REPUBLIC OF KENYA OFFICE OF THE AUDITOR-GENERAL REPORT OF THE AUDITOR-GENERAL ON REPORT OF THE AUDITOR-GENERAL ON TRANSFORMING HEALTH SYSTEMS FOR UNIVERSAL CARE (THS-UC) PROJECT GRANT IDA CREDIT NO.5836 - KE, TF0A2561, TF0A2792 AND CR. P152394 FOR THE YEAR ENDED 30 JUNE, 2023 MINISTRY OF HEALTH ms PROJECT NAME: TRANSFORMING HEALTH SYSTEMS FOR UNIVERSAL CARE PROJECT THS - UC PROJECT IMPLEMENTING ENTITY: MINISTRY OF HEALTH PROJECT GRANT/CREDIT NUMBER 5836-KE, TFOA2561, TFOA 2792 AND P 152394 ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED JUNE 30, 2023 Prepared in accordance with the Cash Basis of Accounting Method under the International Public Sector Accounting Standards (IPSAS) TRANSFORMING HEALTH SYSTEMS FOR UNIVERSAL CARE PROJECT Reports and Financial Statements For the financial year ended June 30, 2023 TRANSFORMING HEALTH SYSTEMS FOR UNIVERSAL CARE PROJECT Reports and Financial Statements For the financial year ended June 30, 2023 CONTENTS PAGE 1. A cronym s and G lossary of T erm s .......................................................................................Ar........ ii 2. PROJECT INFORMATION AND OVERALL PERFORMANCE................................................................ iv 3. STATEMENT OF PERFORMANCE AGAINST PROJECTS PREDETERMINED OBJECTIVES............ix 4. ENVIRONMENTAL AND SUSTAINABILITY REPORTING......................................................................x 5. STATEMENT OF PROJECT MANAGEMENT RESPONSIBILITIES.......................................................x 6. REPORT OF THE INDEPENDENT AUDITORS TRANSFORMING HEALTH SYSTEMS FOR UN IV ERSA L CA RE (TH S - UC PROJECT) ....................................O)................................................................. xiv 7. STATEMENT OF RECEIPTS AND PAYMENTS FOR THE YEAR ENDED 30TH JUNE 2023............... 8. STATEMENT OF THE FINANCIAL ASSETS FOR THE YEAR ENDED 30fH JUNE 2 0 2 3 ......................................2.....---. -.. -... -.. --. ----............ .................................................. 2 9. STATEMENT OF CASHFLOW FOR THE YEAR ENDED 30TH JUNE 2023 3 10. STATEMENT OF COMPARATIVE BUDGET AND ACTUAL AMOUNTS FOR THE YEAR ENDED 30TH JU N E 2 0 23...............................................................-.-....-...-.-......-.4. ......................................................................... 4 11. SIGN IFICANT ACCOUN TIN G POLICIES.............................................................................5 12. NOTES TO THE FINANCIAL STATEMENTS..................................................................... 12 13. OTHER IM PORTANTDISCLO SURES.................................................................................19 14. PROGRESS ON FOLLOW UP OF AUDITOR RECOMMENDATIONS .............................................---- --- -------- --- ------------------......................................................20 15. A N N E X ES.......................................... -. -....2... ..................................................25 ii TRANSFORMING HEALTH SYSTEMS FOR UNIVERSAL CARE PROJECT Reports and Financial Statements For the financial year ended June 30, 2023 1. Acronyms and Glossary of Terms CBK Central Bank of Kenya ICPAK Institute of Certified Public Accountants of Kenya IMF International Monetary Fund IPSAS International Public Sector Accounting Standards NT National Treasury PFM Public Finance Management. PSASB Public Sector Accounting Standards Board WB World Bank Comparative FY Financial year preceding the current financial year PHC Primary Health Care RMNCAH Reproductive, Maternal,Newborn,Child and Adolescent Health Services IFR Interim Financial Report PMT Project management Team PDO Project Development Objectives 111 TRANSFORMING HEALTH SYSTEMS FOR UNIVERSAL CARE PROJECT Reports and Financial Statements For the financial year ended June 30, 2023 2. PROJECT INFORMATION AND OVERALL PERFORMANCE 2.1 Name and registered office Name: The project's official name is Transforming Health Systems for Universal Health Care. Objective: The Transforming Health Systems for Universal Care aims to improve the utilization and quality of primary health care (PHC) services by supporting a set of evidence-based interventions, which are expected to contribute to Universal Health Care with improved equity and enhanced efficiency. Address: The project headquarters offices are Nairobi (city), Nairobi County, Kenya. The address of its registered office is Ministry of Health P.O. Box 30016-00 100 Nairobi. The project is partly based at the Ministry of Health and at the Council of Governors. The project support county governments and the Ministry of Health departments. Contacts: The following are the project contacts Telephone: (254) -020-2717077 E-mail: ps@health.go.ke Website: www.health.go.ke 2.2 Project Information Project Start Date: The project start date is 15"' September, 2016 ProJect End Date: The project end date is 30"' September, 2023 Project Manager: The project manager is Dr Isaac Kimani Proect Sponsor: The