2018 report (2016). 3. World Bank and Government of Kenya In-depth Report Recommendations and Action Plan Following the Analysis of Financial Management, Procurement and Human Resource Management in Kenya County Governments (2015). 4. National Treasury 2015 Budget Review and Outlook Paper. 5. County Budget Review and Outlook Papers. 6. County Fiscal Strategy Papers. 7. World Bank Public Expenditure Review of 2015. 8. World Bank Kenya Economic Updates of 2015 and 2016. 9. World Bank Country Economic Memorandum 2016. 10. Government of Kenya National Capacity Building Framework Progress and Implementation Reports. 11. Kenya Economic Survey 2016. 12. 2016 Budget Policy Statement. 13. Budget Summary for the FY2016/17 and Supporting Information. 14. Division of Revenue and County Allocation of Revenue Acts 2014, 2015, and 2016. 15. Revenue Books. 16. Quarterly Economic and Budgetary Reviews 2015/16. 86 17. CoB quarterly, biannual, and annual reports. 18. Auditor General Reports. 19. PFM Act, 2012, and related amendments. 20. Estimates of Revenues, Grants and Loans Book for FY2016/17. 21. The Constitution of Kenya, 2010. 22. End of assignment report to the National Treasury by PwC on the provision of technical assistance in the preparation of individual and consolidated financial statements for the county government entities for FY2014/15 (June 2016). 23. Integrated Fiduciary Assessment Report. Program for Results for the Kenya Devolution Support Operation (KDSP). December 21, 2015. 24. PEFA (2016a). Framework for assessing public financial management. 25. PEFA (2016b). Supplementary guidance for subnational PEFA assessment. 26. KIPPRA Kenya Economic Report 2016. 87 Annex 3A: Lists of persons who have been interviewed and provided information No. Name Function Telephone Email 1 Solomon Kimuna Economist 0721-316-733 solkimnai@gmail.com 2 Jacob Kendagor County Treasury — jacob_kendagor@yahoo.c om 3 Robert K. Miskhoi County Treasury 0727-942-753 robertmisken@gmail.com 4 Catherine Kibet County Treasury 0717-25-66-86 jerutokibet@gmail.com. 5 Michael Ngetich Economic Planning 0722-577-342 ngetichmichael@yahoo.c om 6 Fredrick Simiyu Account, Assets Management 0722-890-237 walombafredrick@gmail.c om 7 Eng. Kiplagat Director of Water Department. 0722-85-59-22 dwobaringo@yahoo.com 8 Nehemiah Kandie Principal Accountant-Baringo County Assembly 0725-377900 nemkan2006@yahoo.com 9 Joseph C. Koech Clerk to the Assembly 0721-463-885 — 10 Hon. Geoffrery Chelal Budget Member 0722-379976 chelalgeofrey@gmail.com 11 Ronald K. Cherutich Principal Budget Officer 0722669512 ronaldcherutich@yahoo.c om 12 Hillary K. Siror Head of Revenue 0721-32-81-10 sirorhillary@gmail.com 13 Peter Keitany Head of Human Resource 0721-621-261 keitanypkk@gmail.com 14 Francis K. Ayabo HR/Payroll 0726-55-32-48 fkayabo@yahoo.com 15 Alice Kipkulei Head of Supply Management 0722-801-397 hscmbaringo@gmail.com 16 Jonathan Sang Senior Supply Manager 0722-21-89-31 sajokirwa8@gmail.com 17 SusanYatich Principal Procurement Officer, Baringo County Assembly 0725-69-67-82 susanjebichii@yahoo.com 18 Francis Muthii Karimi Accounts-Financial Reporting 0721-822-698 francismekarimi@gmail.c om 19 Nicholas Kiprotich Accounts-Treasury 0722-58-95-01 nikokips@yahoo.com. 20 Catherine Kibet Head of Internal Audit-County Assembly 0722-335745 oloiso123@gmail.com 21 Stanely Kosgei — 0722410960 kosgeistano75@gmail.co m 22 Nicholas Kiprotich — 0722589501 nikokips@yahoo.com 88 23 Vice Chair PIC&PAC, Parkei Baringo County Assembly 0723-999-216 pkiole@yahoo.com Renson 24 Jackton Kimutai Clerk Assistant-Budget & Appropriation Public Accounts 0724-37-70-63/0734-97- jacktonkim@yahoo.com Committee 59-92 25 Renson Kachike Principal Clerk Assistant 0725-52-36-40 kachikerenson@gmail.co m 89 Annex 4. Subnational Government Profile The subnational government structure of Baringo, just like all other counties, is