REPORT

OF

THE AUDITOR-GENERAL

ON

THE FINANCIAL OPERATIONS

OF

MOMBASA COUNTY ASSEMBLY

FOR THE PERIOD 1 JULY 2013 TO 30 JUNE 2014

REPUBLIC OF KENYA

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TABLE OF CONTENTS

EXECUTIVE SUMMARY………………………………………….……………..………………………….………..…………..1

Introduction ........................................................................................................................................... 1

Audit Objectives .................................................................................................................................. 1

1. Sitting Allowances .................................................................................................................... 2

2. Payments for Training and Seminars ............................................................................... 2

3.0 Imprest ......................................................................................................................................... 2

3.1 Non-Surrender of Imprest ...................................................................................................... 2

3.2 Multiple Imprest Issued to Officers ...................................................................................... 2

3.3 Unrecorded Imprest ................................................................................................................. 2

3.4 Irregular Paid Per Diem .......................................................................................................... 3

3.5 Unsupported Imprest ............................................................................................................... 3

3.6 Unsupported Expenditure on Accommodation and Subsistence Allowance ......... 3

4.0 Procurement of Goods and Services ................................................................................. 3

4.1 Lack of Procurement Plan, Pre-qualified Supplies List and Procurement

Committees ................................................................................................................................ 3

4.2 Splitting of procurements ....................................................................................................... 3

4.3 Single Sourcing on Hire of Motor Vehicles ....................................................................... 4

4.4 Cash Purchases........................................................................................................................ 4

4.5 Failure to Constitute Procurement Committees .............................................................. 4

5.0 Travelling ..................................................................................................................................... 4

5.1 Irregular payment of air tickets ............................................................................................. 4

5.2 Irregular Payment Ward Office Rent .................................................................................. 4

6.0 Creditors ...................................................................................................................................... 5

6.1 Car Loans ................................................................................................................................... 5

DETAILED FINDINGS ...................................................................................................................... 6

1. Sitting Allowance ...................................................................................................................... 6

2. Unsupported Payments for Training and Seminars ....................................................... 6

3.0 Imprest ......................................................................................................................................... 7

3.1 Non-Surrender of Imprest ...................................................................................................... 7

3.2 Unrecorded Imprest ................................................................................................................. 7

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3.3 Multiple Imprest Issued to Officers ...................................................................................... 7

3.4 Unsupported Surrenders ........................................................................................................ 8

3.5 Irregular Per Diem .................................................................................................................... 8

4.0 Unsupported Expenditure on Accommodation and Subsistence Allowance ......... 9

5.0 Procurement of Goods, Works and Services ................................................................... 9

5.1 Lack of Procurement Plan, Pre-qualified Suppliers and Procurement

Committees ................................................................................................................................ 9

5.2 Splitting of Procurements ..................................................................................................... 10

5.3 Cash Purchases...................................................................................................................... 10

5.4 Hire of Motor Vehicles ........................................................................................................... 11

5.5 Rent Ward Offices .................................................................................................................. 11

5.6 Missing Accountable Documents ...................................................................................... 11

5.7 Car Loan .................................................................................................................................... 12

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REPORT OF THE AUDITOR-GENERAL ON THE FINANCIAL OPERATIONS OF THE COUNTY ASSEMBLY OF MOMBASA FOR THE PERIOD 1 JULY 2013 TO 30 JUNE 2014

EXECUTIVE SUMMARY Introduction

The Office of the Auditor-General has the mandate to audit and report on the accounts of the National and County Governments under Article 229 of the Constitution of Kenya and the Public Audit Act, 2003.

Audit Objectives

The objective of the audit was to ascertain whether the systems formulated and applied by the County Assembly were reliable for the management of the County Assembly’s finances in the delivery of services to the local residents.

Terms of Reference

The terms of reference set for the audit included verification and confirmation of

transactions in respect to but not limited to the following areas:

Budgetary controls and performance

Annual operational / activity plans

Procurement of goods, works and services

Allowances including travelling and accommodation expenses for both

local and foreign trips

Motor vehicle running expenses – Fuel

Consultancy services

Imprest and advances

Cash and bank balances

Sitting Allowance

Seminars

Travel

Residential and Non-residential

Human Resource Records

IT Environment including IFMIS

Non-Current Assets

Debtors

Creditors

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KEY AUDIT FINDINGS

1. Sitting Allowances

IFMIS report availed for audit review indicated that a total of Kshs.14,448,150 had been spent on sitting allowance and further Kshs.14,515,359 committed but not paid as at 30 June 2014. However, audit verification through the payroll and payment vouchers in respect of sitting allowance revealed that a total of Kshs.45,668,306 had been spent on sitting allowance over the same period. In the circumstance, it was not possible to establish the correct amount of sitting allowance paid during the period. In addition it was not clear how commitment of funds was made in respect of sitting allowances which are supposed to be paid through the payroll. 2. Payments for Training and Seminars

