OFFICE OF THE AUDITOR-GENERAL - World Bankdocuments.worldbank.org/.../pdf/EARTTDFP-KENHA-Audited-FS-Part … · 1.7 Funding summary The Project duration is from 2 0 "' July 2015 to

REPUBLIC OF KENYA

OFFICE OF THE AUDITOR-GENERAL

REPORT

OF

THE AUDITOR-GENERAL

ON

THE FINANCIAL STATEMENTS OFEASTERN AFRICAN REGIONAL TRANSPORT,TRADE AND DEVELOPMENT FACILITATION

PROJECT CREDIT NO.5638-KE (IDA)

FOR THE YEAR ENDED30 JUNE 2018

KENYA NATIONAL HIGH YS A.V,,QRt*

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MINISTRY OF TRANSPORT, INFRASTRUCTURE, HOUSING & URBAN DEVELOPMENT

Quality,HighSING,& Utter DonnecPionT

PROJECT NAME: EASTERN AFRICA REGIONAL TRANSPORT, TRADE &

DE VELOPAIENT FACILITATION PROJE CT (SECOND PHASE PROGRAM)

IMPLEMENTING ENTITY: KENYA NATIONAL HIGHWAYS AUTHORITY

PROJECT CREDIT NUMBER: LOAN ID 5638-KEPROJECT No P-1 48853

ANNUAL REPORT AND FINANCIAL STATEMENTS

FOR THE FINANCIAL YEAR ENDEDPrepacred in acodance with the Cas IIc 30,h2018

Public Sector Accouin tillp- n eI Iternational

PROJECT NAME: EASTERN AFRICA REGIONAL TRANSPORT, TRADE & DEVELOPMENTFACILITATION PROJECT (SECOND PHASE PROGRAM)Reports and Financial Statements For the financial year ended June 30, 2018

CONTENTS PAGE

1. PROJECT INFORMATION AND OVERALL PERFORMANCE

2. STATEMENT OF PROJECT MANAGEMENT RESPONSIBILITIES..............................................................viii

3. REPORT OF THE INDEPENDENT AUDITORS ON THE EASTERN AFRICA REGIONAL TRANSPORT,TRADE & DEVELOPM ENT FACILITATION PROJECT...................................................................................ix

4. STATEMENT OF RECEIPTS AND PAYMENTS FOR THE PERIOD ENDED 30TH JUNE 2018.................... 1

5. STATEMENT OF FINANCIAL ASSETS AND LIABILITIES AS AT 30TH JUNE 2018 ................................... 2

6 STATEMENT OF CASHFLOW FOR THE PERIOD 30TH JUNE 2018

7 STATEMENT OF COMPARATIVE BUDGET AND ACTUAL AMOUNTS 4

8 N O TES TO THE FIN AN CIA L STA TEM EN TS .................................................................................................. 5

10 PROGRESSES ON FOLLOW UP OF AUDITOR RECOMMENDATIONSCOM

ANNEX I - VARIANCE EXPLANATIONS - COMPARATIVE BUDGET AND ACTUAL AMOUNTS..................14

A N N EX 2A - A N A LY SIS O F PEN D IN G BILLS.........................................................................................................15

ANNEX 3 - SUMMARY OF FIXED ASSET REGISTER 17

PROJECT NAME: EASTERN AFRICA REGIONAL TRANSPORT, TRADE &DEVELOPMENT FACILITATION PROJECT (SECOND PHASE PROGRAM)Reports and Financial Statements For the financial year ended June 30, 2018

1. PROJECT INFORMATION AND OVERALL PERFORMANCE

1.1 Name and registered office

Name: Eastern Africa Regional Transport, Trade & Development Facilitation Projection (SecondPhase Program)

Objective:

The objective of the Project is to improve the movement of goods and people along Lokichar toNadapal Nakodok part of the Eldoret-Nadapal road in the north western part of Kenya, in particularand to enhance connectivity between Kenya and South Sudan.

