R - i 'Bl IICOF kLNY.\ OFFICE OF THE AUDITOK-GENERAL REPORT SOF THE AUDITOR-GENERAL ON THE FINANCIAL STATEMENTS OF KENYA TRANSPORT SECTOR SUPPORT PROJECT (KTSSP) IDA CREDIT NO.4926-KE AND NO.5410-KE FOR THE YEAR ENDED 30 JUNE 2017 KENYA CIVIL AVIATION AUTHORITY efficiently managing air safety KENYA TRANSPORT SECTOR SUPPORT PROJECT KENYA CIVIL AVIATION AUTHORITY PROJECT GRANT/CREDIT NUMBER CR 4926/5410KE. ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED JUNE 30, 2017 Prepayed in accordance with the Cash Basis of Accounting Method under the International Public Sector Accounting Standards (IPSAS) KENYA TRANSPORT SECTOR SUPPORT PROJECT Reports and Financial Statements For the financial year ended June 30, 2017 CONTENTS PAGE 1. PRO3ECT INFORMATION AND OVERALL PERFORMANCE ................................................................................... i 2. STATEMENT OF PROJECT MANAGEMENT RESPONSIBILITIES........................................................................... v 3. REPORT OF THE INDEPENDENT AUDITORS ON THE KENYA TRANSPORT SECTOR SUPPORT PROJECT .............v 4. STATEMENT OF RECEIPTS AND PAYMENTS FOR THE PERIOD ENDED 30TH JUNE 2017 .................................... 1 5. STATEMENT OF FINANCIAL ASSETS AND LIABILITIES AS AT 30TH JUNE 2017................................................. 2 6. STATEMENT OF CASHFLOW FOR THE PERIOD 30TH JUNE 2017 ...................................................................... 3 7. STATEMENT OF COMPARATIVE BUDGET AND ACTUAL AMOUNTS.................................................................... 4 8. NOTES TO THE FINANCIAL STATEMENTS ...................................................................................................... 5 9. OTHER IMPORTANT DISCLOSURES........................................ ...................................................................... 11 10. PROGRESS ON FOLLOW UP OF AUDITOR RECOMMENDATIONS..................................................................... 12 11. ANNEX 1 - VARIANCE EXPLANATIONS- COMPARATIVE BUDGET & ACTUAL AMOUNT........................................13 12. ANNEX 2A - ANALYSIS O F PENDING BILLS............................................................................................................... 14 13. ANNEX 2B - ANALYSIS OF PENDING STAFF BILLS....................................................................................................15 14. ANNEX 2C - ANALYSIS OF OTHER PENDING PAYABLES...........................................................................................16 15. ANNEX 3 - SUMMARY OF FIXED ASSETS REGISTER................................................................................................17 YTRANSPORT SECTOR SUPPORT PROJECT eports and Financial Statements For the financial year ended June 30, 2017 1. PROJECT INFORMATION AND OVERALL PERFORMANCE 1.1 Name and registered office Name: The project's official name is Kenya Transport Sector Support Project Cr.No 4926/5410KE, Objective: The key objectives of the project is to Provide Technical assistance to strengthen KCAA's Aviation safety and security oversight capacity, Upgrade of Air Navigation Systems, Construction of an Office Block for KCAA, implementation of ICT systems and training of KCAA staff. Address: The project headquarters offices are KCAA Headquarters, Aviation House, Jomo Kenyatta International Airport (JKIA) Nairobi, Kenya. The address of its registered office is: P.O. Box 30163-00100 GPO, Nairobi Kenya The project has no branch offices: Contacts: The following are the project contacts Telephone: (254) 20 6827470/5 E-mail: info@kcaa.or,ke Website: www.kcaa.or.ke 1.2 Project Information Project Start Date: 22/08/2011 Project End Date: 31/12/2018 Project Manager / Mr Charles Kombo Ongaga Coordinator: Project Sponsor: Kenya Civil Aviation Authority 1.3 Project Overview Line Ministry/State State Department of Transport, Department of the Ministry of Transport, Infrastructure, Housing and Urban Development. project Project number Cr. No. 4926/5410 KB Strategic goals of the The strategic goals of the project are as follows: project (i) Enhance aviation safety and security oversight function of Kenya Civil Aviation Authority through Technical Advisory and training of Aviation staff of the Authority. (ii) Enhancing delivery of air navigation services. iH KENYA TRANSPORT SECTOR SUPPORT PROJECT Reports and Financial Statements For thefinancial year ended June 30,2017 (iii) Address the potential conflict of interest arising by KCAA being housed by institution it is regulating (Kenya Airports Authority) and thereby comply with ICAO requirements. (iv) Strengthen the institutional capacity of East African School of Aviation (v) Automation of the processes and operations of KCAA Achievement of The project management aims to achieve the goals through the following strategic goals means: (i) Enhance the capacity of the Authority in its oversight function by equipping the staff through capacity building and training. (ii) Upgrading of existing air navigation systems (iii) Construction of a new office block to serve as the headquarters of Kenya Civil Aviation Authority (iv) Purchase of new training facilities for the East African School of Aviation (v) Implementation of Information Technology Systems. Other important The project is one of the projects that International Development background Association (World Bank) is financing in Kenya to enhance delivery of