SUMMARY OF THE REPORT OF THE AUDITOR - GENERAL THE APPROPRIATION ACCOUNTS, OTHER PUBLIC ACCOUNTS AND THE ACCOUNTS OF THE FUNDS THE REPUBLIC OF KENYA

Transcription

1 SUMMARY OF THE REPORT OF THE AUDITOR - GENERAL ON THE APPROPRIATION ACCOUNTS, OTHER PUBLIC ACCOUNTS AND THE ACCOUNTS OF THE FUNDS OF THE REPUBLIC OF KENYA FOR THE YEAR 2011/2012

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3 REPORT OF THE AUDITOR- GENERAL ON THE APPROPRIATION ACCOUNTS, OTHER PUBLIC ACCOUNTS AND ACCOUNTS OF THE FUNDS OF THE REPUBLIC OF KENYA FOR THE YEAR 2011/2012 EXECUTIVE SUMMARY 1. Legal Mandate of the Office of the Auditor-General 1.1. General Office of the Auditor General is established as an Independent Office under Article 248(3) of the New Constitution. The Auditor-General is appointed in accordance with Article 229 of the New Constitution. The statutory duties and responsibilities of the Auditor-General are given in Article 229(4) of the New Constitution and Public Audit Act (2003). I have already issued my audit reports to the respective accounting officers for the financial statements for 2011/2012 of their respective ministries, agencies, departments and funds. This report provides a Summary of my audit findings of the financial statements of Central Government of the Republic of Kenya for the financial year ended 30 June The scope of the audit in Central Government includes Ministries, Government Departments, Agencies and Funds The audit I carried out my audits in accordance with International Standards on auditing. Those Standards require that I comply with ethical requirements and plan and perform the audits to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit includes examining, on attest basis, evidence supporting the amounts and disclosures in the financial statements. It also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. i

4 I also considered the public entities internal control systems to determine my auditing procedures for the purpose of expressing an opinion on their financial statements. To ensure that the execution of the National budget was in conformity with the provisions of existing laws, regulations and prescribed procedure, the audits essentially covered authorization and approval of expenditure, budget procedures, management of bank accounts and a review of the internal control systems set up by the audited entities. The sections below highlight key findings noted during the audits of the financial statements for the year ended 30 June Summary of Budgetary Performance for 2011/ Expenditure Accounts In 2011/2012 the Approved Estimate Gross Expenditure was.1,170,478,418,074 and Appropriations-In-Aid (AIA) of.213,846,548,582 resulting to Net Approved Expenditure of.956,631,869,492 as shown below:- Gross Expenditure AIA Approved Net Expenditure Recurrent Vote 578,394,336,704 74,452,067, ,942,269,503 Development Vote 382,614,041, ,394,481, ,219,560,411 Consolidated Fund Services 209,470,039, ,470,039,578 Total 1,170,478,418, ,846,548, ,631,869,492 ii

5 2.1.2 The Actual Total Appropriations-In-Aid realized during the year under review however amounted to.146,811,089,141, against estimated receipts of.213,846,548,582 resulting in a deficiency of.67,035,459,441. The deficiency represented approximately 31% of the estimated collections and was mainly recorded under the Development Votes, where collections of.84,690,284,111 were realized against estimated receipts of.139,394,481,381. The reasons for the under- collection of AIA are provided under the respective Appropriation Accounts Summary of expenditure accounts for the year 2011/2012 shows total Actual Expenditure of.920,024,249,603 compared to Actual Expenditure of.807,228,599,517 for 2010/2011 as shown below, representing an increase of.112,795,650,086 or 14% over previous year. Votes Net Estimates of Expenditure 2011/2012 Actual Expenditure 2011/2012 Net Estimates of Expenditure 2010/2011 Actual Expenditure 2010/2011 Recurrent 503,942,269, ,770,309, ,397,181, ,590,007,087 Development 243,219,560, ,956,549, ,623,477, ,113,396,308 Consolidated Fund 209,470,039, ,297,390, ,733,513, ,525,196,122 Totals 956,631,869, ,024,249, ,754,171, ,228,599, The Actual Net Expenditure of.920,024,249,603 comprised expenditure amounting to.492,770,309,152,.211,956,549,840 and.215,297,390,611 under Recurrent, Development and Consolidated Fund Services respectively There was a net under-expenditure of.36,661,330,507 made up of underexpenditure of.11,171,960,351 and.31,263,010,571 under Recurrent Vote and Development Vote respectively and an over expenditure of.5,827,351,033 under consolidated Fund Services as shown below:- iii