project sponsor is World Bank iv TRANSFORMING HEALTH SYSTEMS FOR UNIVERSAL CARE PROJECT Reports and Financial Statements For the financial year ended June 30, 2023 2.3 Project Overview Line Ministry/State The project is under the supervision of the Ministry of Health. Department of the project Project number IDA -58360 (THS - UC WA 1) IDA - 58360 (THS - UC MOH - WA 1) TF - A- 2561 (GFF - WA 1) TF - A -2561 (GFF - MOH -WA 1) TF - A- 2792 (PH RD WA 1) Strategic goals of the The strategic goals of the project is to improve utilization and quality of primary project health care services with a focus on reproductive, maternal, new-born, child and adolescent health services. Achievement of The project management aims to achieve the goals through the following means: strategic goals (i)Inproving access to and demand for quality primary health care (PHC)services; (ii)Strengthening institutional capacity in selected key areas to improve utilization and quality of PIC services; and (iii)Supporting cross-country and intergovernmental collaboration in the recently devolved Kenyan health system. Other important The project enhances focus on results by allocating resources to each county background information based on the improved coverage of essential services that are directly linked to the of the project Project Development Objective (PDO) and other factors including equity. The project's support to strengthen the M&E systems, including the routine HIS, will improve the quality of data for monitoring progress toward the achievement of Project Development Objective. Current situation that The Transforming Health Systems for Universal Care aims to improve the the project was formed utilization and quality of Primary Health Care (PHC) services by supporting a set to intervene of evidence-based interventions which are expected to contribute to Universal Health Care with improved equity and enhanced efficiency. Project duration The project started on 15"' September 2016 and is expected to run until 30t September 2023. 2.4 Bankers The following are the bankers for the current year for both the project account and designated account: Central Bank of Kenya P.O. Box 60000-00200 Nairobi 2.5 Auditors Auditor- General P.O Box 30084 - 00100 Nairobi. V TRANSFORMING HEALTH SYSTEMS FOR UNIVERSAL CARE PROJECT Reports and Financial Statements For the financial year ended June 30, 2023 2.6 Roles and Responsibilities List of the different people who are working on the project. Names Title designation Key qualification Responsibilities Dr. Isaac Kimani Project Manager MBChB Project oversight and overall coordination of activities of the Project. Dr Nancy Etiang Deputy Project MBChB,MSc.Applied Assistant to the project Manager. Manager epidemiology Michael Nyale Monitoring and M&E of project activities. evaluation officer Caroline Ndungu Project Bcom, CPA(K) Preparation of Financial reports Accountant as required from time to time e.g. IFR, Bank reconciliation, exchequer requisition, Vote book , preparation of project F/S, responding to Audit issues etc. vi TRANSFORMING HEALTH SYSTEMS FOR UNIVERSAL CARE PROJECT Reports and Financial Statements For the financial year ended June 30, 2023 2.7 Funding summary The total cost of the project is US $ 191.1 million, of which US $ 150 million will be financed by International Development Association (IDA) credit, a US $ 40 million will be granted by the Global Financing Facility (GFF TF) and US $ 1.1 million will be a grant by the Policy & Human Resource Development Fund (PHRD TF). Below is the funding summary: A. Source of Funds Source of Donor Commitment- Amount received to date -Undrawn balance to date funds (30 06 2023) (30 06 2023) Donor KShs Donor KShs Donor KShs currency currency currency (A) (A ')(B) ( B') (A) -(fB) (A') -(fB') (i) Grant TF - A 2792 1,100,000 114,400,000 1,038,371 113,752,523 61,629 647,477 (ii) Loan IDA - 58360 150,000,000 15,450,000,000 145,110, 039 15,373,093,018 4,889,961 76,906,982 F_Total 191,100,000 119,684,400,000 173,990,079T 18,369,511,838= 17,109,921 1,18816 B. Application of Funds Source of Amount received to date - Cumulative amount paid to Unutilised balance to funds (30th June 2023) date - (30th June 2023) dt (30th June 2023) Donor KShs Donor liKSh s Donor KShs currency currency currency (A) (A' (B) (B') (A) -(B) -(A')-B') (i) Grant TFT - A 2561 27,841,669 2,882,666,297 26,06,1 2,659,103,489 1,774,308 23562,808 TF - A 2792 1,038,371 113,752,523 1,036,700 113,541,976 1,671 210,547 (ii) Loan Total 173,990,079 18,369,511,838 171,752,552 18,080,279,978 2,237,527 289,231,860 v11 TRANSFORMING HEALTH SYSTEMS FOR UNIVERSAL CARE PROJECT Reports and Financial Statements For the financial year ended June 30, 2023 2.8 Summary of Overall Project Performance: The key beneficiaries of the project are women of reproductive age, including adolescents and children under five who utilize Primary Health Care services most. The project supports counties in ensuring that the benefits reach the people at grass root level. The projects aim to ensure that; * Children younger than one year are fully immunized; * Pregnant women attend at least four Anti-Natal Care(ANC) visits; * Births are attended by skilled health personnel; and * Women of reproductive age are using a modern Family Planning method. 