information of the services in the Transport Sector in Kenya. project Current situation that The project was formed to intervene in the following areas: the project was (i) To Strengthen the Aviation Safety and Security departments of formed to intervene the Authority (ii) To Build the Authority's Head Office Block (iii) Upgrade air navigation systems (iv) Training and capacity building of KCAA Project duration The project started on 22nd August 2011 and is expected to run until 31s December 2018 1.4 Bankers The following are the bankers for the current year: (i) National Bank of Kenya Limited, JKIA Branch 1.5 Auditors Auditor General, Kenya National Audit Office, Anniversary Towers University Way, P.0 Box 30084 - 00100, Nairobi. ii NYA TRANSPORT SECTOR SUPPORT PROJECT yLeports and Financial Statements For thefinancial year ended June 30, 2017 1.6 Roles and Responsibilities Listed below are the different people who are working on the project. The list includes the project manager and all the key stakeholders who are involved with the project. Also, recorded are their roles, their positions, and their contact information. Names Title designation Key qualification Responsibilities Eng. Shadrack PIT Leader Engineer Project Team leader Wesechere Charles Kombo Project Coordinator Economist To Coordinate the Project activities Joseph Cherop Financial Specialist Accountant Account for the project funds William Kitum Procurement Procurement Ensure the Specialist Expertise procurement is as per the procurement law David 0 Ondieki Technical Specialist Aviation Safety To provide lead in Aviation safety matters Thomas Kivuva ICT Specialist ICT Expertise To give lead support in ICT matters Erick Meli Technical Specialist Engineer Coordinate activities related to air navigation systems and construction of headquarters. 1.7 Funding summary The Project is for duration of 8 years from 2011 to 2018 with an approved budget of US$ 23.6 Million equivalent to about Kshs 2.3 billion as highlighted in the table below: Below is the funding summary: Donor Commitment- r.I USD Kshs USD Iss Million Million Million Million (i) Grant International Development Association Total Grant (ii) Loan International Development 22.55 2,255 16.90 1,690 5.65 565 Association iii KENYA TRANSPORT SECTOR SUPPORT PROJECT Reports and Financial Statements For the financial year ended June 30,2017 (iii) Counterpart funds Government of Kenya 1.10 115 0.63 63 0.47 53 Total Loans & Counter art 23.65 2,370 17.53 12753 6.12 618 1.8 Summary of Overall Project Performance: a) The project expenditure is within budget both for the current financial year as well as for the cumulative period as indicated herein above. b) The deliverables under each of the components under KCAA have been accomplished or substantially completed. As at 30'h June 2017 all the air Navigation equipment had been delivered, installed and commissioned. e) The Authority has received and is using the NavAids equipment in enhancing the safety of the Kenyan Airspace. It is therefore a worthwhile investment and the Authority stands to gain in terms of revenue accruing to the Authority. d) There are no major challenges encountered so far in the project implementation. 1.9 Summary of Project Compliance: a) The project has complied with the financial covenants of the bank and the government regulations governing the use of the project finds. b) There are no penalties on account of non-compliance so far. iv KEANYI C USPOR T S EC T01 UPO Tr x FR 0JECT Repolls and Financial Sitcizeiib For the financial year ended June 30, 2017 2. STATEMENT OF PROJECT MANAGEMENT RESPONSIBILITIES The Director General Kenya Civil Aviation Authority and the Project Coordinator for the Kenya Transport Sector Support Project are responsible for the preparation and presentation of the Project's financial statements, which give a true and fair view of the state of affairs of the Project for and as at the end of the financial year ended on June 30, 2017. This responsibility includes: (i) maintaining adequate financial management arrangement and ensuring that these continue to be effective throughout the reporting period; (ii) maintaining proper accounting records, which disclose with reasonable accuracy at any time the financial position of the Project; (iii) designing, implementing and maintaining internal controls relevant to the preparation and fair.presentation of the financial statement, and ensuring that they are free from material misstatements, whether ditto error or fraud; (iv) safeguarding the assets of the Project; (v) selecting and applying appropriate accounting policies; and (vi) making accountiig estimates that are reasonable in the circumstances. The Director General Kenya Civil Aviation Authority and the Project Coordinator for the Kenya Transport Sector Support Project accept responsibility for the Project's financial statements, which have been prepared on the Cash Bgsis Method of Financial Reporting, using appropriate accounting policies in accordance with International Public Sector Accounting Standards. The Director General Kenya Civil Aviation Authority and the Project Coordinator for the Kenya Transport Sector Support Project are of the opinion that the Project's financial statements give a true and fair view of the state of Project's transactions during the financial year ended June 30, 2017, and of the Project's financial position as at that date. The Director General