6 Approved Net Estimated Expenditure Actual Expenditure Under/(Over) Expenditure Recurrent Vote 503,942,269, ,770,309,152 11,171,960,351 Development Vote 243,219,560, ,956,549,840 31,263,010,571 Consolidated Fund Services 209,470,039, ,297,390,611 (5,827,351,033) Total 956,631,869, ,024,249,603 36,661,330, The under-expenditure of.11,171,960,351 under Recurrent Vote was attributed mainly to inadequate exchequer issues while the under-expenditure of.31,263,010,571 under Development Vote was attributed to delayed disbursement of donor funds. The over-expenditure of.5,827,351,033 under Consolidated Fund Services is explained as due to excess exchequer releases during the year. Reasons for the under/over-expenditure are provided in the respective Appropriation Accounts and the Exchequer Account for 2011/ Revenue Accounts Total revenue recorded as received during the financial year ended 30 June 2012 totalled.761,682,773,420 against estimated total receipts of.765,833,207,143 resulting in an under-collection of.4,150,433,723 or 0.54%. The total revenue collected of.761,682,773,420 comprised of.735,052,725,367 and.26,630,048,053 relating to Recurrent and Development votes respectively. However actual Recurrent Revenue collected during the year reflected excess collection of.21,437,485,937 or 3% while there was a shortfall of Development Revenue collected of.25,587,919,660 or 49% as follows:- iv

7 Details Estimated Receipts Actual Receipts Excess/(Shortfall) Percentage % Recurrent Revenue 713,615,239, ,052,725,367 21,437,485,937 3% Development Revenue 52,217,967,713 26,630,048,053 (25,587,919,660) 49% Total 765,833,207, ,682,773,420 (4,150,433,723) 0.54% The reasons for the under-collection of Development Revenue as provided in the respective Statements include, among others, the following: Non release of funds by development partners Low absorption of funds by projects and programmes Most of the Revenue Accounts prepared by the Ministry of Finance had qualified audit opinions mainly due to material differences between the statements balances and KRA records. Examples are as follows:- Ministry of Finance - Revenue Statement Ref Amount per Statement Amount per KRA Records Difference Revenue Head Dev DR.1 26,630,048,053 27,107,919,707 (477,871,654) Revenue Head ,812,913,337 1,442,053, ,860,317 Revenue Head ,904,120,077 2,506,995,038 (602,874,960) Revenue Head ,473,854,367 76,759,346,345 (285,491,978) Revenue Head ,693,335,549 11,504,347,952 1,188,987,596 Revenue Head ,270,372, ,993,293,060 1,277,034,564 Revenue Head ,627,482,108 1,122,913, ,568,161 Revenue Head sub head ,138,934, ,871, ,062,700 Revenue Head ,857,096,516 7,890,998,836 (33,902,319) Revenue Head ,380,242,736 53,429,522,091 (49,279,354) Revenue Head ,463,343, ,664,131,464 (200,787,845) Most of the statements revenue balances also differed with the exchequer records kept by the ministry. Similarly balances reflected as remitted to the exchequer differed with those recorded at the ministry s exchequer section. v

