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KENYA ROADS BOARD

Annual ReportAnd Financial Statements

For The Year Ended 30th June 2014

Our Core Values1. ExcellenceWe are committed to timely delivery of high quality and cost effective services and encourage peak performance, enthusiasm and passion for work. We shall encourage productivity, be responsive and acknowledge individual and team accomplishments

2. Customer FocusWe are committed to meeting our stakeholder requirements to their satisfaction by ensuring effective and efficient use of resources. We encourage continual improvement of our services and processes.

3. Integrity and ImpartialityWe are committed to promoting transparency, accountability and professionalism in our work. We shall be impartial, objective and unbiased in how we relate to each other and our stakeholders.

4. Staff FocusWe are committed to promoting transparency, accountability and professionalism in our work. We shall be impartial, objective and unbiased in how we relate to each other and our stakeholders.

5. Diversity and InclusivenessWe shall embrace diversity and promote inclusiveness in our organization and shall not discriminate on the basis of age, gender, race, religion, tribe or physical ability.

6. Good Corporate CitizenshipWe shall ensure good corporate citizenship by supporting the less fortunate and ensuring compliance with our legal and statutory obligations. We shall endeavor to be sensitive to issues that affect Kenyans such as poverty and environment degradation and shall ensure they form part of our planning processes.

Our VisionAn efficient road network for a prosperous Nation

Our MissionTo fund, oversee and coordinate road development, rehabilitation and maintenance. We shall ensure prudent sourcing and optimal utilization of resources for socio-economic development.

Core Statements

Kenya Roads BoardAnnual Report for the year ended 30th June 2014

CORE STATEMENTS

ABBREVIATIONS

1. ONE // KEY HIGHLIGHTS 1Who We Are 2What We Do 3-4Corporate Information 5Performance At A Glance 6-7

2. TWO // BUSINESS REVIEW 8Chairman’s Statement 9-10Who Governs Us 11-12Executive Director’s Statement 13-14Who Leads Us 15-16Business Performance 17-24

3. THREE // GOVERNANCE & CORPORATE RESPONSIBILITY 25Corporate Governance Statement 26-36Sustainability Statement 37-41

4. FOUR // FINANCIAL REVIEW 42

5. KENYA ROADS BOARD FUND FINANCIAL STATEMENTS 43• Reports of the Directors 44• Statements of the Board’s Responsibilities 45• Report of Independent Auditors 46• Statement of Financial Performance 47• Statement of Financial Position 48• Statement of Changes in Net Assets 49• Statement of Cash Flows 50• Comparison of Budget and Actual Amounts 51• Notes to the Financial Statements 52-65• Progress on Follow Up of Audit Recommendations 65

6. KENYA ROADS BOARD FINANCIAL STATEMENTS 67• Reports of the Directors 68• Statements of the Board’s Responsibilities 69• Report of Independent Auditors 70• Statement of Financial Performance 71• Statement of Financial Position 72• Statement of Changes in Net Assets 73• Statement of Cash Flows 74• Comparison of Budget and Actual Amounts 75• Notes to the Financial Statements 76-93• Progress on Follow Up of Audit Recommendations 93

7. NOTES 94

TABLE OF CONTENTS


APRP Annual Public Roads Programme

CBS Chief of Burning Spear

FY Financial Year

HIV/AIDS Human Immune Deficiency Virus /Acquired Immune Deficiency Syndrome

IPSAS International Public Sector Accounting Standards

KeRRA Kenya Rural Roads Authority

KeNHA Kenya National Highways Authority

KRB Kenya Roads Board

KRBF Kenya Roads Board Fund

KURA Kenya Urban Roads Authority

KWS Kenya Wildlife Services

MBS Moran of the Burning Spear

RMLF Road Maintenance Levy Fund

RSIP Road Sector Investment Programme

ABBREVIATIONS

1Kenya Roads BoardAnnual Report for the year ended 30th June 2014

One // Key HighlightsWho We Are What We Do Performance At A Glance Corporate Information

2 Kenya Roads Board FundFinancial Statements for the year ended 30th June 2014

IncorporationKenya Roads Board (KRB) is a statutory body established by the Kenya Roads Board Act No. 7 of 1999. The Board was established in accordance with Chapter 446 (State Corporations Act) of the Laws of Kenya, which is ‘An Act of Parliament to make provision for the establishment of state corporations for control and regulation of state corporations and for connected purposes’.

Kenya Roads Board is a State Corporation under the Ministry of Transport and Infrastructure.

Kenya Roads Board Fund (KRBF) is a Fund established under Chapter 408 of the Laws of Kenya - Kenya Roads Board Act, which came into effect under Legal Notice No. 7 of 1999.

The Kenya Roads Board Fund is managed by the Board of Directors of Kenya Roads Board. The Board is domicile and operates within the republic of Kenya.

WHO WE ARE


Principal ActivityAs stipulated in the Kenya Roads Board Act of 1999, the object and purpose for which the Board was established is “to oversee the road network in Kenya and coordinate its maintenance, rehabilitation and development funded by the fund and to be the principal advisor to the Minister of Roads on all matters related thereto.”

Specific MandatesThe mandates of KRB are provided for in the Kenya Roads Board Act, No. 7 of 1999 as hereunder:

(a) Coordinate the optimal utilization of the Fund in implementation of programmes relating to the maintenance, rehabilitation and development of the road network;

(b) Seek to achieve optimal efficiency and cost effectiveness in roadworks funded by the Fund; (c) Manage the Fund; (d) Based on a five year road investment programme approved by the Minister for Roads and the Minister for Finance, determine

the allocation of financial resources from the Fund, or any other source available to the Board required by Road Agencies for the maintenance, rehabilitation and development of the road network to ensure that the allocation of funds is pegged to specific categories of roads and that not less than:-(i) Twenty-two percent (22%), which shall be deposited into a special bank account to be called Constituency Road Fund Account to

be maintained by every constituency for monies from the Fund which is allocated equally to all Constituencies in the country to be administered by the Kenya Rural Roads Authority (KeRRA);

(ii) Ten percent (10%) of the monies from the Fund is allocated for the maintenance or development of link roads between constituencies and to serve as Government counterpart funds in funding works on rural roads, to be administered by the Kenya Rural Roads Authority and that the said per centum shall be equally distributed to the Constituencies where Kenya Rural Roads Authority has the mandate;

(iii) Forty percent (40%) of the monies from the Fund is allocated in respect of the national roads to be administered by the Kenya National Highways Authority (KeNHA);

(iv) Fifteen percent (15%) of the monies from the Fund is allocated in respect of the Kenya Urban Roads Authority (KURA);(v) One percent (1%) of the monies from the Fund is allocated in respect of roads in national parks and game reserves to be

administered by the Kenya Wildlife Service (KWS);(vi) A maximum of two percent (2%) of the monies from the Fund is allocated in respect of recurrent expenditure of the Board under

section 31(5); and(vii) The remainder of the monies from the Fund (10%) shall be allocated annually by the Board with the approval of the Minister to

road authorities based on an Annual Roads Work Programme (ARWP) derived from the five-year Road Investment Programme (RSIP) approved by the Minister responsible for Roads and the Minister for Finance.

(e) Ensure that a maximum of ten percent (10%) of all monies allocated to each road agency is utilized for development purposes by the said agency;

(f) Monitor and evaluate, by means of technical, financial and performance audits, the delivery of goods, works and services funded by the Fund;

(g) In implementing paragraph (f), pay due regard to public procurement and disposal regulations and additional guidelines issued or approved by the Minister ;

WHAT WE DO

4 Kenya Roads BoardAnnual Report for the year ended 30th June 2014

(h) Recommend to the Minister appropriate levels of road user charges, fines, penalties, levies or any sums required to be collected under the Road Maintenance Levy Fund Act, 1993 and paid into the Fund;

(i) Recommend to the Minister such periodic reviews of the Fuel Levy as are necessary for the purposes of the Fund; and

(j) Identify, quantify and recommend to the Minister such other potential sources of revenue as may be available to the Fund for the development, rehabilitation and maintenance of roads.

WHAT WE DO (Continued)WHAT WE DO (Continued)


Registered Office

Kenya Re-Towers, 3rd FloorOff Ragati Road, Upper HillP.o. Box 73718- 00200, City SquareNairobi, KenyaTel. No.: 254-020-4980000, 2722865/6Fax No.: 254-020-2723161Website: www.krb.go.keE-mail address: [email protected]: Kenya Roads Board

Independent Auditors

Auditor-GeneralKenya National Audit OfficeP.o. Box 30084 – 00100, GPONairobi, Kenya

Principal Bankers

Central Bank of KenyaP. o. Box 60000-00200, City SquareNairobi, Kenya

Citibank N.ACitibank House, Upper HillP.o. Box 30711-00100, GPONairobi, Kenya

Co-operative Bank of KenyaP. o. Box 41862-00100, GPONairobi, Kenya

CORPORATE INFORMATION


Our Numbers in Brief

9.00

27.88

12.4RMLF Rate per Litre in Kshs.

FY 2013/14 RML Collections in Kshs. Billion

FY 2013/14 RML Disbursements in Kshs. Billion

Number of Kilometers maintained in FY 2013/14

Annual Percentage Growth in RMLF Collections

25.17 56,679

PERFORMANCE AT A GLANCE


Allocation Criteria of Road Maintenance Levy

Historical Collections and Growth of Road Maintenance Levy

Kenya National Highways Authority 40%(A,B,C Roads)

Kenya Roads Board 2%(Administration of the Fund)

Kenya Wildlife Service 1%(Park Road)

Kenya Rural Roads Authority 22%(Constituency/Rural Roads)

Kenya Urban Roads Authority 15%(Urban Roads)

Kenya Rural Roads Authority 10%(County Link Roads)

Allocation by Kenya Roads Board/Ministry 10%(Development of Roads)

23.573 23.776 24.402 24.814

27.882

10%

1%

3%2%

12%

0%

2%

4%

6%

8%

10%

12%

14%

5.000

10.000

15.000

20.000

25.000

30.000

2009/2010 2010/2011 2011/2012 2012/2013 2013/2014

AN

NU

AL

GR

OW

TH

RA

TE

AN

NU

AL

CO

LL

EC

TIO

NS

- K

SH

S B

ILL

ION

FINANCIAL YEAR

% Annual Growth Rate Linear (Amount (Kshs Billion) )

PERFORMANCE AT A GLANCE (Continued)


Chairman’s Statement Who Governs Us Executive Director’s Statement Who Leads Us Business Performance

Two // Business Review


On behalf of the Members of the Board, it is my pleasure to present the Annual Report and Financial Statements for Kenya Roads Board Fund and Kenya Roads Board for the year ended 30th June 2014.

Overview

Rising domestic and foreign investment are set to boost economic activity in Kenya, as the country reaps rewards of extensive institutional reforms and prudent macroeconomic policy.

In a regular review of Kenya’s economy, the International Monetary Fund noted a surge in public investment in infrastructure, renewed interest of foreign investors, and lower transaction costs thanks to information technology.

The Board has continued to monitor

the implementation of the five-year

Strategic Plan (2013-2017). Major

milestones have been achieved during

the planned period which include

increased collections from Kshs. 25Bn

to Kshs. 28Bn.

“

”Eng. Joel Wanyoike,Chairman

CHAIRMAN’S STATEMENT


In the last three years, the Government has continued to commit more financial resources for infrastructural development - including roads, ports and energy generation. The need for better roads continues to be a priority for Kenyan road users.

Operating Environment

The Kenyan economy is projected to grow at a higher rate for a third straight year, at 5.8 percent in 2014/15 after an estimated 5 percent in 2013/14. Inflation remains moderate, but rising food prices and rapid credit growth may fuel inflation expectations. Foreign reserves have increased steadily and are broadly adequate.

Interest rates have shown a downward trend in comparison to the high rates witnessed in 2013. Crude oil prices declined sharply in the period under review, and this is reflected in the falling pump prices in Kenya.

In the short to medium term, the Kenyan economy is expected to have a sustained and rising growth based on the following fundamentals: stable macroeconomic environment, a projected easing of international oil prices and reforms in security, governance and the judiciary.

Strategy

The Board has continued to monitor the implementation of its five-year Strategic Plan (2013-2017). The Board developed the FY2013/14 business plan which was extracted from the five year strategic plan. The deliverables that were set out in the business plan and performance contract for FY 2013/14 were achieved. Specifically, the Kenya Roads Board Fund collections exceeded the estimates, the APRP was approved and implemented during the year, the Board carried out monitoring and evaluation of utilization of the KRB Fund, and the internal capacity was strengthened to ensure effective delivery of the Board’s mandates.

Corporate Governance

Strong Corporate Governance is integral to the Board’s long-term success and is essential in delivering KRB’s

strategy. The various board committees continue to play a vital role in supporting the board in discharging its duties. The Statement of Corporate Governance, included in this report, details the measures that the Board has undertaken to ensure a robust corporate governance environment.

Kenya Roads Board, for the third year running was nominated and declared the winner under public sector category in the Annual Financial Reporting (FiRe) Awards held in October 2014. This was a confirmation of the Board’s commitment to high standards of financial reporting and good corporate governance. The FiRe Awards are jointly organized by the Nairobi Securities Exchange, the Institute of Certified Public Accountants of Kenya and the Capital Markets Authority.

Future Outlook 2015/16

Kenya Roads Board will align itself with the new Constitutional dispensation to serve Kenyans at the National and County levels of government. The Board is actively engaged in activities aimed at increasing and sustaining the KRB Fund to meet the ever increasing road maintenance needs. The Board remains committed to deepening relationships with its stakeholders and key partners. Further, the Board shall endeavor to develop its people, innovative and cost-effective methods of road construction and maintenance.

Acknowledgement

On behalf of KRB directors and staff, I express my sincere gratitude to the Government of Kenya, Ministry of Transport and Infrastructure, Road Agencies, taxpayers and other stakeholders for their continued support. This has gone a long way towards building a solid institution that is responsive to its mandates and stakeholders’ expectations.

Eng. Joel M. WanyoikeChairman30th October 2014

CHAIRMAN’S STATEMENT (Continued)


Eng. John K. Mosonik, EBS

Eng. Mosonik is the Principal Secretary, State Department of Infrastructure. Eng. Mosonik holds a Bachelor of Science degree in Electrical Engineering. He is a registered member with Engineers Registration Board and Institution of Engineers of Kenya. Eng. Mosonik has more than twenty years practical experience.

Dr. Kamau Thugge, EBS, MBS

Dr. Kamau Thugge, is currently the Principal Secretary at The National Treasury. Dr Kamau Thugge is the first Principal Secretary, National Treasury. Prior to his appointment as Principal Secretary, he worked as a Senior Economic Advisor in the Ministry of Finance from the year 2010. He has also worked at the International Monetary Fund in various capacities for over twenty years. He was the Head of the Fiscal and Monetary Affairs Department, between 2004 to 2005, and the Economic Secretary and Head of Economic Affairs Department, between 2005 and 2008. He represents the Permanent Secretary, Treasury on various Boards.

Dr. Thugge holds a Bachelor of Arts (Economics) from Colorado College, USA; Masters in Economics; and Doctor of Philosophy (PhD) in Economics, from Johns Hopkins University, USA.

Eng. Joel M. Wanyoike (Chairman)

Eng. Wanyoike is the Chairman of the Board. He represents the Institution of Engineers of Kenya. He has been serving the Board in the position of Director until April, 2012 when His Excellency the President appointed him as Chairman of the Board. He is a career Highway Engineer holding a Bachelor of Science Degree in Civil Engineering from University of Nairobi and Master of Science Degree in Highway Engineering from Birmingham University, UK. Eng. Wanyoike has served in the public service since 1974, rising from the position of an Assistant Engineer to Chief Superintending Engineer (Design) in charge of Roads Design at the Ministry of Roads. Eng. Wanyoike also served as a City Engineer of the Nairobi City Council. He is currently the Vice Chairman of Muranga University College and founder of Jowamu Consulting Engineers.

Mr. John O. Konchellah

Mr. Konchellah is the Principal Secretary, State Department of East African Affairs. He had served as Principal Secretary, State Department of Devolution, where he pioneered the initial setting up of County Government structures and systems which are now fully operational. A graduate of Poona University in India and Daystar University, Mr. Konchellah holds a Masters Degree in Business Administration(double Major in Strategic and Marketing Management); and a Bachelor of Commerce Degree in Banking. Mr. Konchellah brings with him a wealth of experience gained from over twenty six years, working in the banking industry, where he held several senior managerial positions, and witnessed the industry’s expansion and growth. He has held various leadership positions and has been engaged in community projects. He is a fellow of the Kenya Institute of Bankers.

WHO GOVERNS US


Ms. Mwanamaka Amani Mabruki

Ms. Mwanamaka Amani Mabruki is currently the Principal Secretary, State Department of Devolution. Prior to her appointment she was served as the Principal Secretary in the State Department of East African Affairs. She served in various leadership capacities - Managing Director, Kenya National Shipping Line, Head of Corporate Development at Kenya Port Authority, among others. She holds a Master and Bachelor degree in Economics from the University of Nairobi.

Mrs. Monika Solanki

Mrs. Solanki represents the Kenya Association of Tour Operators (KATO) in the Board. She is the Chairperson of Coast KATO branch and a member of the Executive Board of KATO.

She has over twenty five years experience in tours and travel and is the Managing Director of Lofty Tours.

Ms. Rita Kavashe

Ms. Kavashe represents the Automobile Association of Kenya. She holds a Bachelors Degree in Education from Moi University and a Masters in Business Administration from the University of Nairobi. She is the Managing Director and Export Director Sub-Saharan Africa of General Motors East Africa Limited. She has over sixteen years experience in the Motor Industry.

Eng. Michael Karanja

Eng. Karanja is a Board member representing the Kenya Association of Manufacturers. He holds a Bachelor of Science degree in Engineering and is a registered Engineer. He was previously the managing director of Sameer Africa Limited and has over twenty seven years experience in engineering, supply chain management and general management.

He is also a founder member and non-executive director of the Center for Corporate Governance.

Mr. Joel Kipkemboi Yego

Mr. Yego represents the Institution of Surveyors of Kenya and is serving his second term. He holds a Masters Degree in Remote Sensing and a Bachelor of Science degree in Survey and Photogrammetry from the University of Nairobi. He has served as lecturer in the Department of Survey at the University of Nairobi. He has also served as a Commissioner in the Njonjo Commission of Inquiry and is currently the Managing Consultant at Chalan Associates.

Mrs. Mary WanguiWambugu

Mrs. Mary Wangui Wambugu is a Board member representing the League of Kenya Women Voters. Mrs. Wambugu is an Economics graduate of the University of Nairobi and holds CPA qualifications and an alumnus of Alliance Girls. She also holds certificates in Corporate Governance and Labour Laws. She is the Finance Director of a group of companies specializing in Construction and Real Estate business. She has previously served on the Board of Suntra Investment Bank. As an ardent golfer, she has risen to the prestigious position of Chairlady of Kenya Ladies Golf Union.

CPA Osman H. Ibrahim, OGW

CPA Ibrahim represents the Institute of Certified Public Accountants of Kenya. He holds a Masters in Business Administration in Finance and a Bachelor of Commerce degree both from the University of Nairobi. He is the Acting Director, Finance and Administration at the Kenya School of Government. He has over nineteen years extensive experience in strategic planning, finance and procurement management in both public and private sectors.

Mr. Joseph William Nduva Muli , EBS

Mr. Nduva is the Principal Secretary, State Department of Transport. Prior to his appointment, he was the Managing Director of Kenya Railways Corporation where he spearheaded significant reform in the railway sector. He has held senior management positions in other organizations including the African Medical Research Foundation (AMREF) and Kenya Airways. Mr. Nduva sits on various boards of blue chip companies and parastatals. Mr. Nduva holds a Bachelor’s degree in Land Economics from the University of Aberdeen, Scotland, and Masters in Business Administration from Moi University.