governed and guided to a large extent by the national government legislation. The national legal framework relevant for PFM was amended and enforced over the last three to four years and was meant to cover all national and subnational structures. Because the devolution in Kenya was deployed only in 2013, the subnational government structures were developed by mirroring the establishment of the higher-level national government. The administrative structures of Baringo consist of (a) the Office of the Governor, (b) the County Assembly, and (c) the County Government (Executive). The County Assembly is involved in the approval of the budget of the Executive by its Budget Committees, but it has no role in the monitoring process. The budget monitoring is performed by the CoB at the County Executive administration. The main responsibilities of the County Assembly are to enact laws and oversight over the County Executive. The County Assembly receives and approves plans and policies for management of the county’s financial resources. MCAs are elected by voters at the wards and some are nominated by political parties. The Governor as well the members of the County Assembly are independently elected in county elections. The county government has not yet developed a specific legal framework for its own structures. The economic activity is mainly beekeeping, mixed farming, and sand harvesting. The county of Baringo serves a population of 555,561 spread over six constituencies on a total area of 11,015 km2 with a population density of 50 per km2. The devolution of 2010 established a lower subnational government level with all national-level legislations being mirrored in the county environment. That is, there are no laws developed or reforms undertaken in the county of Baringo as of the time of this assessment. The total expenditure at end-2016 is Ksh 10,799 million, the expenditure per capita is Ksh 6,503, and the own source revenue is Ksh 515,019,231 or only 5 percent of total revenue in FY2015/16. Table A. Overview of subnational governance structure in Baringo County Government Corporate Own Approves No. of Average % of public % of public % funded level or body political own jurisdictions population expenditure/ revenues by administrative leadership budget total revenue transfers tier Local Yes Yes Yes 1 555,561 125 25 100 1. Main functional responsibilities of the subnational government Schedule 4 of the Constitution of Kenya, 2010, assigns functions between the national and count governments. The Constitution assigns the task of service delivery in key sectors like water, health, and agriculture, among others, to county governments, with the national government’s role in some of the sectors being that of policy formulation 90 The structure of the government (Executive) of the county of Baringo is as follows: (a) Department of Agriculture, Livestock Development, and Fisheries (b) Department of Environment, Natural Resources, Tourism, Wildlife (c) Department of Health Services (d) Department of Lands, Housing, Urban Development (e) Department of Industry, Commerce, Enterprise, and Corporate Development (f) Department of Finance and Economic Planning (g) Department of Transport, Public Works, and Infrastructure (h) Department of Water and Irrigation, Education, Sports, Culture, Social Services (i) Department of Devolution, Public Service Management and Administration, Youth, ICT, and E- government These functions are entirely devolved with the subnational government, whereas the functions of defense and overall coordination and oversight as well as external audit are with the national government. Schedule 4 of the Constitution clearly lists the distinct functions of the national and county governments. The national government shall pass legislations and implement policies to support the devolution process as well as provide adequate support to county governments to perform their functions while the county governments will be responsible for service delivery at the county level in addition to other functions. 