REPUBLIC OF KENYA 101270 KENYA NATIONAL AUDIT OFFICE REPORT OF THE AUDITOR-GENERAL ON EAST AFRICA AGRICULTURAL PRODUCTIVITY PROJECT (IDA CREDIT NO. 4568-KE) FOR THE YEAR ENDED 30 JUNE 2014 MINISTRY OF AGRICULTURE, LIVESTOCK AND FISHERIES (!) . REPUBLIC OF KENYA Telephone: +254-20-342330 P.O. Box 30084-00 I00 fa,; -254-20-3 11482 E-Mail· oaga oagkenya.go.ke NA IROB I \.\ ebsite: '"'" .kenao.go.ke KENYA NATIONAL AUDIT OFFICE REPORT OF THE AUDITOR-GENERAL ON EAST AFRICA AGRICULTURAL PRODUCTIVITY PROJECT (IDA CREDIT NO. 4568-KE) FOR THE YEAR ENDED 30 JUNE 2014 - MINISTRY OF AGRICULTURE, LIVESTOCK AND FISHERIES REPORT ON FINANCIAL STATEMENTS I have audited the accompanying financial statements of East Africa Agricultural Productivity Project set out on pages 1 to 16 which comprise the statement of receipts and payments as at 30 June 2014 and the statement of financial assets and liabilities; 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, Section 8 of the Public Audit Act,2003 and Schedule 2 Section 118 (3) of the Financing Agreement No. 4568-KE dated 14 August 2009 between the International Development Association IDA) and the Government of Kenya (GOK). I have obtained all the information and explanations which, to the best of my knowledge and belief, were necessary for the purpose of the audit. Management's Responsibility for the Financial Statements The National Treasury, the Accounting Officer - Ministry of Agriculture, Livestock and Fisheries and the Project Co-ordinator are responsible for the preparation and fair presentation of these financial statements in accordance with International Public Sector Accounting Standards (cash basis) and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. The management is also responsible for the submission of the financial statements to the Auditor-General in accordance with the provisions of Section 7 of the Public Audit Act, 2003. Auditor-General's Responsibility My responsibility is to express an opinion on these financial statements based on the audit and report in accordance with the provisions of Section 9 of the Public Audit Act. 2003. The audit was conducted in accordance with International Standards on Auditing. Those standards require compliance with ethical requirements and that the audit be planned and performed to obtain reasonable assurance about whether the financial statements are free from material misstatements. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk Promo/Ing lcco1mtab1/11} m the P11b/1c Sector assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Project's internal control. An audit also includes evaluating the appropriateness of accounting polices used and the reasonableness of accounting estimates made by the management, as well as evaluating the overall presentation of the financial statements. I believe that the audit e,vidence obtained is sufficient and appropriate to provide a basis for my audit opinion : Basis for qualified Opinion Special Accounts Balances The special accounts bank balance as at 30 June 2014 is given as US$.3,448,163.09 whereas in the statement of special (designated) accounts reconciliation the same is given as US$.4,167,828.1, resulting to unexplained difference of US$ 719,665.01 or equivalent to Kshs.62,577,751 . It was therefore not possible to confirm the accuracy and completeness of the cash and bank balance of Kshs.393,533,064 as at 30 June 2014. Qualified Opinion In my opinion, except for the effects of the matter described in the Basis for Qualified Opinion paragraph, the financial statements present fairly, in all material respects, the financial position of the Project as at 30 June 2014, and of its financial performance and its cash flows for the year ended, in accordance with International Public Sector Accounting Standards (cash basis) and comply with the terms of the Financing Agreement (IDA Credit No. 4568-KE.) In addition, the special accounts statement presents fairly, transactions for the year and the ending balance has been reconciled with the books of account, except as reported in the basis of qualified opinion on special accounts balances. Edward R .0 Ouko, CBS AUDITOR-GENERAL Nairobi 11 December 2014 2 SPECIAL ACCOUNT STATEMENT For period ending 30th JUNE, 2014 Account No. 1-111/000290 Depository Bank NIC BANK NAIROBI Address NIC HOUSE BRANCH, MASABA RD, NAIROBI. Related Loan E. A. AGRI. PrQductivity Project Credit Agreement NO. 4568-KE Currency USO Account Activity Beginning balance of 1ST July, 2013 as per