FFICE OF THE AUDITOR-GENERAL REPORT OF THE AUDITOR-GENERAL ON THE FINANCIAL STATEMENTS OF NATIONAL URBAN TRANSPORT IMPROVEMENT PROJECT- IDA CREDIT NO.5140 (MOT COMPONENT) FOR THE YEAR ENDED 30 JUNE 2017 STATE DEPARTMENT OF TRANSPORT REPUBLIC OF KENYA >4~~~~'I~RO R4''P o% 300SJ4-00)100( OFFICE OF THE AUDITOR-GENERAL REPORT OF THE AUDITOR-GENERAL ON NATIONAL URBAN TRANSPORT IMPROVEMENT PROJECT- IDA CREDIT NO.5140 (MOT COMPONENT) FOR THE YEAR ENDED 30 JUNE 2017- STATE DEPARTMENT OF TRANSPORT REPORT ON THE FINANCIAL STATEMENTS Qualified Opinion I have audited the accompanying financial statements of the National Urban Transport Improvement Project set out on pages 2 to 14, which comprise the statement of financial assets and liabilities and as at 30 June 2017, the statement of receipts and payments, the statement of cash flows, the statement of comparison of budget and actual amounts, together with a summary of significant accounting policies and other explanatory notes to the financial statements, in accordance with provisions of Article 229 of the Constitution of Kenya and Section 35 of the Public Audit Act, 2015 and the financing agreement between the International Development Association (IDA) and the Republic of Kenya dated 26 September, 2012.1 have obtained all the information and explanations which to the best of my knowledge and belief were necessary for the purpose of the audit. In my opinion, except for the effects of the matters described in the Basis for Qualified Opinion paragraph, the financial statements present fairly, in all material respects, the financial position of National Urban Transport Improvement Project (MOT Component) as at 30 June 2017, and of its financial performance and its cash flows for the year then ended, in accordance with International Public Sector Accounting Standards and conforms to the Financing Agreement dated 26 September, 2012. In addition, the Special Account Statement does not present fairly, the Special Account transactions and the closing balance has not been reconciled with the books of account Further, as required by Article 229(6) of the Constitution, I confirm that, except for the matters discussed in the Basis for Qualified Opinion paragraph of my report, public money has been applied lawfully and in an effective way. Basis for Qualified Opinion 1. Special Account Reconciliation The special account reconciliation prepared by the National Treasury shows that an amount of USD 174,168.46 (Kshs.17,890,915.45) was transferred to the project IL n ~iii I .i/ ( wi fm x Iw 11c lat e nt ofu(iJ c ,4 \nin U r ban T A,1;, lmpriovemc wDI&l It) A ~i ( 'rod % Ii I40 >np( 11 )1 1() Il I'L,I nt' June1m 2(4 -Sw'1Dep rlnni,It bank account8 However, the project financial statements show an amount of Kshs.47,176,982 was received as loan revenue from External Development Partners. The difference of Kshs,29,28606655 between the two records has not been reconciled. 2. Nugatory Payment of Interest on Delayed Payments Examination of vouchers for the project revealed that an amount of Kshs.114,691,227.89 was remitted as a direct payment to M/s Weihei International Economic & Technical Cooperative Limited for construction of the proposed library complex for East African School of Aviationr Included in the payment was an amount of Kshs.367,278.90 relating to interest on delayed payments Had the payment been made to the contractor within the stipulated time, the project would have saved public resources amounting to Kshs.367,27890 Responsibilities of Management and those Charged with Governance for the Financial Statements Management is responsible for 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 capacity to sustain its 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 cease its operations, or have no realistic alternative but to do so. The management is also responsible for the submission of its financial statements to the AuditorGeneral 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-Generaf's Responsibilities for the Audit of the Financial Statements The audit objectives are to obtain reasonable assurance about whether the financial statements 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 ISSAs 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. /))/, /, - 10 1 ( )Vdil %4).111 P/ 0lot ( 'O"7NMO i f 'Ql I / 1'0 -:J lv; JI/ned 20) u 1 u! Sla/c? lkparllncill e?I As part of an audit in accordance with ISSAls, I exercise professional judgement and maintain professional scepticism 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 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, but not for the purpose of expressing an op inon 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, determine whether a material uncertainty exists related to events or conditions that may cast significant doubt on the project's capacity 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 as a going concern * Evaluate the overall presentation, structure and content of the financial statements. including the disclosures, and whether the consolidated and separate 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 entities or business act vities to express an opinion on the financial statements. I communicate with the management regarding among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that are identified during the audit. I also provide management with a statement that I have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on my independerce. and where applicable, related safeguards. REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS As required by the International Development Association I report based on my audit that A IDA funds have been used in accordance with the conditions of the Loan Agreement. with due attention to economy and efficiency and only for the Purpose for which the funds were provided Counterpart funds have been provided and used in accordance with the conditions of the Agreement, with due attention (to ecnmyadf.icec and Only for the Purpose for which they were provided Goods and Services financed have been procured in accordance with the Agreement and in compliance with World Bank rules and procedures. * Necessa supporting documents records and accounts have been kept in respect of all project activities, * Adequate internal controls to monitor expenditure and other financial transactions exist. and * A fixed assets register for the Project's assets was maintained during the year FCPA Edward R. 0. Ouko, CBS AUDITOR-GENERAL Nairobi 28 December 2017 - ----