2.9 Summary of Project Compliance: The project complied with applicable laws and regulations, and essential external financing agreements/covenants and this helped us to achieve the objectives set. viii TRANSFORMING HEALTH SYSTEMS FOR UNIVERSAL CARE PROJECT Reports and Financial Statements For the financial year ended June 30, 2023 3. STATEMENT OF PERFORMANCE AGAINST PROJECTS PREDETERMINED OBJECTIVES Section 81 (2) (f) of the Public Finance Management Act, 2012 requires that, at the end of each financial year, the Accounting officer when preparing financial statements of each National Government entity in accordance with the standards and formats prescribed by the Public Sector Accounting Standards Board includes a statement of the national government entity's performance against predetermined objectives. The key development objectives of the project's plan are to: a) Improve the delivery, utilization, and quality of PHC services at the county level with a focus on (Reproductive, Maternal, Newborn, Child and Adolescent health services) RMNCAH.This also includes procurement of Family Planning commodities. b) Strengthen institutional capacity to better deliver quality PHC services c) Enhance cross-county and intergovernmental collaboration as well as facilitate and coordinate project implementation d) Contingency Emergency Response (CERC)- To fund immediate and short-term activities in the national COVID-19 Contingency Response Plan. It supports Emergency Operations Centre and procurement of health commodities to respond to Covid-19 Pandemic Progress on attainment of Strategic development objectives Objective Outcome Indicator Performance I Improve the Increased no. Of The year's average for Increased immunization delivery, children under lyr who penta 3 coverage was of children utilization, and had received third dose 78.9%; skilled birth Continued increase in quality of PHC of pentavalent vaccine delivery year's coverage women attending ANC services at the Increased number of visits county level with women attending at least s Increased uptake of FP a focus on 4 ANC visits fourth antenatal care commodities. RMNCAH. year's coverage was Women between the 48.4% and the family ages of 15-49 years planning coverage stood currently using a modern at 44.4 %. FP method 2 Cross county and Mombasa County and Improvement of quality -6 youth friendly centres intergovernmental Ministry of Education ASRH services with already established. Collaboration and specific interest to -Purchased equipments Project young mothers in school eg video to capture and Management and community level. highlight departmental Increase access to activities. youth friendly -Free sanitary pads to services in every sub schools. Embu and Kirinyaga county. -Reduced maternal deaths Counties and Kenya Strengthening Blood occasioned by blood National Blood o shortage. transfusion services Transfusion Service -Establishment of satellite blood bank. ix TRANSFORMING HEALTI SYSTEMS FOR UNIVERSAL CARE PROJECT Reports and Financial Statements For the financial year ended June 30, 2023 4. ENVIRONMENTAL AND SUSTAINABILITY REPORTING 1. Sustainability strategy and profile The support makes full use of country systems delivering 'on-budget' support to counties and Ministry of Health. Disbursement of conditional grants is done through the Government system to National Treasury for onward disbursement through IFMIS to the health facilities in the 47 counties. These grants are given at county level according to the existing County Allocation of Revenue (CARA) formula and are allocated to facilities, based on a criteria agreed upon by the county and fully disclosed to the project team. This will improve public health service delivery as the funds will support operational and maintenance expenditure at primary health care facility level. In addition during the current financial year health inspectors have been trained across the country to ensure that even after the closure to the project the gains achieved in improving health facilities will be sustained. In the current financial year, 100 additional health facilities were inspected for purposes of accreditation by NHIF. 2. Environmental performance Follow up was made to ensure that all counties had renewed the National Environmental Management Authority (NEMA)certificate for the incinerators. In addition, there was follow up on all counties that were doing renovations and waste management activities to ensure adherence to the set guidelines. 3. Employee welfare The project follows the Govermnent policies and procedures in the hiring process. The Ministry Human Resource department in collaboration with the Council of Governors(COG) conducts the interviews. In addition, the World Bank requirements are incorporated to ensure that the successful candidate has the necessary qualifications. 