WHO GOVERNS US (Continued)


Kenya achieved lower middle income status in 2012, according to revised national statistics released on September 30, 2014. The economy is 25% larger than earlier estimated, and Kenya is now the ninth largest African country with a Gross Domestic Product (GDP) of $55.2 billion.

Overview

The economy continued to recover from the slowdown experienced in the last couple of years, with Real GDP growth estimated at 5.7% for 2014. The recovery is attributed to aggregate demand, fueled by strong consumption and investment. Growth is also broad-based, with all sectors of the economy making a contribution to GDP.

The Board surpassed its budgeted

revenue for the financial year by Kshs.

3.1 Billion (2012/13: Kshs 899 Million)

despite the challenges faced

during the year.

“

”Eng. Jacob Ruwa,Executive Director

EXECUTIVE DIRECTOR’S STATEMENT


However, for Kenya to sustain the economic growth into 2015, the government needs to deal with emerging pressures on GDP growth from drought, insecurity, fiscal expansion, inflationary pressure, high electricity costs and implementation of devolution.

Kenya Roads Board has continued to carry out its mandate of effectively and efficiently managing the Kenya Roads Board Fund in light of these factors. We are happy to note that the Board continues to achieve its ambitious performance targets set in the annual business plans, derived from the Strategic Plan 2013-2017.

Performance & Utilization of Funds

The Board surpassed its budgeted revenue for the financial year 2013/14 by Kshs 3.1 Billion (2012/13: Kshs. 899 Million) despite the challenges faced during the year. The total collections for the period amounted to Kshs. 28.3 Billion compared to Kshs. 25.3 Billion in FY 2012/13.

The Board released funds amounting to Kshs. 26 Billion to the Road Agencies during the financial year, which includes prior year funds of Kshs 899 Million. At the close of the financial year, the Board carried over Kshs. 718 Million which will be released in the course of the Financial Year 2014/2015.

The Road Agencies applied 53% (Kshs 19.86 Billion) of the available funds (Kshs 37.5 Billion) to maintain 56,679 KM of the road network. In FY 2012/13 the Road Agencies reported that 81% (Kshs 26.5 Billion) of the available funds (Kshs 32.6 Billion) was utilized to maintain 68,183 KM of the road network. The board shall continue to ensure all the funds are utilized as planned.

Business Plan

The Board undertook a participatory and consultative process in the development of the Business Plan for FY2013/14. This entailed among others, a review of the business environment, key policies and laws & regulations. The board has continued to implement the approved business plan during the year and has successfully achieved most of the key deliverables. The key business highlights are shown on pages 17 to 24.

Performance Contracting

At the commencement of the year, the board signed the 2013/14 performance contract with the Government of Kenya through the Parent Ministry. The board has continuously endeavored to meet the agreed performance targets. During FY 2013/14, the board scored an average of 2.7795 (very good) compared to 2.8354 in FY 2012/13.

Human Capital

The Board believes that human capital is a key pillar to the successful execution of the Board’s Strategic Plan. The input of members of staff is the most critical element guaranteeing the attainment of targets set in the Performance Contracts and the Strategic Plan.

The staff of the Board have received high quality training both locally and overseas through an elaborate training plan for all staff. There exists a performance management system that sets key performance benchmarks which when attained result in achievement of the Board’s goals and reward of staff.

Appreciation

I would like to thank the Board of Directors, Management and Staff of Kenya Roads Board for their continued support and dedication, without which our ambitious objectives could not have been achieved. I would also wish to extend our gratitude to the Government of Kenya, the Ministry of Transport and Infrastructure, the National Treasury and the Road Agencies for their co-operation and support.

Finally, I would like to thank all taxpayers and stakeholders, and assure them of our strong commitment to deliver outstanding value to Kenyans as a whole.

Eng. Jacob RuwaExecutive Director29th October 2014

EXECUTIVE DIRECTOR’S STATEMENT (Continued)


Eng. Jacob Zecha Ruwa

Eng. Ruwa is the Executive Director, Kenya Roads Board.Prior to his appointment he was the General Manager, Planning and Programing. Eng. Ruwa holds a Bachelor of Science degree in Civil Engineering from the University of Nairobi. He is a registered member with Engineers Board of Kenya and Institution of Engineers of Kenya.

Eng. Ruwa has more than twenty years practical experience in road planning, design, construction and maintenance. He has headed various projects and regional offices. Eng. Ruwa has been involved in training, preparation of training manuals for road works and has deputized the Principal at Kenya Institute of Highways and Building Technology.

Ms. Lucy Kabura Gathika

Ms. Gathika is the Head of Legal and Corporate Affairs. Ms. Gathika holds a Bachelor of Law and a Masters in Business Administration from the University of Nairobi. Ms. Gathika is also a member of the Institute of Certified Public Secretaries of Kenya and is an Advocate of the High Court of Kenya.

Ms. Gathika has a wealth of more than fifteen years experience having worked in both public and private sector. Ms. Gathika has worked at Kenya Power and Lighting Company as Legal Officer and as a State Counsel at the Attorney General’s chambers. Ms. Gathika has also served as a Resident Magistrate.

CPA Rashid Kamis Mohamed, MBS

CPA Mohammed is currently the General Manager, Finance. He has over twenty years expansive managerial experience from key sectors of the economy including public and private organizations. He has been engaged in public policy and advocacy matters of governance, finance management and various social initiatives. CPA Mohammed holds a Master’s Degree in Business Administration from the Said Business School, University of Oxford-UK, B.Com (Accounting) from the University of Nairobi. He has also participated in several social projects in Wajir County and been part of strategies employed to improve road networks in Kenya; a contribution that earned him an award of order of Moran of the Burning Spear (MBS) in 2011. CPA Mohammed is a council member at the Institute of Certified Public Accountants (ICPAK). He Co-convenes the public policy and governance Committee of ICPAK.

Eng. Stephen Waireri Ndinika

Eng. Ndinika is the General Manager, Technical Compliance. Eng. Ndinika holds a Bachelor of Science in Civil Engineering from University of Nairobi and Masters of Science in Highway Engineering, from Birmingham University in the United Kingdom. He is a registered member with Engineers Board of Kenya and Institution of Engineers of Kenya.

Eng. Ndinika has more than twenty years practical experience in roads construction and maintenance in developing countries having worked in both public and private sectors . He has also managed projects funded by various international funding agencies. He also has been involved in monitoring and evaluation of road works as well as Technical, Performance and Financial Audits.

Eng. Benjamin Maingi

Eng. Maingi is the General Manager, Planning and Programming, effective November 2014. Until his appointment, he served the Board in the capacity of Manager, Technical Compliance Department. He holds a Bachelor of Science degree in Civil Engineering from University of Nairobi and Masters of Science in Highway Engineering, from Birmingham University, United Kingdom. He is a member of Engineers Board of Kenya , the Institution of Engineers of Kenya, Kenya Geotechnical Society and Institution of Directors of Kenya. Eng. Maingi has more than twenty years practical experience in roads construction and maintenance in tropical countries having worked in both public and private sectors. He has managed projects funded by various international funding agencies. He is well versed in monitoring and evaluation of delivery of roadworks through Technical, Performance and Financial Audits, Planning, Programming and overall project management.

Mrs. Ruth Moraa Bita

Mrs. Bita is the Head, Human Resources and Administration. Mrs. Bita holds a degree in Business Administration and a Masters in Business Administration from the University of Nairobi. Mrs. Bita is a member of the Institute of Certified Public Secretary and Institute of Human Resource Management.

Mrs. Bita has over fifteen years managerial experience in both public and private sectors having worked with Kenya Wildlife service, Kenya Airways, Co-operative Bank, among others.

WHO LEADS US


Sources of FundsThe Kenya Roads Board Act No. 7 of 1999 empowers the Board to manage “such moneys or assets as may accrue to or vest in the Board in the course of its functions under the Act or under any other written law”.

The Road Maintenance Levy Fund (RMLF) mainly comprises Fuel Levy and Transit Tolls. Fuel levy is charged at the rate of Kshs. 9 per litre of petrol and diesel imported into the country, while Transit Tolls are charged on foreign-registered commercial trucks exceeding 2 tonnes that ply the roads in Kenya, and are based on distance covered, axle load and country of origin of the truck. Fuel levy is collected from the oil marketers on the Board’s behalf by Kenya Revenue Authority, which charges an agency commission of 2% on all fuel levy remittances.

Other sources of funds comprise agricultural cess and income from treasury operations. The Board currently manages 80% of the Coffee Cess collected for maintenance of roads within the coffee growing areas. Income from treasury activities represents interest earned from the Board’s liquid assets.

Allocation CriteriaThe Board prepares an Annual Disbursement Program based on the historical collection trends and the annual budget. This program details the funding available to each Road Agency during the course of the year for the planning of works. Based on this program and the monthly collections, the Board disburses funds to the Road Agencies in accordance with the Kenya Roads Board Act and the Kenya Roads Act of 2007, summarized on page 7 of this report.

Growth in RMLF CollectionsAnnual fuel levy collections have improved since 1993 due to the upward reviews of the rate charged per litre of fuel and increased economic activity. The last review was done in FY 2006/07, when the rate was increased from Kshs. 5.80 to Kshs. 9.00 per litre of petrol and diesel. Since then, annual RMLF collections have increased from Kshs.16 Billion to Kshs. 27.9 Billion in FY 2013/14.

RMLF Receipts and Disbursements - FY 2013/14The Board collected Kshs. 27.9 Billion from fuel levy and transit tolls, against a target of Kshs. 25.2 Billion, representing RMLF surplus collections of Kshs. 2.7 Billion. The RMLF collections were disbursed to the Road Agencies in accordance with the KRB Act.

Agricultural CessThese funds are administered by the Kenya Rural Roads Authority (KeRRA), for maintenance of feeder roads that provide access to the coffee growing areas. The Work Plans for coffee cess funds are prepared by the Constituency Roads Committees in consultation with coffee stakeholders, and submitted to the KeRRA Regional Office. KeRRA then forwards the Work Plans to the Kenya Roads Board for review and approval. Once Work Plans are approved, funds are released to the KeRRA Regional Office through KeRRA Headquarters, for implementation of the road works.

During the year, the Board released Kshs. 127 Million (Kshs. 149 Million in FY 2012/13) to various constituencies in coffee growing areas for maintenance of roads as per the approved Work Plans.

Forward EstimatesThe Board prepares its annual budget based on the Medium Term Expenditure Framework. The budget is then submitted to the Ministry of Transport and Infrastructure and Treasury for approval by the end of January every year.

Based on the Medium Term Expenditure Framework, the forward budgets for the next four financial years are as follows:

BUSINESS PERFORMANCE


FY 2014/15 FY 2015/16 FY 2016/17 FY 2017/18

Kshs '000 Kshs '000 Kshs '000 Kshs '000

Road Maintenance Levy Fund 25,792,248 29,178,480 29,175,751 30,611,453

Utilization of the Kenya Roads Board FundThe Kenya Roads Board is committed to ensure that the proceeds from the KRBF have been applied for the purpose for which they were intended and that the use of such resources is efficient and transparent, in accordance with the principles, procedures and requirements of KRB and sound professional practice. The Board monitors the utilisation of funds on a regular basis through Technical, Performance and Financial audits and APRP Implementation Progress Reports to ensure value for money on KRBF funded road maintenance works.

The Kenya Roads Board Act requires each Road Agency to submit its audited accounts to the board within six months of the end of the financial year. From the unaudited financial statements for the Road Agencies for FY2013/14 and the APRP implementation reports, the broad summary of the total expenditure of the Fund for FY2013/14 is shown below:-

Road Agency

Opening Bank Balance

1 July 2013Kshs

Transfers from KRB Fund

Kshs

Total Available FundsKshs

Amount Utilized

Kshs

%Utili-

zation

Closing Bank Balance

30 June 2014Kshs

Unreported funds Kshs

KeNHA 3,106,950,788 10,330,789,000 13,437,739,788 6,430,813,649 48% 2,332,969,989 4,673,956,150

KeRRA 4,374,094,383 8,039,194,897 12,413,289,280 7,803,021,782 63% 4,228,950,244 381,317,254

KURA 2,070,059,689 4,389,430,323 6,459,490,012 4,174,811,372 65% 2,333,600,997 48,922,357

KWS 276,065,315 247,244,725 523,310,040 217,584,227 42% 226,246,315 79,479,498

KRB 166,540,350 503,489,450 670,029,800 498,472,966 74% 171,556,834 -

10% KRB Board/ Minister’s Allocation

1,236,822,784 2,935,368,615 4,172,191,399 725,677,547 17% 618,367,574 2,828,146,278

TOTAL 11,230,533,309 26,445,517,010 37,676,050,319 19,850,381,543 53% 9,911,691,953 7,913,976,823

The Road Agencies only reported on Kshs 27.4 Billion, being amount utilized and closing bank balances, out of the 37.7 Billion available funds. Therefore a total of Kshs 7.9 Billion was not reported on in the financial year.

The low level of utilization of funds (53%) was due to inaccurate reporting by some Road Agencies, delays in procurement and low contracting capacity by the Road Agencies. A comprehensive report on the expenditure and performance of the Road Agencies for the year is detailed in the Annual Public Roads Programme FY 2013/14 Implementation Report. The Board is committed to ensure all Road Agencies account for all KRBF funds and the funds are applied on planned roadworks.

BUSINESS PERFORMANCE (Continued)


The Road Agencies utilized Kenya Roads Board Fund to maintain roads as follows during the financial year :

Road Agency Network Category Planned Network (KMs)

KMs Achieved % Achieved of planned Network

KeNHA A, B, C Roads 11,705 9,193 79%

KeRRA D, E & Others 45,634 47,594 104%

KURA Urban Roads 2,080 1,365 66%

KWS Parks & Game Reserves 1,611 1,527 95%

TOTAL 61,030 59,679 98%

Based on the available funding, the Road Agencies planned for only 38% (KMs 61,030) coverage of the road network (KMs 160,886) in Kenya. Details are as explained below:-

The Kenya National Highways Authority (KeNHA)The budgetary allocation for KeNHA for FY 2013/14 was Kshs 10.3 Billion comprising Kshs 9.9 Billion - 40% allocation and Kshs 441.0 Million transit tolls. By the close of the financial year, KeNHA had received all their allocation. In addition KeNHA had Kshs 3.1 Billion opening bank balance as carry-over funds from FY 2012/13. KeNHA therefore had Kshs 13.4 Billion for implementation of works in the FY 2013/14. Out of this, the Authority reported an expenditure of Kshs 6.4 Billion and closing bank balance of Kshs 2.3 Billion.

KeNHA utilized fuel levy funds to maintain 9,193 Kms against a planned target of 11,705 Kms, which represents 79% of plannedroad network.

The Kenya Rural Roads Authority (KeRRA)In FY 2013/14 Kshs. 8.0 Billion was released to KeRRA during the financial year. The Authority had Kshs 4.37 Billion opening bank balance as carry-over funds from FY 2012/13. In total KeRRA had Kshs 12.4 Billion for implementation of works in the FY 2013/14. The Authority expended Kshs 7.8 Billion, to achieve 47,594 kms which represents 104% of the planned road network.

Coffee CessThe Board had not budgeted for Agricultural Cess due to changes in the new Agricultural Act. However, coffee cess marketers continued to remit coffee cess to the Board’s bank accounts. During the year, KRB received Kshs 127.7 Million from coffee cess. These funds will be disburse and released in the FY 2014/2015, upon receipt of works plans.

During the year, the Board released coffee cess funds for the FY 2012/13 amounting to Kshs 92.07 Million and Kshs 9.6 Million for FY 2011/12 to KeRRA. However, KeRRA reported an expenditure of Kshs 182.7 Million on road works which included funds from prior period which were held in their bank accounts.

The Coffee cess funds were utilised to maintain Kms 729 in coffee growing regions.

The Kenya Urban Roads Authority (KURA)The Board released Kshs 4.39 Billion to KURA in FY 2013/14. This comprised of Kshs 3.7 Billion - 15% allocation for the FY 2013/2014 and Kshs 0.69 Billion FY 2012/13 funds. Therefore, the Authority had Kshs 6.4 Billion for implementation of road works which included opening bank balance of Kshs 2 Billion.

The Authority utilized funds to maintain 1,365 Kms which represents 66% of the planned road network (2,080Kms).



The Kenya Wildlife Service (KWS)A total of Kshs 247.2 Million was budgeted for road works implementation in National Parks in FY 2013/14. A total of Kshs 523 Million was available for road maintenance, including prior year funds in its bank account.

KWS maintained a total of 1,527 Kms using Kshs 217 Million.

Kenya Roads BoardThe audited financial statements indicate the utilization of funds received by the Board for its operations. KRB had a budget allocation of Kshs 503.4 Million for administering the Kenya Roads Board Fund. By the close of the financial year, the entire budget had been disbursed.

The Annual Public Roads ProgrammeThe Kenya Roads Board Act requires the Board to review, individually, the Annual Road Works Programmes submitted by Road Agencies and consolidate these into an Annual Public Roads Programme (APRP). The APRP forms the basis of funds allocation and auditing of works by the Board and is not to be varied by any Road Agency without prior written approval from the Board. It provides detailed allocations for all the funds accruing from KRBF in the Financial Year and outlines funding for road works to be undertaken by Road Agencies as identified in the KRB Act and subsequent legal statutes.

During the year, the Board allocated and released funds in accordance with the FY 2013/14 Annual Public Roads Programme. As the process of alignment of the Roads Sector to the new Constitution continues, road works contained in the APRP for FY 2013/14 continued uninterrupted and were undertaken by the designated Road Agencies.

A total of Kms 59, 679 was maintain which represents 37% of the entire road network in Kenya, as tabulated below;

Road Agency/ KMS KeNHA KeRRA KURA KWS KRB/Minister allocation

Total

Network Extent 13,687 130,067 12,549 4,583 - 160,886

Kms Achieved 9,193 46,178 1,365 1,527 1,416 59,679

% Achievement 67% 35.5% 11% 33% N/A 37%

The current collations at Kshs 28 Billion is not adequate to cover maintenance needs of road network in Kenya, estimated at Kshs 50 Billion annually ( Draft Road Sector Policy, 2014). The Road Agencies planned maintenance for only 61,030 which represents 38% of the entire road network (Kms 160,886) The Board has continued to lobby for additional funding for road maintenance.

Technical Compliance, Financial and Performance AuditKenya Roads Board commitment to ensure value for money is realized in the utilization of Kenya Roads Board Fund (KRBF) by Road Agencies cannot be overemphasized. The Board has the principle role of overseeing the utilization of the Kenya Roads Board Fund through monitoring and evaluation of KRBF funded road projects and activities. The Kenya Roads Board Act of 1999 and subsequent amendments mandates the Board to coordinate the optimal utilization of the fund and monitor and evaluate the delivery of goods, works and services through programmed and adhoc Technical Compliance, Financial and Performance audits.

Inspection of KRBF funded works implemented by Road Agencies i.e. KeNHA, KeRRA, KURA and KWS, is done during these audits as well as verification of the utilization of KRBF released to these Agencies. These audits are conducted for both KRBF funded works and development partner funded projects (upon request by the development partner).The Board carries these audits using in-house personnel and through the use of consultancy engagements with engineering and financial audit firms. The current audit



consultants were engaged in FY 2012/13 on a contractual period of three financial years ending in FY 2014/15. The country is currently packaged into seven regions with each region having a consortium to carry out the audits on a semi annual and annual basis.