Records availed for audit review indicated that the Assembly spent Kshs.57,473,542 on training and seminars. However, the expenditure could not be verified as the payment vouchers were not availed for audit verification. Further, it was also not possible to tell who was trained, the nature of the training and even the venue as no documentary evidence was availed for audit review. It was therefore not possible to confirm the validity of the payments. 3.0 Imprest

3.1 Non-Surrender of Imprest

According to the Imprest register for the County Assembly, a total of Kshs.34,481,237 was outstanding as at 30 June 2014. Audit examination revealed that officers were holding imprest for more than six months without surrendering even where the assignments were concluded. 3.2 Multiple Imprest Issued to Officers

Examination of imprest records revealed that Kshs.31,036,734 was held by officers with multiple unsurrendered imprest. No proper explanation was given for non-compliance with the financial regulations. 3.3 Unrecorded Imprest

A review of the imprest register also indicated that imprest amounting to Kshs.11,979,447 issued to several officers had been omitted from the imprest register as no staff imprest accounts are maintained.

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3.4 Irregular Paid Per Diem

Examination of imprest warrants revealed that Kshs.512,000 was paid to 16 nominated MCAs on an induction course. However, documents availed for audit review indicated that the course was fully catered for since accommodation and training expenses were paid for by the International Republican Institute (IRI). Therefore the per diem payment was irregular. 3.5 Unsupported Imprest

Records availed for audit review indicated that imprest surrender vouchers amounting to Kshs.3,112,760 had no supporting documents. 3.6 Unsupported Expenditure on Accommodation and Subsistence Allowance

According to records availed for audit review, the County Assembly had spent Kshs.8,531,142 and Kshs.5,771,881 in respect of accommodation and subsistence allowance respectively as at 30 June 2014. However, it was not possible to know who was paid the subsistence allowance or even the supplier of the accommodation services since the payment vouchers for the expenditure were not availed for audit review. Therefore the existence and validity of the expenditure could not be confirmed. 4.0 Procurement of Goods and Services

4.1 Lack of Procurement Plan, Pre-qualified Supplies List and Procurement Committees

The County Assembly had no procurement plan for the period under review. In the circumstance, public funds may be committed to non- priority areas thus affecting public service delivery. Further it is against Public Procurement and Disposal Act 2005 for any public entity to procure for goods and services not contained in the Procurement Plant for the year. Also the County Assembly did not avail for audit review a pre-qualified suppliers list for goods and services procured for the year 2013/2014 contrary to Sec 8.3 (a), 23.1 of the Public Procurement Regulations 2006. The County Assembly may not have realized value for money for the goods and services procured during the year. 4.2 Splitting of procurements

The County Assembly purchased 24 pieces of IPADs with a total value of Kshs.2,520,000 whose order to the same supplier was split into three (3) orders of Kshs.840,000 and issued on the same day to ensure the purchase was done through request for quotation and not open tender. In the circumstance, it was not possible to ascertain if the County Assembly realized value for money on the procurement of IPADs.

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4.3 Single Sourcing on Hire of Motor Vehicles

Expenditure of Kshs.1,545,960 on hire of motor vehicles to transport Members of County Assembly from Mombasa to Kisumu for a workshop was not subjected to competitive bidding. Further, no list of members who attended the workshop or attendance register was availed for audit verification. The propriety and value for money of the expenditure could not be confirmed. 4.4 Cash Purchases

The County Assembly had several instances where stationery was purchased in cash for amounts that were above the approved cash ceiling of Kshs.30,000 with a total payments of Kshs.1,614,500 made in cash. The payments were contrary to the Public Procurement and Disposal Act, 2005 4.5 Failure to Constitute Procurement Committees

It was noted that the Mombasa County Assembly had not established any Standing Committees e.g. Tender Committee, Ad hoc committees; Tender Opening, Tender Evaluation, Inspection & Acceptance and Negotiation Committee contrary to Sec 7.2 of Public Procurement and Disposal Regulations (County Government) 2013. Consequently, the validity and fairness of the procurements done could not be ascertained. 5.0 Travelling

