OFFICE OF THE AUDITOR-GENERAL - World Bankdocuments.worldbank.org/curated/en/171231468285301394/pdf/NUTRI… · OFFICE OF THE AUDITOR-GENERAL REPORT OF ... KENYA RAILWAYS CORPORATION

REPUBLIC OF KENYA

OFFICE OF THE AUDITOR-GENERAL

REPORT

OF

THE AUDITOR-GENERAL

ON

THE FINANCIAL STATEMENTS OFNATIONAL URBAN TRANSPORT

IMPROVEMENT PROJECT IDA CREDIT NO.5140 - KE (KRC COMPONENT)

FOR THE YEARENDED 30 JUNE 2015

KENYA RAILWAYS CORPORATION

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

KENYA RAILWAYS

NATIONAL URBAN TRANSPORT IMPROVEMENT PROJECT (NUTRIP)

IMPLEMENTING ENTITY: KENYA RAILWAYS CORPORATION.

PROJECT GRANT/CREDIT NUMBER: IDA 5140 -KE

ANNUAL REPORT AND FINANCIAL STATEMENTS

FOR THE FINANCIAL YEAR ENDEDJUNE 30, 2015

Prepared in accordance with the Cash Basis of Accounting Method under the International Public SectorAccounting Standards (IPSAS)

National Urban Improvement Project (NUTRIP)Credit NO. IDA 5140-KEReports and Financial StatementsFor the financial Period ended June 30, 2015

CONTENTS PAGE

1. PROJECT INFORMATION AND OVERALL PERFORMANCE .............................. i

2. STATEMENTACCOUNTING OFFICER AND PROJECT PIT LEADER'S RESPONSIBILITIES ...... iv

3. REPORT OF THE AUDITOR GENERAL ON THE NUTRIP PROJECT ......... .............. vi

4. STATEMENT OF RECEIPTS AND PAYMENTS FOR THE PERIOD ENDED 30TH JUNE 2015......1

5. STATEMENT OF FINANCIAL ASSETS AND LIABILITIES FOR THE PERIOD ENDED 30TH JUNE2015 ............... ............................................................. 2

6. STATEMENT OF CASHFLOW FOR THE PERIOD ENDED 30TH JUNE 2015 ................. 3

7. STATEMENT OF COMPARISON OF BUDGET AND ACTUAL AMOUNT FOR THE PERIODENDED 30TH JUNE 2015 ............................................................. 4

8. STATEMENT OF SPECIAL (DESIGNATED) ACCOUNT ACTIVITY FOR THE PERIOD ENDED 30THJUNE 2015 ........................................................................ 5

9. STATEMENT OF SPECIAL (DESIGNATED) ACCOUNT RECONCILIATION FOR THE PERIODENDED 30TH JUNE 2015 ............................................................. 6

10. NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 30TH JUNE 2015............7

9. PROGRESS ON FOLLOW UP OF AUDITOR GENERAL RECOMMENDATION ........................ 9

10. ANNEX 2 ........... ................................................................ 10

National Urban Improvement Project (NUTRIP)Credit NO. IDA 5140-KEReports and Financial StatementsFor the financial Period ended June 30, 2015

1. PROJECT INFORMATION AND OVERALL PERFORMANCE

IDA Credit Number 5140-KE

1.1 Name and registered office

Name: The project's official title is National Urban Transport Improvement Project.

Objective:

The key objectives of the project are;a) Improve efficiency of the road transport along northern corridorb) Improve the institutional capacity and arrangements in the urban transport sub- sectorc) Promote private sector participation in the operation, financing and management of transport

systems

Address: The project headquarters offices are in Nairobi, Nairobi County, Kenya.

The address of its registered office is:

Kenya Railways HeadquartersLR No. 209/11954/2

Haile Sellasie Avenue/Workshop RoadP.O. Box 30121-00100

Contacts: The following are the project contacts:Tel:(254) 020-2221211Website :www.krc.co.ke

1.2 Project Information

Project Start Date: The project start date is 26. 12 .2012

Project End Date: The project end date is 31. 12. 2018

Project Manager: Eng. Muceri Gakuru

Total Project size USD 11,930,000

National Urban Transport Improvement Project (NUTRIP)Credit NO. IDA 5140 -KEReports and Financial StatementsFor the financial period ended June 30, 2015

1.3 Project Overview, components and costs

Line Ministry/State The project is under the supervision of the Ministry of Transport andDepartment of the Infrastructure. The component under KRC is component B2(Supportproject KENHA and KURA to develop selected Mass Rapid transit corridorsActivities under the component Category Total IDA GoK