The audit for FY 2013/14 covered a representative sample of activities funded by the KRBF and implemented by Road Agencies as contained in the APRP for that financial year. Road works activities implemented during the period were executed by either force account or through contracting. The works included routine, periodic, rehabilitation, emergency and development works.

For the development partner funded programs, the audit exercise captures a percentage of works that is agreed jointly between KRB and the development partner. During the year, the Board was engaged in the audits for road works funded by European Commission, Programme for Agriculture and Livelihood in Western Communities(PALWECO), L’Agence Francaise de Developpement(AFD) and German Development Bank (KFW). These audits are carried out using in-house personnel and through consultancy engagements with engineering and financial audit firms.

Both KRBF funded road works and development partner programs are audited on an interim and annual basis. The consultants discuss the audit findings with the auditees before submitting the reports to KRB. KRB reviews the audit findings and disseminates them to Road agencies and donors for action. Regional workshops are held to disseminate audit findings to the Road Agencies and donors (where applicable).

Some of the gains realised on the audits include:(a) Progressive increased compliance with APRP;(b) Payment to contractors have been streamlined and take reasonable time to settle;(c) An accounting system has been acquired by KeNHA and KURA;(d) Increased use of contracting rather than the use of force account in project implementation;(e) Increased adherence with government procedures, rules and regulations; (f) Establishment of effective accounting systems by Road Agencies;(g) Reduced time in disbursement of funds to the implementing units, among others.

The following audit issues have remained a major challenge to the Roads sub-sector:(a) Non-compliance with APRP by Road Agencies;(b) Cost overruns on projects funded by KRBF;(c) Payments made over and above the value of work done;(d) Inappropriate procurement procedures for works;(e) Delay in implementation of funded works(f) Poor quality of maintenance works and poor performance of completed works including pavement failures, poor or lack of

mitre drains(g) Misapplication of proceeds from KRBF e.g. Ineligible and unsupported payments,(h) Failure to release funds for administration to the regional offices, resulting into a significant reduction of funds for road

maintenance as the regions are forced to spend part of the works funds on administration.(i) Non adherence to Government financial regulations and guidelines.The detailed audit reports are available for review at KRB offices.

The Board shall continue to monitor the implementation of road works funded by the fund to ensure value for money is achieved, and assist in driving the economy towards Vision 2030 goals.



Road Sector Investment Programme (RSIP)The Road Sector Investment Programme (RSIP) forms the basis of prioritization of roads in the APRP. The Board monitors the implementation of the RSIP through regular reports and stakeholders’ meetings. The Board continues to ensure that the APRP prepared by Road Agencies is based on the RSIP.

The 1st 5 year RSIP (2010-2014) was prepared in 2011 with projected available funding of Kshs 604 billion for different interventions on the road network. Although projects implemented during Phase 1 of the RSIP were largely in line with the priorities set out in the RSIP, only approximately 50% of the RSIP targets have been achieved. Some of the constraints experienced during the 1st Phase of RSIP included lack of funding, lengthy procurement processes, low contractor capacity among others. Phase 1 of the RSIP will expire in FY 2014/15.

There is need to develop the 2nd Phase of RSIP (2015-2019) by the beginning of the next financial year which is aligned to the Government’s strategic development goals to clear all ongoing road projects within the next two years and develop 10,000 km of paved roads within the next four years. KRB submitted a request to the PS to approve funding for preparation of 2nd Phase of RSIP (2015-2019) and also prepared the Terms of Reference for Calibration of the HDM-4 to conditions in Kenya.

Overloading ControlRoads are designed to withstand certain traffic loading (equivalent standard axles) over their lifetime. The damaging effect to pavement by vehicles depends largely on the axle loads applied by the vehicles plying the route.

Therefore overloading has become a major challenge for the road asset in Kenya as it reduces the lifecycle of our roads hence increasing the maintenance cost. Adherence to axle load limits prescribed in law can considerably sustain the durability of the road asset through preventing premature failure.

The Board has developed a database for analysis of weighing data and preparing customised weight measurement reports including axle loading trends in terms of axle configurations, overloading, among others.

The Board engaged two consultants, CAS consultants and Kiri consultants to carry out the axle load monitoring in Kenya.

The following improvements have been noted from the axle load monitoring undertaken by the two consulting firms:• Axle load compliance per axle and Gross Vehicle Weight (GVW) improved from 44% and 92% in June, 2013 to 68% and 99%

in June, 2014 respectively.• There is notable improvement in axle load control management in the country with installation of 4no. static weighbridges

High Speed Weigh-in-motion (HSWIM) weighbridges, computerization, installation of CCTV, data loggers and upgrade of weighbridge facilities programmes at Mariakani, Athi River, Gilgil and Webuye.

• Continuous classified directional traffic counts are now being undertaken at Mariakani and Athi River from January, 2014, when data loggers and HSWIM scales were introduced;

• There is a gradual reduction of queuing time at the weighbridges with the average queuing time of 15minutes at Mariakani and Athi River weighbridges and 5 minutes at the Gilgil and Webuye weighbridges.

However, the findings of the monitoring show high percentages of undiverted Heavy Goods Vehicles (HGV) which is an indication that diversion of all HGV traffic to the weighbridges is still a major challenge especially in Mariakani, Athi River and Gilgil weighbridges.



Road Network Management Data In KenyaIn its role as an advisor to the Minister, the Board is in the process of procuring a consultant, funded by the World Bank, to collect and collate road network management data in Kenya. The components of the study are as follows:-− Phase 1: Road Inventory and Condition Survey for Narrow Roads and Road Condition for Classified Roads Network;− Phase 2: Formulation of policy on management of Narrow Roads; and− Phase 3: Transport Sector Indicator Framework, Road Asset Valuation and Traffic Data studies

The Road Network Management Data will provide essential data for planning, monitoring perfomance of the road network, sourcing and allocation of funds and therefore enhance road asset management in Kenya.

Road ClassificationThe Constitution of Kenya classifies roads into National Trunk Roads and County Roads. The Board has presented the proposed re-classification system to define and delineate the two types of roads to the various stakeholders in the road subsector. Further, the proposed re-classification system categorises rural and urban road networks into three broad functional groups; Arterial roads, Collector roads and Local roads.

During the year, the Board prepared the National and County Roads Network Register and submitted to the Principal Secretary, State Department for Infrastructure, for approval and adoption.

Roads 2000 (R2000) StrategyThe Board co-ordinates the R2000 Strategy. During the year, the Board facilitated and coordinated R2000 activities undertaken by the Road Agencies. The R2000 Strategic Plan (2013-2017) intends to use methods of constructing feeder roads that would be cheaper, durable and create employment opportunities in the long run.

The Board has continued to encourage Road Agencies to use R2000 Strategy in implementing road maintenance and development activities funded by the fund, hence enabling creation of jobs within the road sub-sector. The strategy has helped in building capacity for small and emerging contractors through various training initiatives financed by the fund in various institutions such as Kenya Institute of Highways & Building Technology.

During the year, the R2000 Strategy supported the creation of 16,664 jobs against a target of 32,986. The Board shall continue to monitor the implementation of the R2000 Strategy and ensure more jobs are created to reduce the unemployment rate in the country and assist in making Kenya a middle income country as envisioned in the Vision 2030.

Research and DevelopmentKenya Roads Board established an Interagency Research and Development Committee in order to enhance coordination of research efforts within the Roads sub-sector. Key Road Sub sector institutions, practitioners, academia and other institutions are represented in this committee. The purpose of the Committee is to provide technical and logistical oversight for the design and implementation of research activities in the road sub-sector including data collection, analysis, documentation and dissemination of research findings.

One of the main objectives of Committee is to establish and maintain a centralized knowledge base of research undertakings in the road sub sector. During the year, KRB began the process of procuring a consultant to carry out review of the past and current research efforts within the Roads Sub-Sector with a view to establish a centralized knowledge base of research undertakings.



Performance ContractingAt the commencement of the FY 2013/14, the Board signed an annual Performance Contract with the Government of Kenya through the Parent Ministry which sets out targets that the Board is expected to achieve during the financial year. The annual targets are monitored on quarterly basis; progress reports submitted to the Board for approval and subsequently submitted to State Corporations Advisory Committee under the Office of the President.

During FY 2013/14, the Board scored an average of 2.7795 (very good) compared to 2.8354 in FY 2012/13, which was an improvement from the previous financial year, with the highest score being one in perfomance contracting. The performance contracting results for the last five years are tabulated below;


0.00

0.50

1.00

1.50

2.00

2.50

3.00

2009/2010 2010/2011 2011/2012 2012/2013 2013/2014

Performance Score

2.30 2.33 2.73 2.84 2.78

Performance Contracting ScoreFY 2009/10 to 2013/14


Three // Governance & Corporate Responsibility

Corporate Governance StatementSustainability Statement

Board members pose for a photo after one of the Board meeting held during the year.


IntroductionThe culture and demureness of Kenya Roads Board is a reflection of the clear direction and commitment of the Board of Directors to the principles of transparency, professionalism and high performance culture for the benefit of its stakeholders. The Board of Directors regards corporate governance as pivotal to the attainment of the Board’s core mandates and ensuring that KRB remains the best managed fund for an effective road network. This enables effective and efficient decision making and gives a structural aid for the Directors to discharge their duty to promote the success of KRB while taking into account the interest of stakeholders.

Effective governance is achieved through a combination of strong process and structures, underpinned by the right values and culture. The principles of corporate governance are contained in the Director’s Code of Conduct and Ethics.

Board Organisation and Structure

Board Size, Composition and AppointmentKenya Roads Board comprises of thirteen (13) independent non-executives board of directors, eight (8) are from the private sector institutions and five (5) members represents the public sector. Each member serves for a maximum of two terms of three (3) years each. The Chairman of the Board is appointed by the President from among the eight members from the private sector. Names of all members and changes thereto are published in the Kenya Gazette.

The public sector representatives are the permanent secretaries or designated alternates not below the level of deputy secretary from the ministries responsible for matters relating to roads, finance, local authorities, regional co-operation, transport and communications. The representatives from the private sector are appointed by the Minister for roads from among the three persons nominated by each organization specified in the First Schedule to the Kenya Roads Board Act.

The Board is well composed in terms of range and diversity of skills, knowledge, age and experience in various sectors which makes it effective and provides an appropriate balance for the oversight of the Board’s mandate. On gender, the Board has three (3) women out of eight (8) members from the private sector.

The membership of the Board changed in November, 2013 when the term of the previous Board expired. The position of the member from Kenya Transport Association remained vacant during the period. The membership from the public sector changes depending on the appointments to the Permanent Secretary(ies) position(s) or designated alternate(s).

The position of the Executive Director is filled through public advertisement. The appointment is done by the Board in consultation with the Minister. The Executive Director is an ex-official member of the Board but has no voting right at any meeting of the Board and is the secretary to the Board.

The directors’ abridged biographies appear on pages 11 to 12 of this Annual Report. The Board membership is shown on page 28.

Independence, Separation of Roles and ResponsibilitiesAll Directors except the Executive Director are non-executive directors. The non-executive directors are independent of management, they appoint the Executive Director and establish a framework for the delegation of authority and ensure succession planning for the executive director and senior management is in place. Their role is to advise, constructively challenge and monitor the success the management is delivering the agreed strategy within the risk appetite and control framework that is set out by the Board.

CORPORATE GOVERNANCE STATEMENT


The roles and responsibilities of the Chairman of the Board, the Executive Director and non-executive directors’ remain distinct and separate which ensures a balance of power of authority and provides for checks and balances such that no one individual has unfettered powers of decision making. Their roles have been documented and are expected to be independent and free from conflict upon appointment.

The Chairman provides overall leadership to the Board without limiting the principles of collective responsibility for Board’s decisions. The Chairman builds an effective board and sets the board agenda in consultation with the Secretary/Executive Director and ensures effective communication to stakeholders.

The Executive Director is responsible to the Board and takes the overall responsibility for the management of the Kenya Roads Board Fund and takes responsibility for effective and efficient day to day running of the affairs of the Board. The Executive Director recommends the strategy to the Board and implements it and makes operational decisions. Noting that the position also dubs as the secretary to the Board, the Executive Director ensures appropriate and timely information flows within the Board, its committees and management.

Board ResponsibilitiesThe Board’s responsibility is to promote the long term success of the Board. The Board provides leadership and concentrates its efforts on the strategic and governance issues. The Kenya Roads Board Act, the Board Charter and the Directors Code of Coduct and Ethics defines the governance parameters within which the Board exists and operates, the specific responsibilities to be discharged and powers of the Board, its committees and directors collectively, as well as certain roles and responsibilities incumbent upon directors as individuals.

The Board is charged with the following responsibilities:-(a) Defining the purpose of the Kenya Roads Board, that is, its strategic intent and objectives, and its values which should be clear,

concise and achievable;(b) Strategy formulation and ensuring there are appropriate policies, systems and structures to effectively and successfully implement

the strategies;(c) Provide leadership within a framework of prudent and effective structures which enable risks to be assessed;(d) Identify the opportunities as well as the principle risks in its operating environment including the preparation of the risk policy

plans/risk management policies and implementation of appropriate measures to manage such risks or anticipated impact on the corporate business;

(e) Review on a regular basis the adequacy and integrity of the internal controls, acquisition and divestures, management information systems including compliance with applicable laws and regulations;

(f) In stewardship and in discharging its obligations, the Board assumes responsibility in the following areas:

(i) Retaining full and effective control over KRB, and monitoring management in implementing Board plans and strategies;(ii) Ensuring ethical behavior and compliance with relevant laws and regulations, audit and accounting principles, and KRB’s own

governing documents and Code of Ethics; and(iii) Defining levels of materiality, reserving specific powers to the Board and delegating other matters with the necessary written

authority to management and instituting effective mechanisms that ensure Board responsibility for management performance of its functions; among other mandates and responsibilities as stipulated in the Kenya Roads Board Act.

CORPORATE GOVERNANCE STATEMENT (Continued)


Meetings Attended by Board MembersKenya Roads Board Act provides that the Board holds meetings at least once every month. The Board therefore holds regular scheduled meetings throughout the year and supplementary meetings are held as and when necessary. In case of non attendance due to other commitments, such information is communicated to the chair prior to the date of the scheduled meeting.

The table below details board membership and attendance at scheduled board meetings during the year :-

Board Membership and Attendance of Meetings

Director Classification Sector Organization Attendance

Eng. Joel M. Wanyoike Non-Executive Chairman

Private Institution of Engineers of Kenya 14/14

Joel Kipkemboi Yego Non-Executive Private Institute of Surveyors of Kenya 14/14

Osman H. Ibrahim (*) Non-Executive Private Institute of Certified Accountants of Kenya 12/14

Consolata Yambo Migowa (up to 9th May 2014)

Non-Executive Private League of Kenya Women Voters 14/14

Mary Wambugu (from 10th May 2014)

Rita Kavashe(*) Non-Executive Private Automobile Association of Kenya 6/14

Geoffrey Irungu(*) Non-Executive Public Ministry of Transport & Infrastructure, State Department of Transport

9/14

Alfred Kitolo(*) Non-Executive Public Ministry of East African Community 10/14

Mwanamaka A. Mabruki

Billow H. Abdi (*) Non-Executive Public

Ministry of Transport & Infrastructure, State Department of Infrastructure

11/14

Eng. John K. Mosonik

Grace Kamasara (up to 26th February 2014)

Non-Executive Public Ministry of Devolution 14/14

Kennedy Nyamao (from 27th February 2014)

Dr. Charles Onchoke (*)(up to April 2014)

Non-Executive Public The National Treasury 10/14

Onderi Ontweka (from May 2014)

Monika Solanki (*) Non-Executive Private Kenya Association of Tour Operators 13/14

Michael Karanja Non-Executive Private Kenya Association of Manufacturers 14/14

Notes:– (*) An accepted apology was received by the Chairman well in advance of the scheduled meeting




Board Committees and ResponsibilitiesThe Board delegates certain functions to well structured committees but without abdicating its own responsibilities. The Board has developed a committee structure that assists in the execution of its duties, powers and authorities. Each Committee is guided by the Committee Charter/Terms of Reference, which outlines its responsibilities as mandated by the Board and is reviewed on a yearly basis. The Committees are appropriately constituted drawing membership from amongst the board members with appropriate skills and experience. The Chairman of the Board, management and external parties/advisors are required to attend the committee meetings only by invitation.

The committees are expected to operate transparently, ensure full disclosure to the Board and conduct themselves within the rules and procedures set out by the board. Matters deliberated by the Committees are presented to the board by the respective chairman during the next board meeting. The Board Committees are Audit & Risk Management, Finance & Planning and Management. The responsibilities and attendance of meetings during the year is as summarized below:-

Finance and Planning Committee The Finance and Planning Committee assists the board in fulfilling its oversight responsibilities for funds collection, sourcing of funds, allocation and disbursements, review of budgets, Annual Public Roads Programme and the implementation reports.

The responsibilities of the committee are as follows:-(a) Review the ceilings for Road Agencies to ensure compliance with the KRB Act and the approved Road Sector Investment

Programme;(b) Constantly review and monitor the collections of Kenya Roads Board Fund including seeking explanations for certain trends;(c) Review financial statements, management accounts, audit reports and make appropriate recommendations.(d) Review KRB budgeting process, systems and cycle to ensure that they promote openness, accountability and prudence;(e) Periodically review the extent of utilization and compliance with budgetary levels and make appropriate recommendations;(f) Review the consolidated Annual Public Roads Programme to ensure compliance with the guidelines from KRB and the

proposals from the Road Agencies;(g) Review the reports on works carried out to ensure that they are within specifications, costs and time.

Finance and Planning Committee Membership and Attendance

Name Organization Attendance

Billow Abdi Ministry of Transport & Infrastructure, State Department of Infrastructure

5/5

Michael Karanja Kenya Association of Manufacturers 5/5

Osman Ibrahim Institute of Certified Accountants of Kenya 5/5

Grace Kamasara(*)Kennedy Nyamao(*)

Ministry of Devolution 3/5

Onderi Ontweka(*)Charles Onchoke(*)

The National Treasury 3/5

Rita kavashe(*) Automobile Association of Kenya 2/5

Notes: (*):- An accepted apology was received by the Chairman well in advance of the scheduled meeting


Audit and Risk Management CommitteeThe Audit and Risk Management Committee assists the board in fulfilling its oversight responsibilities for the programming and monitoring of works, as well as the advisory role to the Minister responsible for Roads. The Audit and Risk Management Committee has authority to conduct or authorize investigations into any matters within its scope of responsibility. The Committee has the following responsibilities:-(a) Review the effectiveness of the system for monitoring compliance with laws and regulations and ensure business continuity

amongst other responsibilities as may be delegated by the Board.(b) Review and ensure the integrity of financial statements and appropriate accounting principles prior to review and approval by

the Board;(c) Review the effectiveness of the Board’s internal control systems and compliance as well as advise the board on risks and

mitigation measures;(d) Review audit reports and make recommendations to the Board.

Audit and Risk Management Committee Membership and Attendance


Alfred Kitolo(*) Ministry of East African Community 1/2

Joel Kipkemboi Yego Institute of Surveyors of Kenya 2/2

Billow H. Abdi Ministry of Transport & Infrastructure, State Department of Infrastructure

2/2

Consolata Yambo Migowa League of Kenya Women Voters 2/2

Osman H. Ibrahim Institute of Certified Accountants of Kenya 2/2

Notes: (*) - An accepted apology was received by the Chairman well in advance of the scheduled meeting

Management CommitteeThe Management Committee oversees strategic planning, staff matters, performance contracting and general management oversight. Specifically the Committee is responsible for the following:-(a) Setting the policies and strategic direction of the organization;(b) Review the Strategic Plan and the Business Plan for approval by the Board;(c) Monitoring the implementation of the Strategic Plan;(d) Evaluation of the performance of the organization, Executive Director, staff and departments;(e) Negotiating the annual performance Contract between KRB and the Ministry of Roads;(f) Reviewing of the organization structure of KRB;(g) Reviewing KRB’s staff terms and conditions of service;(h) Reviewing the various management policies aimed at enhancing staff performance.

