REPUBLIC OF KENYA OFFICE OF THE AUDITOR-GENERAL REPORT OF THE AUDITOR-GENERAL ON THE FINANCIAL STATEMENTS OF SECONDARY EDUCATION QUALITY IMPROVEMENT PROJECT (SEQIP) CREDIT NO.6138 - KE FOR THE YEAR ENDED 30 JUNE 2018 STATE DEPARTMENT FOR EARLY LEARNING AND BASIC EDUCATION Project Name: SECONDARY EDUCATION QUALITY IMPROVEMENT PROJECT Implementing Entity: MINISTRY OF EDUCATION STATE DEPARTMENT FOR BASIC EDUCATION PROJECT CREDIT NUMBER: IDA 6138-KE ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 Prepared in accordance with the Cash Basis of Accounting Method under the International Public Sector Accounting Standards (IPSAS) SEQIP Project -Reports and Financial Statements For the year ended 30 June 2018 CONTENTS PAGE 1. PROJECT INFORMATION AND OVERALL PERFORMANCE..................FORMANCE.-..--.-...-..........- 2. STATEMENT OF PROJECT MANAGEMENT RESPONSIBILITIES...............PONSIB-ITIES-...........v 3. REPORT OF THE AUDITOR -GENERAL ON THE SEQIP PROJECT .................ROJECT-...--........-- 4. STATEMENT OF RECEIPTS AND PAYMENTS FOR THE YEAR ENDED 30 JUNE 2018 .................................1 5. STATEMENT OF FINANCIAL ASSETS AS AT 30 JUNE 2018.......................................2....................I............ 2 6. STATEMENT OF CASHFLOW S FOR THE YEAR 30 JUNE 2018 .....................-....-8......-.................................... 3 7. STATEMENT OF COMPARATIVE BUDGET AND ACTUAL AMOUNTS......................................................4 8. NOTES TO THE FINANCIAL STATEMENTSATEMENTS.................................-....-....-. 5 9. PROGRESS ON FOLLOW UP OF AUDITOR RECOMMENDATIONS ........C..OMMENDATIONS........... 15 SEQIP Project Reports and Financial Statements For the year ended 30 June 2018 1. PROJECT INFORMATION AND OVERALL PERFORMANCE 1.1 Name and registered office Name: The project's official name is Secondary Education Quality Improvement Project Objective: The key objective of the project is to improve student learning and transition from primary to secondary education in the targeted areas. Address: The project headquarters offices are at Ministry of Education, located in Nairobi City County, Kenya. The official address is 30040-0100, Nairobi, Kenya. The address of its registered office is: Jogoo House B Harambee Avenue Nairobi. Contacts: The following are the project contacts Telephone: (254) 02318581 E-mail: ps@education.go.ke Website: www.education .go.ke 1.2 Project Information Project Start Date: The project start date is 28/9/2017 Project End Date: The project end date is 31/12/2023 Project Manager: The project Coordinator is JANE MBUGUA Project Sponsor: The project Sponsor is IDA 1.3 Project Overview Line Ministry/State The project is under the supervision of the Ministry of Education, State Department of the Department for Early Learning and Basic Education. project Project number P160083 Strategic goals of the The project activities are aligned with the Government strategic objective of project providing quality basic education for Kenya's sustainable development. SEQIP Project Reports and Financial Statements For the year ended 30 June 2018 strategic goals means: (i) Average student test score in science subjects at form 2 at public schools in target sub counties. (ii) Average student test score in mathematics at form 2 at public schools in target sub counties Average student test score (iii) Transition rate from primary to secondary schools in targeted sub- counties. Other important The project is being implemented in 7,852 primary schools and 2,147 background secondary schools from 110 sub counties in 30 counties in vulnerable and information of the marginalized areas. project The project is being implemented by the Ministry of Education, State department for Early Learning and Basic Education as the main implementing partner in collaboration with Teachers Service Commission (TSC), Kenya Institute of Curriculum Development (KICD), Kenya National Examination Council (KNEC) and Centre for Mathematics, Science and Technology Education in Africa (CEMASTEA) which are Semi-Autonomous Agencies (SAGAS) under Ministr of Education. Current situation that The project was formed to intervene in the following areas: the project was (i) Improving quality of teaching in targeted areas formed to intervene (ii) Improving retention in upper primary school and transition to secondary school in targeted areas. (iii) System reform support. Project duration The project started on 28 September 2017 and is expected to run until 31 December 2023 1.4 Bankers The following are the bankers for the current year: (i) Central Bank of Kenya - Account No.10003 18201 Haile Selassie Avenue, P.O Box 60000-0200, Nairobi, Kenya. (ii)Central Bank of Kenya - Account No. 1000370898 Haile Selassie Avenue, P.O Box 60000-0200, Nairobi, Kenya. SEQIP Project Reports and Financial Statements For the year ended 30 June 2018 1.5 Auditors The project is audited by: Auditor - General Office of the Auditor General P.0 Box 30084-00100 Nairobi. 