5.1 Irregular payment of air tickets

Records availed for audit review indicated that Kshs.8,427,707 had been spent on air ticket. Audit examination revealed that LSOs to travel agencies for air tickets amounting to Kshs.1,946,545 were raised after the invoice and expenditure date. In addition, it was not possible to identify the persons who travelled or even whether travelling took place as the supporting payments documents as air tickets and boarding passes were not availed for audit verification. In the foregoing circumstance, the validity of the expenditure of Kshs.8,427,707 could not be confirmed. 5.2 Irregular Payment Ward Office Rent

The County Assembly paid a total rent of Kshs.3,319,200 for the ward offices. However there was no evidence availed for audit review in support of the approval for the payment. Further, the tenancy agreements for all offices were between the landlords and the Member of the County Assembly instead of the agreement containing the name of

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Mombasa County Assembly. Consequently, the propriety of the ward offices rent expenditure of Kshs.3,319,200 could not be ascertained. 6.0 Creditors

6.1 Car Loans

Members of County Assembly were advance car loans at the rate of Kshs.3,000,000 per member totalling Kshs.117,000,000. However, loans were above the SRC guideline of Kshs.2,000,000 per member therefore resulting to irregular car loans of Kshs.39,000,000. In addition, the County Assembly had not commenced the recovery of these loans from the Members of County Assembly’s salaries as at the time of this audit.

Edward. O. Ouko, CBS

AUDITOR-GENERAL

Nairobi

18 May 2015

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DETAILED REPORT OF THE AUDITOR-GENERAL ON THE FINANCIAL

OPERATIONS OF MOMBASA COUNTY ASSEMBLY FOR THE PERIOD 1

JULY 2013 TO 31 JUNE 2014

DETAILED FINDINGS

1. Sitting Allowance

The IFMIS report availed for audit review indicated that a total of Kshs.14,448,150

had been spent on sitting allowance and an additional Kshs.14,515,359 had been

committed in respect of unpaid sitting allowances to the Members of the County

Assembly. However, audit verification of the sitting allowances paid through the

payroll and cashbook revealed that a total of Kshs.45,668,306 had been spent on

sitting allowance. No reconciliation between the two sets of figures was provided by

the management for audit review. In addition, it was not clear how the balance of

Kshs.14,515,359 accumulated as committed sitting allowance since the allowance is

paid on monthly basis through the payroll. In the circumstances, the propriety of

Kshs.14,515,359 as committed sitting allowance could not be confirmed as at 30

June 2014.

Recommendations

The management should ensure that allowances are paid in line with the Government Financial Regulations and procedures and that they are adequately supported and properly authorized and approved. Allowances paid unprocedurally and not supported should be recovered from the respective officers. Further, the management should investigate the cause of the difference between the two sets records and amend appropriately and any loss incurred is surcharged to the responsible officer.

2. Unsupported Payments for Training and Seminars

Records maintained by the County Assembly reflected that a total of Kshs.57,473,542 was paid in respect of training and seminars. However, no documentation in support of the payments was availed for audit verification. Further, it was not possible to establish the officers who were trained, the nature of training, the training venue and the date of the training as no documentary evidence was availed for audit review.

Recommendations The management should ensure that all payments are adequately and properly supported in accordance with the Government Financial Regulations and Procedures,

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failure to which the respective officer is surcharged for the amount of unsupported expenditure. 3.0 Imprest

3.1 Non-Surrender of Imprest

The Government Financial Regulations and Procedures require that the officer issued with imprest to account for the same within 48 hours of conclusion of the assignment. However, records maintained by the County Assembly showed that imprest amounting to Kshs.34,481,237 was outstanding as at 30 June 2014. The management could not explain why the officers were taking long to surrender the imprest or even why no recovery had been instituted against the officers in line with Government Financial Regulations and Procedures. Recommendations The management of imprest should be adhered to at all times and proper systems put in place to ensure that outstanding imprest is accounted for within time stipulated in the Government Financial Regulations and Procedures or be recovered from the salary of the concerned officer. 3.2 Unrecorded Imprest

Examination of the imprest register availed for audit verification indicated that imprest issued to the County Assembly officers amounting to Kshs.11,979,447 had not been included in the list of outstanding imprest as at 31 March, 2014 as the imprest register had not been updated. No satisfactory explanation was provided as to why the imprest was not recorded. The non-recording exposed the County Assembly to potential loss of cash because there were no comprehensive records that would be used for recovery. This cast doubt on the completeness of the imprest records availed for audit as at 30 June 2014. Recommendations The management should prepare a comprehensive and reliable imprest records and the respective officer should be held responsible for any losses as a result of omissions. All imprests should be recorded in the imprest register for tracking purposes and the overdue imprest is recovered from the respective members as appropriate. 3.3 Multiple Imprest Issued to Officers Examination of imprest records revealed that Kshs.31,036,734 was held by officers with multiple unsurrendered imprests contrary to the Government Financial