8 2.2.5 Statement of Revenue Head DR.1 also reflected revenue amounting to.584,650,885 which was not supported with receipt vouchers Statement of Revenue for vote R.01 Ministry of State for Provincial Administration and Internal Security showed un-accounted for revenue of.19,902,229 between revenue recorded as collected of.882,349,033 and the amount reflected in the statement of.862,446, The Summary Revenue Statements reflects substantial balances of revenue not remitted to the Exchequer amounting to.2,060,819,622 as follows:- Details Revenue balance B/fwd Revenue Collection 2011/2012 Total Revenue Available Amount Paid to Exch. Balance C/fwd Recurrent 1,630,245, ,052,725, ,682,970, ,622,245,013 2,060,725,517 Development 94,104 26,630,048,053 26,630,142,158 26,630,048,053 94,104 Total 1,630,339, ,682,773, ,313,112, ,252,293,067 2,060,819, The total actual revenue reflected as having been paid to the Exchequer Account of.761,252,293,067 during the year however differs from the total revenue reflected as having been received in the Exchequer Account of.762,163,158,239 by.910,865,172. As reported in the respective revenue statement s audit reports, the discrepancies are mainly due to unexplained and unreconciled differences between statements balances and the exchequer records maintained at Treasury From the above reasons it is apparent that there are persistent problems in accounting for revenue which has therefore, resulted in most of the Statements of Revenue for 2011/2012 having qualified audit opinions. vi

9 2.3 The Exchequer Account as at 30 June The Statement of Receipts into and Issues from the Exchequer Account for the year ended 30 June 2012 reflects an overall net surplus of.1,159,431,088 compared to a net surplus of.64,321,964 posted in the previous year. The total issues from the Consolidated Fund for both Recurrent and Development Services during the year 2011/2012 amounted to.912,182,711,625 against total receipts of.913,277,820,749 resulting in a surplus of.1,095,109,124 as at 30 June However, when added to the Exchequer balance of.64,321,964 brought forward from 2010/2011, the result is an overall net surplus of.1,159,431,088 as at 30 June 2012 compared to previous year closing balance of.64,321,964 as shown below: 2011/ /2011 Total Receipts 913,277,820, ,355,598,036 Total Issues 912,182,711, ,960,838,366 Surplus/(Deficit) for the year 1,095,109,124 (2,605,240,329) Exchequer balance brought forward 64,321,964 2,673,967,668 Post year adjustment - (4,405,375) Exchequer Account balance as at 30 June 1,159,431,088 64,321,964 vii

10 2.3.2 Receipts into the Exchequer Account during the year of.913,277,820,749 comprised of Ordinary Revenue and Other receipts as follows:- Source of Revenue (i) Ordinary Revenue receipts (Recurrent and Development Votes) 762,163,158,239 Other Receipts: ii) Recoveries over issue -Recurrent 5,185,428,526 iii) Recoveries over issue- Development 11,311,755,948 iv) Treasury Bonds 134,681,800,000 Total receipts Account into Exchequer 913,342,142, The Exchequer Account reflects total Revenue Receipts from both Recurrent and Development votes during the year figure of.762,163,158,239 while the Recurrent and Development revenue summary statements show a total of.761,252,293,067 occasioning a difference of.910,865,172. However, the discrepancy is due to unexplained differences between statements balances and the Exchequer Records maintained at the Treasury which have also not been reconciled The Exchequer Account also reflect.39,981,000,000 Exchequer Issues under the Ministry of Education (Recurrent Vote), against the approved appropriated amount of.33,928,337,251 resulting in an over issue of.6,052,662,749 from the Exchequer Account during the year. The over issue arose from a withdrawal of a sum of.7 billion from the Consolidated Fund on 21 June 2012, to cater for the Free Primary and Free Day Secondary Education. However, no evidence has been provided for audit confirmation that Parliamentary approval for the additional expenditure was granted as required under Article 223 of the Constitution. viii viii