1.6 Roles and Responsibilities Names Title designation Key qualification Responsibilities Elijah Mungai Ag. Director Project Master in Education Providing Leadership Coordination and in project Delivery coordination and Delivery Jane Mbugua Ag.Deputy Director Master in planning Overseeing the Education and Economics coordination of day to (National Project day activities of the Coordinator) project. Grace Njoki Chief Accountant CPA (K) , MSC Project Accountant Finance David Kirui Senior Assistant Master in Education Lead for Component Director Education 1 (Improving quality of teaching in Targeted Areas. John Ongosi Senior Assistant Master in Education Lead for component 2 Director Education ( Improving retention in upper primary and transition school in targeted areas) Catherine Micheni Senior Assistant Master in Education Lead for Component Director Education 3 (System reform support) Kezziah Wandera Senior Assistant Master in Education Lead for Component Director Education 4(Project management, coordination, and monitoring and evaluation. 1.7 Funding summary The Project is for duration of six years from 2017 to 2023 with an approved budget of Euro.175.5 million equivalent to KSlis 20 billion as highlighted in the table below: SEQIP Project Reports and Financial Statements For the year ended 30 June 2018 Below is the funding summary: i) Loan International Development Association (IDA) 175,500,000 20,000,000,000 4,936,737 610,188,877 170,563,263 19,389,811,1 Total 175,500,000 20,000,000,000 4,936,737Y 61,8,77 170,563,263 19,389,811,1 1.8 Summary of Overall Project Performance: During the year under review,the project received Kshs.558,676,453 and incurred a cumulative expenditure of Kshs. 247,637,058. 1.9 Summary of Project Compliance: The program has ensured that all its activities carried out are within the laws of the republic of Kenya and that all regulations and procedures have been followed. Among the regulations include the Environmental and Social Impact Assessment (ESIA) for which authority was issued for the implementation of the project. In cases of inconsistency between the GOK Regulations and those of donors, the latter have been applied. SEQIP Project Reports and Financial Statements For the year ended 30 June 2018 2. STATEMENT OF PROJECT MANAGEMENT RESPONSIBILITIES The Principal Secretary for the State Department for Basic Education and the Project Coordinator for SEQIP 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, 2018. 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 State Department for Basic Education and the Project Coordinator for SEQIP project 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 State Department for Basic Education and the Project Coordinator foi SEQIP 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, 2018 and of the Project's financial position as at that date. The Principal Secretary for the State Department for Early Learning and Basic Education and the Project Coordinator for SEQIP project further confirm the completeness o: the accounting records maintained for the Project, which have been relied upon in the preparation of th( Project financial statements as well as the adequacy of the systems of internal financial control. The Principal Secretary for the State Department for Basic Education and the Project Coordinator fo SEQIP project confirm that the Project has complied fully with applicable Government Regulations an( the terms of external financing covenants, and that Project funds received during the financia year/period under audit were used for the eligible purposes for which they were intended and wen properly accounted for. Approval of the Project financial statements The Project financial statements were approved by the Principal Secretary f the State Department fo Basic Education and the Project Coordinator for SEQIP project S 201 and signed by them. Prin pal Secretary Project CoorJinator Project ccountant: N e:DR BELIO KIPSANG Name: JANE MBUGUA Name:GRACE W. NJOKI ICPAK Member Number: 8829 Vi REPUBLIC OF KENYA Telephone: +254-20-342330 P.O. Box 30084-00100 Fax: +254-20-311482NARB E-mail: oag@oagkenya.go.ke NAIROBI Website: wwwkenao.go.ke OFFICE OF THE AUDITOR-GENERAL REPORT OF THE AUDITOR-GENERAL ON SECONDARY EDUCATION QUALITY IMPROVEMENT PROJECT (SEQIP) CREDIT NO. 6138 - KE FOR THE YEAR ENDED 30 JUNE 2018 - MINISTRY OF EDUCATION, SCIENCE AND TECHNOLOGY - STATE DEPARTMENT FOR EARLY LEARNING AND BASIC EDUCATION REPORT ON THE FINANCIAL STATEMENTS Opinion I have audited the accompanying financial statements of Secondary Education Quality Improvement