C.B.K. Ledger Account Add: Total Amount deposited by ADB Total Interest earnings if deposited in account Total amount refunded to cover ineligible expenditure Deduct: Total amount withdrawn Total service charges if not included above in amount withdrawn Ending balance on 30th June,2014 ·------------------------~-·-~~~t~-~~:Q~_ AUTHORISED REPRESENTATIVE SIGNATURE: CENTRAL BANK OF KENYA DATE AUTHORISED REPRESENTATIVE EXTERNAL RESOURCES SIGNATURE: DEPARTMENT~REASURY DATE NOTE: The ending balance as per Central Bank of Kenya Ledger Account and the off-shore Special Account as at 30th June,2014 have been reconciled arid a copy of the supporting Reconciliation Statement is attached. '\ .. J CENTRAL GANK OF KENYA - RECONCILIATION STATEMENT AS AT : . 30/06/201<1 G.L A/ C NO : 10001341129 OFF -SHORE A/ C NO: 1111000290 EASTERN AFRICA AGRICULTURAL OH AILS CURRENCY AMOUNTS REMARKS ACTION TAKEN 4, 167,828. 10 ·........... U1DO DEBITS /\JOT IN NR!3 3 LESS CREDITS NOT IN NRll 13.06 20 14 {719.665.01). - 6.UALANCt AS PER COK l.EOGER ·3,448,1 6 3.09 3,448, 163.09 / PrenMed Gy: NGURF. Chec ked by: ~ . Approved By: __- _.__ ,f":/1tx{-L-> ' -..,..--- Dat e: 10.07 .2014 D-~ tc: \If\7\\If lf I_ O~te:_i_ ~_\ Y ' ....._ PROJECT NAME: EAST AFRICAN AGRIC. PRODUCTIVITY PROJECT (EAAPP) AND NUMBER: IDA LOAN NO 4568.KE STATEMENT OF SPECIAL (DESIGNATED) ACCOUNT RECONCILIATION FOR THE YEAR ENDED 30TH JUNE 2014 PART B: ACCOUNT RECONCILIATION STATEMENT Credit No. 4568 KE Bank Account No: ICA 1-111-000290 Held with NIC BANK LIMITED NOTES US$ I. Amount advanced b.)', World Bank 21,139,957.19 Less 2. Total amount recovered by World Bank 14,163,610.34 3. Outstanding Amount advanced to Special Account Balance 6,976,346.85 Represented by: 4. Ending Special Account Balance at 30 June, 20 l 4 4, 167,828.10 5. Amount c laimed and credited as at 30 June, 2014 0.00 6. Amount withdrawn and not claimed 2,808,518. 75 7. Service charges (if not included in 5 & 6 above) 0.00 Less 8. Interest earning (if included in Special Account) 0.00 9. Total advance to Special Account year ended (June 30, 14) 6,976,346.85 Discrepancy between total appearing on lines 3 and 9 Notes: I. Explain any discrepancy between totals appearing on lines 3 and 9 above (e.g. Amount due to be refunded to cover ineligible expenditures paid from the Special/Designated Account) 2. Indicate if amount appearing on Line 6 are eligible for financing by the World Bank and provide reasons for not claiming the expenditures. The amounts appearing on line 6 are eligible for financing by the World Bank and it is the responsibility of the implementing agents to document for what they have received and seek replenishment. ~ e) ~ s. ~nrct~·--. . . . . . . . ~~-,~·-~ FINAL AUDIT REPORT FOR EASTERN AFRICA AGRICULTURAL PRODUCTIVITY PROJECT (EAAPP) 2013/2014 1:0 INTRODUCTION 1 :1 The audit of East Africa Agricultural Prod uctivity Proj ect (EAAPP) for th e year ended 3 0 J une 2 014 has been com p leted . The a u d it was conducted in accordance w ith the intern ational standa rds on Auditin g (ISA) and inter national organization of Su preme Audit Institu t ion (INTOSAI) stan dards. Th ose Stan dards r equ ire that we pla n a n d conduct the a udit with a view to obtaining r easona ble assurance th at th e re is an a dequate system of inte:rnal control that can prevent a n d detect errors a n d irregula rities w hich may cause material misstatem en ts in th e finan cial s tatem en ts. 1:2 However, it is the r esponsibility of th e m anagemen t to apply adequ a te internal con trol system s to prevent a n d/ or detect e rror s a n d p rovides accurate financia l s tatements w h ich refl ect tru e and fair view of affairs of th e project. Ou r report is design ed to include, th e observations made durin g the 1 Promoting Accountability in the Public Sector audit exercise the likely ris ks or implication s which m ay arise if not corrected in time a n d possible recommenda tions which may not be conclus ive but may h elp in a ddress ing the issu es r aised and also improve the oper a tions of t he proj ect. 1:3 Set out below are some of the findings , all of which h ave been discu ssed ! with Project managem en t during t h e course of the audit a nd in th e exit meeting h eld on 2 7 October, 2 01 3 a t the Project's Conferen ce room . 1:4 We will a pprecia te to receive your comments on t h e issu es ra ised h erein on or before Wednesday November 5, 2 014. 