The pastoralist communities, farmers and businesses along the corridor will benefit from:

* Employment creation from pastoralist roadside markets.* Reduction of poverty* Road user savings in maintenance costs and travel time* Improvement of safety in travel and improvement of emergency response in the transit

corridor including Eldoret-Nadapal-Nakodok which is prone to road accidents and injuries.* The provision of fibre optic cable will improve internet access for economic development

activities in the region.* Provision of One Stop Border Post (OSBP) and trade facilitation is expected to reduce delay

at the borders, reduce trading costs between Kenya and Sudan and enhance businessopportunities.

Address: Blue Shield Tower,Hospital Road Upper HillNairobi Kenya

Contacts:Director GeneralKenya National Highways AuthorityPo Box 49712-00100NairobiTelephone: (254) 020 495000E-mail: [email protected]: ww\w\1.kenha.co.ke

PROJECT NAME: EASTERN AFRICA REGIONAL TRANSPORT, TRADE &DEVELOPMENT FACILITATION PROJECT (SECOND PHASE PROGRAM)Reports and Financial Statements For the financial year eided June 30, 2018

1.2 Project Information

Project Start Date: 2 0 th July 2015

Project End Date: 31s" December 2021

Project Engineer Eng. G.Amingh & Eng. John Ndinika

Project Sponsor: International Development Agency (IDA)

1.3 Project Overview

Line Ministry/State The project is under the supervision of the Ministry of Transport,Department of the Infrastructure, Housing & Urban Developmentproject

Project number P-148853

Strategic goals of the The objective of the Project is to improve the movement of goods andproject people along the Lokichar Nadapal/Nakodok part of the Eldoret-

Nadapal/Nakodok road in the north western part of Kenya, in particular,and to enhance connectivity between Kenya and South Sudan, in general:

Projects Components The Projects have the following components& Description i) Component 1: Upgrading Selected Critical Road Infrastructure

a) Upgrading of approximately 80 km of the Lokitaung junction -Kalobeiyei River section of the Eldoret-Nadapai/Nakodok road and(ii) related supervision costs.

b) Upgrading of approximately 80 kn of the Lokitaung junction-Lodwar section of the Eldoret-Nadapal/Nakodok road; and (ii)related supervision costs.

c) Upgrading of approximately 50 am of the Lodwar -Loichangamatak section of the Eldoret-Nadapai/Nakodok road; and(ii) related supervision costs.

d) Construction of a bridge at Kainuk on Muruni River; and (ii)related supervision costs.

e) Upgrading of approximately 40 km of the Loichangamatak -Lokichar section of the Eldoret-Nadapai/Nakodok road; and relatedsupervision costs.

F Implementing the Resettlement Action Plans (RAPs) along theEldoret Nadapal/Nakodok road.

ii) Component 2: Facilitation of Regional Transport, Trade andiii) Development Component 3: Institutional Development and

Program Mlanagenientiv) Component 4: Enliancing Internet Connectivity


Other important Project Project IDA %background Component Cost(USD) Financing(USD) Financing(USD)information of the Upgradingproject Costing and Critical RoadFinancing USD Infrastructure 594 426 72

Facilitationof RegionalTransport,Trade andDevelopment

31 27 87InstitutionalDevelopmentand Program 3.5 3.5 100ManagementTotal 628.5 456.5 73

1.4 Bankers National Bank of Kenya LtdHill BranchPo Box 72866-00200Nairobi

1.5 Auditors Auditor GeneralOffice of the Auditor GeneralP.o Box 30084-0100Nairobi

1.6 Roles and Responsibilities

Names Title designation Keyqualification Responsibilities

Eng. David.A.Muchilwa Director Development Qualified Oversight

. Deputy Director Team Coordinator &Construction Construction Specialist

. . Deputy Director Special Team Coordinator &. Project (EARTTDP) Construction Specialist