Millions Million $ Millions

a) Feasibility and design studies for selected ConsultancyCommuter Rail Lines routes 10.00 8.00 2.00

b) Institutional Building ,TA and advisory Consultancyservices 4.00 3.20 0.8

c) Training of KRC staff Training 0.73 0.73 0.00d) Operational Costs Op 0.90 0.00 0.90

Total Component B2 80.46 59.70 20.76

1.4 AuditorsThe project is audited by the Kenya National Audit Office.Auditor GeneralKenya National Audit OfficeP.O. Box 30084-00100NAIROBI

1.5 BankersThe following are the bankers for the current year:

Special Account:

Commercial Bank of East Africa

NUTRIP- Project E-(KRC)-MAIN

ACCOUNT NO. 6968530013

Principal Bankers:

NIC BANK LIMITED

USD A/C NO.1001004057

KSH A/C NO.1001004049

Masaba Road Branch ,Upper hill

P.O. Box 44599, 00100

11


1.6 Roles and ResponsibilitiesThe following is a list of all members of the project implementation team.

Names Title designation Key qualification ResponsibilitiesEng.Mucemi Gakuru PIT Leader BSC (Electrical Eng.) * Project Team Leader

PhD(Electrical Eng) * Overall managementRegistered Eng.(EBK) and monitoring of all

projects* Undertake contract

negotiations* Ensure reports are

prepared andsubmitted on time

* Liaise with bank onproject activities

* Attend POC and PITLbriefings and meetings

* Publication of awardsand reports in WBclient connection

Peter Kamakia Project Accountant BBM (Finance Option) * Preparation of projectCPA(K) Financial reports,

budgets and monitoring* Ensure timely payment* Ensure financial audits

are carried out

1.7 Summary of performance

1.7.1 Introduction

Kenya Railways Corporation (KRC) is one of the Project Implementing Agencies (PIE's) ofthe National Urban Transport Improvement Project funded by World Bank. A number ofprojects have been initiated under this programme under the identified NUTRIPcomponents as outlined in the Project Appraisal Documents and in line with the financialagreement between the World Bank and the Government of Kenya. KRCs Componentbroad descriptions are as below

a) Works and Supervision.

b) Consultancy Services.

Ill1


c) Supply of Goods.

d) Training.

1.7.2 Project status per componentThe project comprises of three subcomponents which are described below;

i. Carrying out feasibility studies and detailed designs; and preparing the necessary biddingdocuments for construction of selected commuter rail systems in Nairobi and other majortowns through provision of technical advisory services required for that purpose.

ii. Preparing bidding and contract documents for the selection of private sector operatorsproviding commuter rail operations and associated services; through provision of advisoryservices required for that purpose.

iii. Supplying and installing information systems (IT) and building the capacity of KRC in IT,management of private sector involvement, planning, management of contracts including forconcessionaires; and other oversight functions; all through provision of goods, training andservices required for that purpose.

2. STATEMENTACCOUNTING OFFICER AND PROJECT PIT LEADER'SRESPONSIBILITIES

The Managing Director, Kenya Railways and the Project Inplementation team leader for NUTRIPproject are responsible for the preparation and presentation of the Project's financial statements, whichgive a true and fair view of the state of affairs of the Project for and as at the end of the financial year(period) ended on June 30, 2015. This responsibility includes: (i) maintaining adequate financialmanagement arrangement and ensuring that these continue to be effective throughout the reportingperiod; (ii) maintaining proper accounting records, which disclose with reasonable accuracy at anytime the financial position of the Project; (iii) designing, implementing and maintaining internalcontrols relevant to the preparation and fair presentation of the financial statement, and ensuring thatthey are free from material misstatements, whether due to error or fraud; (iv) safeguarding the assetsof the Project; (v) selecting and applying appropriate accounting policies; and (vi) makingaccounting estimates that are reasonable in the circumstances.

The Managing Director, Kenya Railways and the Project Implementation Team Leader for NUTRIPproject accept responsibility for the Project's financial statements, which have been prepared on theCash Basis Method of Financial Reporting, using appropriate accounting policies in accordance withInternational Public Sector Accounting Standards.

The Managing Director, Kenya Railways and the Project Inplementation Team leader for NUTRIPproject are of the opinion that the Project's financial statements give a true and fair view of the state ofProject's transactions during the financial period ended June 30, 2015, and of the Project's financialposition as at that date. The Managing Director, Kenya Railways and the Project Implementation TeamLeader for NUTRIP project further confirm the completeness of the accounting records maintained forthe Project, which have been relied upon in the preparation of the Project financial statements as wellas the adequacy of the systems of internal financial control.

iv


The Managing Director, Kenya Railways and the Project Implementation Team Leader for NUTRIPproject confirm that the Project has complied fully with applicable Government Regulations and theterns of external financing covenants, and that Project funds received during the financial period underaudit were used for the eligible purposes for which they were intended and were properly accountedfor.