2. Subnational budgetary systems The national government laws and regulations guide to a high degree the subnational budget cycle. The CBK is the banker for the national and county governments, thus monitoring to ensure the institutions are not at risk of overdraft, and it also advises the institutions on financial matters. The county of Baringo and its entities are supposed to hold and manage their own bank accounts in the CBK, but many counties in Kenya violate this rule and deposit cash in commercial banks. The PFM Act obliges all counties to hold their account at the CBK except for imprest bank accounts for petty cash, which can be in commercial banks. The subnational government has its own budget, adopted by its own approval body (by the County Assembly), and this process does not require subsequent review or modification by the national government. The county possesses the authority to procure its own supplies and capital infrastructure within the context of applicable procurement legislation, which is the PPDA 2015 relevant for both national and subnational levels. The Procurement Directorate of the County Executive is in charge of the entire supply chain management. It prepares a Project Implementation Status Report annually, providing information on value of procurement and the awarded contracts. However, the procurement complaints are handled 91 at the national level by a PPARB, which is an external higher authority and is not involved in the procurement process. 3. Subnational fiscal systems The composition of financial resources collected and received by the county of Baringo is similar to all sources of revenue for the county governments in Kenya, and they are equitable share, conditional grants, and own source revenues. The Constitution of Kenya (Article 209) provides that a county may impose property rates, entertainment taxes, and any other charges for the services they provide. The main tax revenue source of Baringo County is from various charges related to business permits, wildlife parks, and market fees, cesses, and livestock sale fees. The collection of own source revenue has been improving over the three years of the assessment. The transfers constitute the majority revenue fund of the counties in Kenya. They are allocated by the National Treasury on the basis of the county population applying a specific formula. The main transfers are the equitable shares and the earmarked grants transferred from the national government to the counties, which constitute nearly 95 percent of the county revenue of Baringo. These transfers are distributed quarterly across the year through the IFMIS. However, there are no transfers to any lower subnational administrative structure than the county government. Counties are allowed to borrow domestically or externally by Article 212 of the Constitution and under Section 140 of the PFM Act, 2012. Although the legislation provides for deficit financing through borrowing, the county governments were restrained from borrowing in the absence of a clear borrowing framework over the three financial years of the assessment. Thus, the county of Baringo has not accumulated debts thus far, but it has inherited debt from the defunct local authorities and it is supposed to set up a debt management function and prepare a debt management strategy. These, however, have not been established yet. Table B. Overview of subnational government finances for FY2015/16 Total value Value per capita % of total Item K Sh K Sh % Wage and salary expenditure 2,160,560,980 3,889 0.0002 Nonwage recurrent administrative expenditure 1,026,679,951 1,848 0.0002 Capital expenditure 1,299,943,951 2,340 0.0002 Total