.Monitoring &Eng .Jula Ondeyo Assistant Director Qualified Evalaton S

Evaluation Specialist

iI Isaac Kamotho Assistant Director Qualified Financial Specialist

Mr Walter Nyatwanga DepLty Director Qualified Safeguards Specialist

Mr R Kilel Assistant Director Qualiled Procuremncuet Specialist


1.7 Funding summary

The Project duration is from 2 0 "' July 2015 to 3 1 st December 2021 with an approved budget of USD628,551,724 equivalent to Kshs 63,547,962,124 at exchange rate of Kshs 101.10 per USD ashighlighted in the table below:

Amount received to date Undrawn balance to dateSource of funds Donor Commitment-(30621)306218

(30 06 2018) (30 06 2018)

USD Kshs USD Kshs USD Kshs

(A) (A ') (B) (B') (A) - (B) (A ')-(B')

(i)Loan 456,551,724 46,158,383,724 53,457,763 5,404,697,443 403,093,961 40,753,686,281

(ii)Counterpart funds

GOK 172,000,000 17,389,578,400 4,144,782 419,046,543 167,855,218 16,970,531,857

Total 628,551,724 63,547,962,124 57,602,545 5,823,743,986 571,006,431 57,724,218,138

1.8 Summary of Overall Project Performance:Budget performance against actual amounts for current year and for cumulative to-date

Budget 2017/2018 Actual 2017/2018 Performance %

2,530,888,673 1,355,209,666 54%

The status report is as follows

PROJECT DESCRIPTION PROGRESS REPORTED TODATE

1. Project Name: Upgrading of Physical progress, 1.5%Kalobeiyei River Nadapal(88 ki) road section

Contract type: WorksContractor: China Railway No. 5 Amount certified KES. 203,171,739.60 and USD.Engineering Group Ltd 7.95 5.0 10.00Contract Signed: 28' iMarch, 2017Commencement Date: I I "' July,2017 Amount paid KE7S. 203. 171,739-60 and USD.Completion Date: I lI "'July, 2020 795,0 10.00Contract amount: KEVS.7,865,03 1,057.15



Time lapsed 10 MonthsConsultant: InternationalConsultants & Technocrats Pvt Ltdwith CAS Consultant Ltd.Contract Amount: USD.3,543,351.00 and KES.491,355,410.00

2. Project Name: Upgrading of Physical progress, 1.5%Lokitaung Junction toKalobeiyei River (80 kin)road section Amount certified USD 10,678,788.06

Contract type: WorksContractor: Chongqing InternationalConstruction CorporationContract Signed: 28th March, 2017 Amount paid USD 10,678,788.06Commencement Date: 1st August,2017Completion Date: 1st August, 2020Contract amount: KES.8,454,759,874.18 Time lapsed 9.68 months

Consultant: Sheladia Associates Inc.in association with Abdul MullickassociatesContract Amount: USD.2,204,145.00 and KES.629,802,599.00

3. Project Name: Upgrading of Physical progress, 2%Lodwar - Lokitaung JunctionIto (80 km) road section

Contract type: WorksContractor: Third Engineering Amount certified KES. 1,509,210,362_33Bureau of China Construction GroupCo. LtdContract Signed: 14t" March, 20 17Commencement Date: 15th August, Amount paid KES. 1,323.113,719.632017Completion Date: I 5t August, 2020Contract amount: KES.

PROJECT NAME: EASTERN AFRICA REGIONAL TRANSPORT, TRADE &

DEVELOPMENT FACILITATION PROJECT (SECOND PHASE PROGRAM)

Reports and Financial Statements For the financial year ended June 30, 2018


8,334,773,795.84 Time lapsed 9.25 Months

Consultant: Egis International inassociation with Egis KenyaContract Amount: KES.568,958,975.00 and EURO.1,589,113.00

4. Project Name: Replacement of Physical progress, 0%Kainuk Bridge

Contract type: WorksContractor: China HenanInternational Corporation Group Ltd Amount certified KES. 230,846,051.12Contract Signed: 6"' October, 2016Commencement Date: 17"' July,2017 Completion Date: 17 "' October,2018Conrc aAmount paid KES. 230,846,051.12Contract amount: KES.1,538,973,674.11