Kenya Civil Aviation Authority and the Project Coordinator for the Kenya Transport Sector Support Project further confirm the completeness of the accounting records maintained for the Project, which have been relied upon in the preparation of the Project financial statements as well as the adequacy of the systems of internal financial control. The Director General Kenya Civil Aviation Authority and the Project Coordinator for the Kenya Transport Sector Support Project confirm that the Project has complied fully With applicable Government Regulations and the terms of external financing covenants, and that Project funds received during the financial year under audit were used for the eligible purposes for which they were intended and were properly accounted for, Approval of the Project financial statements The Project financial statements were approved by the Director General Kenya Civil Aviation Authority and the Project Coordinator for the Kenya Transport Sector Support Project on 26 September 2017 and signed by them. Capt Gilbert M. Kibe Car e ms onbo Joseph Cherop Director General Project Coordinator Project Accountant ICPAK No. 6676 v REPUBLIC OF KENYA Telephone: +254-20-342330 P.O. Box 30084-00100 SFax: ±254-20-3 11482NA101 E-mail: oag@oagkenya.go.ke NAIROBI Website: www.kenao.go.ke OFFICE OF THE AUDITOR-GENERAL REPORT OF THE AUDITOR-GENERAL ON KENYA TRANSPORT SECTOR SUPPORT PROJECT (KTSSP) - IDA CREDIT NO.4926-KE AND NO.5410-KE - FOR THE YEAR ENDED 30 JUNE 2017 - KENYA CIVIL AVIATION AUTHORITY REPORT ON THE FINANCIAL STATEMENTS Opinion I have audited the accompanying financial statements of Kenya Transport Sector Support Project-Kenya Civil Aviation Authority set out on pages 1 to 11, which comprise the statement of financial assets and liabilities as at 30 June 2017, and the statement of receipts and payments, statement of cash flows and statement of comparative budget and actual amounts for the year then ended, and a summary of significant accounting policies and other explanatory information in accordance with the provisions of Article 229 of the Constitution of Kenya and Section 35 of the Public Audit Act, 2015 and the amended and restated Financing Agreement for Credit 4926-KE and No. 5410-KE signed on 31 March 2014 between International Development Association(IDA) and the Republic of Kenya. I have obtained all the information and explanations which, to the best of my knowledge and belief, were necessary for the purpose of the audit. In my opinion, the financial statements present fairly, in all material respects, the financial position of Kenya Transport Sector Support Project (KTSSP)-Kenya Civil Aviation Authority as at June 30, 2017, and of its financial performance and its cash flows for the year then ended, in accordance with International Public Sector Accounting Standards (Cash Basis) and comply with Kenya Civil Aviation Authority Act, 2016 and the amended and restated Financing Agreement No. 4926 and 5410 dated 31 March, 2014 In addition, the Special Account Statement presents fairly the special account transactions and the closing balance has been reconciled with the books of account. rurther, as required by Article 229(6) of the Constitution, I confirm that public money has been applied lawfully and in an effective way. Basis for Opinion The audit was conducted in accordance with International Standards of Supreme Audit Institutions (ISSAls) 1 am independent of Kenya Civil Aviation Authority in accordance with ISSAI 30 on Code of Ethics. I have fulfilled other ethical responsibilities in accordance with the ISSAI and in accordance with other ethical requirements applicable to performing audits of financial statements in Kenya. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my opinion. Report o?f the Att, *-..m'O . '1 ''I? i .V~L 'tc, &O.I LI11* 7 00i'%l. T5. I* .f,* 1HqSL i P - IMZA CrjeditAN ,o41l.'., -&TF Luill 0 5i-t Afl E - i-,,Li. I Ci%. I I i.r,*ifL i 'If If ,,, r . 1 1 ri , 11 OL le. "I .- ,n 2r4 '. 'M-.1 'f*i L' . i":a'dn ,*11L Pui-1 "Stf & P1 Key Audit Matters Key Audit Matters are those matters that, in my professional judgment, are of most significance in the audit of financial statements. There were no Key Audit Matters to report in the year under review. Responsibilities of Management and Those Charged With Governance for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Public Sector Accounting Standards (Cash Basis) and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Project's ability to sustain services, disclosing, as applicable, matters related to sustainability of services and using the going concern assumption unless the management either intends to terminate the Project or to cease its operations, or have no realistic alternative but to do so. Management is also responsible for the submission of the financial statements to the Auditor-General in accordance with the provisions of Section 47 of the Public Audit Act, 2015. Those charged with governance are responsible for overseeing the Project's financial reporting process. Auditor-General's Responsibilities for the Audit of the Financial Statements The audit objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes my opinion in accordance with the provisions of Section 48 of the Public Audit Act, 2015 and submit the audit report in compliance with Article 229(7) of the Constitution. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with International Standards of Supreme Audit Institutions will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit conducted in accordance with ISSAls, I exercise professional judgement and maintain professional skepticism throughout the audit. I also: * Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to Report of the Auditor-General on the Financial Statements of Kenya Transport Sector Support Pro/ect (KTSSP) - IDA Credit NO.4926 KE and NO.5410-KE - Kenya Civil Aviation Anthority.for the year ended 30 June 20/7 2 those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for my opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. * Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, and for the purpose of giving an assurance on the effectiveness of the Project's internal control. * Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the management. * Conclude on the appropriateness of the management's use of the going concern assumption and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Project's ability to sustain its services. If I conclude that a material uncertainty exists, I am required to draw attention in the auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify my opinion. My conclusions are based on the audit evidence obtained up to the date of my audit report. However, future events or conditions may cause the Project to cease to continue its operations. * Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. * Obtain sufficient appropriate audit evidence regarding the financial information of the Project or its activities to express an opinion on the financial statements. * Perform such other procedures as I consider necessary in the circumstances. I communicate with the management regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that are identified during the audit. I also provide management with a statement that 1 have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on my independence, and where applicable, related safeguards. Report of the Auditor-General on the Financial Statements of Kenya Transport Sector Support Project (KTSSP) - IDA Credit NO.4926-KE and NO.5470-KE - Kenya Civil Aviation Authority for the year ended 30 June 2017 3 REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS As required by the International Development Association, I report based on my audit that: i. I have obtained all the information and explanations which, to the best of my knowledge and belief, were necessary for the purpose of the audit; and, ii. in my opinion, proper books of account have been kept by the project, so far as appears from my examination of those books; and, iii. the project's statement of financial position is in agreement with the books of account. FCPA Edward R. 0. Ouko, CBS AUDITOR-GENERAL Nairobi 28 December 2017 Report oJ the Auditor-General on the Financial Statements of Kenya Transport Sector Support Project (KTSSP) - IDA Credit NO.4926-KE andNO.5410-KE - Kenya Civil Aviation Authority for the year ended 30 June 2017 4 ,Ni-' TILI NSPORT-SECTOR SUPPORT PROJECT Reports and Financial Statements For ie financial rear ended June 30. 2017 4. STATEMENT OF RECEIPTS AND PAYMENTS FOR THE PERIOD ENDED 30Tl.RINE 2017 Note 2016/17 2015/16 Cumulative to date, Receipts & Payments Receipts & Payments Payments made by Payments made by Controlled third Controlled third by Entity parties by Entity parties RECEIPTS Kshs Kshs Kshs KCAA counterpart 8.3 5,772,200 1,121,064 - 63,749,493 Funding Proceeds from Domestic 8.4 - - - and Foreign Grants Loan from External 8.5 55,324,160 37,258,229 90,000,000 181,466,098 1,690,548,602 Development Partners Miscellaneous Receipts 8.6 679,214 - 760,916 - 8,768,409 TOTAL RECEIPTS 61,775,575 37,258,229 91,882,000 181,466,098 1,763,066,503 PAYMENTS Compensation of 8.7 - - Employees Purchase of Goods and 8.8 66,093,122 17,886,206 51,152,736 - 233,241,874 Services Social Security Benefits 89 - Acquisition of Non- 8.10 37,587,666 19,372,023 56,120,179 181,466,098 1,528,554,917 Financial Assets I , Transfers to other 8.11 - - Government Entities Other Grants and Transfers 8.12 - - and Pa ments TOTAL PAYMENTS 103,680,788 37,258,229 107,272,915 181,466,098 1,762,796,791 SURPLUS(DEFICIT) (41,905,214) - (15,390,935) - 269,712 FOR THE YEAR -1 -1 The ac6ounting policies and explanatory notes to these financial statements are an integral part of the financial statements. Capt. Gilbert M. Kibe --T-- Clarles Kombo Mr Joseph Cherop Director General Project Coordinator Project Accountant ICPAK NO. 6676 Date Date Date 1 KENYA TRANSPORT SECTOR SUPPORT PROJECT Reports and Financial Statements For thefinancial year ended June 30,2017 5. STATEMENT OF FINANCIAL ASSETS AND LIABILITIES AS AT 30TH JUNE 2017 2017 2016 Note Kshs Kshs FINANCIAL ASSETS Cash and Cash Equivalents Bank Balances 8.13A 269,712 42,174,927 Cash Balances 8.13B - - Cash Equivalents 8.13C - - Imprest and Advances 8.14 - - TOTAL FINANCIAL ASSETS 269,712 42,174,927 REPRESENTED BY: Fund Balance b/fwd 8.15 42,174,926 57,565,861 Surplus/Deficit for the year (41,905,214) (15,390,935) NET FINANCIAL POSITION 269,712 42,174,926 The accounting policies and explanatory notes to these financial statements form an integral part of the financial statements. The financial statements were approved on 26th September 2017 and signed by: Capt Gilbert M Kibe --Mr CharlesKombo Mr Joseph Cherop Director General Project Coordinator Project Accountant ICPAK No. 6676 Date Date Date 2 2 ENIYI TR.4.NSPORTSECTOR