expenditure 4,487,184,882 8,077 0.0002 Own revenue 279,736,551 504 0.0002 Intergovernmental fiscal transfers 5,327,000,000 9,589 0.0002 Other revenue sources 138,000 0 0.0002 Total revenue 5,606,736,551 10,092 0.0002 Borrowing n.a. n.a. n.a. 92 4. Subnational institutional (political and administrative) structures The County Assembly is directly elected by the citizens of the county independently from any higher-level participation. The elected County Assembly is responsible for approving the budget and monitoring the finances. The county political leadership and executive are able to appoint their own officers independent from the higher-level national administration and control. The only PFM function that is still exercised by a national- level institution is the external audit organized by the OAG. Nevertheless, the OAG has established a local decentralized hubs of audit teams who perform the audits of a particular country but report to the headquarter at the national level. 93 Annex 5: Calculation Sheet Templates for PI-1, PI-2, and PI-3 Calculation Sheet for PFM Performance Indicators PI-1, PI-2.1, and PI-2.3 Table 1: Fiscal years for assessment Year 1 = 2013/14 Year 2 = 2014/15 Year 3 = 2015/16 Table 2: Data for 2013/14 (K Sh) Functional head Budget Actual Adjusted budget Deviation Absolute deviation % County Assembly 552,462,772 423,895,422 382,269,184 41,626,238 41,626,238 11 Office of the Governor 329,595,267 255,825,800 228,059,012 27,766,788 27,766,788 12 County Public Service Board 22,640,249 13,323,375 15,665,616 −2,342,241 2,342,241 15 County Treasury 131,102,193 107,498,200 90,714,399 16,783,801 16,783,801 19 Agriculture, livestock, and fisheries 230,020,375 122,426,739 159,159,505 −36,732,766 36,732,766 23 Health 1,090,295,637 1,002,126,363 754,415,402 247,710,961 247,710,961 33 Education and ICT 238,184,527 102,967,405 164,808,580 −61,841,175 61,841,175 38 Transport and infrastructure 366,580,784 198,930,024 253,650,643 −54,720,619 54,720,619 22 Water and irrigation 283,915,921 88,349,089 196,451,803 −108,102,714 108,102,714 55 Environment and natural resources 33,856,507 18,293,997 23,426,555 −5,132,558 5,132,558 22 Industrialization 167,315,734 79,457,487 115,771,872 −36,314,385 36,314,385 31 Youth, gender, labor, and social services 100,212,446 31,819,730 69,340,654 −37,520,924 37,520,924 54 Lands, housing, and urban development 9,649,779 16,102,205 6,677,035 9,425,170 9,425,170 141 Eldama Ravine town 28,137,284 20,721,739 19,469,215 1,252,524 1,252,524 6 Kabarnet town 60,968,365 40,328,139 42,186,240 −1,858,101 1,858,101 4 Allocated expenditure 3,644,937,840 2,522,065,714 2,522,065,714 0 689,130,964 Interests — — Contingency 44,000,000 Total expenditure 3,688,937,840 2,522,065,714 Aggregate outturn (PI-1) 68 Composition (PI-2) variance 27 Contingency share of budget 0 94 Table 3: Data for 2014/15 (K Sh) Adjusted Absolute Functional head Budget Actual Deviation % budget deviation County Assembly 444,042,178 375,670,025 370,100,105 5,569,920 5,569,920 2 Office of the Governor 349,893,309 289,286,538 291,628,941 −2,342,403 2,342,403 1 County Treasury 256,399,916 230,715,936 213,704,104 17,011,832 17,011,832 8 Agriculture, livestock, and fisheries 430,454,236 307,641,749 358,774,832 −51,133,083 51,133,083 14 Health 1,256,900,322 1,256,900,322 1,047,600,800 209,299,522 209,299,522 20 Education and ICT 496,008,578 406,074,290 413,413,040 −7,338,750 7,338,750 2 Transport and infrastructure 464,830,531 346,467,310 387,426,773 −40,959,463 40,959,463 11 Water and irrigation 456,533,372 281,699,488 380,511,260 −98,811,772 98,811,772 26 Environment and natural resources 63,910,080 51,951,304 53,267,749 −1,316,445 1,316,445 2 Industrialization, commerce, tourism, and enterprise 241,130,412 215,104,637 200,977,284 14,127,353 14,127,353 7 development Youth, gender, sports, culture, and social services 142,080,377 