CS/2375 UNITED NATIONS SACCO SOCIETY LIMITED REPORT OF THE MANAGEMENT COMMITTEE FOR THE YEAR ENDED 31ST DECEMBER 2005

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1 REPORT OF THE MANAGEMENT COMMITTEE The Management Committee of United Nations SACCO has the pleasure of presenting the annual report and audited financial statements covering the financial year ended 31st December 2005 PRINCIPAL ACTIVITY. The principal activity of the SACCO is mobilising members' savings for investment and lending to members. RESULTS: Surplus for the year 22,561,153 19,274,269 Taxation (2,617,984) (1,052,276) 20% transfer to Statutory reserve (4,512,230) (4,818,567) Proposed Honoraria (455,925) (292,844) Retained surplus 14,975,014 13,110,582 INTEREST ON MEMBERS DEPOSITS The Management Committee proposes the payment of interest at the rate of 11 % ( %) on the weighted average share capital held during the year. MANAGEMENT COMMITTEE -ELECTED ON : SUPERVISORY COMMITTEE ELECTED ON : Mary Githiomi -Chairperson Eunice Omino -Chairperson co-opted on Moses Wasike -Vice Chairperson Stephen Ndeti -Secretary co-opted on Martin Okun -Treasurer Abiniza Lugaliki -Member Pauline Nderi -Secretary Phillip Wambilyanga -Chairman Resigned on Gabriel Wanga -Member Phillip Migire -Secretary Resigned on Paul Okwaro -Member Pamela Odongo -Secretary Retired on Stephen Wan'gombe -Member Mary Oyugi -Member Washington Wanjau -Member Jones Atogo -Member Retired on Salesio Njeru -General Manager AUDITORS Messrs Osoro & Co., Certified Public Accountants, have expressed their willingness to continue in office. BY ORDER OF THE MANAGEMENT COMMITTEE Pauline Nderi Secretary NAIROBI DATE: 18th February 2006 Page 1 of 17

2 STATISTICAL INFORMATION Number of members Income 185,432, ,790,782 Interest on members deposits 141,344, ,149,318 Members deposits 1,431,424,110 1,158,062,385 Entrance fee 639, ,016 Statutory reserve 21,750,370 17,238,139 Retained earnings 42,216,770 27,262,558 Equipment 8,486,525 2,272,245 Operating lease prepayment 10,909,374 12,360,624 Investments 135,639,050 78,744,750 Current Liabilities 176,370, ,405,085 Current Assets 379,559, ,530,716 Long term loans to members 1,266,069,598 1,073,786,967 Short term loans to members 46,361,260 39,320,205 As a % of income Distribution to members ( Interest on members deposits) 76% 78% Staff costs 7% 6% Administration expenses 1% 1% Operation costs 1% 1% Financial costs 1% 0.5% Depreciation 1% 0.4% Current ratio 1.89:1 1.50:1 The statistical data is extracted from the Income and expenditure statement set out on page 5 and the Balance sheet set out on page 6 of this report. Page 2 of 17

3 STATEMENT OF MANAGEMENT COMMITTEE'S RESPONSIBILITIES The Co-operatives Act requires the committee to prepare financial statements for each financial year, which give a true and fair view of the state of affairs of the SACCO and its operating results for the year. It also requires the committee to ensure the SACCO keeps proper accounting records, which disclose with reasonable accuracy at any time the financial position of the SACCO. They are also responsible for safeguarding the assets of the SACCO. The committee accepts responsibility for the annual financial statements, which have been prepared using appropriate accounting policies supported by reasonable and prudent judgment and estimates, in conformity with International Financial Reporting Standards and the Co-operatives Act. The committee is of the opinion that the financial statements give a true and fair view of the state of affairs of the SACCO and its operating results. The committee further accept responsibility for the maintenance of accounting records to be relied upon for preparation of financial statements as well as adequate systems of internal financial control. Nothing has come to the attention of the committee that the going concern of the SACCO is doubtful for at least twelve months from the date of this statement. Chairman Mary Githiomi Date 18th February 2006 Treasurer Martin Okun Date 18th February 2006 Secretary Pauline Nderi Date 18th February 2006 Page 3 of 17