SUPPORT PROJECT Reports and Financial Statements For the financial year ended June 30, 2017 0. STATElIENT OF CASHFLOW FOR THE PERIOD 30TH JUNE 2017 2017 2016 Receipts for Operating Income Note Kshs Kshs KCAA Counterpart funding 8.3 5,772,200 1,121,064 Proceeds from domestic and foreign grants 8.4 - - Miscellaneous receipts 8.6 679,214 760,916 6,451,414 1,881,980 Payments for Operating Expenses Compensation of employees 8.7 Purchase of goods and services 8.8 (83,979,328) (51,152,736) Social security benefits 8.9 Transfers to other government entities 8.11 Other grants and transfers 8.12 Other payments - Total Payments & Expenses (83,979,328) (51,152,736) Net cash flow from Operating Activities (77,527,914) (49,270,756) Cashflow from investing activities Acquisition of Assets 8.10 (56,959,688) (237,586,276) Net cash flows from Investing Activities (56,959,688) (237,586,276) Cashflow From Borrowing Activities Proceeds from Foreign Borrowings 8.5 92,582,389 271,466,098 Net cash flow from financing activities 92,582,389 271,466,098 Net Increase In Cash And Cash Equivalent (41,905,214) (15,390,934) Cash And Cash Equivalent At Beginning of The 42,174,927 57,565,861 Year Cash and cash equivalent at END of the year 269,712 42,174,927 The accounting policies and explanatory notes to these financial statements form an integral part of the financial statements. The project financial statements were approved on 26th September 2017 and signed by: Capt Gilbert M Kibe rMriii1s Kombo Mr Joseph Cherop Director General Project Coordinator Project Accountant ICPAK No. 6676 Date Date Date 3 KENYA TRANSPORT SECTOR SUPPORT PROJECT Reports and Financial Statements For the financial year ended June 30,2017 7. STATEMENT OF COMPARATIVE BUDGET AND ACTUAL AMOUNTS Actual on % of Receipts/Payments Original Adjustment Final Comparable Variane Item Budget s Budget Basis Variance e A b c=a+b d e=d-c f=e/c% Receipts Transfer from Government entities . Proceeds from domestic and foreign grants Proceeds from borrowings 165,000,000 144,000,000 309,000,000 92,582,389 (216,417,611) (70%) KCAA Counterpart Funding 10,000,000 10,000,000 20,000,000 5,772,200 (14,227,800) (71%) Miscellaneous receipts 679,214 679,214 100% Total Receipts 175,000,000 154,000,000 329,000,000 99,033,803 (229,966,197) (70%) Payments Compensation of employees Purchase of goods and services 65,000,000 50,000,000 115,000,000 83,979,328 (31,020,672) (27%) Social security benefits Acquisition of non- financial assets 110,000,000 104,000,000 214,000,000 56,959,688 (157,040,312) (73%) Transfers to other government entities Other grants and transfers Other payments Total Payments 175,000,000 154,000,000 329,000,000 140,939,016 (188,060,984) (57%) Note: The significant budget utilisation/performance differences in the last column are explained in Annex 1 to these financial statements. Capt Gilbert M. Kibe Mr hrls Kombo Mr Joseph Cherop Director General Project Coordinator Project Accountant ICPAK( No. 6676 Date Date Date 4 ELNlE4 TAINVSPORT SECTOR SU-PPORT PROJECT Reports and -inancial Statementv For die financial year ended June 30, 2017 S. NOTES TO THE FINANCIAL STATENIENTS The principal accounting policies adopted in the preparation of these financial statements are set out below: 8.1 Basis of Preparation 8.1.1 Statement of compliance and basis of preparation The financial statements have been prepared in accordance with Cash- basis IPSAS financial reporting under the cash basis of Accounting as prescribed by the PSASB and set out in the accounting policy note below. This cash basis of accounting has been supplemented with accounting for; a) receivables that include imprest and salary advances and b) payables that include deposits and retentions. The financial statements comply with and conform to the form of presentation prescribed by the PSASB. 8.1.2 Reporting entity The financial statements, have been prepared by Kenya Civil Aviation Authority and they cover its component in the World Bank funded Kenya Transport Sector Support Project. The financial statements encompass the reporting entity as specified in the relevant legislation PFM Act 2012. 8.1.3 Reporting Currency The Financial Statements are presented in Kenya Shillings (Kshs), which is the functional and reporting currency of the project and all values are rounded to the nearest Kenya Shilling. 8.2 Significant Accounting Policies a) Recognition of receipts The Project recognises all receipts from the various sources when the event occurs and the related cash has actually been received by the project. * Transfers from the Exchequer Transfer from Exchequer is recognised in the books of accounts when cash is received. Cash is considered as received when payment instruction is issued to the bank and notified to the receiving entity. * External Assistance External assistance is received through grants and loans from multilateral and bilateral development partners. Donations and Grants Grants and donations shall be recognised in the books of accounts when cash is received. Cash is considered as received when a payment advice is received by the recipient entity or by the beneficiary. In case of grant / donation in kind, such grants are recorded upon receipt of the grant item and upon determination of Proceeds from borrowing Borrowing includes Treasury bills, treasury bonds, corporate bonds sovereign bonds and external loans acquired by the project or any other debt the project may