Project set out on pages 1 to 17, which comprise the statement of financial assets as at 30 June 2018, and the statement of receipts and payments, statement of cash flows and statement of comparison of 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 Project Agreement No.6138 - KE dated 27 September 2017 between International Development Association 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 rsupects, the financial position of Secondary Education Quality Improvement Project (SEQIP) as at 30 June, 2018, 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 Financing Agreement No.IDA 6138-KE dated 27 September, 2017. In addition, the special account statement presents fairly, transactions for the year and the ending balance has been reconciled with the books of account. Basis for Opinion The audit was conducted in accordance with International Standards of Supreme Audit Institutions (ISSAls). , I am independent of Secondary Education Quality Improvement Project management 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. 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. Other Matter Budget Control and Performance The project had a budget of Kshs.641,940,396 against actual expenditure of Kshs.247,637.058 resulting in under expenditure of Kshs.394,3030,339 or 61% of the total budget as detailed below:- Category Final Budget Actual Under Under Amount Absorption Absorption Kshs. Kshs. Kshs. Kshs. Purchase of 462,517,371 68,214,033 394,303,338 85% goods and services Transfers to 179,423,025 179,423,025 other government entities Total 641,940,396 247,637,058 394,303,338 61% From the above analysis, the project management underutilized the budget under purchase of goods and services by Kshs.394,303,338 or 85%. The under absorption of the approval budget is an indication of activities not implemented which implies non-delivery of planned goods and services to the Kenya Education Sector stakeholders. Report on Compliance with Lawfulness and Effectiveness in use of Public Money As required by Article 229(6) of the Constitution, I confirm that, nothing has come to my attention to cause me to believe that public money has not been applied lawfully and in an effective way. Report on Internal Controls Effectiveness, Governance and Risk Management Systems As required by Section 7 (1) (a) of the Public Audit Act, 2015, kconfirm that, nothing has come to my attention to cause me to believe that internal controls were not operating in an effective way. Ronnrt df th,'r, t(7n I n n innnpinl .Vtomantv nf .'pnI, PJo ndi- i h aji, I,... nnn 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 in continuing to sustain services, disclosing, as applicable, matters related to sustainability of services and using the applicable basis of accounting unless the management either intends to liquidate the Project or to cease 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 of Kenya. 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. 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 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. Report q?f the Auditor-General on the Financial Statements qf Secondaly Education Quality Inmprovement Prq/ect (Credit No.6 138- KE)for the year 2018- State Departmnent/br- Early Learninz and8Basic Education * 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 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 continue as a going concern or 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 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 of the entity or business activities of the Project 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 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. FCPA Edward R. 0. Ouko, CBS AUDITOR-GENERAL Nairobi 20 November 2018 Report of the Auditor-General on the Financial Statements oJ SecondarY Education Quality Improvement n. . ,r . V- 4 2V L-) i-- r,w ,,, --- )I R. - oVnwt r),nmntmwnt for Ear/v Learninl and Basic Education SEQIP Project Reports and Financial Statements For the year ended 30 June 2018 4. STATEMENT OF RECEIPTS AND PAYMENTS FOR THE YEAR ENDED 30 JUNE 2018 2017/18 2017/18 2016/17 2016/17 Receipts and Receipts and Payment Note payments payment s made controlled by Payments made controlled by by third Cumulative to the entit by third parties the entit arties Date R KShs KShs KShs KShs KShs RECEIPTS Loan From External Develo ment Partners 8.3 558,676,453 610,188,877 Miscellaneous recei ts TOTAL RECEIPTS 558,676,453 - 51,512,424 610,188,877 PAYMENTS Purchase of goods and services 8.4 68,214,033 6,635,607 - 74,849,640 Acquisition of non- Financial assets - 7,541,000 - 7,541,000 Transfers to other overnment entities 8.6 179,423,025 - - 179,423,025 TOTAL PAYMENTS 247,637,058 14,176,607 - ,813665 311,039,395 The accounting