4 AUDITORS' REPORT TO THE MEMBERS OF 1. We have audited the financial statements set out on pages 5 to 14. The financial statements have been prepared using the accounting policies set out in note 1 of this report. Proper books of accounts have been kept and the financial statements are in agreement therewith. 2. RESPONSIBILITIES OF MANAGEMENT COMMITTEE AND AUDITORS The Management Committee is responsible for preparation of the financial statements which give a true and fair view of SACCO's state of affairs and its profit or loss. Our responsibility is to express an independent opinion based on our audit and report our opinion to you. 3. BASIS OF OPINION We conducted our audit in accordance with International Standards on Auditing. These standards require that we plan and perform our audit to obtain a reasonable assurance that the financial statements are free from material misstatement. An audit includes examining on a test basis, evidence supporting the amount and disclosures on the accounts. It also includes an assessment of the accounting policies used and the significant estimates made by the Management Committee as well as an evaluation of the overall presentation of the financial statements. We believe our audit provides a reasonable basis for our opinion. 4. OPINION In our opinion, proper books of account have been kept and the financial statements together with the notes give a true and fair view of the state of the SACCO's affairs as at 31st December, 2005 and of its results and Cashflows for the period ended on that date and comply with International Financial Reporting Standards and the Co-operatives Act. THE OFFICE PARK CERTIFIED PUBLIC ACCOUNTANTS RIVERSIDE DRIVE P.O. BOX DATE 18th February 2006 NAIROBI Page 4 of 17

5 INCOME AND EXPENDITURE STATEMENT NOTES Income 185,432, ,790,782 Less: Expenses Depreciation 1,339, ,682 Amortization of bond premium 202, ,801 Amortization of operating lease 1,233,563 - Staff costs (3) 12,761,647 8,592,855 Administration Costs 2,064,861 1,882,481 Operational costs 2,767,882 1,557,103 Total expenses 20,370,645 12,679,922 Surplus before finance costs 165,062, ,110,860 Finance costs (4) 142,501, ,836,591 Surplus after finance costs (2) 22,561,152 19,274,269 Taxation (13) (2,617,984) (1,052,276) Transfer to statutory reserve (4,512,230) (4,818,567) Proposed honoraria (455,925) (292,844) Surplus after taxation 14,975,013 13,110,582 Page 5 of 17

6 BALANCE SHEET AS AT 31 ST DECEMBER 2005 NOTES NON CURRENT ASSETS Equipment (5) 8,486,525 2,272,245 Operating lease (6) 9,458,124 10,909,374 Investments (7) 30,016,250 30,016,250 Long term loans to members 1,266,069,598 1,073,786,967 Bond premium (9) 1,254,630 1,493,220 1,315,285,127 1,118,478,056 CURRENT ASSETS Operating lease (6) 1,451,250 1,451,250 Short term loans to members 46,361,260 39,320,205 Debtors and prepayments (10) 14,952,343 24,719,962 Term deposits (8) 50,000,000 20,000,000 Investments (7) 105,622,800 48,728,500 Cash and bank balances (11) 161,172, ,310, ,559, ,530,716 CURRENT LIABILITIES Interest on members deposits (12) 166,389, ,049,911 Creditors and accruals 7,037,392 5,583,786 Taxation (13) 2,466, ,438 Honorarium 455, , ,349, ,405,085 NET CURRENT ASSETS 203,210, ,125,631 NET ASSETS 1,518,495,430 1,226,603,687 FINANCED BY Members Funds Members deposits/share Capital (14) 1,431,424,110 1,158,062,385 Retained Earnings 42,237,571 27,262,558 Entrance fees (15) 639, ,016 Statutory Reserve (16) 21,750,370 17,238,139 Benevolent Fund (17) 22,444,375 23,634,600 1,518,495,430 1,226,603,687 These accounts were approved by the Management Committee on 18th February 2006 and signed on its behalf by : CHAIRMAN TREASURER SECRETARY Page 6 of 17

7 STATEMENT OF CHANGES IN EQUITY MEMBERS RETAINED CAPITAL & BENEVOLENT TOTAL DEPOSITS EARNINGS STATUTORY & ENTRANCE RESERVES FEE YEAR ENDED As at ,158,062,385 27,262,558 17,238,139 24,040,616 1,226,603,687 Contribution for the year 273,361,725 14,975,013 4,512,230 (957,225) 291,891,743 Surplus/(deficit) for the year - Balance at ,431,424,110 42,237,571 21,750,369 23,083,391 1,518,495,430 YEAR ENDED As at ,357,882 14,151,976 12,419,572 20,985, ,915,388 Contribution for the year 222,704,503-4,818, ,523,070 Surplus for the year - 13,110,582-3,054,647 16,165,229 Balance at ,158,062,385 27,262,558 17,238,139 24,040,616 1,226,603,687 Page 7 of 17