2:0 PRESENTATIONS OF FINANCIAL STATEMENTS 2: 1 Observations 2:1 :1 Compliance with the Reporting Framework The sta tement of complia n ce a nd basis of p repa ra tion of t he fina n cia l statem en ts as sta ted in n ote 8 - 1 to the fina n cial statem en ts ind icate th at the financial s ta tem ents h ave been prepar ed in accordan ce with a nd comply with Internation a l Public Sector Accounting Standa rds (IPSAS) under t h e cash basis of Accounting. Several observations a s listed below were made t hat are n ot in conformity with the IPSAS (cash ba sis) p res enta tion requirem ent. a. Purchase of goods and services Note 8 .7 to t h e fina n cia l statem en ts (purchase of good s a n d services) include purch ase of non-fina n cial assets which include payments for th e con struction of civil works, Laboratory equipmen t office Equip m ents a n d transfer to oth er Governmen t entit ies. b. Classification of components IPSAS (cash basis) provide for th e itemization of the pu rch ase of good s and services com pon en t in to sever al sub-items . Note 8 -7 to th e Draft Fin a ncia l 2 statem en ts has not adhered to this requirement as the expenditure h a s been lumped together. 2:2 Risks/Implications a) The figure for purchase of goods and services 1s over sta ted by the exp enditure incurred on the purch a se of non-financial Asse ts and transfers ma de to oth er Government Entities. b) The presentation requir~ment for purchase of services h as not been a d equ ate. 2:3 Recommendations (_ a) The figure for purchase of good s a nd services should be corrected by tra n s ferring out amounts relating to acquisition of non-fin an cia l Assets a nd tra nsfers to other Government Entities. b) Th e presenta tion a nd disclosure r equirements as per IPSAS (cash ba sis) sh ould be observed. 3:0 NON-FINANCIAL ASSETS 3 : 1 Observations Non -Fina n cia l assets reported dur ing the year includes a figure of Ksh s . l 0 7 ,5 9 1,802 in respect of construction of r esource cen tr e, milk processing unit and a garage at Ka ri Na ivash a . The contract commen ced on 0 3/ 06/20 13 a nd wa s due for completion on 09/ 06 / 2014 a t a cont ract sum of Ksh s20 2, 256,816. It was however n oted tha t as at 30 June 2014 the work h a d n ot been completed as sch eduled. According to valua tion certificate n umber 5 d a ted 18 June 2 0 14 th e valu e of work done a nd m a teria ls on s ite wa s valued a t Ksh s .111 ,993,884 which is a ppropriately 55% of the contract pnce. 3 3:2 Risk/ implication The EAAPP project was sch eduled to be implemented over a period of 5 year ending in February 2015 and delay to complete the contract will have a negative impact on the project. 3 :3 Recommendation The management should ensure that the project components are implemented without any further delay. 4:0 CASH AND CASH EQUIVALENT 4 : 1 Observations A review of the bank recon cilia tion statement for the m onth of June 20 14 reveal that some of the reconciling items which date back to 20 10 /20 11 financial year have not be cleared. The outstanding items a re in respect of payments in the cash book not a ffected in the bank statement totaling to Kshs.853, 823. 4:2 Risk/Implication The balance reflected in the financial statements may be understated. • I 4:3 Recommendation The m a n agement should liase with the ba nk to make the n ecessary adjustmen ts to clear th e outstanding items. 5:0 IMPRESTS AND ADVANCES 5 :1 Observations The imprests and advances balance as at 30th June 20 14 of Kshs. l , 163 ,006 as reflected in note 8. 12D to the draft financial statements include balances 4 that a re long outstanding and which the Management has been unable to recover from the beneficiaries. These a re analyzed as below: Name of Officer Date of Issue Warrant No. Due date Amount Benard Kagunza 16/9/20 13 1674432 20/1/2014 80,600 Lucy Kariuki 21/2 /2 014 1828432 11/3/2014 87,250 Kshs. 167.850 5 :2 Risk/Implication Non recovery of the outstanding imprests m ay result to loss of Public funds. ( 5:3 Recommendation The Management should trace the Officers who are reportedly still m the Public Service with a view of recovering the outstanding impres ts . 6:0 CONCLUSION We would like to thank the Project management and staff for the cooperation given to the audit team during th e Audit. We look forward to similar cooperation as we strive to Account for th e project funds. Yours faithfully, H(£ifl:i ( FOR: AUDITOR GENERAL Copy to:- The Project Coordinator, ../ Eastern Africa Agricultural Productivity Project, 5th Avenue Office Suites, P.O. Box 30028-00100, Nairobi. 5