policies and explanatory notes to these financial statements ar an integral part of the financial statements. The financial statements were approved on _ 2018 and signed by: Pr cipal Secretary Project Coordi Project Accountant ame: DR BELIO KIPSANG Name: JANE MBUGUA Name GRACE W. NJOKI ICPAK Member Number: 8829 SEQIP Project Reports and Financial Statements For the year ended 30 June 2018 4. STATEMENT OF FINANCIAL ASSETS AS AT 30 JUNE 2018 Note 2017/18 2016/17 KShs KShs FINANCIAL ASSETS Cash and Cash Equivalents Bank Balances 8.7 348,375,212 37,335,817 Cash Balances - - Cash Equivalents (short-term deposits) - - - Total Cash and Cash Equivalents 348,375,212 37,335,817 TOTAL FINANCIAL ASSETS 348,375,212 37,335,817 REPRESENTED BY Fund balance b/fwd 8.8 37,335,817 - Prior year adjustments - - Surplus/(Deficit) for the year 311,039,395 37,335,817 NET FINANCIAL POSITION 348,375,212 37,335,817 The accounting policies and explanatory notes to these financial statements for an integral part of the financial statements. The financial statements were approved on R S& 2018 and signed by: Pri ipal Secretary Project Coo inator Project Accountant N e: DR BELIO KIPSANG Name: JANE MBUGUA Name GRACE W. NJOKI ICPAK Member Number: 8829 SEQIP Project Reports and Financial Statements For the year ended 30 June 2018 5. STATEMENT OF CASHFLOWS FOR THE YEAR ENDED 30 JUNE 2018 2017/18 2016/17 Note KShs KShs Receipts for operating activities Transfer from Government entities Proceeds from domestic and foreign grants Miscellaneous receipts - - Payments for operating activities Purchase of goods and services 8.4 68,214,033 6,635,607 Transfers to other government entities 8.6 179,423,025 - Net cash flow from operating activities 247,637,058 6,635,607 CASHFLOW FROM INVESTING ACTIVITIES Acquisition of Assets 8.5 - 7,541,000 Net cash flows from Investing Activities - 7,541,000 CASHFLOW FROM BORROWING ACTIVITIES Proceeds from Foreign Borrowings 8.3 558,676,453 51,512,424 Net cash flow from financing activities 558,676,453 51,512,424 NET INCREASE IN CASH AND CASH EQUIVALENT 311,039,395 37,335,817 Cash and cash equivalent at BEGINNING of the year 37,335,817 - Cash and cash equivalent at END of the year 348,375,212 37,335,817 The accounting policies and explanatory notes to these financial statements form an integral part of the financial statements. The entity financial statements were approved on Q S W 5 2018 and signed b Prin ipal Secretary Project Coordfnator Project Accountant Na e: DR BELIO KIPSANG Name: JANE MBUGUA Name GRACE W. NJOKI ICPAK Member Number: 8829 SEQIP Project Reports and Financial Statements For the year ended 30 June 2018 6. STATEMENT OF COMPARATIVE BUDGET AND ACTUAL AMOUNTS Actual on Origina Final Compr t Recei ts/Pa ments Item I Bud et Ad'ustments Bud et ble Bais eiLftilizet a b c=a+b d e=c-d fdK' Receipts Proceeds from borrowings - 641,940,396 641,940,396 558,676,453 83,263,943 87% Total Receipts 641,940,396 641,940,396 558,676,453 83,263,943 87% Payments Purchase of goods and services - 462:517,371 462,5 17.371 68,214,033 394,303,339 15% Transfers to other government entities 179423,025 179,423,025 - 100% Total Payments 641,940,396 641,940,396 247,637,058 394,303,339 3 Note: The significant budget utilisation/performance differences in the last column are explained in Annex 1 to these financial statements. Prin pal Secretary A Project Da Date Date 19\k ICPAK Member No: 8829 SEQIP Project Reports and Financial Statements For the year ended 30 June 2018 7. NOTES TO THE FINANCIAL STATEMENTS 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 imprests 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. The accounting policies adopted have been consistently applied to all the years presented. 8.1.2. Reporting entity The financial statements are for the SEQIP Project under National Government of Kenya. 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 Government. * Transfers from the Exchequer Transfer from Exchequer is be recognized 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. SEQIP Project Reports and Financial Statements For the year ended 30 June 2018 SIGNIFICANT ACCOUNTING POLICIES (Continued) Donations and grants Grants and donations shall be recognized 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 the value. The date of the transaction is the value date indicated on the payment advice. Proceeds from borrowing Borrowing includes Treasury bill, 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 recognized 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 to continue to completion. An analysis of the Project's undrawn external assistance is shown in the funding summary * Other receipts 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 of employees Salaries and Wages, Allowances, Statutory Contribution