During the year, the Committee approved the Annual Business Plan and Performance Contract for FY 2013/2014 and reviewed quarterly monitoring of performance. The Committee also reviewed the staff matters and results of performance assessment of the senior staff.



Management Committee Membership and Attendance


Joel Kipkemboi Yego Institution of Surveyors of Kenya 7/7

Consolata Yambo Migowa(*) League of Kenya Women Voters 6/7

Geoffrey Irungu(*) Ministry of Transport & infrastructure, State Department of Transport

5/7

Alfred Kitolo(*) Ministry of East African Community 3/7

Monika Solanki (*) Kenya Association of Tour Operators 6/7

(*) - An accepted apology was received by the Chairman well in advance of the scheduled meeting

Interagency Research and Development Committee (IRDC)The IRDC has authority to conduct or authorize investigations into any matters within its scope of responsibility. It is empowered to review all research proposals forwarded to KRB and recommend funding, retain an independent adviser if it so wishes to advise the Committee on issues related to research proposals and oversee the work of any research consultancy that may be appointed by KRB.

The main responsibilities of the Committee are:-a) Provide comment for approval of planned research activities and will provide guidance on identifying needs, scope and

approaches;b) Monitor progress of on-going research activities in terms of major activities milestones and deliverables;c) Endorse final outputs from the research projects and programmes and agree on any next steps;d) Keep the local industry aware of the research activities and promote a wide dissemination of project results;e) Promote collaborative working arrangements with like-minded organizations in the Africa Region and elsewhere.

Interagency Research and Development Committee Membership and Attendance


Michael Karanja Kenya Association of Manufacturers 3/3

Colin Scott The Roads and Civil Engineering Contractors Association 3/3

Ritah Kavashe(*) Automobile Association of Kenya 2/3

Prof. Patts Odira(*) University of Nairobi - Engineering Department 2/3

Eng. Kariuki Muchem(*) Association of Consulting Engineers of Kenya 2/3

Eng. Joel Wanyoike(*) Institution of Engineers of Kenya 1/3

Prof. Winnie Mitullah(*) Institute of Development Studies 1/3

(*) - An accepted apology was received by the Chairman well in advance of the scheduled meeting

Remuneration of the BoardThe non ex-official Board members are paid taxable sitting allowance as approved by the Minister responsible for Roads following guidelines from the State Corporations Advisory Committee. The Chairman is paid honoraria at a rate approved by the Government. Transport expenses are reimbursed on travel for Board business at the prevailing AA rates. The members are also entitled to outpatient and inpatient medical cover and a personal accident cover, as applicable.



Directors Induction and Training The Board develops an induction and training programs designed to introduce new directors to the operations of the Board and related governance matters. The programs are also aimed at deepening the understanding of the changes in risks, laws and business and political environment in which the Board operates.

During the year, the new board members were inducted at a workshop held in Mombasa. The induction included among others presentations by all heads of departments, on the operations of KRB and the Kenya Roads Board Fund.

Two field trips were held to various projects funded by KRBF around the country. This was a new experience especially for the new members as it helped them learn about road sector structural arrangements and actual implementation of works which the Board funds.

Directors were also trained in corporate governance, road sector financing and reforms including the impact of the Constitution, prevailing political and economic environment on the functions of Kenya Roads Board.

Board Effectiveness and EvaluationIn order to assess and improve the capacity, functionality and effectiveness of the Board and its Committees, an annual evaluation is undertaken in accordance with the widely accepted principles of corporate governance. The self evaluation reviews the capacity, functionality and effectiveness of its performance in the achievement of its goals and objectives. It assesses the performance and independence of the Board and its Committees jointly and individual members of the Board, including the Executive Director. The Executive Director is assessed in his roles as the Chief Executive Officer and the Secretary to the Board. The Chairman’s ability to add value, his performance against what is expected of his role and function, is also assessed.

The results of the evaluation forms the basis on which action/work plans for the proceeding year are formulated, assists to identify the training needs and it also forms the basis of re-appointment of directors.

During the year, a comprehensive board evaluation was conducted under the guidance of Promin Consultants. The Board and Committees were evaluated against the following criteria, amongst others:-• Effective preparation for and participation at meetings;• Understanding the business, mandates, strategic thrift of KRB;• Ability to take an independent view on matters brought for discussion;• Communication with fellow directors, management and stakeholders;• Regular attendance of meetings; and• Keeping abreast with the latest developments, including awareness and compliance with regulatory guidelines.

A report on the overall evaluation assessment was submitted to the Minister responsible for Roads in accordance with the best governance practices.

Conflict of Interest, Code of Conduct and EthicsThe directors and employees of the Board have a fiduciary duty to act honestly and in the best interest of the Board. Business transactions with all parties must be carried out at arm’s length and with integrity. The Board provides effective leadership based on ethical foundation and ensures all deliberations, decisions and actions are based on the Boards’ core values underpinning good governance. The Board has developed a Code of Conduct and Ethics Manual whose aim is to enhance relationships and fostering teamwork among board members and staff and to build respect, confidence and credibility with its citizens. The Code provides guidance to its members regarding ethical and behavioral considerations as they address their duties and obligations during their appointment and their term in KRB.



The Board has put various measures in place to ensure that there is no conflict of interest amongst its directors and staff. The Board has put in place Corruption Prevention and Code of Conduct & Ethics Policies that binds both the directors and the employees.

At the beginning of the financial year, all directors and employees signed a declaration of interest form declaring that they will disclose any interest that conflicts or possibly may conflict with the interests of the Board. At the commencement of any business to be transacted, all directors/staff are required to declare their interest, if any.

During the year, the Board carried out training on the Leadership & Integrity Act, 2012, Corruption Prevention and Code of Conduct & Ethics Policies, provisions of Constitution of Kenya in particular Chapters 2 (10) – National Values and Principles of Governance, Chapter 4 – The Bill of Rights and Chapter 6 – Leadership and Integrity.

During the year, the directors and employees demonstrated their commitment to the public service through professionalism, integrity, moral and ethical requirements, conflict of interest, and political neutrality through compliance with relevant laws as evident from the legal audit, internal audit, and external audit reports presented to the Board. All staff and directors declared their wealth as required to the Public Service Commission.

Accountability & Audit /Control Environment ManagementAnnual Report and AccountsThe Board is required to present an objective and understandable assessment of the Fund’s and Board’s operation position and prospects. The Board has ensured that accounts are presented in accordance with the International Public Sector AccountingStandards and obtained an unqualified audit report.

The Board received unqualified audit report on the activities of the Fund and it operations.

External and Internal Audits (i) External AuditorsKenya Roads Board accounts are audited by the Auditor-General. The Auditor-General is an independent office whose role and responsibilities are defined under the Constitution of Kenya.

(ii) Internal AuditorsThe Board in furtherance of its duties to ensure that the process, structure and internal controls are maintained and adhered to, may appoint independent audit consultants or recruit in-house staff to carry out such functions.

The Internal Audit firm was appointed through a competitive open tendering process. The Board engaged the services of M/s Davle & Associates to carry out the internal audit function and present reports on compliance. Further, the Board engaged the services of Technical, Financial and Performance audit consultants to evaluate the efficiency, effectiveness and economy, value for money, on the utilization of funds by Road Agencies

Internal Controls and Risk Management The Board has the responsibility of identifying internal risk exposures and developing measures to mitigate against the identified risks. The Board reviews and monitors the development and implementation of systems of internal controls. The Board must have an understanding of these risks and mitigate them by implementing sound internal controls and risk management practices. The Board has developed the risk management framework and management control which identifies the risks. The Board recognizes that information technology form an integral part of the risk management process and has developed the business continuity plan, disaster preparedness plan and the Information Technology policy.



The Board reviewed the internal controls, policies and procedures and satisfied that appropriate controls and procedures were in place. This review was done by the internal auditors who report directly to the audit committee. The Board also delegated the day to day management of risks to management through systems and process carried out on a day to day basis. to day basis.

Relationship with StakeholdersThe Board appreciates that stakeholder perception affect the organizations reputation. Therefore the Board strives to achieve an appropriate balance between its various stakeholders in the best interest of the organization by taking into account their legitimate interest and expectations in decision making.

The Board values the importance of complete, timely, transparent and effective communication with its stakeholders for building and maintaining their trust and confidence by providing regular information on its performance, activities and addressing their concerns whilst having regard to legal and strategic considerations. The Board has developed a Corporate Communications Strategy which encompasses internal & external communication, customer service and public relations.

The main avenues for communication are through press releases, stakeholder forums and publications on disbursements, APRP and annual reports and financial statements. The Board has continued to encourage electronic communication through publishing documents in the corporate website www.krb.go.ke and has endeavored to ensure that the website is highly interactive and contains all the relevant information.

Additionally, the Board has dedicated staff to deal with complaints and public relations effectively, efficiently and as expeditiously as possible. The Board has an established mechanism of receiving, resolving and giving feedback on complaints referred to it by its stakeholders. The Board submits quarterly reports to the Commission of Administrative Justice on the complaints handling and management. During the year the Board scored 91% against a target of 85% on complaints handling and management.

The Board encourages communication through email by allocating all directors and staff with an email address and Internet. For external communication, the Board has set up an email address – [email protected].

The Board’s Service Charter, which has been cascaded to all staff and displayed at strategic locations, is monitored on a regular basis. The Charter stipulates the service delivery timelines, commitments and expectations of KRB’s customers. During the year, the level of customer satisfaction on the Board’s services was at 78%. The Board is committed to continually improve access to information by the public and provision of efficient and quality public services.


KRB Directors and members of staff during a team building session

Tree planting at Nge’ny Secondary School


KRB staff and their families during the Standard Chartered Marathon

KRB Staff mentoring students at Okwach Primary School



IntroductionThe Board works with its staff and stakeholders to enrich community life and participates in charitable projects. The Board recognizes the importance of conducting operations in a manner that meets existing needs without compromising the ability of the future generation to meet their needs; therefore it carries out its operations in a manner that ensures the economic life of the community in which it operates. It remains the Board policy to ensure that activities meet and exceed the social, economic and environmental expectations of stakeholders. The Board believes that ethical leadership and corporate citizenship should direct the strategy and operations to build sustainable business.

The Board executes the objectives through the following:-(a) Our people, values and processes;(b) Stakeholder engagement;(c) Protecting the environment; and(d) Corporate Social Responsibility and Investment.

Our People, Values and ProcessesAt KRB, people are the primary asset. The Board therefore recruits and invests in the best talent in the market. Our success has been and will continue to be highly dependent on the performance and accountability of our youthful team.

Diversity and Equal OpportunityThe Board endeavours to preserve gender and cultural diversity in our employee mix and takes pride as an equal opportunity employer for all qualified persons. This has created an inclusive environment where individuals and teams harness strengths in diversity to maximize potential and excel in performance.

Our Culture and ValuesOur vision of “an efficient road network for a prosperous nation” describes who we are, what we stand for and is what makes our culture distinctive. The staff and directors are committed to live their values of excellence, customer focus, integrity and impartiality, staff focus, diversity inclusiveness and good corporate citizenship.

The Board strives to create a culture where people have a strong sense of personal accountability and are able to make good personal judgments, based on its values. This is driven by the Board’s mission to fund, oversee and coordinate road development, rehabilitation and maintenance and the commitment to ensure prudent sourcing and optimal utilization of resources for socio-economic development. During the year the Board strengthened this emphasis in the definitions of its values and will continue to reflect them in future strategic and business plans.

The Board values its employees for who they are and what they bring to the Board and recognizes that different views create innovation. The Board encourages its staff to pursue their careers and personal aspirations and strive to create an open and collaborative working environment in which they can maximize their talents.

The Board maintains an open and collaborative dialogue with our employees, through regular staff meetings, open door policy as well as our annual employee opinion survey, in which participation has remained above 80% in the last five years. In addition, providing world-class training and development opportunities remains central to our long-term commitment to invest in its people.

Employee WelfareAt KRB, the staff and directors view each other as part of one big family and each member’s welfare is our collective responsibility. The Board takes every effort to ensure that employees’ well being (physical, emotional and financial) is considered as this affects them both at home and at work.

SUSTAINABILITY STATEMENT


The Board will continue to invest in out-of-office staff activities such as team-building in reflection of our deep commitment to staff welfare. During the year, the Board held its team building activities and rewarded staff who had exemplary performance and those who had served the Board for long.

The Board has also continued to ensure that all cross cutting issues have been addressed; in particular the policies and work plans for HIV/AIDs, Persons with Disability and Gender have been developed and are being implemented.

Staff Training and DevelopmentTo ensure that KRB not only attracts but also retains the best talent, the Board aims to nurture people’s careers by making relevant opportunities accessible and helping them to develop skills, knowledge and experience in different functions or specialism.

Staff training and development are a prerequisite for employees’ growth. In FY 2013/14, training continued to focus on departmental technical competencies and people management skills at all levels.

Strengthening the leadership capability remains a key business priority to ensure that the Board has strong leaders today and in the future. The Board also provides opportunities for groups of existing and future senior leaders to benchmark with best practices on management. Capacity building will remain a key objective for the Board.

Employee EngagementThe staff are committed to the realization of the Board’s mandates. Focus is on delivering an employee experience where staff feel strongly connected to the realization of Board’s mandates and are able to do what they do best each day.

One way in which employees’ experience is enhanced is by conducting the employee opinion survey. In FY 2013/14, the overall employee satisfaction survey was at 89.3% compared to 2012/13 achievement of 88.2%.

Occupational Health and SafetyGood health and safety standards are ideal and remain an individual and corporate responsibility for the staff and the Board. The Board is committed to proactively managing all health and safety risks associated with its mandates.

During the year, the Board organized several workshops to sensitize staff and evaluated the work environment to ensure it meets the set standards. An annual health and safety audit was conducted at the Board’s premises. The audit was carried out with the view of evaluating compliance of the work place and the associated operations with the provisions of the Occupational Safety and Health Act, 2007.

Specifically, the following areas were assessed:-• Work place information;• Management of Occupational Safety and Health policies;• Work place safety, Health and Welfare conditions including safety, occupational hygiene conditions as well as general conditions;

and• Emergency response plan.Additionally, the Board has several medical policies for its staff and directors. The policies are reviewed annually to ensure that the Board maintains a healthy workforce and safe environment.

Zero Tolerance to CorruptionKRB has a zero tolerance policy towards corruption. The Board has an elaborate corruption prevention programme and has undertaken various sensitization and training activities to prevent corruption.

SUSTAINABILITY STATEMENT (Continued)


The Board, under its current performance contract scored 70%, compared to a score of 68% in prior year, by undertaking activities such as Corruption Risk Assessment and Implementing Corruption Control measures. The Board was also issued with unqualified audit report for FY2013/14 by the Auditor-General for both the Fund and its operations. Further, the internal audit reports have not identified any issues on corruption.

Ethics and IntegrityThe Board has in place Code of Conduct and Ethics and Corruption Prevention Policies. This policy requires employees and members of the Board to conduct business with integrity, in accordance with the Public Officers Ethics Act and ensure the enforcement of corruption prevention plans. Accordingly, corruption prevention, training, risk assessments and surveys form part of the Performance Contract between the Government of the Republic of Kenya (through Ministry of Transport & Infrastructure, state department of Infrastructure) and the Board of Directors.

The Board is cognizant of the financial crime risks that arise from internal and external sources. The Board conducts business in compliance with high ethical standards of business practice. To this end, the Board has conducted various training courses on anti-corruption and financial fraud practices. The Board has put in place various systems and procedures which are implemented and monitored on regular basis. The internal audit reports have not identified any non-compliance with the ethics policies.

The Board is committed to ensure compliance with all laws and regulations. The compliance is monitored through legal audits which are submitted to the Board.

Stakeholder EngagementThe Board is committed to open dialogue which helps to understand the concerns of its stakeholders and respond to them appropriately. These engagements assist to get feedback on the policies, procedures and ways of working. Stakeholder engagement is done through the following:-

ReportingThe Board is committed to transparency in reporting of its activities to its stakeholders. This is done regularly through the print and electronic media, published annual reports and financial statements. During the Nairobi International Show, Institute of Engineers of Kenya conference and the African Road Maintenance Funds Association and other stakeholder’s workshops, the Board got to interact with the public and provide information on its activities.

Customer FocusThe Board is committed to meeting stakeholder requirements to their satisfaction by ensuring effective and efficient use of resources. It encourages continual improvement of its services and processes. The performance and interaction with its stakeholders is also guided by the Constitution of Kenya - Bill of Rights.

To demonstrate that the Board is living on this promise, a resolved service charter was rolled out, and cascaded to all the staff and is displayed at various strategic places in the organization. The compliance to the service charter is monitored on a regular basis, plans are made on how to reduce or eliminate the non-compliances.During the year, the Board carried a customer satisfaction survey which satisfaction levels of 78% against the estimate target of 70% which has continued to improve over the years. For the coming financial year, the board plans to carry out a baseline survey on the population accessing public services and establish if the services are provided in an efficient and effective manner. The Board is also committed to implement innovative service delivery methods.

Grievance Mechanisms and ProceduresThe Board has put in place a grievance handling mechanisms for both the directors and employees. The employees’ issues are dealt with by the Management Committee of the Board.



The Board has set up a complaints handling mechanism which is handled by the management. The Board submits quarterly reports on complaints to the Commissioner of Administrative Justice who evaluates the extent to which the Board has complied with the procedures and issues a certificate. During FY 2013/14, the Board achieved 91% against a target of 85% in the performance contract evaluation on resolution of public complaints.

Directors Stakeholder Meeting and Tour to Road Projects In June, 2014, KRB directors and staff toured Western and Rift Valley regions to among other things assess the conditions of the road network in the country, obtain an overall view on the usage of the road maintenance levy for implementation of road maintenance projects, receive feedback and interact with stakeholders and road users.

Protecting the EnvironmentEnvironmental Conservation is one of the enablers to the Social Pillar in the country’s economic blue print ‘Vision 2030’. Road projects have the potential of damaging the natural resources upon which economies are based. The environment is the resource base for materials used in road construction. It assimilates road construction waste, hence affecting the lifespan of roads.

To minimize the negative environmental impact, the Board requires the Road Agencies to factor in mitigation measures at the planning stage, during and after construction for all rehabilitation and periodic maintenance projects. These measures include control of soil erosion through construction of gabions, tree planting, covering and enhancing borrow pits to provide water catchment areas for use by local residents.

During the year the Board planted trees in Kisumu and Garissa Counties. To ensure survival of the trees, the Board partnered with primary and secondary schools. The Board catered for the tree planting while the schools were to ensure that watering and maintenance is done. The trees were purchased from the local community. The Board achieved a score of 110% in FY2013/14 performance contract on its planned efforts towards environmental sustainability.

Corporate Social Responsibility and InvestmentThe Board continued to invest in the communities in which its operates through various corporate social responsibility initiatives, which include;

Standard Chartered MarathonDuring the year, KRB staff and families participated in the Standard Chartered Marathon. The theme of the Marathon was ‘Run for a Reason’, which seeks to raise funds to help needy children. The number of participants this year increased as more staff and their family members enrolled for the event. The Boards contribution towards the noble event was KShs 0.27 million.