11 3. Summary of the Audit Results 3.1 The audit of the financial statements for the year ended 30 June 2012, indicates that out of the audited 252 financial statements only 6% had a clean (unqualified) audit reports while 51%, 10% and 33% had qualified, adverse and disclaimer of opinion reports respectively as detailed below: No. of Financial Statements 2011/ /2011 Percentage No. of Financial % Statements % Unqualified Opinion 15 6% - - Qualified Opinion % 60 33% Adverse Opinion 24 10% - - Disclaimer of Opinion 83 33% % Total % % 3.2 From the table above, the trend shows that financial statements with unqualified opinions improved from nil statement in 2010/2011 to 15 statements in 2011/2012. However, statements with qualified opinions rose from 60 to 130 statements or 51% while statements with adverse and disclaimer of opinions (combined) declined from 121 in 2010/2011 to 107 statements in 2011/2012 or from 67% in 2010/2011 to 43% in 2011/ Further, out of 252 financial statements audited, I was unable to arrive at any meaningful opinion on 33% or 83 financial statements, hence disclaimer of my opinion. Consequently I was not able to establish whether expenditures reflected in these statements were incurred lawfully and in an effective way as required by Article 229(6) of the Constitution. Were the accounts with disclaimer of opinion be treated as accounts with no proper justification, then by implication 33% of the total actual expenditure for 2011/2012 of.920,024,249,603 or.303,608,023,369 can be regarded as having not been properly accounted for. The main issues forming the basis of qualifications of the audit opinion on the financial statements includes:- 3.4 For statements with Qualified Opinion Unsupported expenditures Non surrender of imprests ix

12 Unauthorized expenditures Uncleared balances reflected in the Statement of Assets and Liabilities Long outstanding reconciling items in bank reconciliation statements Excess expenditure Misallocation of expenditure items Lack of adequate disclosures 3.5 For statements with Adverse Opinion Discrepancies between the Appropriation Accounts and the respective Ledgers and the trial balance Differences between 2010/2011 closing audited balances and opening balances for 2011/2012 Unsupported balances in the financial statements Failure to prepare financial statements in accordance to Treasury instructions 3.6 For statements with Disclaimer of Opinion Failure to produce trial balance as at 30 June 2012 Exclusion of expenditures from the Appropriation Accounts Unexplained balances in the financial statements Unreconciled / unsupported balances Book keeping errors among other issues as illustrated below. Whereas the reasons cited above generally influenced my opinion on the financial statements, I would like to detail out the following issues prevalent in the accounts:- Unsupported Expenditure Excess Expenditure Pending Bills Management of Imprests Maintenance of Bank and Cash Accounts Maintenance of Accounting Records x

13 3.7 Unsupported Expenditure During 2011/2012, a number of Ministries and Departments failed to avail documents in support of various expenditure totalling.5,214,321,544 appearing in the respective Appropriation Accounts, as summarized below:- Vote Ministry/Department Unsupported Expenditure. 01 Internal Security 548,757, State House 46,990, Home Affairs 124,380, Planning and National Development 24,023, Labour 22,085, Trade 236,777, Justice, National Cohesion and Constitutional Affairs 697,783, Cabinet Office 42,200, Education 17,848, Special Programmes 709,898, Lands 54,653, Immigration and Registration of Persons 337,235, National Heritage and Culture 3,216, Youth Affairs and Sports 178,307, Housing 22,403, Tourism 1,574, Public Health and Sanitation 1,920,758, Development of Northern Kenya and Other Arid Lands 42,415, Public Works 40,043, Industrialization 142,967,618 Total 5,214,321,544 In absence of the records and documentation, the propriety of the expenditure of.5,214,321,544 could not therefore be ascertained xi

14 3.8 Excess Expenditure Excess Expenditure incurred during 2011/2012 without Parliamentary approval totalled.7,048,222,153 compared to.362,357,466 recorded in the previous year. The Excess Expenditure of.7,048,222,153 was incurred under Recurrent Expenditure in five (5) Ministries/Department as follows:- Vote Ministry Excess Vote (.) 13 Roads 67,918, Justice, National Cohesion and 1,064,927,340 Constitutional Affairs 31 Education 5,509,953, Teachers Service Commission 403,668, Forestry and Wildlife 1,755,327 Total 7,048,222,153 The Excess Expenditure of.7,048,222,153 does not however include pending bills amounting to.4,476,921,844 which, though relating to 2011/2012 were not settled during the year, but were instead carried forward to 2012/2013, as discussed in the ensuing paragraph Pending Bills During the year ended 30 June 2012, a number of Ministries and Departments did not settle bills amounting to.4,476,921,844 comprising.3,135,726,929 and.1,341,194,915 under Recurrent and Development Votes respectively, but instead carried forward such bills to 2012/2013, as indicated below:- Vote Ministry/ Department Recurrent Development Total 01 Provincial Administration and Internal Security 1,250,614, ,537,807 1,587,152, Foreign Affairs 79,073,453-79,073,453 xii