8 OPERATING ACTIVITIES CS/2375 CASH FLOW STATEMENT Surplus after finance costs 22,561,152 19,274,269 Add:- Adjustments for non cash items Depreciation 1,576, ,682 Gain / loss on disposal of assets 112,082 - Amortization of bond premium 238, ,801 Amortization of operating lease 1,451,250 25,939,415 19,921,752 Increase / Decrease In Working Capital Debtors and prepayments 9,767,619 (2,700,396) Creditors and accruals 1,453,606 2,957,022 Honoraria (303,950) (247,834) Cash generated from operations 36,856,690 19,930,544 Taxation paid (619,237) (941,006) Net cash flow from operating activities 36,237,453 18,989,538 FINANCING ACTIVITIES Members deposits 273,361, ,704,503 Benevolent Fund (1,190,225) 2,914,647 Interest on members deposits 35,340,005 32,008,863 Entrance fees 233, ,000 Net cash flow from financing activities 307,744, ,768,013 INVESTING ACTIVITIES Purchase of treasury bills (56,894,300) (48,728,500) Purchase of equipment (8,126,585) (1,597,623) Operating lease prepayment - (12,360,624) Loans to members (1,425,189,448) (1,349,356,885) Loans Repaid 1,225,865,762 1,132,722,128 Proceeds from sale of equipments 223,882 - Net cash flow from investing activities (264,120,689) (279,321,504) Increase/(Decrease) in cash & Cash Equivalents. 79,861,269 (2,563,953) Cash and Cash Equivalents at the beginning 131,310, ,874,752 Cash and Cash Equivalents at the end 211,172, ,310,799 Comprising: Cash and bank balances 161,172, ,310,799 Term deposit 50,000,000 20,000, ,172, ,310,799 Page 8 of 17

9 1 SIGNIFICANT ACCOUNTING POLICIES CS/2375 NOTES TO THE FINANCIAL STATEMENTS The financial statements are prepared in accordance with International Financial Reporting Standards. a) ACCOUNTING CONVENTION The accounts have been prepared under the Historical Cost Convention. b) INTEREST ON MEMBERS LOANS Interest on members loans is calculated on a reducing balance basis. Interest rates to various loans during the year were: Ordinary Loans Instant Loans Bridging Finance facility 1.05% per month 3% per month 4.05% one-off c) DEPRECIATION No depreciation is provided for equipment if purchased during the last quarter of the year. Depreciation is computed on a straight line basis to write off the asset cost to a residual value over its estimated useful life at the following rates per annum:- d) INCOME RECOGNITION Furniture and fittings 12.5% Office equipment 12.5% Computers 25% Income constitutes interest on members deposits and investment income and is recognised on an accrual basis. e) TAXATION Current taxation is provided on the basis of the results of the SACCO and adjusted in accordance with tax legislation. No provision for deferred tax is provided as there are no temporary differences arising between the tax base of assets and liabilities and their carrying values for financial reporting purposes. f) LEASES Leases of assets under which all the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the income statement on a straight line basis over the term of the lease. g) FOREIGN CURRENCIES Transactions during the year which are expressed in foreign currencies are translated into Kenya shillings at the rates of exchange ruling on the dates of the transactions. Exchange gains and Losses are dealt in the income and expenditure account. h) FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The SACCO is exposed to a variety of financial risks including credit risks and changes of interest rates in the market. The SACCO's overall risk management program focuses on hedging against credit risks and optimising investment income with stable high return assets. Page 9 of 17

10 NOTES TO THE FINANCIAL STATEMENTS SURPLUS AFTER FINANCE COSTS Surplus/(deficit) is arrived at after charging: Audit fees 110,500 93,500 Interest on members deposits 141,344, ,149,318 Depreciation 1,339, ,682 Amortisation of bond premium 202, ,801 Amortisation of operating Lease 1,233,563-3 STAFF COSTS The society contributes to the statutory National Social Security Fund (NSSF) which is a defined contribution scheme. Staff costs includes social security costs of 16,490 ( ,920). The average number of employees at the year end was 10 ( 7 in 2004). 4 FINANCE COSTS Interest on members deposits 141,344, ,149,318 Bank charges 651, ,905 Bank charges- bridging 256,962 12,595 Bank charges- Instant 248,601 14,773 5 EQUIPMENT 142,501, ,836,591 FURNITURE OFFICE COMPUTER & FITTINGS EQUIPMENT EQUIPMENT TOTAL COST /VALUATION AS AT 01/01/2005 1,892, ,565 1,598,657 4,094,202 ADDITIONS 621,917 7,504,668 8,126,585 DISPOSAL (281,390) (147,620) (299,840) (728,850) As at 31/12/2005 1,611,590 1,076,862 8,803,485 11,491,937 ACC. DEPRECIATION As at 01/01/ , ,575 1,244,766 1,821,957 Charge for the year 201, ,837 1,244,055 1,576,341 Eliminated on disposal (105,522) (62,484) (224,880) (392,886) As at 31/12/ , ,928 2,263,941 3,005,412 (39) NET BOOK VALUE As at 31/12/05 1,316, ,934 6,539,544 8,486,525 As at 31/12/04 1,693, , ,891 2,272,245 Page 10 of 17