To ensure sustainability, the annual Standard Chartered Marathon now forms an important part of the Board’s calendar as the Board ‘shares vision’ with needy and disadvantaged persons.

Road Safety ActivitiesThe Board recognizes that 80% of all road traffic crashes were attributable to human error and therefore a need for behavior change to reduce needless deaths and injuries on the roads.

KRB held its fifth road safety awareness campaign for Boda boda operators in Busia County. The objective of the awareness workshop was mainly to influence behavior change and thereby reduce accidents caused by the operators. In its continued support to the Sector, KRB issued reflective jackets, helmets and first aid kits and was confident that at least some lives may be saved as a result of the training. The Busia County Government officials noted that they had included construction of motor cycle lanes in the new road works contracts.



The Board funded through KeNHA the construction of foot bridges at Bellevue and General Motors along Mombasa Road. The Board also funded the National Transport Safety Authority activities to the tune of Kshs 50Million.

Research and DevelopmentThe Board has set an inter agency Research and Development Committee to explore the innovative technology in road design, construction and maintenance. The committee has requested for proposals from the universities on researches that among others on construction of low volume cost roads.

It is also noted that gravel in Kenya is diminishing at a very high rate; the committee is also tasked with the responsibility of research on alternative materials for road construction and maintenance. Over the years, the Board in Consultation with the Minister set aside funds for research and development.

Roads 2000 (R2000) StrategyThe R2000 Strategy is a method of road development and management that ensures optimum utilization and development of locally available resources, where technically and economically feasible. The strategy focuses on the optimum use of labor and local resources with the support of appropriate tools and equipment.

The use of this strategy provides employment to the local community and saves on foreign exchange substantially. This guarantees sustainable community investment and creation of wealth among the increasing youth population in the country.



Four // Financial ReviewKenya Roads Board Fund Financial StatementsKenya Roads Board Financial Statements


KENYA ROADS BOARD FUND

FINANCIAL STATEMENTS FOR THE YEAR ENDED

30TH JUNE 2014

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


The Directors have the pleasure of presenting their report together with the Kenya Roads Board Fund audited financial statements for the year ended 30th June 2014 which show the state of the Fund affairs.

Principal ActivitiesThe Board is primarily engaged in management of the Kenya Roads Board Fund together with other mandates specified in the Kenya Roads Board Act, 1999.

Results The results for the year ended 30th June 2014 are set out on page 43 to 65.

DirectorsThe Board of Directors who held office during the year are shown on pages 11 to 12.

In accordance with Section 7(4) of the Kenya Roads Board Act, 1999 ‘the Chairman and members of the Board, other than the ex-official members shall hold office for a period of three years from the date of appointment, but shall be eligible for re-appointment for one further term of a period not exceeding three years.’ The appointment and vacation of office of any member of the Board shall be in accordance with Section 2 of the Second Schedule to the Kenya Roads Board Act, 1999.

Financial StatementsAt the date of this report, the Board was not aware of any circumstances which would have rendered the values attributed to the assets in the financial statements misleading.

AuditorsThe Auditor General is responsible for the statutory audit of the Board’s books of account in accordance with Sections 14 and 39 (i) of Chapter 12 of the Laws of Kenya, Public Audit Act, 2003.

BY ORDER OF THE BOARD

ENG. JACOB Z. RUWASECRETARY TO THE BOARDNairobi29th October 2014

Report of the Directors For the year ended 30th June 2014


The Kenya Roads Board Act, 1999 requires the Board to prepare financial statements of each financial year which give a true and fair view of the state of affairs of the Kenya Roads Board as at the end of the financial year and of the Board’s operating results for that year. It also requires the Board to ensure that the Kenya Roads Board keeps proper accounting records which disclose with reasonable accuracy at any time the financial position of the Board and to ensure that the financial statements comply with the enabling Act. They are also responsible for safeguarding the assets of the Kenya Roads Board and taking reasonable steps for prevention and detection of fraud and other irregularities.

The Board accepts responsibility for the financial statements which have been prepared using appropriate accounting policies supported by reasonable and prudent judgments and estimates, in conformity with International Public Sector Accounting Standards and the requirements of the Kenya Roads Board Act. The Board is of the opinion that the financial statements give a true and fair view of the state of affairs of the Kenya Roads Board and of its financial performance. The Board further accepts responsibility for the maintenance of accounting records which may be relied upon in the preparation of the financial statements, as well as designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of the financial statements that are free from material misstatements.

The Board is required to prepare the financial statements on a going concern basis unless it is determined that after the reporting period, the Board intends to liquidate or cease it activities, or that it has no realistic alternative but to do so.

Nothing has come to the attention of the Board to indicate that the Kenya Roads Board will not remain a going concern for at least the next twelve months from the date of this statement.

Approved by the Board and signed on its behalf by:-

ENG. JOEL WANYOIKE ENG. JACOB Z. RUWACHAIRMAN EXECUTIVE DIRECTOR30th October 2014 29th October 2014

Statement of the Board’s ResponsibilitiesFor the year ended 30th June 2014


KENYA NATIONAL AUDIT OFFICEREPORT OF THE AUDITOR-GENERAL ON KENYA ROADS BOARD FUND

FOR THE YEAR ENDED 30TH JUNE 2014

Report on the Financial StatementsI have audited the accompanying financial statements of Kenya Roads Board Fund set out on pages 47 to 65 which comprise the statement of financial position as at June 30, 2014, and the statement of financial performance, statement of changes in net assets and statement of cash flows 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 14 of the Public Audit Act, 2003. 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.

Board’s Responsibility for the Financial StatementsThe Board of Kenya Roads Board is responsible for the preparation and fair presentation of these financial statements in accordance with the International Public Sector Accounting Standards and for such internal controls as the Board determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

The Board is also responsible for the submission of the financial statements to the Auditor-General in accordance with the provisions of Section 13 of the Public Audit Act, 2003.

Auditor-General’s ResponsibilityMy responsibility is to express an independent opinion on the financial statements based on the audit and report in accordance with the provisions of Section 15(2) of the Public Audit Act, 2003 and submit the audit report in compliance with Article 229 (7) of the Constitution of Kenya. The audit was conducted in accordance with the 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 misstatement.

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 judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls 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 Board’s internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board, as well as evaluating the overall presentation of the financial statements.

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

OpinionIn my opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as at 30 June 2014, and of its financial performance and its cash flows for the year then ended in accordance with the International Public Sector Accounting Standards and comply with the Kenya Roads Board Act, Cap 408 of the Laws of Kenya.

Edward R. O. Ouko, CBSAUDITOR-GENERALNairobi27 November 2014

Report of the Independent Auditors


2013/2014 2012/2013 Note KShs ‘000 KShs ‘000

Receipts 6 28,006,693 24,929,393 Disbursements 8 (25,174,473) (24,370,450) Fund Balance 2,832,220 558,943 Interest Income 7 314,887 340,382 Net Assets Available for Distribution 11 3,147,107 899,325

The notes on pages 52 to 65 form an integral part of these financial statements.

Statement of Financial PerformanceFor the year ended 30th June 2014


Statement of Financial Position As at 30th June 2014

2013/2014 2012/2013ASSETS Note KShs ‘000 KShs ‘000

Current Assets Cash and Cash Equivalents 9 3,866,034 2,655,295

Total Assets 3,866,034 2,655,295 LIABILITIES Current Liabilities Payables 10 718,927 1,755,970

Total Liabilities 718,927 1,755,970 TOTAL NET ASSETS 3,147,107 899,325

REPRESENTED BY:

Net Assets Net Assets Available for Distribution 11 3,147,107 899,325 TOTAL NET ASSETS 3,147,107 899,325


The financial statements on pages 43 to 65 were approved and authorized by the Board of Directors and signed on its behalf by:

ENG. JOEL M. WANYOIKE ENG. JACOB Z. RUWA CHAIRMAN EXECUTIVE DIRECTOR30th October 2014 29th October 2014


2013/2014 2012/2013 Note KShs ‘000 KShs ‘000

Net Assets, as at 1st July 11 899,325 970,528

Collections in the year:

Road Maintenance Levy 6 27,881,797 24,814,043

Agricultural Cess 6 124,896 115,350

Interest Income 7 314,887 340,382

Funds available 29,220,905 26,240,303

Releases to the Road Agencies 8 (26,073,798) (25,340,978)

Net Assets, as at 30th June 11 3,147,107 899,325


Statement of Changes in Net Assets For the year ended 30th June 2014


2013/2014 2012/2013 Note KShs ‘000 KShs ‘000 Cash Flows from Operating Activities Cash from/(applied to) operations 12 1,795,177 (1,733,843)

Disbursements of prior year funds 8 (899,325) (970,528)

Net cash applied to operating activities 895,852 (2,704,371) Cash Flows from Investing Activities Interest received 7 314,887 340,382

Net cash generated from investing activities 314,887 340,382 Net Increase/(Decrease) In Cash and Cash Equivalents 1,210,739 (2,363,989) Movement in Cash and Cash Equivalents:

At the beginning of the year 2,655,295 5,019,284

Net increase\ (decrease) in cash and cash equivalents 1,210,739 (2,363,989)

At the end of the year 9(b) 3,866,034 2,655,295


Statement of Cash Flows For the year ended 30th June 2014


BUDGET ACTUAL VARIANCE VARIANCE 2013/14 2013/14 KShs’000 KShs’000 KShs’000 %

Receipts

Road Maintenance Levy 25,174,473 27,881,797 2,707,324 11%

Agricultural Cess - 124,896 124,896 100%

Interest Income - 314,887 314,887 100%

Total Receipts 25,174,473 28,321,580 3,147,107 13%

Disbursements (25,174,473) (25,174,473) -

Net Assets - 3,147,107 3,147,107 -


Statement of Comparison of Budget and Actual AmountsFor the year ended 30th June 2014


1.0 Standards and Interpretations Affecting the Reported Results or Financial Position

(a) Adoption of New and Revised International Public Sector Accounting Standards (IPSASs)(i) New Standards and Interpretations In Issue But Not Yet Effective in Year Ended 30th June 2014

New StandardsEffective for Annual periods Beginning on or after

(a) IPSAS 32 – Service Concession Arrangements: Grantor.

The Standard prescribes disclosure requirements for service concession arrangements by the grantor, a public sector entity. The Standard will not impact on the accounting policy and financial position of the Fund.

1st January, 2014

(ii) Proposed Amendments to IPSASs – as per Exposure Draft 55

The International Public Sector Accounting Standards Board (IPSASB) has released an exposure draft of proposed improvements to International Public Sector Accounting Standards (IPSASs).

The proposals incorporate relevant amendments made by the International Accounting Standards Board (IASB) in the 2009-2011 and 2010-2012 cycles of annual improvements, and the changes made by ‘Clarification of Acceptable Methods of Depreciation and Amortization (Amendments to IAS 16 and IAS 38)’.

The proposals are contained in IPSASB Exposure Draft 55 Improvements to IPSASs 2014 and would see amendments made to four IPSASs:

(a) IPSAS 1, Presentation of Financial Statements - clarification of comparative information requirements;(b) IPSAS 17, Property, Plant and Equipment - classification of servicing equipment, clarification of the revaluation methodology,

acceptable methods of depreciating assets;(c) IPSAS 28, Financial Instruments: Presentation - tax effects of distributions to holders of equity instruments;(d) IPSAS 31, Intangible Assets - clarification of the revaluation methodology, clarification of acceptable methods of amortizing

assets.

The exposure draft contains an appendix which outlines all of the items the IPSASB considered including in the document, and the rationale as to why changes equivalent to those made by the IASB in recent narrow scope amendment projects have not been proposed by the IPSASB. Reasons include where:

(a) IASB amendments relate to IFRSs without an equivalent IPSAS, e.g. first-time adoption, business combinations , share-based payments and interim financial reporting (in some cases, the IPSASB has projects underway in these topic areas);

(b) The existing IPSAS is not fully converged with IFRSs, e.g. borrowing costs, related parties, employee benefits, segment reporting, financial instruments;

(c) Minor amendments are not considered relevant.

The exposure draft does not indicate a proposed effective date for the amendments if they are finalized. The comment period on the exposure draft closes on 30th September 2014.

Notes to the Financial Statements For the year ended 30th June 2014


2.0 Summary Significant Accounting PoliciesThe principle accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated.

(a) Statement of ComplianceThe financial statements for the year ended 30th June 2014 have been prepared in accordance with and comply with International Public Sector Accounting Standards (IPSAS) as issued by International Public Sector Accounting Standards Board (IPSASB), the Public Financial Management Act, 2012, Public Audit Act, 2003 and Kenya Roads Board Act.

For the Public Financial Management Act, 2012, Public Audit Act, 2003 and Kenya Roads Board Act reporting purposes, in these financial statements the “balance sheet”/ “statement of assets and liabilities” is represented by/equivalent to the statement of “financial position” and the “profit and loss account”/ “statement of income and expenditure” is presented in the statement of “financial performance”.

(b) Basis of PreparationThe financial statements have been prepared under the historical cost convention, unless otherwise stated. The financial statements are presented in the functional currency, Kenya Shillings (Kshs.), and all values are rounded to the nearest thousands (Kshs.‘000) except when otherwise indicated.

(c) Presentation of Financial StatementsThe financial statements comprise of statement of financial performance, statement of financial position, statement of changes in net assets/equity and the statement of cashflows and the notes to the financial statements.

The Board classifies its expenditure by the nature of expense methodology.

The disclosure on risks are presented in the financial risk management objectives and policies contained in note 5.

The statement of cash flows shows the changes in cash and cash equivalents arising during the period from operating, investing and financing activities.

Starting 1st July 2010, Kenya Roads Board adopted the IPSAS 1 on Presentation of Financial Statements. In previous years the financial statements were prepared in accordance with the International Financial Reporting Standards (IFRSs). The change was necessitated by the reporting standards on public entities which are not Government Business Entities (GBE) as defined and required by IPSAS 1-‘Presentation of Financial Statements’ which states that the scope of application is for ‘all public sector entities other than Government Business Enterprises’.

The requirement by the Auditor General to present separate financial statements for the Kenya Roads Board Fund has led to reclassification of assets and liabilities including prior year.

(d) Budget InformationInternational Public Sector Reporting Standards allow for non-disclosure where (a) an entity is not required to disclose its budget information publicly and (b) the entity has elected not to present its approved budget publicly.

The Board has attached a Statement of Comparison of Budget and Actual amounts. It is observed that the Approved KRB Budget amounts for the year have not been exceeded.

Notes to the Financial Statements (Continued)For the year ended 30th June 2014


(e) Functional Currencies (i) Functional and Presentation Currency

The financial statements are presented in the functional currency, Kenya Shillings (Kshs.), which is the Board’s presentational currency. The financial information is rounded to the nearest thousands (Kshs.‘000) except when otherwise indicated.

(ii) Transactions and Balances a) Translation of Foreign Currencies

Transactions in foreign currencies during the year are converted into the functional currency using the prevailing exchange rates ruling at the dates of the transactions. Assets and liabilities denominated in foreign currencies have been translated at the mean rates of exchange ruling at the end of the reporting period.

The foreign currency 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 recognized through the statement of financial performance in the year in which they arise.

b) Translation of Foreign OperationsThe Board does not have any foreign operations.

(f) Revenue RecognitionRevenue comprises the fair value of the consideration received or receivable in the ordinary course of business. Revenue earned by the Board is from non-exchange transactions. Revenue mainly comprises of levies whose use is limited by law, the Kenya Roads Board Act, 1999.

The Board recognizes revenue when the amount of revenue can be reliably measured and it is probable that future economic benefits will flow to the Board. The revenue for the Board comprises of :-

(i) Road Maintenance Levy Fund In accordance with the Kenya Roads Board Act, revenue comprises all proceeds from the Road Maintenance Levy Fund, such moneys, sums or assets that may accrue to the Board, or may be payable to the Board. The revenue is for specified purposes including maintenance, rehabilitation and development of the road network in Kenya.

Proceeds from the Road Maintenance Levy Fund comprises of collections from the Road Maintenance Levy and Transit Toll and any interest that may accrue from the fund. Fuel levy is charged at the rate KShs 9 per litre of petrol and diesel imported in the country. Transit Toll is charged on foreign registered commercial trucks exceeding two (2) tonnes that ply the roads in Kenya and varies based on distance covered and the country of origin of the truck.

Proceeds from the Road Maintenance Levy Fund are generally recognized in the Statement of Financial Performance on accrual basis.

(ii) Agricultural CessThe Agricultural Act provides that 80% of all monies collected as cess in respect of tea and coffee shall be transmitted to Kenya Roads Board Fund for purposes for which the Board was established.

Revenue is recognized in the Statement of Financial Performance on accrual basis.



(iii) Transfers and other incomeThe Kenya Roads Board Act provides that the Board may receive all monies from any other source provided for or donated or lent to the Board. Such monies are recognized as they accrue in the period in which the transfer becomes binding at fair value, in the ‘Statement of Financial Performance’, unless the collectability is in doubt. The fair values can be determined by reference to the market rate.

Where a transfer is subject to conditions that if unfulfilled require a return of the transferred resources they shall be recognized as a liability until the condition is fulfilled.

(g) Interest Income and ExpenseInterest income and expense, including interest income from non-derivative financial assets are recognized at fair value through the ‘Statement of Financial Performance’ using the effective interest method. Interest income is accrued on a time basis and is calculated on call deposits held with approved banking institutions.

(h) Cash and Cash EquivalentsFor purposes of the cash flow statement, cash and cash equivalents comprise of cash and cash balances held at the bank with less than three months maturity from the statement of financial position date. These include notes and coins on hand and deposits held at call with banks.

(i) ReceivablesReceivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Board provides money or services directly to a debtor with no intention of trading the receivable. Receivables mainly arise from non exchange transactions which accrue in the ordinary course of business and there is no intention of trading the receivable.

Receivables are recognized initially at the fair value (transaction price/carrying value less any discounts). They are subsequently measured at amortized costs using the effective interest method less provision for impairment.

A provision for impairment of receivables is made when there is objective evidence that the Board will not be able to collect all amounts due according to the original terms of receivables.

The carrying value less discounts and any impairment provision of impairment is assumed to approximate their fair values. For financial instruments such as short term receivables, no disclosure of fair value is required when the carrying amount is a reasonable approximation of fair value.

Receivables are classified as current assets if payment is due within one year or less (or in the normal operating cycle of business, if longer). If not, they are presented as non-current assets.

(j) Impairment of Non-Financial AssetsAt each reporting period end, based on internal and external sources, the Board reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss.

Where it is not possible to estimate the recoverable amount of an individual asset, the Board estimates the recoverable value of the asset.



Impairment losses are recognized as an expense in the Statement of Financial Performance whenever the carrying amount of an asset exceeds its recoverable amount. Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount. A reversal of impairment loss is limited to the assets carrying amount that would have been determined had no impairment loss been recognized in prior years. A reversal of an impairment loss is credited to the Statement of Financial Performance in the year reversals are recognized.

(k) ProvisionsProvisions are recognized when the Board has a present obligation (legal or constructive) as a result of a past event, it is probable that the Board will be required to settle the obligation, and a reliable estimate can be made of the amount of obligation.

The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the reporting period end, taking into account the risks and uncertainties surrounding the obligation.

(l) PayablesPayables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Payables also include payments in respect of social benefits where formal agreements for specific amounts exist. The Board allocates funds to the Road Agencies in accordance with the allocation criteria set out in the Kenya Roads Board Act, 1999. The amounts allocated are referred to as ‘disbursements’ and are released to compliant Road Agencies. Any amounts not released at any time are referred as payables to Road Agencies.

Payables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method. The historical cost carrying amount of payables subject to the normal credit terms usually approximates fair value.