Consultant: SAI ConsultingEngineers Pvt Ltd in association Time lapsed 10 Months

with Wanjohi Mutonyi ConsultingEngineers.Contract Amount: KES.23,693,000.00 and USD.2,259,346.00

5. Project Name: Upgrading of Physical progress, 3.53%Loichangamatak - Lodwar

(50Km)Contract type: WorksContractor: China Railway No. 5 Amount certified KES. 877,039,587.90Eng. Co. LtdContract Signed: 10' November.2016Commencement Date: I 0' July. Amount paid KES. 877,039,587.902017Completion Date: 1I0"' July, 2020Contract amount: KES.



6,782,439,479.76 Time lapsed 10.4 Months

Consultant: Dohwa Engineering Co.Ltd in J.V with GIBB International.Contract Amount: KES.421,319,530.00 and USD2,968,202.00

6. Needs Assessment for Social Progress Evaluation of proposals completeInfrastructure

Consulting Services for DeliveryNeeds Assessment for SocialInfrastructure and Social Services

1.9 Summary of Project Compliance:There is no significant case of non-compliance with applicable laws and regulations and essentialexternal financing agreements /covenants was reported during the year


2. STATEMENT OF PROJECT MANAGEMENT RESPONSIBILITIES

The Director General,KeNHA and the Project Implementation Team Leader for Eastern AfricaRegional, Transport, Trade & Development Facilitation Project are responsible for the preparationand presentation of the Project's financial statements, which give a true and fair view of the state ofaffairs of the Project for and as at the end of the financial year ended on June 30, 2018. Thisresponsibility includes: (i) maintaining adequate financial management arrangement and ensuringthat these continue to be effective throughout the reporting period; (ii) maintaining properaccounting records, which disclose with reasonable accuracy at any time the financial position of theProject; (iii) designing, implementing and maintaining internal controls relevant to the preparationand fair presentation of the financial statement, and ensuring that they are free from materialmisstatements, whether due to error or fraud; (iv) safeguarding the assets of the Project; (v) selectingand applying appropriate accounting policies; and (vi) making accounting estimates that arereasonable in the circumstances.

The Director General,KeNHA and the Project Implementation Team Leader for Eastern AfricaRegional, Transport, Trade & Development Facilitation Project accept responsibility for the Project'sfinancial statements, which have been prepared on the Cash Basis Method of Financial Reporting,using appropriate accounting policies in accordance with International Public Sector AccountingStandards.

The Director General,KeNHA and the Project Implementation Team Leader for Eastern AfricaRegional, Transport, Trade & Development Facilitation Project are of the opinion that the Project'sfinancial statements give a true and fair view of the state of Project's transactions during the financialyear/period ended June 30, 2018, and of the Project's financial position as at that date. The DirectorGeneral,KeNHA and the Project Implementation Team Leader for Eastern Africa Regional,Transport, Trade & Development Facilitation Project further confirm the completeness of theaccounting records maintained for the Project, which have been relied upon in the preparation of theProject financial statements as well as the adequacy of the systems of internal financial control.

The Director General,KeNHA and the Project Implementation Team Leader for Eastern AfricaRegional, Transport, Trade & Development Facilitation Project confirm that the Project has compliedfully with applicable Government Regulations and the terms of external financing covenants, and thatProject funds received during the financial year/period under audit were used for the eligible purposesfor which they were intended and were properly accounted for.

Approval of the Project financial statements

The Project financial statements were approved by the Director General,IKeNHA and the ProjectImplementation Team Leader for Eastern Africa Regional, Transport, Trade & DevelopmentFacilitation Project on ?__ ___ __ _ ___ 2018 and signed by them.