take on will be treated on cash basis and recognised as a receipt during the year they were received. Undrawn external assistance These are loans and grants at reporting date as specified in a binding agreement and relate to funding for the project currently under development where conditions have been satisfied or their ongoing satisfaction is highly likely and the project is anticipated continue to completion. An analysis of the project undrawn external assistance is shown in the funding summary. * Other Receipts 5 KENYA TRANSPORT SECTOR SUPPORT PROJECT Reports and Financial Statements For the financial year ended June 30, 2017 These include Appropriation-In-Aid and relates to receipts such as proceeds from disposal of assets and sale of tender documents. These are recognised in the financial statements the time associated cash is received. b) Recognition of payments The project recognises all payments when the event occurs and the related cash has actually been paid out by the project. Compensation to employees; Salaries and Wages, Allowances, Statutory Contributions for employees are recognised in the period when the compensation is paid. Use of goods and services Goods and services are recognised as payments in the period when the goods/services are consumed and paid for. If not paid for during the period where goods /services are consumed, they shall be disclosed as pending bills. Interest on borrowing Borrowing costs that include interest are recognised in the period in which they are incurred and paid for. Repayment of borrowing (Principal amount) The repayment of principal amount of borrowing is recognised as payment in the period in which the repayment is made. The stock of debt is disclosed as an annexture to the consolidated financial statements. Acquisition of fixed assets The payment on acquisition of property plant and equipment items is not capitalised. The cost of acquisition and proceeds from disposal of these items are treated as payments and receipt items respectively. Where an asset is acquired in a non- exchange transaction for nil or minimal consideration and a fair value of the asset can be reliably established, a contra transaction is recorded a receipt and as a payment. c) In-kind donations In-kind donations are contributions made to the Project in the form of actual goods and/or services rather than in money or cash terms. These donations may include vehicles, equipment or personnel services. Where the financial value of in-kind donations can be reliably determined, the Project includes such value in the statement of receipts and payments both as revenue and as an expense in equal and opposite amounts; otherwise, the donation is not recorded. d) Cash and cash equivalents Cash and cash equivalents comprise cash on hand and cash at bank, short-term deposits on call and highly liquid investments with an original maturity of three months or less, which are readily convertible to known amounts of cash and are subject to insignificant risk of changes in value. Bank account balances include amounts held at the Central Bank of Kenya and at various commercial banks at the end of the financial year/period. For the purposes of these financial statements, cash and cash equivalents also include short term cash imprest and advances to authorised public officers and/or institutions which had not been surrendered or accounted for at the end of the financial year. Restriction on Cash Restricted cash represents amounts that are limited/restricted from being used to settle a liability for at least twelve months after the reporting period. This cash is limited for direct use as required by stipulation. Amounts maintained in deposit accounts are restricted for use in refunding third party deposits. 6 VEN 4 TRANSPORT SECTOR S PPORT PROJECT Report and Financial Statements For thefinancial year ended June 30, 2017 e) Accounts Receivable For purposes of these financial statements, imprests and advances to authorised public officers and or institutions which were not surrendered or accounted for at end of the financial year is treated as receivables. f) Pending bill Pending bills consist of unpaid liabilities at the end of the financial year arising from contracted goods or services during the year or in past years. As pending bills do not involve the payment of cash in the reporting period, they are simply disclosed as an Annex to the financial statements. When the pending bills are finally settled, such payments are included in the statement of receipts and payments in the year in which the payments are made. g) Budget The budget is developed on the same accounting basis (cash basis), the same accounts classification basis, and for the same period as the financial statements. The Project's budget was approved as required by Law and National Treasury Regulations, as well as by the participating development partners, as detailed in the Government of Kenya Budget Printed Estimates for the year. A high-level assessment of the Project's actual performance against the comparable budget for the financial year under review has been included in an annex to these financial statements. h) Third party Payments Included in the receipts and payments are payments made on its behalf by third parties in form of loans and grants. These payments do not constitute cash receipts and payments and are disclosed in the payments to third parties column in the statements of receipts and