Approval of the Project financial statements

The Project financial statements were approved by the Managing Director, Kenya Railways and theProject Implementation Team Leader for NUTRIP project on hLo 2015and signed by them.

The Managing Director Projec Implementation Team leader

v

REPUBLIC OF KENYA

Telephone: +254-20-342330 P.O. Box 30084-00100Fax: +254-20-311482E-mail: [email protected]: www. kenao.go.ke

OFFICE OF THE AUDITOR-GENERALREPORT OF THE AUDITOR-GENERAL ON NATIONAL URBAN TRANSPORTIMPROVEMENT PROJECT IDA CREDIT NO. 5140 - KE (KRC COMPONENT)FOR THE YEAR ENDED 30 JUNE 2015 - KENYA RAILWAYS CORPORATION

REPORT ON THE FINANCIAL STATEMENTS

I have audited the accompanying financial statements of National Urban TransportImprovement Project set out on pages 1 to 9, which comprise the statement offinancial assets and liabilities as at 30 June 2015, the statement of receipts andpayments, statement of cash flows, the statement of comparative budget and actualamounts for the year then ended, and a summary of significant accounting policiesand other explanatory information in accordance with provisions of Article 229 of theConstitution of Kenya and Section 14 of the Public Audit Act, 2003 and the CreditAgreement No. 5140- KE signed on 26 September 2012 between the InternationalDevelopment Association (IDA) and the Republic of Kenya (GOK). I have obtained allthe information and explanations which, to the best of my knowledge and belief, werenecessary for the purpose of the audit.

Management's Responsibility for the Financial Statements

Management of the Kenya Railways Corporation and the Project Team leader forNUTRIP are responsible for the preparation and fair presentation of these financialstatements in accordance with International Public Sector Accounting Standards andfor such internal control as management determines is necessary to enable thepreparation of financial statements that are free from material misstatement, whetherdue to fraud or error.

The Management is also responsible for the submission of the financial statements tothe Auditor-General in accordance with the provisions of Section 13 of the PublicAudit Act, 2003.

Auditor-General's Responsibility

My responsibility is to express an opinion on these financial statements based on theaudit and report in accordance with the provisions of Section 15 of the Public AuditAct, 2003 and submit the report in compliance with Article 229(7) of the Constitutionof Kenya. The audit was conducted in accordance with International Standards onSupreme Audit Institutions (ISSAls). Those standards require compliance withethical requirements and that the audit be planned and performed to obtainreasonable assurance about whether the financial statements are free from materialmisstatement.

An audit involves performing procedures to obtain audit evidence about the amountsand disclosures in the financial statements. The procedures selected depend on theauditor's judgement, including the assessment of the risks of material misstatement

National Urban Transport Improvement Project IDA Credit No. 5140 - KE (KRC Component) - Annual Reportand Financial Statements for the year ended 30 June 2015

of the financial statements, whether due to fraud or error. In making those riskassessments, the auditor considers internal control relevant to the entity'spreparation and fair presentation of the financial statements in order to design auditprocedures that are appropriate in the circumstances, but not for the purpose ofexpressing an opinion on the effectiveness of the Project's internal control. An auditalso includes evaluating the appropriateness of accounting policies used and thereasonableness of accounting estimates made by the management, as well asevaluating the overall presentation of the financial statements. 4

I believe that the audit evidence obtained is sufficient and appropriate to provide abasis for my audit opinion.

Opinion

In my opinion, the financial statements present fairly, in all material respects, thefinancial position of the Project as at 30 June 2015, and its financial performance andit's cash flows for the year then ended, in accordance with International Public SectorAccounting Standards (Cash Basis) and conform to the Credit Agreement No. 5140 -KE signed on 26 September 2012.

In addition the special account statement presents fairly, the special accounttransactions and the ending balance has been reconciled with the books of account.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

As required by the International Development Association, I report based on my auditthat:-

i) All International Development Association funds have been used inaccordance with the conditions of the Credit Agreement, with due attention toeconomy, and efficiency and only for the purpose for which the funds wereprovided;

ii) Counterpart funds have been provided and used in accordance with theconditions of the Agreement, with due attention to economy and efficiency andonly for the purpose for which they were provided;

iii) Goods and Services financed have been procured in accordance with theconditions of the agreement and in compliance with the DevelopmentPartner's rules and procedures;

iv) Necessary supporting documents, records and accounts have been kept inrespect of all project activities;

v) Adequate internal controls to monitor expenditure and other financialtransactions exist; and

National Urban Transport Improvement Project IDA Credit No. 5140 - KE (KRC Component) - Annual Reportand Financial Statements for the year ended 30 June 2015

2

vi) The fixed assets register for the Projects' assets was maintained during theyear.

