AUDIT REPORTS –GENERIC COMPLIANCE ISSUES Presentation to ICPACK at MOMBASA on 6 TH APRIL 2017

1. AUDIT REPORTS –GENERIC COMPLIANCE ISSUES Presentation to ICPACK at MOMBASA on 6TH APRIL 2017 CPA Francis Kiguongo Director of Audit-OAG Promoting Accountability in the Public Sector

2. Outline • Legal and institutional framework underpinning accounting reporting and auditing • Compliance issues with respect to presentation of the financial statements • Revenue collection and accounting • Accounting for expenditure • Budgetary control • Projects • Procurement • Management controls • conclusion Promoting Accountability in the Public Sector

3. LEGAL & INSTITUTIONAL FRAMEWORK ON ACCOUNTING, REPORTING & AUDIT The PFMAct 2012 Requires the county government to maintain complete records on revenue collected and all expenditure incurred and paid Record all transactions as they take place, institute requisite controls, classify, summary the transactions in ledgers Maintain ledger accounts to monitor and control actual expenditure and receipts against budget and warrant controls Make monthly, quarterly and annual reports Submit to the AG annual accounts by 30th Sept. The AG to audit and report to the County Assembly by 31December every year. The CA to consider debate and take appropriate action by 31March Promoting Accountability in the Public Sector

4. Compliance issues touching on financial statements • Incomplete records. Transactions not completely processed. TB and GL • Incomplete financial statements. Not in line with PSASB. ie Format, full disclosure eg pending bills, outstanding imprest, and all bank accounts , consolidation etc. • Funds accountability statements. Breach of section 164 and 167. • Circumventing the IFMIS. Promoting Accountability in the Public Sector

5. Presentation of Financial Statement • IFMIS and Financial statements balances differing materially • Bank reconciliations • Annexure of fixed assets schedule missing in some cases • Errors in statement of cash flow • Overstatement of own source revenue • Under banking of revenue collection • Unaccounted for revenue collection Promoting Accountability in the Public Sector

6. Inaccuracies in financial statements • Variance between the IFMIS Ledger and the IFMIS Cash books • Difference between Statement of Appropriation and Budget Execution Report. • Differences in cashbook figures and those report in the financial statements. • Unprocessed reconciling items. Promoting Accountability in the Public Sector

7. Revenue • Finance bill not enacted by 30 Sept • Under-collection of budgeted revenue . • Rates and rents rates revenue are not supported by updated valuation rolls. • The County Governments do no adhere to charge out rates enacted in the Finance Acts. • Uncollected rates and rent in arrears stand in billions Promoting Accountability in the Public Sector

8. REVENUE CONT’ • Revenue from Cess – No internal control chargeable cess rates, number of barriers, receipt books, machines and collection centers barrier • Revenue management system • Revenue declined where the automation and or partnership with third parties were involved. • Single Business Permits – Business are not properly profiled. Promoting Accountability in the Public Sector

9. Revenue • Revenue collected from the sub counties are not properly reconciled. • Market and Slaughter Fees- there are no list of the barter markets and slaughterhouses, which serve as a basis of the budgeted revenue. • Rental Income -A comparison of the chargeable market rent shows that the revenue receivable from these houses by the Counties is grossly understated and full potential of this revenue has not been realized. Promoting Accountability in the Public Sector

10. Revenue Cont’ • Vehicle Parking Charges- No estimates of number of public service vehicle vehicles, taxis and parking slots available in towns. • Liquor License Fees - registers to capture liquor license applicants, their location, approval and enforcement Promoting Accountability in the Public Sector

11. Revenue Cont’ • Park Entry Fees – Daily weekly and Monthly summary reports corresponding banking's. • Physical controls missing • Advertisement - register of all the bill boards or application register for advertisement. • Flower Cess-gross turnover from each flower farm to help determine flower cess receivable Promoting Accountability in the Public Sector

12. Compensation of employees • Employee costs exceeds the Fiscal responsibility principle. • Irregular recruitments • Thirty (30 %) percent rule • By passing CPSB • Irregular promotion • Uncontrolled hiring of casuals . Promoting Accountability in the Public Sector

13. Use of Goods and Services • Figures not supported by ledgers or schedules • Domestic Travel schedules to confirm who travelled, place travelled and cost involved in each trip • Subsistence Allowances - No documentary evidence such as programme of work, attendance register, training programme and booking of conference facility, to justify payment of the allowances. Promoting Accountability in the Public Sector

14. Use of Goods and services • Foreign Travel- invitation letters, programmes, boarding passes and copies of passports stamped visas ,number of delegates • Training Expenses- who was trained, costs of training, need assessment, training venues and the benefits arising from the training. Promoting Accountability in the Public Sector

15. Procurement • Fuel, Oil and Lubricants – the procurement of fuel, oil and lubricants usually single sourced. Posting of fuel drawn in the work tickets is poor. Incidences of heavy fuel consumption. Journeys are not properly authorized. Reconciliation between the delivery and usage Promoting Accountability in the Public Sector