Payables are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of business if longer). If not, they are presented as non-current liabilities.

(m) Guarantees, Acceptances and Letters of CreditGuarantees are accounted for as off statement of financial position transactions and disclosed as contingent liabilities.

(n) Subsequent EventsThere have been no subsequent events that would have an impact on the financial statements for the year ended 30th June 2014.

(o) ComparativesExcept otherwise required, all amounts are reported or disclosed with comparative information. Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current year.



3.0 Critical Accounting Estimates, Judgements And AssumptionsIn the process of applying the Board’s accounting policies, the directors have made estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Although these estimates are based on the directors’ knowledge of current events and actions, actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

(a) Critical Judgments in Applying the Board’s Accounting PoliciesIn the process of applying the Board’s accounting policies, judgments have been made in determining:-• Whether the assets are impaired;• The classification of financial assets;• The going concern.

(b) Critical Accounting Estimates and AssumptionsThe key areas of judgments and sources of uncertainty in estimation are as set out below:

(i) Contingent LiabilitiesAs disclosed in these financial statements, the Board is exposed to various contingent liabilities in the normal course of business.

The directors evaluate the status of these exposures on a regular basis to assess the probability of the Board incurring related liabilities. However, provisions are only made in the financial statements where, based on the directors’ evaluation, a present obligation has been established.

(ii) Provision for Doubtful DebtsThe Board reviews its travel advances portfolio to assess the likelihood of impairment. Provision for impairment of receivables is established when there is objective evidence that the Board will not be able to collect all amounts due. Where necessary, an estimation of the amounts irrecoverable is made in that year. Provision for impairment shall be recognized upon approval by the Board of Directors.

(iii) Other ProvisionsOther provisions are recognized when the Board has legal or constructive obligation as a result of past events, for which it is probable that an outflow of economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

(iv) Impairment LossesAt each reporting period end, the Board reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss.

Where it is not possible to estimate the recoverable amount of an individual asset, the Board estimates the recoverable value of the asset. Any impairment losses are recognized as an expense immediately. Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount. A reversal of an impairment loss is recognized as income immediately.



4.0 Segment ReportingThe Board does not have any branches/reporting segments. All the operations of the Board are managed from the registered office. The core business of the Kenya Roads Board continues to be management of the Kenya Roads Board Fund together with other mandates as stipulated in the Kenya Roads Board Act.

There is no distinguished component of the Board that is engaged in providing an individual service that is subject to risks and returns that are different from the main mandates of the Board.

5.0 Financial Risk Management Objectives and PoliciesThe Board has initiated and facilitated the process that will see the enhancement of risk management. The Board has an integrated risk management framework/strategy. The Board’s approach to risk management is based on risk governance structures, risk management policies, risk identification, measurement, monitoring and reporting. The risk management policies and systems are reviewed regularly to ensure they are in tandem with the micro and macro environment, regulatory guidelines, industry practice, market conditions as well as the services offered.

The Board recognizes the critical role the risk management will continue to play in its endeavor to carry out its business in a dynamic environment. The Board is committed to ensure that corporate governance and risk management are deeply entrenched in the Board’s strategy and culture. An elaborate risk management strategy that will provide direction on matters of policy and guide the implementation and control has been developed.This risk management framework captures the following among other things:-• The Board’s risk appetite and parameters;• The Board’s risk matrix that highlights the rating of risks;• The structure of managing risks and accountabilities;• The processes, procedures and reports that manage risks;• The mitigating factors, prevention, contingency plans and controls.

The Board’s core business involves major engagements with financial transactions and processes which pose certain risks. Three types of risks are reported as part of the risk profile namely operational, strategic and business continuity risks.

(i) Operational risks are events, hazards, variances or opportunities which could influence the achievement of the Board’s compliance and operational objectives.

(ii) Strategic risk is a significant unexpected or unpredictable change or outcome beyond what was factored into the organization’s strategy and business model which could have an impact on the entity’s performance.

(iii) Business continuity risks are those events, hazards, variances and opportunities which could influence the continuity of the entity.

One of the key risks for the Board has identified in both the operational and strategic areas is the sustainability of the Road Maintenance Levy in the provisions of the Constitution. Financial risk as defined in IPSAS 15 and the management thereof, form part of this risk area.

The Members of the Board have the overall responsibility for the establishment and oversight of the Board’s risk management framework. The Board has delegated its risk management to the ‘Audit and Risk Committee’. One of the responsibilities of this committee is to review risk management strategies in order to ensure business continuity and survival. Most of the financial risks arising from financial transactions and processes are managed by the ‘Finance and Planning Committee’ of the Board.

The Board’s exposure to risks, its objectives, policies and processes for managing the risk and the methods used to measure it have been consistently applied in the years presented, unless otherwise stated. The Board aims therefore to achieve an appropriate balance between the risk and return and minimize potential adverse effects on its financial performance.The financial management objectives and policies are as outlined below:-



a) Liquidity RiskLiquidity risk is the risk that the Board will not have sufficient financial resources to meet its obligations when they fall due or will have to do so at excessive costs. This risk can arise from mismatches in the timing of cash flows from revenue and capital/ operational outflows, assets and liabilities according to their maturity profiles and can occur where cash flow streams have been discontinued, etc. Funding risk arises when the necessary liquidity to fund illiquid asset positions cannot be met at expected terms and when required.

The objective of the liquidity and funding management is to ensure that all foreseeable operational, capital and loan commitment expenditure can be met under both normal and stressed conditions and the mismatch is controlled in line with allowable risk levels.

The Board has adopted an overall balance sheet approach which consolidates all sources and uses of liquidity, while aiming to maintain a balance between liquidity, cash flows and interest rate considerations. The Board’s liquidity and funding management process includes:-• Projecting cash flows and considering the cash required and optimizing the short term requirements as well as the long term funding,• Maintaining balance sheet liquidity ratios,• Maintaining/soliciting for a diverse range of funding sources with adequate back up facilities,• Managing the concentration and profile of debt maturities, where applicable,• Maintaining liquidity and funding contingency plans.

The table shows the undiscounted cash flows on the Board’s financial assets and liabilities on the earliest possible contractual/maturity date. The liquidity ratio in FY 2013/14 is 5.4 (FY 2012/13: 1.51)

Note 2013/14 2012/13Financial Assets KShs ‘000 KShs ‘000

Cash & Cash Equivalents 9 3,866,034 2,655,295Total Financial Assets 3,866,034 2,655,295

Financial Liabilities Payables 10 718,927 1,755,970Total Financial Liabilities 718,927 1,755,970NET LIQUIDITY 3,147,107 899,325LIQUIDITY RATIO 5.4 1.51

The Board has an established corporate governance structure and process of managing risks regarding guarantees and contingent liabilities. All guarantees issued are approved by the Members of the Board and are administratively managed by the finance department.

The primary sources of revenue for the Board are receipts from the Kenya Roads Board Fund, mainly receipts from fuel levy fund. The Board is pursuing additional sources of revenue for which approval has been sought from Ministries of Finance and Roads.



b) Market RiskMarket risk is the risk that the fair value of future cash flows of financial instruments will fluctuate because of changes in foreign exchange rates, prices and interest rates. The objective of market risk management policy is to protect and enhance the Statements of Financial Position and performance by managing and controlling market risk exposures within acceptable parameters, and to optimize the funding of business operations and facilitate capital expansion. The Board is exposed to the following market risks:-

(i) Currency RiskThe currency risk is minimal as most of cash and cash equivalents held with banks are dominated in Kenya Shillings.

(ii) Price RiskThe Board collects Kshs. 9 per litre of diesel and petrol imported into the country. The Board is exposed to the extent that the levy on diesel and petrol is reduced or eliminated due to changes in the international fuel prices, inflation or other macro indicators.

The Road Maintenance Levy is backed up by an Act of Parliament and changes thereof require approval by Parliament.

(iii) Interest Rate RiskThe Board’s financial condition may be adversely affected as a result of changes in interest rate levels. The interest rate risk is minimal as the Board does not have any borrowings.

c) Operational RiskOperational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Board’s processes, personnel, technology and infrastructure and from external factors other than credit, market and liquidity risks such as legal and regulatory requirements and generally acceptable standards of corporate behavior.

The Board seeks to ensure that key operational risks are managed in a timely and effective manner through a framework of policies, procedures and tools to identify, assess, monitor and report such risks.

The Board’s objective is to manage operational risk so as to balance the avoidance of financial losses and damage to the Board’s reputation with overall cost effectiveness and to avoid control procedures that restrict initiative and creativity.

The primary responsibility for the development and implementation of controls to address operational risk is assigned to senior management. The responsibility is supported by the development of overall standards for the management of operational risk in the following areas:-• Requirements for appropriate segregation of duties, including the independent authorization of transactions;• Requirements for the reconciliation and monitoring of financial transactions;• Compliance with regulatory and legal requirements;• Documentation of controls and procedures;• Requirements for the yearly assessment of operational risks faced and the adequacy of controls and procedures to address

the risks identified;• Requirement for the reporting of operational losses and proposed remedial action;• Development of Business Contingency Plans;• Training and professional development;• Ethical and business standards; and• Risk mitigation, including insurance where it is effective.



Operational risks are documented in the ‘Framework for Management Control’ and are managed by the Internal Audit function established to spearhead and coordinate risk management activities. The measures taken include proactively identifying, analyzing and mitigating risks in all facets of the business.

d) Compliance and Regulatory RiskCompliance and regulatory risk includes the risk of non-compliance with regulatory requirements. The Board has complied with all externally imposed requirements throughout the year.

e) Legal RiskLegal risks is the risk of unexpected loss, including reputational loss, arising from defective transactions or contracts, claims being made or some other event resulting in a liability or the loss for the Board, failure to protect the title to and inability to control the rights to assets of the Board (including intellectual property right), changes in law, or jurisdictional risk.

The Board manages legal risk through the legal function, legal risk policies and procedures and the effective use of internal controls and external lawyers.

6.0 Receipts

2013/14 2012/13 KShs ‘000 KShs ‘000

Road Maintenance Levy 27,881,797 24,814,043Agricultural Cess 124,896 115,350

Total Operating Revenue 28,006,693 24,929,393

Revenue mainly represents receipts of Road Maintenance Levy from the Kenya Revenue Authority.

The Board did not receive any transfers of any form, (including assets, gifts, donations, goods and service-in-kind, advance receipts, pledges, expenses paid on behalf and concessionary loans) from national and local government, public entities, Donor & International development agencies.

7.0 Interest Income 2013/14 2012/13 KShs ‘000 KShs ‘000

Interest Income 314,887 340,382

Total Interest Income 314,887 340,382

These represent interest, net of withholding tax, earned on placement of funds on call deposits with approved banking institutions.




8.0 Disbursements and Releases of FundsThe Board allocates funds to the Road Agencies in accordance with the allocation criteria set out in the Kenya Roads Board Act, 1999 as shown below:

Road Agency: Particulars/ Class of Roads Allocation

Kenya Roads Board Operations 2%

Kenya National Highways Authority A, B, C Roads 40%

Kenya Rural Roads Authority Constituency/Rural Roads 22%

Kenya Rural Roads Authority Constituency Link Roads 10%

Kenya Urban Roads Authority Urban Roads 15%

Kenya Wildlife Service Park Roads 1%

Allocation by Kenya Roads Board/Ministry Development of roads 10%

Total 100%

The Board disbursed funds as follows during the year :

2013/14 2012/13Agency KShs ‘000 KShs ‘000

Kenya Roads Board 503,489 485,609Kenya National Highways Authority 10,330,789 9,944,180Kenya Rural Roads Authority 7,911,831 7,731,744Kenya Urban Roads Authority 3,708,672 3,582,067Kenya Wildlife Service 247,245 238,805Allocation by Kenya Roads Board/Ministry 2,472,447 2,388,045

Total Disbursements 25,174,473 24,370,450Add: Releases of Prior year funds 899,325 970,528

Total Fund Released in the Year 26,073,798 25,340,978

9.0 Cash and Cash Equivalents(a) Analysis of Bank and Cash Balances:These represent cash held at various banks, as follows:

2013/14 2012/13 KShs ‘000 KShs ‘000

Amounts held in local currency 3,741,137 2,539,945Amounts held in foreign currency 124,897 115,350

Total 3,866,034 2,655,295

The Board is not exposed to credit risk on cash and bank balances as the funds are held with sound financial institutions approved by Central Bank of Kenya.



(b) Cash and cash equivalentsFor the purposes of the cash flow statement, cash and cash equivalents comprise balances with less than three months maturity from the date of acquisition, including cash in hand, deposits held at call with banks and other short term highly liquid investments with original maturities of three months.

Analysis of cash and cash equivalents is as set out below:

2013/14 2012/13 KShs ‘000 KShs ‘000

Bank and Cash Balances 3,866,034 2,655,295

10.0 PayablesThese represent funds due to the Road Agencies, but not released as at 30th June 2014, as follows:-

2013/14 2012/13 KShs ‘000 KShs ‘000

Road Agency Funds Payable 718,927 1,755,970

11.0 Net Assets Available for DistributionThese represent amounts received over and above the approved budget for the year, as follows:

2013/14 2012/13 KShs ‘000 KShs ‘000

Road Maintenance Levy 2,707,324 718,601Interest Income 314,887 155,374Agricultural Cess 124,896 25,350

Total Net Assets 3,147,107 899,325

The funds are allocated to the Road Agencies in the subsequent year in accordance with the Kenya Roads Board Act, 1999.


13.0 Contingent LiabilitiesThe directors believe, based on the information currently available, that the Board does not have any contingent liabilities which are likely to have a material effect on the results of the Board’s operations, financial position or liquidity. Therefore no provision has been made in the financial statements.

14.0 Fair ValueThe directors consider that there is no material difference between the fair value and carrying value of the Board’s financial assets and liabilities, where fair value details have not been presented.

15.0 Capital CommitmentsAll capital commitments contracted for and authorized at the reporting period end have been recognized in the financial statements.

16.0 Post Balance Sheet EventsThe Directors are not aware of any matter or circumstances arising since the end of the financial year, not otherwise dealt with in the financial statements, which would significantly affect the financial position of Kenya Roads Board Fund and results of its operation as laid out in these financial statements.

17.0 ComparativesWhere necessary, comparative figures have been adjusted to conform to changes in presentation of the Financial Statements as required by International Public Sector Accounting Standards, and any amendment whenever necessary in the current year.

18.0 CurrencyThe financial statements are presented in Kenya Shillings (KShs ’000).


12.0 Cash Generated from OperationsReconciliation of Net Cash Flows from Operating Activities to Surplus for the year :

2013/14 2012/13 Note KShs ‘000 KShs ‘000

Net assets available for distribution 11 3,147,107 899,325 Adjustments for : Interest income 7 (314,887) (340,382)

Operating income before working capital changes 2,832,220 558,943Changes in working capital balances: Decrease in agencies payable (1,037,043) (2,292,786)

Net cash flows from/(applied to) operating activities (1,795,177) (1,733,843)


PROGRESS ON FOLLOW UP OF AUDITOR’S RECOMENDATIONS All audit issues raised by the external auditor were resolved and concluded during the audit process. There are no audit issues that were carried forward.

ENG. JOEL WANYOIKE DATE: 30th October 2014CHAIRMAN

ENG. JACOB Z. RUWA DATE: 29th October 2014EXECUTIVE DIRECTOR


Kenya Roads BoardFinancial Statements for the year ended 30th June 2014

67

KENYA ROADS BOARD

FINANCIAL STATEMENTS FOR THE YEAR ENDED

30TH JUNE 2014

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

Kenya Roads Board Financial Statements for the year ended 30th June 2014

68

The Directors have the pleasure of presenting their report together with the Kenya Roads Board audited financial statements for the year ended 30th June 2014 which show the state of the Board’s affairs.

Principal ActivitiesThe Board is primarily engaged in management of the Kenya Roads Board Fund together with other mandates specified in the Kenya Roads Board Act, 1999.

ResultsThe results for the year ended 30th June 2014 are set out on pages 67 to 93.

DirectorsThe Board of Directors who held office during the year are shown on pages 11 to 12.

In accordance with Section 7(4) of the Kenya Roads Board Act, 1999 ‘the Chairman and members of the Board, other than the ex-official members shall hold office for a period of three years from the date of appointment, but shall be eligible for re-appointment for one further term of a period not exceeding three years.’ The appointment and vacation of office of any member of the Board shall be in accordance with Section 2 of the Second Schedule to the Kenya Roads Board Act, 1999.

Financial StatementsAt the date of this report, the Board was not aware of any circumstances which would have rendered the values attributed to the assets in the financial statements misleading.

AuditorsThe Auditor General is responsible for the statutory audit of the Board’s books of account in accordance with Sections 14 and 39 (i) of Chapter 12 of the Laws of Kenya, Public Audit Act, 2003.

BY ORDER OF THE BOARD

ENG. JACOB RUWA SECRETARY TO THE BOARDNairobi29th October 2014

Report of the DirectorsFor the year ended 30th June 2014


69

The Kenya Roads Board Act, 1999 requires the Board to prepare financial statements of each financial year which give a true and fair view of the state of affairs of the Kenya Roads Board as at the end of the financial year and of the Board’s operating results for that year. It also requires the Board to ensure that the Kenya Roads Board keeps proper accounting records which disclose with reasonable accuracy at any time the financial position of the Board and to ensure that the Financial Statements comply with the enabling Act. They are also responsible for safeguarding the assets of the Kenya Roads Board and taking reasonable steps for prevention and detection of fraud and other irregularities.

The Board accepts responsibility for the financial statements which have been prepared using appropriate accounting policies supported by reasonable and prudent judgments and estimates, in conformity with International Public Sector Accounting Standards and the requirements of the Kenya Roads Board Act. The Board is of the opinion that the financial statements give a true and fair view of the state of affairs of the Kenya Roads Board and of its financial performance. The Board further accepts responsibility for the maintenance of accounting records which may be relied upon in the preparation of the financial statements, as well as designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of the financial statements that are free from material misstatements.

The Board is required to prepare the financial statements on a going concern basis unless it is determined that after the reporting period, the Board intends to liquidate or cease it activities, or that it has no realistic alternative but to do so.

Nothing has come to the attention of the Board to indicate that the Kenya Roads Board will not remain a going concern for at least the next twelve months from the date of this statement.

Approved by the Board and signed on its behalf by:-

ENG. JOEL WANYOIKE ENG. JACOB RUWA CHAIRMAN EXECUTIVE DIRECTOR30th October 2014 29th October 2014

Statement of the Board’s ResponsibilitiesFor the year ended 30th June 2014


70

KENYA NATIONAL AUDIT OFFICEREPORT OF THE AUDITOR-GENERAL ON KENYA ROADS BOARD

FOR THE YEAR ENDED 30 JUNE 2014

Report on the Financial StatementsI have audited the accompanying financial statements of Kenya Roads Board Fund set out on pages 71 to 93 which comprise the statement of financial position as at June 30, 2014, and the statement of financial performance, statement of changes in net assets and statement of cash flows 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 14 of the Public Audit Act, 2003. 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.

Board’s Responsibility for the Financial StatementsThe Board of Kenya Roads Board is responsible for the preparation and fair presentation of these financial statements in accordance with the International Public Sector Accounting Standards and for such internal controls as the Board determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

The Board is also responsible for the submission of the financial statements to the Auditor-General in accordance with the provisions of Section 13 of the Public Audit Act, 2003.

Auditor-General’s ResponsibilityMy responsibility is to express an independent opinion on the financial statements based on the audit and report in accordance with the provisions of Section 15(2) of the Public Audit Act, 2003 and submit the audit report in compliance with Article 229 (7) of the Constitution of Kenya. The audit was conducted in accordance with the 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 misstatement.