15 05 Home Affairs 213,697, ,697, Planning, National Development 17,038,369-17,038,369 &Vision Finance 90,739,630-90,739, Regional Development 13,457,223-13,457,223 Authorities 10 Agriculture 18,246,448-18,246, Medical Services 279,241, ,241, Roads 30,793,912-30,793, Transport 13,820,070-13,820, Gender and Children 25,510,728-25,510,728 Development 20 Water and Irrigation 90,162,800-90,162, Ministry of 5,752,214-5,752,214 Cooperative and Marketing 23 Cabinet Office 1,016,528-1,016, Eastern African 34,603,205-34,603,205 Community 25 State Law office 4,433,687-4,433, National Assembly 43, 205,755-43, 205, Education 2,272,720-2,272, Special Programmes 538,164, ,164, Lands 773, , Immigration and Registration of Persons 41 National Heritage and Culture 42 Youth Affairs and Sports 239,938, ,938,182 4,818,210-4,818,210 32,736,447-32,736, Higher Education 45,475,610-45,475,610 Science and Technology 44 Housing 54,643,188-54,643,188 xiii

16 46 Tourism 4,980,040-4,980, Office of the Prime 6,931,060-6,931,060 Minister 49 Public Health and 19,683,802-19,683,802 Sanitation 57 Nairobi Metropolitan 17,108,149-17,108,149 Development 58 Development of - 12,530,949 12,530,949 Northern Kenya and Other Arid Lands 59 Public works - 960,220, ,220, Industrialization - 31,905,210 31,905,210 Total 3,135,726,929 1,341,194,915 4,476,921,844 Had the bills totaling.4,476,921,844 been settled during the period and the expenditure charged to the accounts for 2011/2012,nine (9) additional Ministries and Departments would have recorded Excess Expenditure against Recurrent and/or Development Votes, as shown hereunder: Excess Expenditure Had the Bills Been Paid - Recurrent Vote Vote Ministry/Department Net Surplus Pending Bills Excess Expenditure 11 Medical Services 106,155, ,241, ,085, East African Community 16,612,509 34,603,205 17,990, Special Programmes 112,476, ,164, ,688, Immigration 214,863, ,938,182 25,074, National Heritage 788,969 4,818,210 4,029, Tourism 1,542,993 4,980,040 3,437, Public Health 4,658,198 19,683,802 15,025,604 xiv xiv

17 3.8.3 Excess Expenditure Had the Bills Been Paid - Development Vote Vote Ministry/Department Net Surplus. Pending Bills Excess Expenditure. 59 Public Works 297,066, ,220, ,154, Industrialization 31,527,148 31,905, ,062 These matters have been dealt with in detail under the respective Ministries and Departments Reports. 3.9 Management of Imprests The audit of imprests accounts across the ministries revealed major weaknesses in the management and accounting for imprests as summarized below:- Imprest balances reflected in the statements of assets and liabilities could not agree with the respective imprest registers or the ledgers and there were no reconciliations made. Lack of supporting documentation and evidence of material imprest balances relating to previous years but purported to have been cleared during the year 2011/2012. Long outstanding imprests not cleared, some of which is held by deceased, officers who have left service or retirees. Lack of analysis making it impossible to determine the holders of these balances xv xv