Elng. Peter lind in ia Eng. D A.MutchilIa CPA Clianje KerDirector Genecral Dir,oector -)%evelopmienit Deput:y Director (l,'&A)

ICPAK Mlemr be No.8279

REPUBLIC OF KENYA

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

OFFICE OF THE AUDITOR-GENERAL

REPORT OF THE AUDITOR-GENERAL ON EASTERN AFRICAN REGIONALTRANSPORT, TRADE AND DEVELOPMENT FACILITATION PROJECT CREDITNO.5638-KE (IDA) FOR THE YEAR ENDED 30 JUNE 2018 - KENYA NATIONALHIGHWAYS AUTHORITY

REPORT ON THE FINANCIAL STATEMENTS

Opinion

I have audited the accompanying financial statements of Eastern African RegionalTransport, Trade and Development Facilitation Project (Second Phase program)credit No. 5638-KE (IDA) set out on pages 1 to 17 which comprise the statement offinancial assets and liabilities as at 30 June 2018, and the statement of receipts andpayments, the statement of cash flows and the statement of comparison of budgetand actual amount for the year then ended and a summary of significant accountingpolicies and other explanatory information in accordance with provisions of Article229 of the constitution of Kenya, Section 35 of the Public Audit Act, 2015 and theFinancing Agreement between the International Development Association(IDA) andthe Republic of Kenya dated 20 July 2015. I have obtained all the information andexplanations which to the best of my knowledge and belief were necessary for thepurpose of the audit.

In my opinion, the financial statements present fairly, in all material respects, thefinancial position of Project as at 30 June 2018 and of its financial performance andits cash flows for the year then ended, in accordance with International Public SectorAccounting Standards (Cash Basis) and comply with the Financing Agreement dated20 July 2015.

In addition, the Special Accounts Statement present fairly the special accountstransaction and the closing balance has been reconciled with the books of account.

Basis for Opinion

The audit was conducted in accordance with International Standards of SupremeAudit Institutions (ISSAls). I am independent of the Project Management inaccordance with ISSAI 30 on Code of Ethics. I have fulfilled other ethicalresponsibilities in accordance with the ISSAI and in accordance with other ethicalrequirements applicable to performing audits of financial statements in Kenya. Ibelieve that the audit evidence I have obtained is sufficient and appropriate to providea basis for my audit opinion.

Report of the 4 uitclor-General on the Financial Statements of Eastern Aftican Regional Transport, Trade andDevelopment Facilitation Project Credit No.5638-KE (IDA for the year ended 30 June 20/8 - Kenya NationalHighways A4uthority

Promoting Accountability in the Public Sector

Key Audit Matters

Key audit matters are those matters that, in my professional judgement, were of mostsignificance in the audit of the financial statements. There were no Key Audit Mattersto report in the year under review.

REPORT ON COMPLIANCE WITH LAWFULNESS AND EFFECTIVENESS IN USEOF PUBLIC MONEY

As required by Article 229(6) of the Constitution, based on the procedures performed,I confirm that, nothing has come to my attention to cause me to believe that publicmoney has not been applied lawfully and in an effective way.

REPORT ON INTERNAL CONTROLS EFFECTIVENESS, GOVERNANCE ANDRISK MANAGEMENT

As required by Section 7(1) (a) of the Public Audit Act, 2015, based on the proceduresperformed, I confirm that, nothing has come to my attention to cause me to believethat internal controls, risk management and overall governance were not effective

Responsibilities of Management and Those Charged with Governance for theFinancial Statements

Management is responsible for the preparation and fair presentation of these financialstatements in accordance with International Public Sector Accounting Standards(Cash basis) and for such internal control as management determines is necessaryto enable the preparation of financial statements that are free from materialmisstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing theProject's ability to continue sustaining services, disclosing as applicable, mattersrelated to sustainability of services and using the going concern basis of accountingunless the management either intends to cease operations of the project, or have norealistic alternative but to do so.

The management is also responsible for the submission of its financial statements tothe Auditor-General in accordance with the provisions of Section 47 of the PublicAudit Act, 2015.

Those charged with governance are responsible for overseeing the Project's financialreporting process.