4. Market place practices- a) Responsible Supply chain and supplier relations- The organization encourages free flow of information during procurement processes to enable Suppliers gain complete understanding of the procurements being undertaken, and this allows them to both parties to meet each other's' needs more effectively. b) Responsible ethical practices * Continous updating of the supplier register by registration of all qualified suppliers x TRANSFORMING HEALTH SYSTEMS FOR UNIVERSAL CARE PROJECT Reports and Financial Statements For the financial year ended June 30, 2023 * Ensure confidentiality is maintained during a procurement process. If Any information is to be given, ensure it is shared to all participating suppliers during a procurement process. * The organization is a government entity and serves and treats all its clients equally. c) Regulatory impact assessment * All procurement processes are done in accordance to the procurement regulations of the donor, World Bank (WB) requires fairness in treatment of all citizens and stakeholders * All procurement processes are to be open to all eligible participants 5. Community Engagements- For the THS project, a social assessment was conducted and disclosed in 2018 and Vulnerable & Marginalized Groups(VMGPs) were drafted for 28 VMGs across 23 counties. The midwifery training at Kenya Medical Training College(KMTC) focuses on students from underserved areas including VMGs. 800 students received scholarships to study in Bomet, Loitokitok, Kabarnet, Kapenguria, Kitui, Kilifi, Msambweni, Lodwar. Most of the students who graduated are employed at the counties, national facilities and some in private thus improving services in the communities where they come from. In the current financial year different forums for experience sharing were done in order to provide guidance to the counties on sustainability of the gains made. xi TRANSFORMING HEALTH SYSTEMS FOR UNIVERSAL CARE PROJECT Reports and Financial Statements For the financial year ended June 30, 2023 5. STATEMENT OF PROJECT MANAGEMENT RESPONSIBILITIES The Principal Secretary for the Ministry of Health and the Project Manager for Transforming Health Systems for Universal Care - (TI-IS - UC Project) Secretariat 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 June 30, 2023. This responsibility includes: (i) maintaining adequate financial management arrangement and ensuring that these continue to be effective throughout the reporting period; (ii) maintaining proper accounting records, which disclose with reasonable accuracy at any time the financial position of the Project; (iii) designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of the financial statement, and ensuring that they are free from material misstatements, whether due to error or fraud; (iv) safeguarding the assets of the Project; (v) selecting and applying appropriate accounting policies; and (vi) making accounting estimates that are reasonable in the circumstances. The Principal Secretary for the Ministry of Health and the Project Manager for Transforming Health Systems for Universal Care - (THS - UC Project) Secretariat accept responsibility for the Project's financial statements, which have been prepared on the Cash Basis Method of Financial Reporting, using appropriate accounting policies in accordance with International Public Sector Accounting Standards. The Principal Secretary for the Ministry of Health and the Project Manager for Transforming Health Systems for Universal Care - (TH1S - UC Project) Secretariat 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, 2023 and of the Project's financial position as at that date. The Principal Secretary for the Ministry of Health and the Project Manager for Transforming Health Systems for Universal Care - (THS - UC Project) Secretariat further confirm the completeness of the accounting records maintained for the Project, which have been relied upon in the preparation of the Project financial statements as well as the adequacy of the systems of internal financial control. The Principal Secretary for the Ministry of Health and the Project Manager for Transforming Health Systems for Universal Care - (TIHS - UC Project) Secretariat 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. Xl TRANSFORMING HEALTH SYSTEMS FOR UNIVERSAL CARE PROJECT Reports and Financial Statements For the financial year ended June 30, 2023 Approval of the Project financial statements The Project financial statements were approved by The Principal Secretary for the Ministry of Health and the Project Manager for Transforming Health Systems for Universal Care (THS - UC Project) Secretariat on ) 2023 and signed by them. Name kJ) Ume-U , ct_ I ~ame L Principal Secretary Project Manager Project Accountant ICPAK Member No: DLo xiii REPUBLIC OF KENYA Telephone: +254-(20) 3214000 HEADQUARTERS E-mail: info@oagkenya.go.ke Anniversary Towers Website: www.oagkenya.go.ke Monrovia Street OFFICE OF THE AUDITOR-GENERAL P.O. Box 30084-00100 Enhancing Accountability NAIROBI REPORT OF THE AUDITOR-GENERAL ON TRANSFORMING HEALTH SYSTEMS FOR UNIVERSAL CARE (THS-UC) PROJECT GRANT IDA CREDIT NO.5836 - KE, TFOA2561, TFOA2792 AND CR. P152394 FOR THE YEAR ENDED 30 JUNE, 2023 - MINISTRY OF HEALTH PREAMBLE I draw your attention to the contents of my report which is in three parts: A. Report on the Financial Statements that considers whether the financial statements are fairly presented in accordance with the applicable financial reporting framework, accounting standards and the relevant laws and regulations that have a direct effect on the financial statements. B. Report on Lawfulness and Effectiveness in Use of Public Resources which considers compliance with applicable laws, regulations, policies, gazette notices, circulars, guidelines and manuals and whether public resources are applied in a prudent, efficient, economic, transparent and accountable manner to ensure Government achieves value for money and that such funds are applied for the intended purpose. C. Report on Effectiveness of Internal Controls, Risk Management and Governance which considers how the entity has instituted checks and balances to guide internal operations. This responds to the effectiveness of the governance structure, the risk management environment and the internal controls, developed and implemented by those charged with governance for orderly, efficient and effective operations of the entity. An unmodified opinion does not necessarily mean that an entity has complied with all relevant laws and regulations, and that its internal controls, risk management and governance systems are properly designed and were working effectively in the financial year under review. The three parts of the report are aimed at addressing the statutory roles and responsibilities of the Auditor-General as provided by Article 229 of the Constitution, the Public Finance Management Act, 2012 and the Public Audit Act, 2015. The three parts of the report, when read together constitute the report of the Auditor-General. REPORT ON THE FINANCIAL STATEMENTS Opinion I have audited the accompanying financial statements of Transforming Health Systems for Universal Care (THS-UC) Project Grant IDA Credit No.5836 - KE, TFOA2561, Report of the Auditor-General on Transforming Health Systems for Universal Care (THS-UC) Project Grant IDA Credit No.5836 - KE, TFOA2561, TFOA2792 and Cr. P152394for the year ended 30 June, 2023 - Ministry ofHealth TFOA2792 and CR. P152394 set out on pages 1 to 24, which comprise of the statement of financial assets as at 30 June, 2023, and the statement of receipts and payments, statement of cash flows and the 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. 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 Transforming Health Systems for Universal Care (THS-UC) Project Grant IDA Credit No.5836 - KE, TFOA2561, TFOA2792, and CR. P152394 as at 30 June, 2023, and its financial performance and its cash flows for the year then ended, in accordance with International Public Sector Accounting Standards (Cash Basis) and comply with the Public Finance Management Act, 2012 and Grant Agreement No.5836-KE, TFOA2561 and TFOA2792 dated 04 July, 2016 between International Development Association and the Republic of Kenya. Basis for Opinion The audit was conducted in accordance with International Standards of Supreme Audit Institutions (ISSAls). I am independent of the Transforming Health Systems for Universal Care (THS-UC) Project Grant IDA Credit No.5836 - KE, TFOA2561, TFOA2792, and CR. P152394 Management in accordance with ISSAI 130 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. Emphasis of Matter 1. Budgetary Control and Performance The statement of comparative budget and actual amounts reflects the final budget expenditure of Kshs.500,000,000 against the actual expenditure of Kshs.353,536,957 resulting to an under-absorption of Kshs.146,463,043 or 29% of the budget. This is an indication of failure to implement the planned programmes for the year, thus negatively impacting planned project's objectives and service delivery. Further, the project's actual receipts amounted to Kshs.151,812,000 against budgeted receipts of Kshs.500,000,000 resulting to revenue shortfall of Kshs.348,188,000 or 69%, which is an indication of possible weakness in meeting donor conditions and enforcement of controls. In the circumstances, the Project's key objectives of improving utilization and quality of primary health care services with a focus on reproductive, maternal, new-born, child and adolescent health care may not be achieved. Report of the Auditor-General on Transforming Health Systems for Universal Care (THS-UC) Project Grant IDA Credit No.5836- KE, TFOA2561, TFOA2792 and Cr. P]52394jbr the year ended 30 June, 2023 - Ministry ofHealth 2 2. Delayed Disbursements and Missed Project Targets Note 12.6 reflects transfers to other government entities of Kshs.2,878,953,881 