18 3.9.2 The audit also revealed huge imprest balances which ought to have been recovered or otherwise accounted for on or before 30 June 2012 but was still outstanding as that date amounted to.2,142,569, as shown below:- Vote 01 Ministry/Departm ent Recurrent Vote Imprest Development Vote Imprest Total Outstanding Imprest Provincial administration & Internal Security 152,797, ,797, State House 1,191,004 1,191, Public Service 38,053,160 33,646,358 71,699,518 VP and Home 05 Affairs 52,931,891 52,931, Finance 265,376, ,309, ,686,443 Defense 08 4,475,000 4,475,000 Regional 09 Development 369, ,599 Agriculture ,863, ,442, ,306, Medical Services 15,741, ,293, ,034,785 Local 12 Government 6,443,086 6,443, Transport 777, ,818 Labour & Human 15 Resource Dev 6,113,426 5,817,666 11,931, Trade 2,200, ,000 2,450,591 Gender, Children & 18 Social Development 4,485,835 4,485, Livestock Development 90,177,006 20,660, ,837, Water & Irrigation 5,454,018 2,727,009 8,181, Environment & Natural Resources 10,219, ,810, ,030, Cabinet Office 944, ,187 1,195,822 xvi xvi

19 24 East African Community 2,100,894 2,100, State Law Office 2,679,564 2,679, The Judiciary 2,583,104 2,583, Education 17,317,388 5,022,678 22,340, Lands 2,106,279 2,106, Immigration & Registration of Persons 1,376,946 1,376,945 VP, National 163,140 Heritage & Culture 163,140 Youth Affairs & Sports 81,790,342 81,790,342 Higher Education, Science & Technology 30,500 38,000 68, Housing 2,492,086 2,492, NSIS 16,739,939 16,739, Tourism 2,518,740 2,518,740 Public Health & 49 Sanitation 1,982,456 1,982, North Eastern Kenya and other Arid Areas 1,067,054 1,067, Public Works 6,730, ,824, ,555, Industrialization 3,489,924 3,489,924 Total 1,101,474,868 1,041,094,563 2,142,569, Maintenance of Bank and Cash Accounts Maintenance of Cashbooks across the ministries during 2011/2012 was noted to be weak. As reported in the previous years, the Bank Reconciliation Statements for Recurrent, Development, Deposits and Fund Cashbooks as at 30 June 2012 for several ministries and departments continued to reflect material receipts and xvii

20 payments in the Cashbooks not reflected in the Bank Statements and also receipts and payments in the Bank Statements not reflected in the Cashbooks. Several entries in the Bank Statements were not analyzed while others have been outstanding for a very long period of time. Most of the ministries Cashbooks balances as at 30 June 2012 have not been reconciled with Paymaster General Account (PMG) in the ledger As a result the accuracy and validity as at 30 June 2012 of most of the PMG balances, which is equivalent to Bank and Cash account balances, could not be ascertained. Detailed observations on the statements are covered under the respective Ministries and Departments reports Maintenance of Accounting Records As in the previous years and as also indicated above, there is weak and inadequate maintenance of accounting records observed across a number of ministries and departments during the year. A number of financial statements differed materially with the Ledgers and Trial Balances from where ideally they ought to have been derived In addition, the ministries and departments continued to prepare their respective financial statements on Cash Basis of accounting as instructed by Treasury. This implies that capital assets are expensed as a result of which Statements of Assets and Liabilities as at the end of each financial year do not show a complete and true and fair view of the ministry s or department s assets and liabilities. As at 30 June 2012 we do not, as such, know what each ministry/department owns and consequently the net worth of the Government of Kenya as a whole cannot be determined. The situation will definitely be more complicated and intricate when County Governments come on board as this problem will be devolved to all the 47 of them. It is my recommendation that the Government adopts either Accrual or Modified Accrual Basis of International Public Sector Accounting Standards (IPSAS). Conclusion Detailed report for the Public Accounts for the year ended 30 June 2012 is contained in the combined report. Specific reports together with my opinions for each financial statement are contained in each respective ministry s audited financial statements for the year ended 30 June 2012 already issued to each Accounting Officer. I appeal to xviii xviii