for employees are recognized in the period when the compensation is paid. * Use of goods and services Goods and services are recognized 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 recognized as payment in the period in which they incurred and paid for. SEQIP Project Reports and Financial Statements For the year ended 30 June 2018 SIGNIFICANT ACCOUNTING POLICIES (Continued) * Repayment of borrowing (principal amount) The repayment of principal amount of borrowing is recognized as payment in the period in which the repayment is made. The stock of debt is disclosed as an annexure to the consolidated financial statements. * Acquisition of fixed assets The payment on acquisition of property plant and equipment items is not capitalized. The cost of acquisition and proceeds from disposal of these items are treated as payments and receipts items respectively. Where an asset is acquired in a non-exchange transaction for nil or nominal consideration and the fair value of the asset can be reliably established, a contra transaction is recorded as receipt and as a payment. A fixed asset register is maintained by each public entity and a summary provided for purposes of consolidation. This summary is disclosed as an annexure to the consolidated financial statements. c) In-kind donations In-kind contributions are donations that are 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 received for in- kind contributions can be reliably determined, the Project includes such value in the statement of receipts and payments both as receipts and as payments in equal and opposite amounts; otherwise, the contribution 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. For the purposes of these financial statements, cash and cash equivalents also include short term cash imprests and advances to authorised public officers and/or institutions which were not 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 bank accounts are restricted for use in refunding third part deposits SEQIP Project Reports and Financial Statements For the year ended 30 June 2018 SIGNIFICANT ACCOUNTING POLICIES (Continued) e) Accounts receivable For the purposes of these financial statements, imprests and advances to authorised public officers and/or institutions which were not surrendered or accounted for at the end of the financial year is treated as receivables. This is in recognition of the government practice where the imprest payments are recognized as payments when fully accounted for by the imprest or AIE holders. This is an enhancement to the cash accounting policy. Other accounts receivables are disclosed in the financial statements. f) Pending bills 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 recorded as 'memorandum' or 'off-balance' items to provide a sense of the overall net cash position of the Project at the end of the year. 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 a comparable accounting basis (cash basis), the same accounts classification basis (except for accounts receivable - outstanding imprest and clearance accounts and accounts payable - deposits, which are accounted for on an accrual 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. The Development Projects are budgeted for under the MDAs but receive budgeted funds as transfers and account for them separately. These transfers are recognised as inter-entity transfers and are eliminated upon consolidation. A high-level assessment of the Project's actual performance against the comparable budget for the financial year/period 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 to third parties in form of loans and grants. These payments do not constitute cash receipts and payments and are disclosed in the payment to third parties column in the statement of receipts and payments. During the financial year ended June 30, 2018 no loan disbursements were received in form of direct payments from third parties. SEQIP Project Reports and Financial Statements For the year ended 30 June 2018 SIGNIFICANT ACCOUNTING POLICIES (Continued) i) Exchange rate differences 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/period 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/period 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, 2018 . 