for financial year 2021-2022 which includes transfers to County Governments of Kshs. 1,445,456,881. However, the funds were disbursed towards the end of the financial year which delayed the implementation of their work plans. In addition, the financial statements under source of funds information disclosed in page vii reflects Kshs.1,314,888,162 as undrawn balance and Kshs.289,231,860 as unutilized funds. This signifies a likelihood of not realising the project objectives which closes on 30 September, 2023. In the circumstances, the aim of the project to improve the utilisation and quality of Primary Health Care (PHC) services may not be fully realised. Key Audit Matters Key audit matters are those matters that, in my professional judgment, are of most significance in the audit of the financial statements. There were no key audit matters to report in the year under review. REPORT ON LAWFULNESS AND EFFECTIVENESS IN USE OF PUBLIC RESOURCES Conclusion As required by Article 229(6) of the Constitution, based on the audit procedures performed, except for the matter described in the Basis for Conclusion on Lawfulness and Effectiveness in Use of Public Resources, I confirm that, nothing else has come to my attention to cause me to believe that public resources have not been applied lawfully and in an effective way. Basis for Conclusion Pending Bills Note 13.1 to the financial statements on other important disclosure reflects pending bills of Kshs.3,628,545 which were outstanding at the close of the financial year. This is contrary to Section 53(8) of the Public Procurement and Asset Disposal Act, 2015 which requires an accounting officer not to commence any procurement proceedings until satisfied that sufficient funds to meet the obligations of the resulting contract (s) are reflected in approved budget estimates. In the circumstances, Management was in breach of the law. The audit was conducted in accordance with ISSAI 4000. The standard requires that I comply with ethical requirements and plan and perform the audit to obtain assurance about whether the activities, financial transactions and information reflected in the financial statements are in compliance, in all material respects, with the authorities that Report of the Auditor-General on Transforming Health Systems for Universal Care (THS-UC) Project Grant IDA Credit No.5836 - KE, TFOA2561, TFOA2792 and Cr. P152394 for the year ended 30 June, 2023 - Ministry ofHealth 3 govern them. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my conclusion. REPORT ON EFFECTIVENESS OF INTERNAL CONTROLS, RISK MANAGEMENT AND GOVERNANCE Conclusion As required by Section 7(1)(a) of the Public Audit Act, 2015, based on the audit procedures performed, except for the matter described in the Basis for Conclusion on Effectiveness of Internal Controls, Risk Management and Governance section of my report, I confirm that, nothing else has come to my attention to cause me to believe that internal controls, risk management and overall governance were not effective. Basis for Conclusion Failure to Update Imprest and Fixed Asset Registers Review of imprest register and fixed assets registers from three (3) sampled projects revealed they were not updated. In the circumstances, the internal controls on maintenance of imprest and fixed assets registers could not be confirmed. The audit was conducted in accordance with ISSAI 2315 and ISSAI 2330. The standards require that I plan and perform the audit to obtain assurance about whether effective processes and systems of internal controls, risk management and overall governance were operating effectively, in all material respects. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my conclusion. REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS As required by Financing Agreement dated 04 July, 2016, 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; ii. In my opinion, adequate accounting records have been kept by the Project, so far as appears from the examination of those records and iii. The Project's financial statements are in agreement with the accounting records and returns. Responsibilities of Management and those Charged with Governance Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Public Sector Accounting Standards (Cash Basis) and for maintaining effective internal control as Management determines is necessary to enable the preparation of financial statements that are free from material Report of the Auditor-General on Transforming Health Systems for Universal Care (THS-UC) Project Grant IDA Credit No.5836- KE, TFOA2561, TFOA2792 and Cr. P152394 for the year ended 30 June, 2023 - Ministry ofHealth 4 misstatement, whether due to fraud or error and for its assessment of the effectiveness of internal controls, risk management and overall governance. In preparing the financial statements, Management is responsible for assessing the Project's ability to continue to sustain its services, disclosing, as applicable, matters related to sustainability of