Auditor-General's Responsibilities for the Audit of the Financial Statements

The audit objectives are to obtain reasonable assurance about whether the financialstatements as a whole are free from material misstatement, whether due to fraud orerror, and to issue an auditor's report that includes my opinion in accordance with theprovisions of Section 48 of the Public Audit Act, 2015 and submit the audit report incompliance with Article 229(7) of the Constitution of Kenya. Reasonable assuranceis a high level of assurance, but is not a guarantee that an audit conducted inaccordance with ISSAls will always detect a material misstatement when it exists.Misstatements can arise from fraud or error and are considered material if,

Report of the .A uditor-General on the Financial Statements of'Eastern Afiican Regional Transport. Tradeand Development Facilitation Project Credit No. 5638-KE (IDA) for the year ended 30June 2018 -Kenya National Highwavs AuthoritY

2

individually or in the aggregate, they could reasonably be expected to influence theeconomic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with ISSAls, I exercise professional judgement andmaintain professional skepticism throughout the audit. I also:

* Identify and assess the risks of material misstatement of the financial statements,whether due to fraud or error, design and perform audit procedures responsive tothose risks, and obtain audit evidence that is sufficient and appropriate to providea basis for my opinion. The risk of not detecting a material misstatement resultingfrom fraud is higher than for one resulting from error, as fraud may involvecollusion, forgery, intentional omissions, misrepresentations, or the override ofinternal control.

* Obtain an understanding of internal control relevant to the audit in order to designaudit procedures that are appropriate in the circumstances, but not for thepurpose of expressing an opinion on the effectiveness of the project's internalcontrol.

* Evaluate the appropriateness of accounting policies used and the reasonablenessof accounting estimates and related disclosures made by the management.

* Conclude on the appropriateness of the management's use of the going concernbasis of accounting and based on the audit evidence obtained, whether a materialuncertainty exists related to events or conditions that may cast significant doubton the project's ability to continue as a going concern. If I conclude that a materialuncertainty exists, I am required to draw attention in the auditor's report to therelated disclosures in the financial statements or, if such disclosures areinadequate, to modify my opinion. My conclusions are based on the auditevidence obtained up to the date of my audit report. However, future events orconditions may cause the project to cease to continue as a going concern.

* Evaluate the overall presentation, structure and content of the financialstatements, including the disclosures, and whether the financial statementsrepresent the underlying transactions and events in a manner that achieves fairpresentation.

* Obtain sufficient appropriate audit evidence regarding the financial information ofthe entities or business activities to express an opinion on the financialstatements.

* Perform such other procedures I consider necessary in the circumstances.

I communicate with the management regarding, among other matters, the plannedscope and timing of the audit and significant audit findings, including any significantdeficiencies in internal control that are identified during the audit.

Report of the Auditor-General on the Financial Statements of Eastern Afican Regional Transport, Tradeand Development Facilitation Project Credit No.5638-KE (1DA) for the year ended 30 June 2018 -Kenya National Highways AuthoritY,

I also provide management with a statement that I have complied with relevant ethicalrequirements regarding independence, and to communicate with them allrelationships and other matters that may reasonably be thought to bear on myindependence, and where applicable, related safeguards.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

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

i. I have obtained all the information and explanations which, to the best of myknowledge and belief, were necessary for the purpose of the audit.

ii. In my opinion, adequate accounting record have been kept by the project, sofar as appears from the examination of those records; and,

iii. The project's financial statements are in agreement with the accounting recordand returns.

FCPA Edward R. 0. Ouko, CBSAUDITOR-GENERAL

Nairobi

20 December 2018

Report ofthe A4 uditor-General on the Financial Statements oflEastern. Afiican Regional Transport, Tradeand Development Facilitation Project Credit No.5638-KE (1DA) fr the year ended 30 June 2018 -Kenya National Highways Authority

4

Documents

OFFICE OF THE AUDITOR-GENERAL - World Bankdocuments.worldbank.org/.../pdf/EARTTDFP-KENHA-Audited-FS-Part … · 1.7 Funding summary The Project duration is from 2 0 "' July 2015 to