99,727,320 118,421,098 −18,693,778 18,693,778 16 Lands, housing, and urban development 213,054,388 152,163,557 177,576,490 −25,412,933 25,412,933 14 Allocated expenditure 4,815,237,699 4,013,402,476 4,013,402,476 0 492,017,256 Interests — — Contingency 37,663,906 19,773,064 Total expenditure 4,852,901,605 4,033,175,540 Aggregate outturn (PI-1) 83 Composition (PI-2) variance 12 Contingency share of budget 0 95 Table 4: Data for 2015/16 (K Sh) Functional head Budget Actual Adjusted budget Deviation Absolute deviation % County Assembly 577,869,962 529,827,497 467,903,676 61,923,821 61,923,821 13 Governor/County Executive services 360,139,363 307,023,468 291,606,318 15,417,150 15,417,150 5 County Treasury services 403,989,058 384,722,735 327,111,595 57,611,140 57,611,140 18 Transport and infrastructure 593,321,184 361,324,935 480,414,594 −119,089,659 119,089,659 25 Industrialization, commerce, and tourism 207,774,865 180,414,687 168,236,159 12,178,528 12,178,528 7 Education and ICT 534,771,897 405,385,258 433,006,996 −27,621,738 27,621,738 6 Health 1,879,822,658 1,658,146,296 1,522,100,108 136,046,188 136,046,188 9 Lands, housing, and urban development 220,108,643 178,096,785 178,222,870 −126,085 126,085 0 Agriculture, livestock, fisheries, and marketing 412,999,313 307,826,173 334,407,236 −26,581,063 26,581,063 8 Youth, gender, and social security services 154,925,090 94,558,718 125,443,480 −30,884,762 30,884,762 25 Water and irrigation 489,841,137 321,189,298 396,626,376 −75,437,078 75,437,078 19 Environment and natural resources 65,412,812 49,528,579 52,965,022 −3,436,443 3,436,443 6 Allocated expenditure 5,900,975,982 4,778,044,429 4,778,044,429 0 566,353,654 Interests — — Contingency 76,537,263 40,386,912 Total expenditure 5,977,513,245 4,818,431,341 Aggregate outturn (PI-1) 81 Composition (PI-2) variance 12 Contingency share of budget 1 Table 5: Results matrix for PI-1 for PI-2.1 for PI-2.3 Year total exp. deviation composition variance contingency share 2013/14 68.4% 27.3% 2014/15 83.1% 12.3% 0.4% 2015/16 80.6% 11.9% 96 Calculation Sheet for Expenditure by Economic Classification Variance PI-2.2 Table 1: Fiscal years for assessment Year 1 = 2013/14 Year 2 = 2014/15 Year 3 = 2015/16 Table 2: Date for 2013/14 (K Sh) Economic head Budget Actual Adjusted budget Deviation Absolute deviation % Compensation of employees 1,208,183,884 1,266,745,130 856,075,605 410,669,525 410,669,525 48 Use of goods and services 575,139,835 524,496,770 407,523,382 116,973,389 116,973,389 29 Consumption of fixed capital 1,520,005,543 627,412,692 1,077,021,207 −449,608,515 449,608,515 42 Interest 0 0 0 0 0 0 Subsidies 0 0 0 0 0 0 Grants 341,608,579 164,017,142 242,051,541 −78,034,399 78,034,399 32 Social benefits 0 0 0 0 0 0 Other expenses 0 0 0 0 0 0 Total expenditure 3,644,937,841 2,582,671,735 2,582,671,735 0 1,055,285,827 Composition variance 0 0 41 Table 3: Data for 2014/15 (K Sh) Economic head Budget Actual Adjusted budget Deviation Absolute deviation % Compensation of employees 2,000,424,346 1,994,569,955 1,534,935,294 459,634,662 459,634,662 30 Use of goods and services 960,151,439 675,009,606 736,728,851 −61,719,245 61,719,245 8 Consumption of fixed capital 2,051,765,651 1,125,645,476 1,574,329,726 −448,684,250 448,684,250 29 Interest 0 0 0 0 0 0 Subsidies 0 0 0 0 0 0 Grants 190,474,396 190,474,396 146,151,927 44,322,469 44,322,469 30 Social benefits 27,703,042 27,703,043 21,256,678 6,446,364 6,446,364 30 Other expenses 0 0 0 0 0 0 Total expenditure 5,230,518,874 4,013,402,476 4,013,402,476 0 1,020,806,990 Composition variance 25 97 Table 4: Data for 2015/16 (K Sh) Economic head Budget Actual Adjusted budget Deviation Absolute deviation % Compensation of employees 2,321,459,177 2,160,560,980 1,808,711,188 351,849,792 351,849,792 19 Use of goods and services 858,810,938 683,079,424 669,122,666 13,956,758 13,956,758 2 Consumption