payments. During the year, Kshs 37.2 Million being loan disbursements were received in form of direct payment from third parties. i) Exchange rate difference. The accounting records are maintained in the functional currency of the primary economic environment in which the Project operates, Kenya Shillings. Transactions in foreign currencies during the year are converted into the functional currency using the exchange rates prevailing at the dates of the transactions. Any foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statements of receipts and payments. j) Comparative figures Where necessary comparative figures for the previous financial year have been amended or reconfigured to conform to the required changes in financial statement presentation. k) Subsequent events There have been no events subsequent to the financial year end with a significant impact on the financial statements for the year ended June 30, 2017. 1} Errors Material prior period errors shall be corrected retrospectively in the first set of financial statements authorised for issue after discovery by: i. Restating the comparative amounts for prior periods(s) presented in which the error occurred or ii. If error occurred before the earliest prior period presented, restating the opening balances of assets, liabilities and net assets / equity for the earliest period presented. 7 KENYA TRANSPORT SECTOR SUPPORT PROJECT Reports and Financial Statements For the financial year ended June 30, 2017 SIGNIFICANT ACCOUNTING POLICIES (Continued) 8.3 RECEIPTS FROM GOVERNMENT OF KENYA This constitutes the KCAA contribution to the project 2016/2017 2015/2016 Cumulative to date1 Kshs Kshs Kshs Counterpart funds from KCAA 5,772,200 1,121,064 63,749,493 8.4 PROCEEDS FROM DOMESTIC AND FOREIGN GRANTS During the 12 months to 30 June 2017 the project did not receive any grants from donors. 8.5 LOAN FROM EXTERNAL DEVELOPMENT PARTNERS During the 12 months to 30 June 2017 we received funding from development partners in form of loans negotiated by the National Treasury from donors is as detailed in the table below: Date Amount Loans Loans Totalamiount in received in loan received in received as currency cash direct .. payment* . .FY 2016/17 'Q I 01 .- - Kshis Ikshs Kshs E Loans Received from Bilateral Donors (Foreign Governments) None- Loans Received from Multilateral Donors (International Organisations) International Development Association ( World Bank) -55,324,160 37,258,229 92,582,389 271,466,098 Total 55,324,160 37,258,229 92,582,389 271466,098 8.6 MISCELLANEOUS RECEIPTS FY 2016/2017 FY CUMULATI 2015/2016 VE Receipts Receipts Total Controlled by controlle Receipts Entity in Cash d by third parties Ksks Kshs Kshs Kshs Kshs Property Income -i-e- Sale of goods and services - - - - Interest on bank account 679,214 679,214 760,916 8,768,409 Balances R T TOTAL 679,214 - 679,214 760,916 8,768,4091 8 iENI TR4VSPOR T SECTOR SUPPOR T PROJECT Reports and Financial Statement% For the-financial year ended June 30. 2017 NOTES TO THE FINANCIAl STATENIENTS (Continued) 8.7 COMPENSATION OF EMPLOYEES (Continued) There were no employees solely for the project 8.8 PURCHASE OF GOODS AND SERVICES. FY 2016/2017 FY CUMULATIVE 2015/2016 Payments by Payments Total Entity in cash by Third Payments parties Kshs Kshs Kshs Kshs Kshs Training Expenses 42,925,928 - 42,925,928 18,053,893 77,382,634 Consultancy 23,124,597 17,886,206 41,010,803 27,710,541 142,197,869 Services Payment to 4,220,518 creditors Project Operating 1,121,064 13,524,111 Costs Bank Charges & 42,597 42,597 46,720 137,260 Commissions Total 66,093,122 17,886,206 83,979,328 51,152,736 233,241,874 8.9 SOCIAL SECURITY BENEFITS There was no applicable social security benefit during the year. 8.10 ACQUISITION OF NON-FINANCIAL ASSETS 2016/2017 2015/2016 CUMULATIVE Payments by Payments Total Entity in by third Payments Cash parties Kshs Kshs Kshs Kshs Kshs Motor Vehicle and 4,338,646 15,740,489 Other Transport Equipment Purchase of Air 8,251,688 - 8,251,688 14,166,947 579,710,723 Navigation Systems and ICT Equipment Construction of 29,335,978 19,372,023 48,708,001 219,080,684 934,103,705 KCAA Head Office & Other Civil Works Total 37,587,666 19,372,023 56,959,688 237,586,277 1,529,554,917 9 KENYA TRANSPORT SECTOR SUPPORT PROJECT Reports and Financial Statements For the financial year ended June 30, 2017 NOTES TO THE FINANCIAL STATEMENTS (Continued) 8.11 Transfers to other government entities During the 12 months to 30 June 2017, there was no transfer of funds to other reporting Govt entities 8.12 Other grants and transfers and payments - None 8.13 Cash and Cash Equivalents C/Fwd 2016/2017 2015/2016 Cash and Cash Equivalent C/Fwd Kshs Kshs Bank Accounts (Note 8.13A) 269,712 42,174,927 Cash in Hand(Note 8.13B) Cash Equivalent (Short Term deposits) (Note 8.13C) Outstanding Imprest & Advances - Total 269,712 42,174,927 1/S CBK/GOK(K) TRANSPORT SECT.SUPP.PRJ A/C E USD IKES (KCAA) - CR.NO.4926-KE ((a/c No. 001581671219 ) Opening Balance 509,398.00 51,494,658.65 Total Amount Deposited in the account 937,243.25 97,079,655.85 Total amount withdrawn (As per statement of receipts & 1,029,446.66 105,415,338.00 Payments) Closing Balance 417,194.59 43,158,476.50 NOTE USD 482,765.27 had been withdrawn from the designated account but as at 30th June 2017, the same had not been credited to the project operating account. 