8

Regulation and Procedures. No proper explanation was provided as to why the officers were authorized to collect multiple imprests. Recommendations The management should ensure that regulations governing issuance of imprests are adhered to and that all imprests which is overdue is recovered from the respective officer’s payroll in line with Government Financial Regulations and Procedures. The respective officers should also be held liable for approval of imprest request from officers who hold unsurrendered imprest. Further, imprest should not be issued to officer who have not surrendered the earlier imprest issued. 3.4 Unsupported Surrenders Records availed for audit review indicated that imprest surrender vouchers amounting to Kshs.3,112,760 had no supporting documents for the expenditure.

Recommendations The management should ensure that government regulations on issuance of imprest is adhered to and that Imprest surrenders must be fully supported with appropriate expenditure documents such as receipts, invoices etc, failure to which the unsupported amounts are recovered from the payroll of the respective officers. 3.5 Irregular Per Diem Examination of imprest warrants revealed that 16 nominated Members of the County Assembly were paid a total of Kshs.512,000 at the rate Kshs.8,000 per person for 4 days for an induction course held in Nairobi. Our audit review indicated that the seminar was fully paid for by International Republican Institute (IRI). However, according to Ministry of State for Public Service Circular No.18/2A/ (90) of 10th March, 2010, states that “where a short course is externally organized, but held locally and outside the trainee’s duty station, trainees will be eligible for Kshs.4,000 per day to cater for cost of accommodation, meals and incidentals for the duration of the course.” No proper explanation was given as to why the MCAs were paid excess per diem. Recommendations The management should ensure that regulations governing issuance of per diem are adhered to and the excess per diem from the Members of County Assembly is recovered in line with Government Financial Regulations and Procedures.

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4.0 Unsupported Expenditure on Accommodation and Subsistence Allowance

According to the IFMIS expenditure report for the period under review, the County Assembly had spent Kshs.8,531,142 and Kshs.5,771,881 in respect of accommodation and subsistence allowance respectively as at 30 June 2014. However, the respective supporting documentations such as payment vouchers and the payees details were not availed for audit review. Recommendations The management should ensure that all payments are adequately and properly supported in accordance with the Government Financial Regulations and Procedures, failure to account for the expenditure, the respective officer is surcharged for the full cost . 5.0 Procurement of Goods, Works and Services

5.1 Lack of Procurement Plan, Pre-qualified Suppliers and Procurement Committees

A review of the County Assembly procurement process revealed that the County Assembly had no procurement plan for the period under review contrary to Section 20 (1) of the Public Procurement Regulations, 2006. Although the County Assembly procured various goods and services during the period under review, in absence of a procurement plan, it was not possible to determine how the County Assembly determined the need for the goods or services. Further, the County Assembly did not pre-qualify suppliers for goods and services contrary to Sec 8.3 (a), 23.1 of the Public Procurement and Disposal Regulations, 2006. Therefore, it was not possible to establish how the County Assembly identified the suppliers for goods and services and whether the prices quoted were competitive and that the County Assembly obtained the value for the goods and services supplied. It was also noted that the County Assembly had not established procurement Standing Committees e.g. Tender Committee, ad hoc committees; Tender Opening, Tender Evaluation, Inspection & Acceptance and Negotiation Committee contrary to Section 72 of Public Procurement and Disposal Regulations (County Government) 2013. In the circumstance, it is not possible to determine how decisions on; tendering, evaluation, awarding and acceptance were made in the absence of the relevant procurement committees. Recommendations The County Government should comply with the Public Procurement and Disposal Act, 2005 and related 2006 and 2013 regulations in procurement of goods, works and services. The management should ensure that procurement plan is in place, the list of prequalified suppliers is provided and procurement committees are constituted in line with the procurement Law.