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 judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls 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 Board’s internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board, as well as evaluating the overall presentation of the financial statements.

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

OpinionIn my opinion, the financial statements present fairly, in all material respects, the financial position of the Board as at 30 June 2014, and of its financial performance and its cash flows for the year then ended in accordance with the International Public Sector Accounting Standards and comply with the Kenya Roads Board Act, Cap 408 of the Laws of Kenya.

Edward R. O. Ouko, CBSAuditor-GeneralNairobi25 November 2014

Report of the Independent Auditors


71

Note 2013/2014 2012/2013 KShs ‘000 KShs ‘000

Operating Revenue 6 509,187 582,567 Operating Expenses Director Costs 7 44,416 49,637 Staff Costs 8 204,080 203,669 Field Activity Costs 9 44,982 38,239 Other Operating Costs 10 209,756 251,755 Corporate Social Responsibility 11 1,789 1,645 Total Operating Expenses 505,023 544,945 Surplus from Operations 4,164 37,622 Gain on Disposal of Property & Equipment 15 7,343 1,069

Net Surplus for the Year 12 11,507 38,691


Statement of Financial PerformanceFor the year ended 30th June 2014


72

Note 2013/2014 2012/2013 KShs ‘000 KShs ‘000

ASSETS Current Assets Cash and Cash equivalents 13 896,425 681,002 Receivables 14 480 1,245 Total Current Assets 896,905 682,247

Non-Current Assets Property & Equipment 15 55,659 68,057 Total Assets 952,564 750,304 LIABILITIES Current Liabilities Payables 16 52,500 45,873 TOTAL NET ASSETS 900,064 704,431

NET ASSETS/EQUITY

Reserves KRB Staff Fund 17(a) 248,683 238,228 KRB Capital Fund 17(b) 474,253 300,582Accumulated Surpluses 17(c) 177,128 165,621 TOTAL NET ASSETS/EQUITY 900,064 704,431


The financial statements on pages 67 to 93 were approved by the Board of Directors and signed on its behalf by:

ENG. JOEL M. WANYOIKE ENG. JACOB RUWACHAIRMAN EXECUTIVE DIRECTOR30th October 2014 29th October 2014

Statement of Financial Position As At 30th June 2014


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Accumulated Capital Staff Fund Total Surpluses Fund Note KShs ‘000 KShs ‘000 KShs ‘000 KShs ‘000

As at 1st, July 2013 165,621 300,582 238,228 704,431

Growth in Staff fund 17(a) - - 10,455 10,455

Transfer to Capital Fund 17(b) - 150,000 - 150,000 Growth in Capital Fund 17(b) - 23,671 - 23,671

Net Surplus for the year 17(c) 11,507 - - 11,507

As at 30th, June 2014 177,128 474,253 248,683 900,064

Accumulated Capital Staff Fund Total Surpluses Fund Note KShs ‘000 KShs ‘000 KShs ‘000 KShs ‘000

As at 1st, July 2012 126,930 590,111 220,973 938,014

Growth in Staff fund 17(a) - - 17,255 17,255

Transfer from Capital Fund 17(b) - (400,000) - (400,000)

Transfer to Capital Fund 17(b) - 50,000 - 50,000

Growth in Capital fund 17(b) - 60,471 - 60,471

Net Surplus for the year 17(c) 38,691 - - 38,691

As at 1st, July 2013 165,621 300,582 238,228 704,431


Statement of Changes in Net AssetsFor the year ended 30th June 2014


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Note 2013/2014 2012/2013 KShs ‘000 KShs ‘000

Cash Flows from Operating Activities Cash generated from operations 18 34,899 61,855

Net Cash Generated from Operating Activities 34,899 61,855 Cash Flows from Investing Activities Interest received 6 5,397 7,637 Purchase of property and equipment 15 (16,357) (36,330)Proceeds on disposal of equipment 15 7,343 1,069 Net book value of disposed assets 15 -

Net Cash (Used in) Investing Activities (3,602) (27,624) Cash Flows from Financing Activities Growth in KRB Staff Fund (Interest) 17(a) 10,455 17,256 Growth in KRB Capital Fund (Interest) 17(b) 23,671 60,471 Increase in KRB Capital Fund (KRBF) 17(b) 150,000 50,000Transfer to KRB Capital Fund 17(b) - (400,000)

Net Cash inflow /(Used in) from Financing Activities 184,126 (272,273) NET INCREASE /(DECREASE) IN CASH AND CASH EQUIVALENTS 215,423 (238,042) MOVEMENT IN CASH AND CASH EQUIVALENTS At the beginning of the year 681,002 919,044 Net increase/decrease in cash and cash equivalents 215,423 (238,042)

At the end of the year 13(b) 896,425 681,002


Statement of CashFlowsFor the year ended 30th June 2014


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Col 1 Col 2 Col 3 COL 4 Annual Actual Variance: % of Forecast FY 13/14 Actual to Actual to FY 13/14 Annual Annual Forecast Forecast (KShs) (KShs) (KShs)

Income

Fuel Levy Fund 503,489,450 503,489,450 - 100% Interest Earned 6,000,000 5,397,478 (602,522) 90% Sale of Tenders 300,000 300,500 500 100%Gain on Disposal 9,000,000 7,343,438 (1,656,562) 82% Total Income 518,789,450 516,530,866 (2,258,584) 100%

Directors Costs 53,105,240 44,416,421 8,688,819 84%Staff Costs 217,397,090 204,079,693 13,317,398 94%Operating Costs 198,337,120 178,115,511 20,221,608 90%Audit Fees 2,900,000 2,900,000 - 100% Dept. Costs 45,250,000 44,981,784 268,216 99%Corporate Social Responsibility 1,800,000 1,790,264 9,736 99%Depreciation - 28,740,553 (28,740,553) -

Total Expenses 518,789,450 505,024,226 13,765,224 97%

Operations Surplus 11,506,640 11,506,640


Statement of Comparison on Budget and Actual AmountsFor the year ended 30th June 2014


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1.0 Standards and Interpretations Affecting the Reported Results or Financial Position

(a) Adoption of New and Revised International Public Sector Accounting Standards (IPSASs)(i) New Standards and Interpretations In Issue But Not Yet Effective in Year Ended 30th June 2014

New StandardsEffective for Annual periods Beginning on or after

(a)

IPSAS 32 – Service Concession Arrangements: Grantor

The Standard prescribes disclosure requirements for service concession arrangements by the grantor, a public sector entity. The Standard will not impact on the accounting policy and financial position of the Fund.

1st January, 2014

(ii) Propsed Amendments to IPSASs -as per Exposure Draft 55The International Public Sector Accounting Standards Board (IPSASB) has released an exposure draft of proposed improvements to International Public Sector Accounting Standards (IPSASs).

The proposals incorporate relevant amendments made by the International Accounting Standards Board (IASB) in the 2009-2011 and 2010-2012 cycles of annual improvements, and the changes made by ‘Clarification of Acceptable Methods of Depreciation and Amortization (Amendments to IAS 16 and IAS 38)’.

The proposals are contained in IPSASB Exposure Draft 55 Improvements to IPSASs 2014 and would see amendments made to four IPSASs:-

(a) IPSAS 1, Presentation of Financial Statements - clarification of comparative information requirements;(b) IPSAS 17, Property, Plant and Equipment - classification of servicing equipment, clarification of the revaluation methodology,

acceptable methods of depreciating assets;(c) IPSAS 28, Financial Instruments: Presentation - tax effects of distributions to holders of equity instruments;(d) IPSAS 31, Intangible Assets - clarification of the revaluation methodology, clarification of acceptable methods of amortising

assets.

The exposure draft contains an appendix which outlines all of the items the IPSASB considered including in the document, and the rationale as to why changes equivalent to those made by the IASB in recent narrow scope amendment projects have not been proposed by the IPSASB. Reasons include where:

(a) IASB amendments relate to IFRSs without an equivalent IPSAS, e.g. first-time adoption, business combinations , share-based payments and interim financial reporting (in some cases, the IPSASB has projects underway in these topic areas);

(b) The existing IPSAS is not fully converged with IFRSs, e.g. borrowing costs, related parties, employee benefits, segment reporting, financial instruments;

(c) Minor amendments are not considered relevant.

The exposure draft does not indicate a proposed effective date for the amendments if they are finalized. The comment period on the exposure draft closes on 30th September 2014.

Notes to the Financial StatementsFor the year ended 30th June 2014


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2.0 Significant Accounting PoliciesThe principle accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated.

(a) Statement of ComplianceThe financial statements for the year ended 30th June 2014 have been prepared in accordance with and comply with International Public Sector Accounting Standards (IPSAS) as issued by International Public Sector Accounting Standards Board (IPSASB), the Public Financial Management Act, 2012, Public Audit Act, 2003 and Kenya Roads Board Act.

For the Public Financial Management Act, 2012, Public Audit Act, 2003 and Kenya Roads Board Act reporting purposes, in these financial statements the “balance sheet”/ “statement of assets and liabilities” is represented by/ equivalent to the statement of “financial position” and the “profit and loss account”/ “statement of income and expenditure” is presented in the statement of “financial performance”.

(b) Basis of PreparationThe financial statements have been prepared under the historical cost convention, unless otherwise stated. The financial statements are presented in the functional currency, Kenya Shillings (KShs.), and all values are rounded to the nearest thousands (KShs.‘000) except when otherwise indicated.

(c) Presentation of Financial StatementsThe financial statements comprise of statement of financial performance, statement of financial position, statement of changes in net assets/equity and the statement of cash flows and the notes to the financial statements.

The Board classifies its expenditure by the nature of expense methodology.

The disclosure on risks are presented in the financial risk management objectives and policies contained in note 5.

The statement of cash flows shows the changes in cash and cash equivalents arising during the period from operating, investing and financing activities.

Starting 1st July 2010, Kenya Roads Board adopted the IPSAS 1 on Presentation of Financial Statements. In previous years the financial statements were prepared in accordance with the International Financial Reporting Standards (IFRSs). The change was necessitated by the reporting standards on public entities which are not Government Business Entities (GBE) as defined and required by IPSAS 1-‘Presentation of Financial Statements’ which states that the scope of application is for ‘all public sector entities other than Government Business Enterprises’.

The requirement by the Auditor General to present separate financial statements for the Kenya Roads Board has led to reclassification of assets and liabilities including prior year financial statements.

(d) Budget Information

International Public Sector Reporting Standards allow for non-disclosure where (a) an entity is not required to disclose its budget information publicly and (b) the entity has elected not to present its approved budget publicly.

The Board has attached a Statement of Comparison of Budget and Actual amounts. It is observed that the Approved KRB Budget amounts for the year have not been exceed.



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(e) Functional Currencies

(i) Functional and Presentation CurrencyThe financial statements are presented in the functional currency, Kenya Shillings (KShs.), which is the Board’s presentational currency. The financial information is rounded to the nearest thousands (KShs.‘000) except when otherwise indicated.

(ii) Transactions and Balancesa) Translation of Foreign Currencies

Transactions in foreign currencies during the year are converted into functional currency using the prevailing exchange rates ruling at the dates of transactions.

Assets and liabilities denominated in foreign currencies have been translated at the mean rates of exchange ruling at the end of the reporting period.

The foreign currency 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 recognized through the statement of financial performance in the year in which they arise.

b) Translation of Foreign OperationsThe Board does not have any foreign operations.

(f) Revenue RecognitionIn accordance with the Kenya Roads Board Act, 1999, the Board is allocated 2% of the Road Maintenance Levy Fund (RMLF) for its operations and is recognized on accrual basis. An inflow of the funds is recognized as revenue and a liability is recognized in respect of the same inflow upon approval of the disbursements by the Board. Revenue is generally recognized in the Statement of Financial Performance on accrual basis.

Interest income from all interest bearing financial instruments is recognized in the Statement of Financial Performance on accrual basis using the effective interest method.

Other incomes are recognized as they accrue unless the collectability is in doubt.

(g) Cash and Cash EquivalentsFor purposes of the cash flow statement, cash and cash equivalents comprise of cash and cash balances held at the bank with less than three months maturity from the statement of financial position date. These include notes and coins on hand and deposits held at call with banks.

(h) ReceivablesReceivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Board provides money or services directly to a debtor with no intention of trading the receivable.

Receivables are amounts due from the Kenya Roads Board Fund which are accrued in the ordinary course of business and there is no intention of trading the receivable.

Receivables are recognized initially at the fair value (transaction price/ carrying value less any discounts). They are subsequently measured at amortized costs using the effective interest method less provision for impairment.

A provision for impairment of receivables is made when there is objective evidence that the Board will not be able to collect all amounts due according to the original terms of receivables.



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The carrying value less discounts and any impairment provision of impairment is assumed to approximate their fair values. For financial instruments such as short term receivables, no disclosure of fair value is required when the carrying amount is a reasonable approximation of fair value.

Receivables are classified as current assets if payment is due within one year or less (or in the normal operating cycle of business, if longer). If not, they are presented as non-current assets.

(i) Inventories Given the nature of the Board’s operations and mandates, items in stock relate to stationery. Stationery costs are recognized as an expense when deployed for utilization in the ordinary course of the Board’s operations.

As at 30th of June 2014, the Board did not have any inventory.

(j) Property and Equipment and DepreciationAll property and equipment are initially stated at cost and thereafter at historical cost less accumulated depreciation and any accumulated impairment loss. Historical cost comprises expenditure initially incurred to bring the asset to its location and condition ready for its intended use.

Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Board and the cost can be reliably measured. All other repairs and maintenance are charged to the Statement of Financial Performance during the financial year in which they are incurred.

Depreciation is calculated on straight line basis at annual rates estimated to write down the carrying value of the assets over their expected useful lives. The annual depreciation rates in use are:-

Asset Annual Rate of Depreciation

Computer Equipment 33 1/3%

Office Equipment 12.5%

Motor Vehicles 25.0%

Furniture & Fittings 12.5%

An item of property and equipment is de-recognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or losses on de-recognition of the asset is included in the Statement of Financial Performance in the year the asset is de-recognized.

(k) PayablesPayables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Payables also include payments in respect of social benefits where formal agreements for specific amounts exist.

Payables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method. The historical cost carrying amount of payables subject to the normal credit terms usually approximates fair value.

Payables are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of business if longer). If not, they are presented as non-current liabilities.



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(l) LeasesThe determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets and the arrangement coveys a right to use the asset.

Leases are classified as finance leases whenever the terms of the lease transfer substantially all risks and rewards of ownership to the Board as the lessee. All other leases are classified as operating leases.

Where the Board is the lessee, the total payments made under operating leases are charged to the statement of financial performance on a straight line basis over the period of the lease. When an operating lease is terminated before the expiry of the lease period, any payment required to be made to the lessor by way of penalty is recognized as expense in the year in which termination takes place.

Rentals payable under operating leases are amortized on the straight line basis over the term of the relevant lease.

(m) Impairment of Non-financial AssetsAt each reporting period end, based on internal and external sources, the Board reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss.

Where it is not possible to estimate the recoverable amount of an individual asset, the Board estimates the recoverable value of the asset.

Any impairment losses are recognized as an expense in the Statement of Financial Performance whenever the carrying amount of an asset exceeds its recoverable amount. Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount. A reversal of impairment loss is limited to the assets carrying amount that would have been determined had no impairment loss been recognized in prior years. A reversal of an impairment loss is credited to the Statement of Financial Performance in the year reversals are recognized.

(n) ProvisionsProvisions are recognized when the Board has a present obligation (legal or constructive) as a result of a past event, it is probable that the Board will be required to settle the obligation, and a reliable estimate can be made of the amount of obligation.

The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the reporting period end, taking into account the risks and uncertainties surrounding the obligation.

(o) Retirement Benefit ObligationsThe Board operates a defined contribution provident fund for eligible employees. The fund is administered by an independent administration company and Trustees. It is funded by contributions from both the employer and employees.

The Board and its employees also contribute to the statutory pension scheme, the National Social Security Fund (NSSF). Contributions are determined by the local statute and are currently limited to KShs. 200 per employee per month. The Board also sets aside on monthly basis the gratuity for its employees who are on contract basis.

The Board’s contributions in respect of staff retirement benefit costs are charged to the statement of financial performance, as they fall due or in case of service gratuity as they accrue to each employee.



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(p) Guarantees, Acceptances and Letters of CreditGuarantees are accounted for as off statement of financial position transactions and disclosed as contingent liabilities.

(q) Subsequent EventsThere have been no subsequent events that would have an impact on the financial statements for the year ended 30th June 2014.

(r) ComparativesExcept otherwise required, all amounts are reported or disclosed with comparative information. Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current year.

3.0 Critical Accounting Estimates, Judgements and AssumptionsIn the process of applying the Board’s accounting policies, the directors have made estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Although these estimates are based on the directors’ knowledge of current events and actions, actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

The key areas of judgments and sources of uncertainty in estimation are as set out below:

(a) Critical Judgments in applying the Board’s accounting policiesIn the process of applying the Board’s accounting policies, judgments have been made in determining:-• Whether the assets are impaired;• The classification of financial assets;• The going concern.

(b) Critical Accounting Estimates and Assumptions(i) Useful Lives of Property, Plant and EquipmentThe directors make estimates in determining the depreciation rates for property and equipment. The rates used are set out in the accounting policy (j) above for property and equipment.

The Board reviews the estimated useful lives of plant and equipment at the end of each reporting period. During the financial year, no changes to the useful lives were identified by the directors. (ii) Contingent LiabilitiesAs disclosed in these financial statements, the Board is exposed to various contingent liabilities in the normal course of business.

The Directors evaluate the status of these exposures on a regular basis to assess the probability of the Board incurring related liabilities. However, provisions are only made in the financial statements where, based on the directors’ evaluation, a present obligation has been established.



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(iii) Provision for Doubtful DebtsThe organization reviews its travel advances portfolio to assess the likelihood of impairment. Provision for impairment of receivables is established when there is objective evidence that the Board will not be able to collect all amounts due. Where necessary, an estimation of the amounts irrecoverable is made in that year. Provision for impairment shall be recognized upon approval by the Board of Directors.

(iv) Other ProvisionsOther provisions are recognized when the Board has legal or constructive obligation as a result of past events, for which it is probable that an outflow of economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

(v) Impairment LossesAt each reporting period end, the Board reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss.

Where it is not possible to estimate the recoverable amount of an individual asset, the Board estimates the recoverable value of the asset. Any impairment losses are recognized as an expense immediately. Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount. A reversal of an impairment loss is recognized as income immediately.

4.0 Segment ReportingThe Board does not have any branches/reporting segments. All the operations of the Board are managed from the registered office. The core business of the Kenya Roads Board continues to be management of the Kenya Roads Board Fund together with other mandates as stipulated in the Kenya Roads Board Act.

There is no distinguished component of the Board that is engaged in providing an individual service that is subject to risks and returns that are different from the main mandates of the Board.

5.0 Financial Risk Management Objectives and PoliciesThe Board has initiated and facilitated the process that will see the enhancement of risk management. The Board has an integrated risk management framework/strategy. The Board’s approach to risk management is based on risk governance structures, risk management policies, risk identification, measurement, monitoring and reporting. The risk management policies and systems are reviewed regularly to ensure they are in tandem with the micro and macro environment, regulatory guidelines, industry practice, market conditions as well as the services offered.

The Board recognizes the critical role the risk management will continue to play in its endeavor to carry out its business in a dynamic environment. The Board is committed to ensure that corporate governance and risk management are deeply entrenched in the Board’s strategy and culture. An elaborate risk management strategy that will provide direction on matters of policy and guide the implementation and control has been developed.