services and using the applicable basis of accounting unless Management is aware of the intention to terminate the Project or to cease operations. Management is also responsible for the submission of the financial statements to the Auditor-General in accordance with the provisions of Section 47 of the Public Audit Act, 2015. In addition to the responsibility for the preparation and presentation of the financial statements described above, Management is also responsible for ensuring that the activities, financial transactions and information reflected in the financial statements are in compliance with the authorities which govern them, and that public resources are applied in an effective way. Those charged with governance are responsible for overseeing the Project's financial reporting process, reviewing the effectiveness of how Management monitors compliance with relevant legislative and regulatory requirements, ensuring that effective processes and systems are in place to address key roles and responsibilities in relation to governance and risk management, and ensuring the adequacy and effectiveness of the control environment. Auditor-General's Responsibilities for the Audit The audit objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes my opinion in accordance with the provisions of Section 48 of the Public Audit Act, 2015 and submit the audit report in compliance with Article 229(7) of the Constitution. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISSAls will always detect a material misstatement and weakness when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. In addition to the audit of the financial statements, a compliance audit is planned and performed to express a conclusion about whether, in all material respects, the activities, financial transactions and information reflected in the financial statements are in compliance with the authorities that govern them and that public resources are applied in an effective way, in accordance with the provisions of Article 229(6) of the Constitution and submit the audit report in compliance with Article 229(7) of the Constitution. Further, in planning and performing the audit of the financial statements and audit of compliance, I consider internal control in order to give an assurance on the effectiveness of internal controls, risk management and overall governance processes and systems in Report of the Auditor-General on Transforming Health Systems for Universal Care (THS-UC) Project Grant IDA Credit No.5836 - KE, TFOA2561, TFOA2792 and Cr. P152394 for the year ended 30 June, 2023 - Ministry ofHealth 5 accordance with the provisions of Section 7(1)(a) of the Public Audit Act, 2015 and submit the audit report in compliance with Article 229(7) of the Constitution. My consideration of the internal control would not necessarily disclose all matters in the internal control that might be material weaknesses under the ISSAls. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements caused by error or fraud in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Because of its inherent limitations, internal control may not prevent or detect misstatements and instances of non-compliance. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate. As part of an audit conducted in accordance with ISSAls, I exercise professional judgment 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 those risks and obtain audit evidence that is sufficient and appropriate to provide a basis for my opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations or the override of internal control. * Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Management. * Conclude on the appropriateness of the Management's use of the applicable basis of accounting 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 sustain its services. * Evaluate the overall presentation, structure and content of the financial statements, including the disclosures and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. * Obtain sufficient appropriate audit evidence regarding the financial information and business activities of the Project to express an opinion on the financial statements. * Perform such other procedures as I consider necessary in the circumstances. Report of the Auditor-General on Transforming Health Systems for Universal Care (THS- UC) Project Grant IDA Credit No.5836 - KE, TFOA2561, TFOA2792 and Cr. P152394 for the year ended 30 June, 2023 - Ministry ofHealth 6 I communicate with Management regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that are identified during the audit. I also provide Management with a statement that I have complied with relevant ethical requirements regarding independence and to communicate with them all relationships and other matters that may reasonably be thought to bear on my independence and where applicable, related safeguards. CPA",S AUDITOR-GENERAL 13 October, 2023 Report of the Auditor-General on Transforming Health Systems for Universal Care (THS-UC) Project Grant IDA Credit No.5836- KE, TFOA2561, TFOA2792 and Cr. P152394 for the year ended 30 June, 2023 - Minist-y ofHealth 7 � b �; г� о,� `b �] � о� кi i�7 и � � � ° � о � � а � к ° � � � � � � fD �; у ��у л л Г� � у о�, о ��у Н F,,, � У." Q , � '� � й � �С й со � �1 r ,� о � �' b � `� ,�J � � • "�" r' о г* � г�, � ги � 'б �' со � со о �-Э � о � � и � о л�,� о го �у � л к� � � , и �-д л . � � Н ц и �у ,,,� b t7 ьаС к. �' �� л' по � д� и � г!