FCPA Edward R. 0. Ouko, CBSAUDITOR-GENERAL

Nairobi

24 December 2015

National Urban Transport Improvement Project IDA Credit No. 51-10 - KE (KRC Component) - Annual Reportand Financial Statenentsfbr the year ended 30 June 2015

3

National Urban Transport Improvement Project (NUTRIP)Credit No. IDA 5140-KEReports and Financial statementsFor the period ended June 30, 2015

4. STATEMENT OF RECEIPTS AND PAYMENTS FOR THE PERIOD ENDED 30TH JUNE2015

2015 2014 cumm to dateNote Kshs Kshs Kshs

CASH BALANCE B/F 4 -

RECEIPTS

Government Counterpart funds 5 -

External Assistance - -IDA Funds(Transfer from special 6 58,378,509 58,378,509Account)IDA Direct payments - - -

Other Receipts 7 531,471 - 531,471Total receipts 58.909,980 - 58.909,980

PAYMENTS

Training of Staff 8 9,025,852 - 9,025,852Bank Charges - -

TOTAL PAYMENTS 9,025,852 - 9,025,852

CASH BALANCE C/F 49,884,128 - 49,884,128

The accounting policies and explanatory notes to these financial statements are an integral part of thefinancial statements

Signed

Managing Director Date

Proje9t-I p n team leader Date

1


5. STATEMENT OF FINANCIAL ASSETS AND LIABILITIES AS AT30TH JUNE 2015

Note 2015 2014

Kshs Kshs

FINANCIAL ASSETS

Cash and Cash Equivalents

Bank Balances 4 49,884,128Cash Balances -

Cash Equivalents -

TOTAL FINANCIAL ASSETS 49,884,128

REPRESENTED BY

Cash and cash equivalent b/fwd 49,884,128Surplus /Deficit for the yearPrior year adjustments

NET FINANCIAL POSITION 49,884,128


Signed:

M ing Director Date

Project Implementatio eai ilender Date

2


6. STATEMENT OF CASHFLOW FOR THE PERIOD ENDED 30TH JUNE 2015

2015 2014

Ksh KshRECEIPT FROM OPERATING INCOME

Transfer from Government EntitiesProceeds from Domestic and Foreign Grants 58,378,509 -Miscellaneous receipts 531,471Transfer from Government Entities

PAYMENTS FOR OPERATING EXPENSES (9,025,852) (-)

NET CASH FLOW FROM OPERATING ACTIVITIES 49,884,128 -

Cash flow from Investing Activities

Cash flow from Borrowing Activities

NET CASH FROM FINANCING ACTIVITIES -

NET INCREASE IN CASH AND CASH EQUIVALENT 49,884,128 -

Add CASH AND CASH EQUIVALENT B/F -

CASH AND CASH EQUIVALENT C/F 49,884,128 -


Signed:

Managing Director Date

Project Implementalion team leader Date


7. STATEMENT OF COMPARISON OF BUDGET AND ACTUALAMOUNT FOR THE PERIOD ENDED 30TH JUNE 2015

Note 2015 2015 VarianceBudget Actual

Kshs Kshs KshsRECEIPTS

GOK Counterpart funds - -

IDA Fund 7 58,383,000 58,378,509 (4,491)Miscellaneous receipts (Interest) 8 - 531,471 531,471

TOTAL RECEIPTS 58,383,000 58,909,980 526,980

PAYMENTSProject Expenditure:

Staff training 9 10,000,000 9,025,852 974,148Bank charges . - -

TOTAL PAYMENTS 10,000,000 9,025,852 974,148

SURPLUS FOR THE PERIOD 4 49,884,128

4


8. STATEMENT OF SPECIAL (DESIGNATED) ACCOUNT ACTIVITYFOR THE PERIOD ENDED 30TH JUNE 2015

Cumm to dateUSD Kshs USD

OPENING BALANCE 1ST JULY 2014 650 ,000.00 58,383,000 650 ,000.00

Add

Total Amount deposited by World bank 100,488.22 9,025,852 100,488.22Total interest earned - -Total amount refunded to cover ineligibleexpenditureIDA Direct payments - - -

Other Receipts

Total 750,488.22 67,408,852 750,488.22

DeductTotal Amount withdrawn

Transferred to project account 649,950 58,378,509 649,950

Bank Charges 25.47 2288 25.47

Total 649,975.47 58,380,797 649,975.47

CLOSING BALANCE AS AT 30TH JUNE2015 100,512.75 9,028,055 100,512.75

The cumulative figures have been reconciled and agreed to the Banks Loan records as per clientconrection. The information used to prepare this statement is obtained from the statement of specialAccount Activity prepared by Treasury and Central bank of Kenya (CBK) and attached as Annex 2 tothe financial statements.