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5.2 Splitting of Procurements

Records availed for audit review indicated that the County Assembly purchased 24 pieces of IPADs for County Assembly officers and Members of the County Assembly at a cost of Kshs.2,520,000 from the same supplier as shown below:

However, the management did not provide explanation for the splitting of the order contrary to Section 30 (1) of the Public Procurement and Disposal Act, 2005. Recommendation The management should be held liable for splitting the procurement for the sole purpose of avoiding competition contrary to the Section 30(1) of the Public Procurement and Disposal Act, 2005 which states that no entity may structure procurement as two or more for purpose of avoiding use of procurement procedure. The procuring entity should always follow the procurement law when procuring goods and services. 5.3 Cash Purchases

Audit verification revealed that the County Assembly made cash purchases amounting to Kshs.1,340,500 during the period under review. The purchases included payments above the maximum threshold of Kshs.30,000 per item. No proper explanation was given as to why cash purchases were made including stationery amounting to Kshs.274,000 which was purchased through imprest. Recommendations The County Assembly should procure goods and services in line with the Public Procurement and Disposal act, 2005 and the related Procurement Regulations 2006

Payment Voucher Date

LPO NO. Details Amount ‘Kshs’

11/9/13 2033605 Supply of 8 pcs IPADS with cover & keyboard

840,000

11/9/13 2033606 Supply of 8 pcs IPADS with cover & keyboard

840,000

11/9/13 2033607 Supply of 8 pcs IPADS with cover & keyboard

840,000

Total 2,520,000

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and 2013. The respective officer should be held liable for non-compliance with the procurement laws. 5.4 Hire of Motor Vehicles

Records availed for audit review indicate that a total of Kshs.1,545,960 was spent on hire of motor vehicles from a car hire firm to transport Members of the County Assembly to Kisumu for a workshop. However, no supporting documentation was provided to show how the firm was identified, selected, rates payable determined and services rendered. Additionally, there was no evidence availed to actually proof that the workshop took place. In the circumstances, it was not possible to ascertain the propriety of the expenditure amounting to Kshs.1,545,960. Recommendations The management should ensure that the provisions of the Public Procurement and Disposal Act, 2005 and Regulations of 2006 and 2013 are adhered to. Further, all the necessary supporting documents should be made available for audit review, failure to which the respective officer is surcharged for the unsupported expenditure. 5.5 Rent Ward Offices

Records availed indicate that the County Assembly paid a total rent of Kshs.3,319,200 for Members of County Assembly (MCAs) Ward offices. A review of the tenancy agreements revealed that the tenancy contracts were signed between the landlords and Members of County Assembly. No proper explanation was provided as to why the County Assembly paid the rent yet the management of the County Assembly was not party to the agreement. Recommendations All tenancy agreements should be signed by the Assembly Accounting Officer and the respective officer should be held liable for making payments on agreements which were not executed by the management of the County Assembly. 5.6 Missing Accountable Documents

Information available indicates that LPO/LSO books were still in possession of a Former Officer who had been seconded by National Treasury to procurement department and who had long been transferred. Further, the management indicated that the Former Procurement Officer had declined to hand over documents in his possession including LPOs, LSOs books and IFMIS password as indicated below:

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Local service orders (L.S.Os) Local Purchase Order (L.P.Os)

Serial number Date issued Serial number Date

0907751-0907800 20/9/13 1992751 -1992800 20/9/13

0907851-0907900 20/11/13 1992801-1992850 30/9/13

0907901-0907950 20/11/13 1992851-1992900 20/11/13

910551-0910600 20/9/13 2009151-2009200 20/11/13

0910601-0910650 31/12/13 2009251-2009300 16/01/14

0910651-0910700 16/01/13 2060157-2060200

0910701-0910750 26/2/14 2060251-2060300 19/5/2015

In the circumstances, it was not possible confirm the measures being taken by the management against potential risk due to fraudulent use of the procurement documents. Recommendations The Former Procurement Officer should be compelled to hand over all the accountable documents in his possession. In the meantime, the Accounting Officer should report the case to the police and the public should be notified of the missing procurement documents through the appropriate media. 5.7 Car Loan

A review of implementation of the car loan facility approved by the Salaries and Remuneration Commission (SRC) for the members indicated that thirty nine (39) members of the County Assembly were each paid Kshs.3,000,000 totalling Kshs.117,000,000 contrary to the circulars requirement of Kshs.2,000,000 per member resulting to excess payment of Kshs.39,000,000. Recommendations The management should ensure that the provisions contained in the Salaries and Remuneration Commission (SRC) circular is complied with and any excess loan payments to the members is recovered from the respective member’s payroll. Conclusion The Mombasa County Assembly should address the anomalies noted in order to ensure effective delivery of services to the people of Mombasa County. Laid down

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Government regulations and procedures should be adhered to ensure public resources are only utilized for purposes for which they were intended.

Edward R.O. Ouko, CBS AUDITOR-GENERAL Nairobi 18 May 2015