REPUBLIC OF KENYA

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

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Telephone: +254-20-342330 fa,; -254-20-311482 E-Mail· oaga oagkenya.go.ke

\.\ ebsite: '"'" .kenao.go.ke

REPUBLIC OF KENYA

P.O. Box 30084-00 I 00 NAIROBI

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

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SPECIAL ACCOUNT STATEMENT

Account Activity

For period ending Account No. Depository Bank Address Related Loan Credit Agreement Currency

Beginning balance of 1 ST 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

AUTHORISED REPRESENTATIVE CENTRAL BANK OF KENYA

AUTHORISED REPRESENTATIVE EXTERNAL RESOURCES DEPARTMENT~REASURY

30th JUNE, 2014 1-111/000290 NIC BANK NAIROBI NIC HOUSE BRANCH, MASABA RD, NAIROBI.

E. A. AGRI. PrQductivity Project NO. 4568-KE USO

·----------- -------------~-·-~~~t~-~~:Q~_

SIGNATURE:

DATE

SIGNATURE:

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

OFF-SHORE A/ C NO:

OH AILS

U1DO DEBITS /\JOT IN NR!3

3 LESS CREDITS NOT IN NRll

13.06 20 14

1111000290

CURRENCY

STATEMENT AS AT :

G.L A/ C NO :

. 30/06/201<1

10001341129 EASTERN AFRICA AGRICULTURAL

AMOUNTS REMARKS ACTION TAKEN

4, 167,828. 10 · ...........

{719.665.01).-

6.UALANCt AS PER COK l.EOGER ·3,448,163.09 3,448,163.09 /

~ ,f":/1tx{-L-> PrenMed Gy: NGURF. Checked by: . Approved By: __ -_. __ ' -..,..---

D-~ tc : \If\ 7 \\If O~te:_i_lf I_~_\ Y....._' Dat e: 10.07 .2014

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

I.

2.

3.

4.

5.

6.

7.

8.

NOTES

Amount advanced b.)', World Bank Less Total amount recovered by World Bank

Outstanding Amount advanced to Special Account Balance

Represented by:

Ending Special Account Balance at 30 June, 20 l 4

Amount c laimed and credited as at 30 June, 2014

Amount withdrawn and not claimed

Service charges (if not included in 5 & 6 above) Less Interest earning (if included in Special Account)

US$

21,139,957.19

14,163,610.34

6,976,346.85

4, 167,828.10

0.00

2,808,518. 75

0.00

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<t(r tf DATE: ................... .

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P. o. Box 30084 - 00100, t\AlROBl.

2 2 DEC 20'14

Project Name: EASTERN AFRICA AGRICULTURAL PRODUCTIVITY PROJECT (EAAPP)

Implementing Entity: MINISTRY OF AGRICULTURE, LIVESTOCK AND FISHERIES STATE DEPARTMENT OF AGRICULTURE

PROJECT CREDIT NUMBER: IDA CREDIT N0.45680-KE PROJECT ID. NO. Pl12688

ANNUAL REPORT AND FINANCIAL STATEMENTS

FOR THE FINANCIAL YEAR ENDED JUNE 30, 2014

Prepared in accordance with the Cash Basis of Accounting Method under the International Public Sector Accounting Standards (IPSA

l Telephone:+254-20-342330 Fax: +254-20-311482 E-Mail: cag@kenao.go.ke Website: www.kenao.go.ke

REPUBLIC OF KENYA

,,

P.O. Box 30084-00100 NAIROBI

c~~ f rn H~ilAl KENYA NATIONAL AUDIT OFFICE

Ref: EAAPP/2013-2014/(2)

The Accounting Officer, Ministry of Agriculture, Livestock and Fisheries, P.o.Box 30028-00100, NAIROBI.

Dear Sir /Madam

28 October 2014

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PBOOUCTl\iiTY PROJECT I <tD...C..} f

~ 3 1 OCT 2014 I I ~ E c..: E ~ "v.' tE::. L'") ~ s.1gn: ........... ., ........ " .............. t'ti•,.~· .. ••11•$->) ~nrct~·--............... ~~-,~·-~

FINAL AUDIT REPORT FOR EASTERN AFRICA AGRICULTURAL PRODUCTIVITY PROJECT (EAAPP) 2013/2014

1:0 INTRODUCTION

1:1 The audit of East Africa Agricultural Productivity Proj ect (EAAPP) for th e

year ended 3 0 J une 2 014 has been com pleted . The a u d it was conducted in

accordance with the intern ational standa rds on Auditin g (ISA) a n d

inter national organization of Su preme Audit Institu t ion (INTOSAI) stan dards.

Those Stan dards requ ire that we pla n a n d conduct the audit with a view to

obtaining reasona ble assurance th at th ere is an a dequate system of inte:rnal

control that can prevent a n d detect errors a n d irregula rities which may cause

material misstatem en ts in th e finan cial s tatem en ts.

1:2 However, it is the responsibility of th e m anagemen t to apply adequ a te

internal con trol system s to prevent a nd/ or detect errors a n d p rovides

accurate financia l s tatements wh 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 during the

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Promoting Accountability in the Public Sector

audit exercise the likely risks or implication s which may arise if not corrected

in time an d possible recommenda tions which may not be conclus ive but may

help in address ing the issu es r aised and also improve the opera tions of t he

project.

1:3 Set out below are some of the findings , all of which h ave been discu ssed !

with Project managem en t during the course of the audit a nd in th e exit

meeting h eld on 27 October, 2013 a t the Project's Conferen ce room .

1:4 We will a pprecia te to receive your comments on th 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 prepa ra tion of the financia l

statemen ts as sta ted in n ote 8 - 1 to the fina n cial statem en ts indicate that the

financial s ta tements h ave been prepared in accordan ce with and comply with

Internation al Public Sector Accounting Standa rds (IPSAS) under th 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) presenta tion requirem ent.

a. Purchase of goods and services

Note 8 .7 to t he fina ncia l statemen ts (purchase of good s a n d services) include

purchase of non-fina ncial assets which include payments for th e con struction

of civil works, Laboratory equipmen t office Equipm ents a n d transfer to other

Governmen t entit ies.

b. Classification of components

IPSAS (cash basis) provide for th e itemization of the pu rchase of goods and

services componen t in to several sub-items . Note 8 -7 to th e Draft Fin ancia l

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statemen ts has not adhered to this requirement as the expenditure ha 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 has not been

adequ ate.

2:3 Recommendations

(_ a) The figure for purchase of good s and services should be corrected by

tra n sferring out amounts relating to acquisition of non-finan cia l Assets a nd

transfers 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 ,59 1,802 in respect of construction of r esource cen tr e, milk

processing unit and a garage at Kari Na ivash a . The contract commen ced on

03/06/20 13 a nd wa s due for completion on 09/06/ 2014 a t a cont ract sum of

Kshs202, 256,816. It was however noted tha t as at 30 June 2014 the work

h a d not been completed as sch eduled. According to valua tion certificate

n umber 5 d a ted 18 June 20 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.

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3:2 Risk/ implication

The EAAPP project was scheduled 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 affected 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 management 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 2014 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.

Benard Kagunza 16/9/20 13

Lucy Kariuki 21/2 /2014

1674432

1828432

Due date

20/1/2014

11/3/2014

Amount

80,600

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.

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