8.13B Cash in hand - None 8.13C Cash equivalents (short-term deposits) None The project has one project account within the project implementation area and one foreign currency designated account managed by National Treasury. 8.14 Outstanding Imprest and Advances There was no outstanding imprest as at 30th June 2017 8.15 FUND BALANCE BROUGHT FORWARD 2016/2017 2015/2016 Kshs Kshs Bank Accounts 269,712 42,174,927 Cash in hand - Cash equivalents (Short term deposits) - - Outstanding Imprest and advances - - Total 269,712 42,174,927 10 .E NM. TR-ASPORT SECTOR SUPPORT PROJECT Reports and Financial Statements For the fimancial year ended June 30, 2017 9. OTHER IMPORTANT DISCLOSURES 9.1 Pending Accounts payable (Annex 2A) 2016/2017 2015/2016 Kshs Kshs Construction of Buildings 77,823,288 Construction of Civil Works Supply of Goods 3,174,964 3,174,964 Supply of Services Total 80,998,252 3,174,964 9.2 PENDING STAFF PAYABLES (Annex 2B) There were no staff pending payables. 9,3 OTHER PENDING PAYABLES (Annex 2C) There no other outstanding payables. 11 KENA TRANSPORT SECTOR SUPPORTPROJECT Reports and Financial Statements For the financial year ended June 30, 2017 10. PROGRESS ON FOLLOW UP OF AUDITOR RECOMMENDATIONS The following is the summary of issues raised by the external auditor, and management comments that were provided to the auditor. We have nominated focal persons to resolve the various issues as shown below with the associated time frame within which we expect the issues to be resolved. Reference Focal Point person Status: (Puit a date' No. on the (Resolved/ t Issue / Observations from a to resolve the issue Not when you external -.Manag ,ement comments Not Auditor (Name and arpect the aud it Resolked) Report designation) - issue to be V resolved) . t None. NA. NA No eNA Capt Gilbert M. Kibe 11EChartes Kombo Mr Joseph Cherop Director General Project Coordinator Project Accountant ICPAK No. 6676 Date Date Date 12 KENA TRANSPORT SECTOR SUPPORTPROJECT Reports and Financial Statements For the financial year ended June 30, 2017 11. ANNEX 1 - VARIANCE EXPLANATIONS - COMPARATIVE BUDGET AND ACTUAL AMOUNTS Actual on Budget % of Utilisation Final Comparable Utilisation Variance to Budget Basis Variance Final Budget Comments on Variance a b c=a-b d=c/a % RECEIPTS DURINGTHE ITAR/PERIOD Government of Kenya There was delay in External financing 309,000,000 92,582,389 214,417,611 70% conclusion of defects liability on HQ building KCAA Counterpart Funding 20,000,000 5,772,200 14,227,800 71% Miscellaneous receipts - 679,214 -679,214 -100% Total receipts 329,000,000 99,033,803 227,966,197 73% PAYMENTS DURING THE *YFEARPERTOD - _ _ _ _ _ _ _ _ _ _ Compensation of employees - - Pension and other social security contributions Purchase of goods and services 115,000,000 83,979,328 31,020,672 27% Social security benefits - - - There was delay in conclusion of defects at HQ Acquisition of non-financial assets 214,000,000 56,959,688 157,040,312 73% building and award of disaster recovery site. Exchange rate losses/(gains) - net - - - - Advances to government employees - - - - Total payments 329,000,000 140,939,016 188,060,984 57% Explain all variance beyond 50% 13 KENYA TRANSPORT SECTOR SUPPORT PROJECT Reports and Financial Statements For the finan cial year ended June 30, 2017 12. ANNEX 2A - ANALYSIS OF PENDING BILLS Original Date Amount Outstanding Outstanding Supplier of Goods or Services Paid Balance Balance Comments To-Date 2017 2016 a b c d=a-c Construction,of buildi ng 1. Landmark Holdings Ltd 75,697,816 2. Funan Construction Company Ltd , 1,259,562 3. SIMplified Logistics and Construction Ltd 865,910 Sub-Total -.",823,288 Construction of civil works -26,- 4. 5. 6. Sub-Total SupplyuofToods 7. 8. XRX Technologies 650,404 650,404 9. Coretec Systems & Solutions 2,524,560 2,524,560 10. 11. Sub.-Total 3,174,964 3,174,964 12. African Touch Safaris- 13. Joe Mutungi - Flight safety consultancy- Sub-Total- Grand Total 80,998,252 3,174,964 14 KENYA TRANSPORT SECTOR SUPPORT PROJECT Reports and Financial Statements For the financial year ended June 30, 2017 13. ANNEX 2B - ANALYSIS OF PENDING STAFF BILLS Job Original Date Amount Outstanding Outstanding Name of Staff Group Amount Payable Paid Balance Balance Comments Contracted To-Date 2016 2015 a b d=a-c 2. 3. Sub-Total 4. 5. 6. Sub-Total 7. 8. 9. Sub-Total 10. 11. 12. Sub-Total Grand Total 15 KENYA TRANSPORT SECTOR SUPPORTPROJECT Statement of Budget Performance For the year ended June 30, 2017 14. ANNEX 2C - ANALYSIS OF OTHER PENDING PAYABLES Brief Original Date Amount Outstanding Outstanding Name Transaction Amount Payable Paid Balance Balance Comments Description Contracted To-Date 2016 2015 a b c d=a-c Amtountsdue to National ivtiEnities 3. Sub-Total 4. 5. 6. Sub-Total 7. 9. Sub-Total - 10. 12. Sub-Total A Grand Total 16 KENYA TRANSPORT SECTOR SUPPORTPROJECT Reports and Financial Statements For the financiat year ended June 30, 2017 15. ANNEX 3 - SummARY OF FIXED ASSET REGISTER ASSET CLASS OPENING COST Purchases/ Additions Disposals in the Closing Cost (Kshs) 2016/2017 in the year Kshs year Kshs (Ksis) 2016/2017 2016/2017 2016/2017 Land Buildings and Structures 898,633,976 48,708,001 - 947.341.97 7 Transport Equipment 15,740,489 - 15-740.489 Office Equipment, Furniture & Fittings - - - . ICT Equipment, Software and other ICT 33,909,490 1,218,812 - 35.128302 assets Other Machinery and Equipment 551,670,656 7,032,876 - 558,03,53 Heritage and Cultural Assets - - - Intangible Assets - - - Total 1,499,954,611 56,959,689 - 1,556,914,300 17