This risk management framework captures the following among other things:-

• The Board’s risk appetite and parameters;• The Board’s risk matrix that highlights the rating of risks;• The structure of managing risks and accountabilities;• The processes, procedures and reports that manage risks;• The mitigating factors, prevention, contingency plans and controls.



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The Board’s core business involves major engagements with financial transactions and processes which pose certain risks. Three types of risks are reported as part of the risk profile namely operational, strategic and business continuity risks.

a) Operational risks are events, hazards, variances or opportunities which could influence the achievement of the Board’s compliance and operational objectives;

b) Strategic risk is a significant unexpected or unpredictable change or outcome beyond what was factored into the organization’s strategy and business model which could have an impact on the entity’s performance;

c) Business continuity risks are those events, hazards, variances and opportunities which could influence the continuity of the entity.

One of the key risks the Board has identified in both the operational and strategic areas is the sustainability of the Road Maintenance Levy in line with the Constitution. Financial risk as defined in IPSAS 15 and the management thereof, form part of this risk area.

The Members of the Board have the overall responsibility for the establishment and oversight of the Board’s risk management framework. The Board has delegated its risk management to the ‘Audit and Risk Committee’. One of the responsibilities of this committee is to review risk management strategies in order to ensure business continuity and survival. Most of the financial risks arising from financial transactions and processes are managed by the ‘Finance and Planning Committee’ of the Board.

The Board’s exposure to risks, its objectives, policies and processes for managing the risk and the methods used to measure it have been consistently applied in the years presented, unless otherwise stated. The Board aims therefore to achieve an appropriate balance between the risk and return and minimize potential adverse effects on its financial performance.

The financial management objectives and policies are as outlined below:-

a) Liquidity RiskLiquidity risk is the risk that the Board will not have sufficient financial resources to meet its obligations when they fall due or will have to do so at excessive costs. This risk can arise from mismatches in the timing of cash flows from revenue and capital/ operational outflows, assets and liabilities according to their maturity profiles and can occur where cash flow streams have been discontinued, etc. Funding risk arises when the necessary liquidity to fund illiquid asset positions cannot be met at expected terms and when required.

The objective of the liquidity and funding management is to ensure that all foreseeable operational, capital and loan commitment expenditure can be met under both normal and stressed conditions and the mismatch is controlled in line with allowable risk levels.

The Board has adopted an overall balance sheet approach which consolidates all sources and uses of liquidity, while aiming to maintain a balance between liquidity, cash flows and interest rate considerations. The Board’s liquidity and funding management process includes:-

• Projecting cash flows and considering the cash required and optimizing the short term requirements as well as the long term funding,• Maintaining balance sheet liquidity ratios,• Maintaining/ soliciting a diverse range of funding sources with adequate back up facilities,• Managing the concentration and profile of debt maturities, where applicable,• Maintaining liquidity and funding contingency plans.

The table shows the undiscounted cash flows on the Board’s financial assets and liabilities on the earliest possible contractual/maturity date. The liquidity ratio in FY 2013/14 is 17.08 (FY 2012/13: 14.87)



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Note 2013/14 2012/13Financial Assets KShs ‘000 KShs ‘000

Bank and Cash Balances 13 894,711 680,384Receivables 14 2,194 1,863

Total Financial Assets 896,905 682,247

Financial Liabilities Payables 16 52,500 45,873

Total Financial Liabilities 52,500 45,873NET LIQUIDITY 844,405 636,374LIQUIDITY RATIO 17.08 14.87

The Board has an established corporate governance structure and process of managing risks regarding guarantees and contingent liabilities. All guarantees issued are approved by the Members of the Board and are administratively managed by the finance department.

The primary sources of revenue for the Board are receipts from the Kenya Roads Board Fund, mainly receipts from fuel levy fund. The Board pursuing additional sources of revenue for which approval has been sought from Ministry of Finance.

b) Market Risk Market risk is the risk that the fair value of future cash flows of financial instruments will fluctuate because of changes in

foreign exchange rates, prices and interest rates. The objective of market risk management policy is to protect and enhance the Statements of Financial Position and performance by managing and controlling market risk exposures within acceptable parameters, and to optimize the funding of business operations and facilitate capital expansion. The Board is exposed to the following market risks:-

(i) Currency RiskCurrency risk arises primarily from purchasing imported goods and services from overseas or indirectly via local supplies. The currency risk is minimal as cash and cash equivalents held with banks are dominated in Kenya Shillings and there are minimal dealings in foreign currency.

(ii) Price RiskThe Board is exposed to the price risk of the fuel levy. The Board collects KShs. 9 per litre of diesel/petrol imported into the country. The Board is exposed to the extent that the levy on diesel and petrol is reduced or eliminated due to changes in the international fuel prices, inflation or other macro indicators.

The Road Maintenance Levy is backed up by an Act of Parliament; changes thereof require approval by Parliament.

(iii) Interest Rate RiskThe Board is exposed to various risks associated with effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows. Interest margin may increase as a result of such changes but may reduce losses in the event that unexpected movement arises.



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The Board closely monitors interest rate movements and seeks to limit its exposure by managing the interest rate and maturity structure of assets and liabilities on the statement of financial position. The interest rates on call deposits held in financial institutions are fixed and agreed upon on monthly basis. The management is in regular contact with the approved banks in a bid to obtain the best interest rates and therefore able to plan for the resulting income.

The interest rate risk is minimal as the Board does not have any borrowings.

c) Operational Risk Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Board’s processes,

personnel, technology and infrastructure and from external factors other than credit, market and liquidity risks such as legal and regulatory requirements and generally acceptable standards of corporate behavior.

The Board seeks to ensure that key operational risks are managed in a timely and effective manner through a framework of policies, procedures and tools to identify, assess, monitor and report such risks.

The Board’s objective is to manage operational risk so as to balance the avoidance of financial losses and damage to the Board’s reputation with overall cost effectiveness and to avoid control procedures that restrict initiative and creativity.

The primary responsibility for the development and implementation of controls to address operational risk is assigned to senior management. The responsibility is supported by the development of overall standards for the management of operational risk in the following areas:-

• Requirements for appropriate segregation of duties, including the independent authorization of transactions;• Requirements for the reconciliation and monitoring of financial transactions;• Compliance with regulatory and legal requirements;• Documentation of controls and procedures;• Requirements for the yearly assessment of operational risks faced and the adequacy of controls and procedures to

address the risks identified;• Requirement for the reporting of operational losses and proposed remedial action;• Development of Business Contingency Plans;• Training and professional development;• Ethical and business standards;• Risk mitigation, including insurance where it is effective.

Operational risks are documented in the ‘Framework for Management Control’ and are managed by the Internal Audit function established to spearhead and coordinate risk management activities. The measures taken include proactively identifying, analyzing and mitigating risks in all facets of the business.

d) Compliance and Regulatory Risk Compliance and regulatory risk includes the risk of non-compliance with regulatory requirements. The Board has complied

with all externally imposed requirements throughout the year.

e) Legal Risk Legal risks is the risk of unexpected loss, including reputational loss, arising from defective transactions or contracts, claims being

made or some other event resulting in a liability or the loss for the Board, failure to protect the title to and liability to control the rights to assets of the Board (including intellectual property right), changes in law, or jurisdictional risk.

The Board manages legal risk through the ‘Audit and Risk Committee’, legal function, legal risk policies and procedures and the effective use of internal controls and external lawyers.



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6.0 Operating Revenue 2013/14 2012/13

Particulars KShs ‘000 KShs ‘000

Revenue 503,489 485,609Interest Earned 5,397 7,637Other income 301 89,321Total Operating Revenue 509,187 582,567

Revenue mainly represents the 2% portion from the Kenya Roads Board Fund which is allocated in accordance with Section 6(2) (e) of the Kenya Roads Board Act. Interest is earned on the balances held in the bank accounts. Included in other income is KShs 7.34 million being gains on disposal of fully depreciated assets and KShs. 0.30 million being income from sale of tender documents.

The operating revenue is recognized in accordance with the accounting policy on revenue recognition set out in policy 2 (f) above.

The Board did not receive any transfers of any form, (including assets, gifts, donations, service-in-kind, advance receipts, pledges, expenses paid on behalf and concessionary loans) from National and Country Government, public entities, donor and International development agencies.

7.0 Directors Costs 2013/14 2012/13


Emoluments 22,714 27,581Insurance 379 223Field Activities 10,747 10,625Training 8,891 10,163Board Evaluation and Induction 1,685 1,045Total Directors Costs 44,416 49,637

8.0 Staff Costs 2013/14 2012/13


Salaries & Wages 140,520 144,422Pension Costs 16,085 16,374Training & Development 27,147 24,986Staff Insurance 13,162 13,190Other Costs 7,166 4,697Total Staff Costs 204,080 203,669

The average number of employees during the year was as follows:-

No. of Employees Permanent Employees 61 57Contract Employees 2 6Total Employees 63 63



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9.0 Field Activity Costs

2013/14 2012/13Departments/Sections KShs ‘000 KShs ‘000

Planning & Programming 8,404 8,486Technical Compliance 9,470 8,497Finance 8,423 6,488Human Resource & Administration 7,732 6,233Legal & Corporate Affairs 6,491 5,485Information Communication & Technology 2,483 1,484Procurement 1,979 1,566Total Field Activities 44,982 38,239

10.0 Other Operating Costs 2013/14 2012/13Particulars KShs ‘000 KShs ‘000

Advertising & Publicity 13,232 37,958Audit fees 2,900 2,500Conferences & Seminars 19,726 17,999Depreciation 28,741 27,002Consultancies 78,850 101,775Rent & Rates 30,256 29,723Telephone, Postages & Internet 6,510 6,941Travelling, Vehicle Maintenance & Repairs 13,460 13,070Other Operating Costs 16,081 14,787Total Other Operating Costs 209,756 251,755

11.0 Corporate Social ResponsibilityThe Board’s contribution towards the Corporate Social Responsibility (CSR) amounts to KShs 1.79 million (2012/13: KShs 1.64 million). In FY 2013/14, the Board participated in the ‘Standard Chartered Marathon’, environment sustainability implementation projects in Taita, and capacity building in HIV/AIDS.

12.0 Operating SurplusThe operating surplus is arrived at after charging/ (crediting):

Note 2013/14 2012/13Particulars KShs ‘000 KShs ‘000

Staff Costs 8 204,080 203,669 Depreciation 15 28,741 27,002 Directors’ emoluments 7 22,714 27,581Auditors remuneration 10 2,900 2,500 Rent & Rates 10 30,256 29,723 Gain on Disposal of Assets 15 (7,343) (1,068)Interest earned 6 (5,397) (7,637)



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13.0 Cash and Cash Equivalents(a) Analysis of bank and cash balances:


Cash at Bank and in Hand 171,775 167,066KRB Staff Fund 17(a) 248,683 213,228Bank Term Deposit 17(b) 474,253 300,090Cash Imprests and Advances 1,714 618

Total 896,425 681,002

The Board is not exposed to credit risk on cash and bank balances as they are held with sound financial institutions approved by Central Bank of Kenya. The carrying amounts of the Board’s cash and cash equivalents are dominated in Kenya Shillings.

(b) Cash and cash equivalents:For the purposes of the cash flow statement, cash and cash equivalents comprise balances with less than three months’ maturity from the date of acquisition, including cash in hand, deposits held at call with banks and other short term highly liquid investments with original maturities of three months.

Analysis of cash and cash equivalents is as set out below:


Bank and Cash Balances 13 (a) 896,425 681,002

14.0 ReceivablesReceivables constitute short term liquid assets which are recoverable within one year.

2013/14 2012/13Particulars KShs ‘000 KShs ‘000

Prepayments & Deposits 480 1,245

Total 480 1,245 The maximum exposure to credit risk at the reporting date is the fair value of each class of receivable mentioned above. The Board does not hold any collateral as security. The aged analysis of receivables is as follows:-

0-3 months 3-12 months Total Particulars KShs ‘000 KShs ‘000 KShs ‘000

Prepayments and Deposit - 480 480

Total - 480 480



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15.0 Property and Equipment Computer Office Motor Furniture Total Equipment Equipment Vehicles & Fittings

KShs’000 KShs’000 KShs’000 KShs’000 KShs’000

Cost:Start of year 38,672 44,858 84,180 55,694 223,404 Disposals (3,897) (381) (15,785) - (20,063)Additions 3,717 163 7,104 5,373 16,357

Total Cost 38,492 44,640 75,499 61,067 219,699 Depreciation; Start of year 35,811 23,024 47,166 49,362 155,362 Disposals (3,897) (381) (15,785) - (20,063)For the period 3,336 4,740 17,497 3,168 28,741

Total Depreciation 35,250 27,381 48,878 52,530 164,040 NBV 30th June 2014 3,242 17,259 26,621 8,537 55,659

NBV 30th June 2013 2,861 21,850 37,014 6,332 68,057

The net book value of non-current assets decreased from KShs. 68.05 Million in prior period to KShs. 55.65 Million in the review period. This is as a result of asset additions amounting to KShs. 16.35 Million, net of depreciation charge for the year amounting to KShs. 28.74 Million.

Gain on disposal of assets during the year ended 30th June 2014 amounted to KShs. 7.34 Million (2012/13: KShs. 1.06 Million). These assets had an accumulated depreciation amounting to KShs. 20.06 Million.

The Board is of the opinion that the net book values represent the fair value of the equipment.

16.0 PayablesPayables are expected to be settled in KRB’s normal operating cycle and within twelve months after the reporting period and are not attached to an unconditional right to defer payment of the liability for at least twelve months after the reporting period.

Provisions and accruals relate to accrued expenses during the year.


Provisions and accruals 50,096 39,901Other Payables 2,404 5,972Total 52,500 45,873

The maturity analysis of payables is as follows: 0-3 months 3-12 months TotalParticulars KShs ‘000 KShs ‘000 KShs ‘000

Provisions and accruals 50,096 - 50,096Other Payables - 2,404 2,404Total 50,096 2,404 52,500



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17.0 Net AssetsThe net assets are made of up of designated funds and accumulated reserve which are explained as follows:

(a) KRB Staff Fund


Car Loan Staff Fund 53,147 52,834Mortgage Scheme Fund 195,536 185,394

Total 248,683 238,228

The Board established independently managed Car Loan and Mortgage Scheme Funds for members of staff. Staff funds increased from KShs. 238.22 Million to KShs. 248.68 Million. The growth is represented by KShs. 10.45 Million being bank interest earned during the year (FY 2012/13-Kshs 17.25 Million)

(b) KRB Capital FundThe Board established a Capital Fund in FY 2009/10 for the purpose of purchase of office premises.


KRB Capital Fund 474,253 300,582

Total 474,253 300,582

The KRB Capital Fund increased from KShs.300.58 Million in prior period to KShs. 474.25 Million. The growth is represented by KShs. 23.67 Million being bank interest earned during the year and KShs. 150.0 Million being a transfer from KRB Fund.

(c) Accumulated Surpluses


Accumulated Surpluses 177,128 165,621

Total 177,128 165,621

Accumulated surpluses increased from KShs. 165.62 Million in prior period to KShs. 177.12 Million. Net surplus for the current year amounted to KShs. 11.50 Million (FY 2012/13 – KShs. 38.69 Million).



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18.0 Cash Generated from OperationsReconciliation of Net Cash Flows from Operating Activities to Net Surplus from Ordinary Activities;

2013/14 2012/13 Notes KShs ‘000 KShs ‘000

Net surplus from operating activities 12 11,507 38,690 Adjustments for : Depreciation 15 28,741 27,002 Interest Income 6 (5,397) (7,637)Gain on disposal of property and equipment 15 (7,343) (1,068)

Operating Income before Working Capital Changes 27,508 56,987 Changes in Working Capital Balances: Decrease in receivables 764 3,223Increase in payables 6,627 1,645 Net Cash Flows Generated from Operating Activities 34,899 61,855

19.0 Contingent Assets & Liabilities 2013/14 2012/13 KShs ‘000 KShs ‘000

Guarantees 3,393 3,393

a) GuaranteesGuarantees commit the Board to make payments on behalf of the guaranteed in the event of a specific act and carry a certain risk. The Board has given a guarantee for rent to Kenya Reinsurance Corporation (Kenya Re) for KShs. 2,620,379.50 and KShs 772,219.40 which shall expire on 1st February and 1st April 2016 respectively.

This guarantee covers the obligation to Kenya Re of three months’ rent. The guarantee was issued by the Board’s bankers in favour of Kenya Reinsurance Corporation. The Board has entered into counter indemnity with the same bank. The guarantee was issued in the normal course of the business, after the end of the financial year and does not affect the Board’s financial position as at the reporting date.

b) Legal matters The directors believe, based on the information currently available, that the Board does not have any contingent liabilities

which are likely to have a material effect on the results of the Board’s operations, financial position or liquidity. Therefore no provision has been made in the financial statements.

20.0 Commitments : Operating Lease RentalsNon-cancellable operating lease rentals are payable as follows:

2013/14 2012/13 KShs ‘000 KShs ‘000

Not later than one year 30,256 27,471Later than one year and not later than five years 151,278 137,355

181,534 164,826



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The Board has leased office premises under an operating lease. The lease typically runs for 5 years with an option for renewal. Lease payments are increased accordingly to reflect market rentals. The Board does not have an option to purchase the leased asset at the expiry of the lease period. There are no contingent rents recognized in the Statement of Financial Performance.

21.0 Retirement Benefits Scheme ObligationsThe Board operates a defined contribution retirement benefit plan for eligible employees. The assets of the plan are held separately from those of the Board in funds under the control of trustees. The scheme is administered by an independent administration company and is funded by contributions from the Board and employees. The Board’s obligations to the staff retirement benefits plan are charged to the Statement of Financial Position as they fall due or, in the case of service gratuity, as they accrue to each employee.

The Board also makes contributions to the statutory defined contribution scheme, National Social Security Fund. This is a defined contribution scheme registered under the National Social Security Act. The Board’s obligations under the Scheme are limited to specific contributions legislated from time to time, which are currently at KShs 200 per employee per month.

The total pension expense recognized in the income statement of KShs 16.08 million (FY 2012/13: KShs 16.37 million) represents contributions payable to the plan by the Board at rates specified in the rules of the plan. The expense has been included within the staff pension costs under staff costs.

22.0 Fair ValueThe directors consider that there is no material difference between the fair value and carrying value of the Board’s financial assets and liabilities, where fair value details have not been presented.

23.0 Capital CommitmentsAll capital commitments contracted for/authorized at the reporting period end have been recognized in the financial statements.

24.0 Post Balance Sheet EventsThe Directors are not aware of any matter or circumstances arising since the end of the financial year, not otherwise dealt with in the financial statements, which would significantly affect the financial position of Kenya Roads Board and results of its operation as laid out in these financial statements.

25.0 ComparativesWhere necessary, comparative figures have been adjusted to conform to changes in presentation of the Financial Statements as required by International Public Sector Accounting Standards and any amendment whenever necessary in the current year.

26.0 CurrencyThe financial statements are presented in Kenya Shillings (KShs’000).



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PROGRESS ON FOLLOW UP OF AUDITOR RECOMENDATIONS

All audit issues raised by the external auditor were resolved and concluded during the audit process. There are no audit issues that were carried forward.

ENG. JOEL WANYOIKE DATE: 30th October 2014CHAIRMAN

ENG. JACOB RUWA DATE: 29th October 2014EXECUTIVE DIRECTOR



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NOTES

3rd Floor Kenya Re TowersOff Ragati Rd, UpperHillP.O. BOX 73718 - 00200NAIROBI, KENYA.

Tel: +254 20 4980 000/+254 20 2722865/6/8Cell: +254 733 334422/+254 722 203418Email: [email protected]

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