11 NOTES TO THE FINANCIAL STATEMENTS 6 OPERATING LEASE COST/VALUATION As at ,360,624 12,360,624 Payment in the year - As at ,360,624 12,360,624 Comprising: Due within one year 1,451,250 1,451,250 Due after one year 9,458,124 10,909,374 10,909,374 12,360,624 Amortisation As at Charge for the year 1,451,250 - As at ,451,250 - NET BOOK VALUE 10,909,374 12,360,624 The society put up an office building in the year 2004 at a cost of 12,360,624, on the land that belongs to United Nations on the understanding that the cost will comprise an operating lease prepayment to be amortised over a lease period estimated at nine (9) years. Page 11 of 17

12 INVESTMENTS Due after one year: One share in KUSCCO (Unquoted) Treasury Bonds (5.5,7,13.25% p.a) (Quoted) 30,000,000 30,000, shares in Co-operative Bank (Unquoted) 16,200 16,200 30,016,250 30,016,250 Due within one year- Treasury bills(7%) 105,622,800 48,728, ,639,050 78,744,750 8 TERM DEPOSITS Due within one year: Fixed Deposit Account (7.75%) 50,000,000 - KUSCCO Special Deposit - 20,000,000 9 BOND PREMIUM (5-10yrs) 50,000,000 20,000,000 Treasury bond cost 1,970,400 1,970,400 Accumulated amortization at start of the year 477, ,590 Charge for the year 238, ,590 Accumulated amortization at end of the year 715, ,180 Net book value 1,254,630 1,493,220 Premiums bonds are amortised evenly over the life span of the bond. 10 DEBTORS AND PREPAYMENTS CS/2375 NOTES TO THE FINANCIAL STATEMENTS Interest Receivable 6,573,474 2,225,559 Members contribution 5,997,335 21,939,182 Loans- bridging 1,449, ,844 Staff car loan 719,996 - Salary Advance 136, ,000 Deposits and Prepayments 50,000 50,000 Miscellaneous 25,400 - Prepaid Insurance - 96,377 14,952,343 24,719, CASH AND BANK BALANCES Petty Cash 30,401 8,862 Advance Account 61,688,462 55,112,596 Instant Loan Account (ILFA) 5,700,107 7,208,960 Bank Current Account 93,753,098 48,980, ,172, ,310,799 Page 12 of 17

13 NOTES TO THE FINANCIAL STATEMENTS 12 INTEREST ON MEMBERS DEPOSITS Balance brought forward 131,049,911 99,041,048 Provision for the year 141,344, ,149,318 Paid during the year (106,004,000) (84,140,455) 13 TAXATION 166,389, ,049,911 Balance brought forward 467, ,168 Charge for the year 2,617,984 1,052,276 Tax paid during the year (619,237) (941,006) Balance carried forward 2,466, ,438 Taxation has been provided at 30% of 85% of gross investment income: Interest on members loans and other income from members is tax exempt. 14 MEMBERS DEPOSITS/SHARE CAPITAL Issued and fully paid 1,431,424,110 1,158,062,385 The share capital comprises members' monthly contributions. 15 ENTRANCE FEES Balance as at 1 January 406, ,016 Receipts for the year 233, ,000 Balance as at 31 December 639, , STATUTORY RESERVE Balance as at 1 January 17,238,139 12,419,572 Transfer for the year 20% ( %) of surplus after taxation 4,512,230 4,818,567 Balance as at 31 December 21,750,370 17,238,139 Page 13 of 17