� ц � `� � 2 м U4 tiy � ,� й о й о �~ н 'w�. R �. 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'��' ' U? ь-� (а оо .Р fл �А р � Z � r• :С� � � о� � � .А о w rn N С 0 ,.у. � ; �. i-+ W оо оо �О О� А �О .А �, `I� ��"'� ,й г�.'-б О N �О �1 А W � �О i � 1+_ �V У� 00 и i--� �,. "_'`�� ;' :',�j�"� �д, о а� w w о й �a�i л N р.: х Z Г � , о о �о со о J �-. �о �з N N и � � ,�- о� и оо и оо rn оо и �� F`` %� � О 00 �, w О� оо 0о �1 N й � �� 0�� CD W '�S' ?. .А ,С- W � � � д� и и и iv w � � � � О и �:� � г� �' и и и о � �+ и ь-` � � й й и � \D �О �О �О О й Г-г N � W N W w i-• w оо .А. in �А � О\ 00 �1 \D А �1 �7 и �+ оо оо оо � и �о оо � о оо й � й �о � � �о w и оо v t.� rn и о N w �� р� �р N и о� о w оо о t.� аа � о� Q� А 00 \U О о� О N Оо О �1 l.�J и 00 �7 U � F� �--� 00 ll� J� 00 Q1 N О lв� и W р0 j� оо оо .А й w и о, оо � �о о о и .д. о �о �о �о N N �� � � N й оо и � � N ai о л � t`i й х ао �о и оо й о оо о� � и о� J и rn .t� о w и .Р. - о оо w и оо N оо �t й TRANSFORMING HEALTH SYSTEMS FOR UNIVERSAL CARE PROJECT Reports and Financial Statements For the financial year ended June 30, 2023 8. STATEMENT OF FINANCIAL ASSETS AS AT 30TH JUNE 2023 FINANCIAL ASSETS Cash and Cash Equivalents Bank Balances 12.7 281,928,360 489,181,917 Total Cash and Cash Equivalents 281,928,360 489,181,917 Accounts receivables - Imprest and 7,303,500 1,774,900 Advances 12.9 TOTAL FINANCIAL ASSETS 289,231,860 490,956,817 REPRESENTED BY Fund balance b/fwd 12.10 490,956,817 329,866,757 Surplus/(Deficit) for the year (201,724,957) 161,090,060 NET FINANCIAL POSITION 289,231,860 490,956,817 The accounting policies and explanatory notes to these financial s atei ents form an integral part of the financial statements. The financial sta ernents were approved on A I 22 2023 and signed by: Principal Secretary Troject Coordinator Project Accountant ICPAK Member No:IO4 CD 2 TRANSFORMING HEALTH SYSTEMS FOR UNIVERSAL CARE PROJECT Reports and Financial Statements For the financial year ended June 30, 2023 9. STATEMENT OF CASHFLOW FOR THE YEAR ENDED 30TH JUNE 2023 Proceeds fromn domestic and foreign grants 12.1 151,812,000 64,942,231 Payments for operating activities Compensation of employees 12.3 (6,364,198) (6,179,168) Use of goods and services 12.4 (338,582,581) (449,440,786) Transfers to other government entities 12.6 (2,878,953,881) Changes in Imprests & Advances 12.11 (5,528,600) Net Cash flows from Operating Activities (198,663,379) (3,269,631,604) CASHFLOW FROM INVESTING ACTIVITIES Acquisition of Assets 12.5 (8,590,178) (8,713,093) Net cash flows from Investing Activities (8,590,178) (8,713,093) CASHFLOW FROM BORROWING ACTIVITIES Loan from external development partners 12.2 3,439,434,757 Net cash flow from financing activities 3,439,434,757 NET INCREASE IN CASH AND CASH (207,253,557) 161,090,060 EQUIVALENT Cash and cash equivalent at BEGINNING of 489,181,917 328,091,857 the year Cash and cash equivalent at END of the year 281,928,360 489,181,917 The accounting policies and explanatory notes to these financial statements fqrm an integral part of the financial statements. The entity financial statements were approved on }N\. 2023 and signed by: PrincipaNecretary Project Mai ager Project ccountant Name /,c NamA, Name: Date Date Date (i< \ 3 ICPAK Member No:9040 3 TRANSFORMING HEALTH SYSTEMS FOR UNIVERSAL CARE PROJECT Reports and Financial Statements For the financial year ended June 30, 2023 10. STATEMENT OF COMPARATIVE BUDGET AND ACTUAL AMOUNTS FOR THE YEAR ENDED 30TH JUNE 2023 Original Actual on Budget % of Receipts/Paym Budget Adjustments Final Budget Comparable Utilization Utiliza ents Item Basis Difference tion f=d/c a b c=a+b d e=c-d % Receipts Grants from external development partners 446,000,000 (246,000,000) 200,000,000 151,812,000 48,188,000 76% Loan from external development partners 454,000,000 (154,000,000) 300,000,000 300,000,000 Total Receipts 900,000,000 (400,000,000) 500,000,000 151,812,000 348,188,000 30% Payments Compensation of employees 14,500,000 14,500,000 6,364,198 8,135,802 44% Purchase of goods and 862,600,000 (400,000,000) 462,600,000 services 338,582,581 124,017,419 73% Acquisition of non-financial assets 22,900,000 22,900,000 8,590,178 14,309,822 38% Total Payments 900,000,000 (400,000,000) 500,000,000 353,536,957 146,463,043 75% Surplus/deficit (201,724,957) ________________________ ____ ____ ___ (201,724,957) _ __ For variances refer to Annex I on pg 20 Prmncip 1Secretary Project Man ger ^eProject Account it Name: NName Uw7 ame: - Date " a Date Cate о и N � �--� п3 � � и � � N � � ,�. 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