of fixed capital 2,479,483,332 1,299,943,951 1,931,832,051 −631,888,100 631,888,100 33 Interest 0 0 0 0 0 0 Subsidies 0 0 0 0 0 0 Grants 0 0 0 0 0 0 Social benefits 0 0 0 0 0 0 Other expenses + transfer to other government units 99,494,681 343,600,527 77,518,978 266,081,549 266,081,549 343 Total expenditure 5,759,248,128 4,487,184,882 4,487,184,882 0 1,263,776,200 Composition variance 28 Table 5: Results matrix Table 5 - Results Matrix year composition variance 2013/2014 40.9% 2014/2015 25.4% 2015/2016 28.2% 98 Calculation Sheet for PFM Performance Indicators PI-3: Revenue composition outturn Table 1 - Fiscal years for assessment Year 1 = 2013/2014 Year 2 = 2014/2015 Year 3 = 2015/2016 Table 2: Data for 2013/14 (K Sh) Economic head Budget Actual Adjusted budget Deviation Absolute deviation % Own source revenue Game park fees 101,000,000 69,456,838 82,140,572 −12,683,734 12,683,734 15 Animal stock sale fees 14,000,000 7,497,705 11,385,822 −3,888,117 3,888,117 34 Produce and other cess 20,000,000 18,374,372 16,265,460 2,108,912 2,108,912 13 Single business permit 25,000,000 31,737,095 20,331,825 11,405,270 11,405,270 56 Plot rent/rates 23,000,000 15,127,880 18,705,279 −3,577,399 3,577,399 19 Market fees and others 27,000,000 29,184,504 21,958,371 7,226,133 7,226,133 33 Public health 0 570,900 0 570,900 570,900 0 Veterinary 0 266,320 0 266,320 266,320 0 Hospital revenue 50,000,000 29,303,991 40,663,649 −11,359,658 11,359,658 28 Total revenue 260,000,000 201,519,605 201,519,605.0 0.0 48,655,523.8 Overall variance 77.5 Composition variance 24.1 Table 3: Data for 2014/15 (K Sh) Economic head Budget Actual Adjusted budget Deviation Absolute deviation % Own source revenue Game park fees 55,851,065 54,429,063 47,515,837 6,913,226 6,913,226 15 Animal stock sale fees 12,369,645 9,928,000 10,523,596 −595,596 595,596 6 Produce and other cess 24,354,431 32,385,244 20,719,769 11,665,475 11,665,475 56 Single business permit 36,930,984 35,722,947 31,419,394 4,303,553 4,303,553 14 Plot rent/rates 26,916,585 17,317,051 22,899,547 −5,582,496 5,582,496 24 Market fees and others 26,771,413 30,303,827 22,776,040 7,527,787 7,527,787 33 Koibatek ATC 4,925,865 7,404,056 4,190,728 3,213,328 3,213,328 77 Marigat AMS 5,997,452 4,159,189 5,102,391 −943,202 943,202 18 99 Economic head Budget Actual Adjusted budget Deviation Absolute deviation % Public health 12,000,000 1,136,942 10,209,117 −9,072,175 9,072,175 89 Veterinary 1,200,000 0 1,200,000 1,200,000 0 Hospital revenue 49,682,560 55,737,110 42,267,921 13,469,189 13,469,189 32 Total revenue 255,800,000 249,723,429 249,723,429.0 0.0 47,615,405.8 Overall variance 97.6 Composition variance 19.1 Table 4: Date for 2015/16 (K Sh) Economic head Budget Actual Adjusted budget Deviation Absolute deviation % Own source revenue Game park fees 65,378,064 44,298,390 63,644,446 −19,346,056 19,346,056 30 Animal stock sale fees 14,269,644 15,258,665 13,891,259 1,367,406 1,367,406 10 Produce and other cess 26,754,431 48,506,214 26,044,989 22,461,225 22,461,225 86 Single business permit 44,430,982 38,098,248 43,252,814 −5,154,566 5,154,566 12 Plot rent/rates 29,476,586 16,744,873 28,694,961 −11,950,088 11,950,088 42 Market fees and others 28,871,413 37,215,442 28,105,835 9,109,607 9,109,607 32 Koibatek ATC 6,000,000 2,893,400 5,840,899 −2,947,499 2,947,499 50 Marigat AMS 6,000,000 3,930,042 5,840,899 −1,910,857 1,910,857 33 Public health 5,113,620 2,157,105 4,978,023 −2,820,918 2,820,918 57 Veterinary 8,522,700 1,158,190 8,296,705 −7,138,515 7,138,515 86 Hospital revenue 65,182,560 69,475,982 63,454,127 6,021,855 6,021,855 9 Total revenue 300,000,000 279,736,551 279,736,551 0.0 89,004,156.4 300,000,000 Overall variance 93.2 Composition variance 31.8 Table 5: Results matrix Table 5 - Results Matrix year total revenue deviation composition variance 2013/14 77.5% 24.1% 2014/15 97.6% 19.1% 2015/16 93.2% 31.8% 100