14 17 BENEVOLENT FUND CS/2375 UNITED NATIONS SACO SOCIETY LIMITED NOTES TO THE FINANCIAL STATEMENTS Balance as at 1 January 23,634,600 20,719,953 Net surplus/(deficit) for the year (1,190,225) 2,914,647 Balance as at 31 December 22,444,375 23,634, DECEASED MEMBERS LOANS WRITTEN OFF Isaac Wachira Mwangi - 241,288 Kimotho Kimani - 312,002 Margaret Muturi - 40,115 Eric Mmbulika 928,749 - Edward Wambulwa 161,742 - Abdi Mohamed 253,256 - Addero Hellen 5,426 - Mary Kisoso 588,612 - Maloba Jackton 6,169 - Odhiambo William 54,538 - Joackim Soro 281,007 - Jacqueline Omondi 158,962 - Loyce Songole 1,362,175 - Deceased members' loans are charged against the benevolent fund surplus for the year (note 17). 19 REGISTRATION The society is registered under the Kenya Co-Operative Societies Act and was incorporated on 6th September CURRENCY These accounts are presented in Kenya Shillings (). 3,800, ,405 Page 14 of 17

15 INCOME AND EXPENDITURE STATEMENT ANNEX I NOTES INCOME Interest from loans 154,202, ,938,163 Interest from loans-bridging 19,900,180 19,599,300 Interest from treasury bills 4,393,995 1,196,361 Interest from bank 3,285, ,001 Interest from KUSCCO special deposit 1,063,324 1,126,745 Interest from treasury bonds 2,586,816 2,548,212 TOTAL INCOME 185,432, ,790,782 LESS: EXPENDITURE STAFF COSTS Salaries and wages 7,460,465 5,755,842 Staff traveling 2,269, ,590 Staff training 192,100 52,054 Medical expenses 761, ,240 Staff pension fund 1,907,887 1,217,554 Employer NSSF contribution 16,490 12,920 Staff insurance 153, ,655 12,761,647 8,592,855 ADMINISTRATION EXPENSES Entertainment & AGM expenses 556, ,722 Printing and stationery 683, ,919 Public relations & advertising 224, ,779 Postage and telephone 152, ,680 Office rent 0 348,981 Consultancy services 338, ,900 Audit fees 110,500 93,500 2,064,861 1,882,481 OPERATIONAL COSTS Supervision & recoverable expenses 11,220 9,520 Repairs and maintenance 299, ,483 Committee sitting allowance 1,046, ,248 Committee subsistence allowance 338, ,617 Education to members 0 148,218 Committee education 959, ,017 Gain/Loss on disposal of equipment 112,082-2,767,882 1,557,103 FINANCIAL COSTS Interest on members capital 141,344, ,149,318 Bank charges 651, ,905 Bank charges- bridging 256,962 12,595 Bank charges- Instant 248,601 14, ,501, ,836,591 AMORTIZATION OF THE OPERATING LEASE 1,233,563 - AMORTIZATION OF BOND PREMIUM 202, ,801 DEPRECIATION 1,339, ,682 2,776, ,483 TOTAL EXPENDITURE (162,871,744) (129,516,513) Page 15 of 17

16 SURPLUS/(DEFICIT) FOR THE YEAR 22,561,153 19,274,269 Page 16 of 17

17 BENEVOLENT FUND INCOME AND EXPENDITURE STATEMENT ANNEX II NOTES INCOME Members subscriptions 4,775,400 4,451,800 Interest on funds 1,614,243 1,415,173 TOTAL INCOME 6,389,643 5,866,973 LESS: EXPENDITURE STAFF COSTS Salaries and wages 1,316,553 1,015,737 Staff traveling 400, ,045 Staff training 33,900 9,186 Medical expenses 134,417 84,572 Staff pension fund 336, ,863 Employer NSSF contribution 2,910 2,280 Staff insurance 27,110 25,704 2,252,055 1,516,387 ADMINISTRATION EXPENSES Entertainment & AGM expenses 98, ,304 Printing and stationery 120,580 50,633 Public relations & advertising 39,570 34,020 Postage and telephone 26,862 20,061 Office rent 0 61,585 Consultancy services 59,700 32,100 Audit fees 19,500 16, , ,203 OPERATIONAL COSTS Deceased members loans (18) 3,800, ,405 Supervision & recoverable expenses 1,980 1,680 Repairs and maintenance 52,869 20,203 Committee sitting allowance 184, ,632 Committee subsistence allowance 59,698 33,285 Education to members - 26,156 Committee education 169,407 17,827 4,269, ,188 FINANCIAL COSTS Bank charges 114, ,456 Bank charges- bridging 45,346 2,223 Bank charges- Instant 43,871 2, , ,286 Amortization of the operating lease 217,688 - Amortization of bond premium 35,789 35,789 Depreciation 236,451 78, , ,262 TOTAL EXPENDITURE 7,579,868 2,952,326 SURPLUS/(DEFICIT) FOR THE YEAR (1,190,225) 2,914,647 Page 17 of 17