5


9. STATEMENT OF SPECIAL (DESIGNATED) ACCOUNT RECONCILIATION FORTHE PERIOD ENDED 30TH JUNE 2015

ACCOUNT RECONCLIATION SATEMENTCDEDIT NO. IDA LOAN NO. 5140-KEBANK ACCOUNT NO. 6968530013 HELD WITH COMMERCIAL BANK OF AFRICA NAIROBI

USD Kshs1. Amount advanced by the bank 750,488.22 67,408,852

Less

2. Total Amount recovered by the bank -

3. Outstanding amount advanced to special account 750,488.22 67,408,852.00

Represented by: -

4. Ending special account balance 30th June 2015 100,512.75 9,028,0555. Amount claimed but not credited as at 30th June 2015 - -6. Amounts withdrawn and not claimed 649,950.00 58,378,5097. service charge 25.47 22888. Interest earned9.Total advance to special account period ended 30th June2015 750,488.22 67,408,852

6


10. NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 30THJUNE 2015

1. Financial reporting under the international Public sector Accounting Standards.

The financial statements have been prepared in accordance with and comply with InternationalPublic Sector Accounting Standards (IPSAS) with particular emphasis on Cash Basis FinancialReporting under the Cash Basis of Accounting. The financial statements comply with andconform to the form of presentation prescribed by the Accounting Standards Board of Kenya.

The financial statements are presented in Kenya Shillings, which is the functional and reportingcurrency of the Project and all values are rounded to the nearest one Shilling. The accountingpolicies adopted have been consistently applied to all of the years presented.

The financial statements have been prepared on the cash basis following the Government'sstandard chart of accounts. The cash basis of accounting recognises transactions and eventsonly when cash is received or paid out by the Project.

2. Significant accounting policies

a) Basis of preparation

The financial statements have been prepared in accordance with International Public SectorAccounting standards with particular emphasis on cash basis Financial reporting under thecash Basis of Accounting.

b) Cash basis of Accounting

The cash basis accounting recognizes transactions and events only when cash(including cashequivalents) is received or paid by the entity. Cash equivalents are defined as short term, highlyliquid investments that are readily convertible to known amounts of cash and which are subjectto an insignificant risk of changes in value.

a) Exchange rate differences

Cash receipts and payments arising from transactions in a foreign currency are recorded in thefinancial statements using the exchange rate as per financing agreement. Cash balances held inforeign currency are reported using the closing rate. Any gains or losses on foreign currencytransitions are dealt with in the statement of special account Activity

3. Budget

The budget is developed on the same accounting basis (cash basis), the same accountsclassification basis, and for the same period as the financial statements. There were budgetaryissues and funds flow challenges between the line ministry and Kenya Railways in FY2013/2014 and the expenses incurred in the period were reimbursed in FY 2014/2015.

7

National Urban Transport Improvement Project (NUTRIP)Credit NO. IDA 5140 -ICEReports and Financial StatementsFor the financial period ended June 30, 2015

4. Closing Cash balances

2015 2014Kshs Kshs

Project Account Balance 49,884,128

5. Government counterpart funds

The project did not receive any Government counterpart funding during the period since the mainproject activities requiring counterpart funding had not commenced as at 30t' June 2015.

6. Transfer from special account

The funds from the special account were released and credited by MoTI to Kenya RailwaysNUTRIP project account on the 22nd December 2014.The amount credited is Ksh 58,378,509/-.

7. Other ReceiptsThere were receipts accruing from interest on bank balances during the period ended 30th June2015.The interest earned is Ksh 531,471/-.

8. TrainingThe only activity undertaken was training of staff which is a component whose cost is to bewholly financed by the IDA funding. The amount spent is Ksh 9,025,852/-.

9. CurrencyThe financial statements are presented in Kenya Shillings (Kshs). For IDA Funds received inUnited Stated Dollars(USD) conversion is at 89.82 as per Financing Agreement .

8