16. Use of Goods and services • Motor Vehicle Repairs and Maintenance -No inspections ,no requisition for repairs by the users and the conditions before and after the repairs, • Misposting of expenditure Promoting Accountability in the Public Sector

17. BURSARIES • Bursary -Bursaries issued to various institutions not supported, • Allocation of bursaries skewed and not necessarily to the needy students. • In some cases equal allocation to wards. • condition in the application letters before bursary's awarded recommendation/approval by the Member of County Assembly (MCA). • Applicants are given too little to be of any meaningful assistance. Promoting Accountability in the Public Sector

18. Use of Goods and services • Other Payments –supporting documents to confirming the nature of expenditure • Misallocation of various funds for example Free Maternity Funds- • Reallocation of budgeted funds • Doubtful and irregular expenditures and also incurring unbudgeted expenditures • Irregular Contribution to third parties Promoting Accountability in the Public Sector

19. Conditional grant • Conditional grant for free maternity and hospital facilities user fees at dispensaries and health centers are not transferred in full and a timely manner from the county treasury to the department of Health. Promoting Accountability in the Public Sector

20. PROCUREMENT • Irregular award of tenders • Inflated Prices of goods, services and works • Payment for Un-delivered goods • unnecessary Variation of Bill of Quantities and Actual work done • Goods received and paid for without inspection and acceptance report • Preferential award of tenders/contracts to some suppliers Promoting Accountability in the Public Sector

21. Cash and Cash Equivalents • Failure to carry out regular bank reconciliations and provide bank confirmation certificates. • All bank accounts are not disclosed and instances of maintaining secret accounts are noted. • Board of survey is not carried out to certify cash in hand and other assets at the closure of the financial year • Bank reconciliation done on manual cash book Promoting Accountability in the Public Sector

22. Cash and Cash Equivalent • IFMIS bank reconciliations for all the bank accounts as required the National Treasury and International Public Sector Accounting Standard Board . • Instead, bank reconciliations are prepared from the balances recorded in the manual cash books which does not capture all the payment transactions in both recurrent and development vote. Promoting Accountability in the Public Sector

23. Cash and Cash Equivalent • Additionally the counties have two parallel systems that of IFMIS and the manual system. • The revenue budgets are not uploaded on IFMIS. • Failure to reverse cancelled and stale cheques Promoting Accountability in the Public Sector

24. Deposits and Retentions • They are not supported by main cashbook, bank statements and bank confirmation certificates. • Schedules of retentions made from different suppliers, the corresponding payment certificates and journal entries were not prepared. • Irregular payment made out of retention deposits. Promoting Accountability in the Public Sector

25. Pending Accounts Payable • The pending accounts payable are not supported by local purchase and service orders (LPOs and LSOs), certificates and contracts to confirm how they arose and that they are due for settlement • Fully paid contracts reflected as pending bills • Legal litigations from unpaid contractors Promoting Accountability in the Public Sector

26. Pending Accounts Payable • Huge increases on pending bills despite regular requisitions to settle them off and not withstanding that all expenditure incurred in the year are budgeted for and appropriated. • Pending bills annexure does not indicate balances in respect to each suppliers as required by the reporting template and a pending bills register was not maintained Promoting Accountability in the Public Sector

27. Assets and liabilities inherited from the defunct Local Authorities • The County Governments took possession of the assets & Liabilities inherited from the defunct Local Authorities but have not been formally determined and taken over and therefore have not been included in the financial statement. • The Counties are not in possession of ownership documents for asset under their custody especially land • The County Government do not maintain a fixed assets register Promoting Accountability in the Public Sector

28. Projects • Abandonment of Projects • Delayed Implementation of Project – projects period appear to be endless • Idle projects • Incomplete projects- residents may not enjoy the benefit from the projects and the amounts spent may go to waste • Delayed Project Implementation - Contracts awarded without any regard to budgetary allocations and revenue collection levels Promoting Accountability in the Public Sector

29. projects • Reallocation of projects funds • Construction of projects in disputed land or on private land • Un-budgeted Expenditure on projects • Failure to maintain inventory or asset register • Budgeting for Non-Devolved functions Projects for example allocation towards construction of Medical Training College classes and hostels. Promoting Accountability in the Public Sector

30. Transfers to Entities • What is transferred from the county treasury does not reconcile with what is received by the beneficiary • Transfers to sub counties are not accounted for by way of expenditure returns. Promoting Accountability in the Public Sector

31. County Car and Mortgage Loan Scheme • The Loaned did not deposit with the administrator the transfer instruments • loans were granted in absence of mortgage protection policies and a fire policies • Ability to repay from ones net pay was not considered in several cases • Remaining loan balances could not be recovered within the remain life of the County governments. Promoting Accountability in the Public Sector

32. Recommendation • Full adoption of IFMIS • Progressive improvement in staff capacity • Improve controls in revenue collection • Identification and exploitation of revenue potential • Timely and rational budget • Improvement in management controls • Timely preparation and submission of quarterly report • Adoption and implementation of recommendations by oversight bodies • Adherence to budget and budgetary controls Promoting Accountability in the Public Sector

33. The end Thank you