1) Errors Material prior period errors shall be corrected retrospectively in the first set of financial statements authorized for issue after their discovery by: i. Restating the comparative amounts for prior period(s) presented in which the error occurred; or ii. If the error occurred before the earliest prior period presented, restating the opening balances of assets, liabilities and net assets/equity for the earliest prior period presented. SEQIP Project Reports and Financial Statements For the year ended 30 June 2018 NOTES TO THE FINANCIAL STATEMENTS (Continued) 8.3 LOAN FROM EXTERNAL DEVELOPMENT PARTNERS During the 12 months to 30 June 2018 we received loan from International Development Association (IDA) as detailed in the table below: -arne of theL L oui iii Kshis, Name, at teeceived n, irece ed Doo cur c FYas7 i ect Loans Received "oM Multilateral 0 onors (International Or Yanisations International Development Association (IDA) 54/2018 4,483,900 5 58,676,452.75 51,512,424 Total -4--3-900 558,676,452.75 51,512,424 1n SEQIP Project Reports and Financial Statements For the year ended 30 June 2018 NOTES TO THE FINANCIAL STATEMENTS (Continued) 8.4 PURCHASE OF GOODS AND SERVICES t7 T ma~de by bv third the Entity in Cash arties Total Pai ments KShs KShs KShs KSis KSK Domestic travel and subsistence 9,463,071 -9,463,071 3,369,700 12,832,77 Printing, advertising and - information supplies & 6,963,662 6,963,662 services 704,607 7,668,269 Trainin payrnents 18,077,621 18,077,621 2,561,299 20,638,920 Hospitality supplies and services 22,714,679 - 22,714,679 - 22,714,679 Fuel and Iubricants 260,000 - 260,000 260,000 Consultancy services 10,735,000 - 10,735,000 - 10,735,000 Total .6.2144,33 63849.639 1 1 SEQIP Project Reports and Financial Statements For the year ended 30 June 2018 NOTES TO THE FINANCIAL STATEMENTS (Continued) 8.5 ACQUISITION OF NON-FINANCIAL ASSETS No non-financial assets were acquired during the 12 months to 30 June 2018 8.6 TRANSFERS TO OTHER GOVERNMENT ENTITIES During the 12 months to 30 June 2018, we transferred funds to reporting government entities as shown below: 1 2017 18-1 1%2016/17't-d t Pain1an1ts made ma bN thle I ntity in th dT tl ahts Palen ts KShs KShs KShs KShs KShs Transfers to National Government entities KNEC 41,423,025 - 41,423,025 - 41,423,025 KICD 138,000,000 - 138,000,000 - 138,000,000 TOTAL 179423,025 179.423,025 179.423.025 SEQIP Project Reports and Financial Statements For the year ended 30 June 2018 NOTES TO THE FINANCIAL STATEMENTS (Continued) 8.7 CASH AND CASH EQUIVALENTS CARRIED FORWARD - 017/8 0 216/17' KShsKShis, B=ank account CBK A/C NO. 1000318201 _348,375,212 37,335,817 Cash mn hand Cash equivalents (short-term deposits) Total 348.375,212 37335,817 The project 2 (two) project accounts spread within the project implementation area and 2 (two) foreign currency designated accounts managed by the National Treasury as listed below: 8.7. A Bank Accounts Project Bank Accounts Forein Currenv Accounts Central Bank of Kenya [A/c No 10003566691] 9,220.40 Central Bank of Kenya [A/c No 1000368427] Total Foreign Currency balances 9,220.40 Local Currency Accounts Central Bank of Kenya [A/c No 1000318201] 348,375,212.00 37,335,817 Central Bank of Kenya [A/c No 1000370898] Total local currency balances 348,375,212.00 37,335,817 Total bank ac ount balances 348,384,432.40 *The figure of 9,220.40 represents the balance of Euros 74 translated at an exchange rate of 124.60,which was the prevailing rate at the date of receipt of the exchequer. SEQIP Project Reports and Financial Statements For the year ended 30 June 2018 NOTES TO THE FINANCIAL STATEMENTS (Continued) Special Deposit Accounts The balances in the Project's Special Deposit Account(s) as at 30th June 2018 are not included in the Statement of Financial Assets since they are below the line items and are yet to be drawn into the Exchequer Account as a voted provision. Below is the Special Deposit Account (SDA) movement schedule which shows the flow of funds that were voted in the year. These funds have been reported as loans received in the year under the Statement of Receipts and Payments. Special Deposit Accounts Movement Schedule (i) A/C Name: Secondary Education Quality Im rovement Project [A/c No.1000356669] Opening balance Total amount deposited in the account 558,685,672.86 51,512,424 Total amount withdrawn (as per Statement of Receipts & 558,676,452.75 1,51424 Payments) Closing balance (as per SDA bank account reconciliation attache ( The Special Deposit Account(s) reconciliation statement(s) has (have) been attached as Appendix 1 support these closing balances. 8.8 FUND BALANCE BROUGHT FORWARD -7 _ 207/1016/171 - K Shs KShs Bank accounts 37,335,817 Cash in hand Cash equivalents (short-term deposits) Outstanding imprests and advances - Total 37,335,817 и Z, о � � д А z W � и � � о � � � о � � А � д -- w О га � � °O О о, о � у� г� ,,.а � � о � г1j '� ,� , гл �м о � �� й � с � �-I � 1 � (�, � , ' с, fy � 1-�1 о .о N � о � �, � � а � 4 � �' 3 � -� � 01 " q i а� � �С �У оо Н �'�-� ° � � � ш � .. 4, и � �'2' � и � '� N ' °�� V 4" ayJ �_ с�б �- V '� сUб U ° s.°. � 'b 'О � � С i � � � � � � О � � � к � ..., ° � р � � г+, � � ° �', С �-+ ° � у �' �� �.`� �н й О ✓. � � � � и сб сб v и ° �.. н N ь-� б� ,� N сб � �. 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