21 each Accounting Officer to address all the issues pertaining to their respective ministry/department as detailed in my combined report for 2011/2012. My report has been posted on Office of the Auditor General Website: Edward R. O. Ouko, CBS AUDITOR GENERAL NAIROBI 23 May 2013 xix xix

22 REPORT OF THE AUDITOR-GENERAL ON THE ACCOUNTS OF THE GOVERNMENT OF KENYA FOR THE YEAR ENDED 30 JUNE 2012 I have audited the financial statements of the Government of Kenya for the year ended 30 June 2012 which are listed in Appendices A, B, C and D in accordance with Section 229(4) of the Constitution of Kenya and Section 8 of the Public Audit Act, 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 for the financial statements listed in Appendix A, B and C. Management s Responsibility for the Financial Statements The Permanent Secretary, Treasury and the respective Accounting Officers are responsible for the preparation and fair presentation of financial statements, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatements, whether due to fraud or error. The Management is also responsible for the submission of the financial statements to the Auditor-General in accordance with the provisions of Sections 4, 5, 6 and 7 of the Public Audit Act, Auditor-General s Responsibility My responsibility is to express an opinion on the financial statements based on the audit and report in accordance with the provisions of Section 8 of the Public Audit Act, The audit was conducted in accordance with International Standards on Auditing. Those standards require compliance with ethical requirements and that the audit be planned and performed to obtain reasonable assurance that the financial statements are free from material misstatement. An audit involves performing procedures to obtain evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgement, 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 Government s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the management, as well as evaluating the overall presentation of the financial statements. xx xx

23 I believe the audit evidence obtained is sufficient and appropriate to provide a basis for my audit opinion. Opinion In my opinion, the financial statements listed in Appendix A, presents fairly, in all material respects, the financial position of the Government of Kenya and its funds as at 30 June 2012, and of its operations for the year then ended in accordance with the Financial Government Financial Regulations and Procedures and Public Finance Management Act, Further, I was not able to fully comply with the constitutional provision of Article 229 (6) requiring that I confirm whether or not the public money has been applied lawfully and in an effective way. Under the current audit set up, the office was unable to undertake a continuous audit throughout the financial year that would have enabled me to fully comply with Article 229(6) of the new constitution. Edward R. O. Ouko, CBS AUDITOR-GENERAL NAIROBI Date xxi xxi

24 REPORT OF THE AUDITOR-GENERAL ON THE ACCOUNTS OF THE GOVERNMENT OF KENYA FOR THE YEAR ENDED 30 JUNE 2012 I have audited the financial statements of the Government of Kenya for the year ended 30 June 2012 which are listed in Appendices A, B, C and D in accordance with Section 229(4) of the Constitution of Kenya and Section 8 of the Public Audit Act, 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 for the financial statements listed in Appendix A, B and C. Management s Responsibility for the Financial Statements The Permanent Secretary, Treasury and the respective Accounting Officers are responsible for the preparation and fair presentation of financial statements, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatements, whether due to fraud or error. The Management is also responsible for the submission of the financial statements to the Auditor-General in accordance with the provisions of Sections 4, 5, 6 and 7 of the Public Audit Act, Auditor-General s Responsibility My responsibility is to express an opinion on the financial statements based on the audit and report in accordance with the provisions of Section 8 of the Public Audit Act, The audit was conducted in accordance with International Standards on Auditing. Those standards require compliance with ethical requirements and that the audit be planned and performed to obtain reasonable assurance that the financial statements are free from material misstatement. An audit involves performing procedures to obtain evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgement, 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 Government s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the management, as well as evaluating the overall presentation of the financial statements. xxii

25 I believe the audit evidence obtained is sufficient and appropriate to provide a basis for my qualified audit opinion. Basis for Qualified Opinion Details of the basis for qualified opinion are as per the accompanying detailed audit Report. These include various unexplained discrepancies and omission of expenditure from the Accounts. Qualified Opinion In my opinion, except for the effect of the matters described in the basis for qualified opinion paragraphs, the financial statements listed in Appendix B, fairly present the financial position of the Government of Kenya and its funds as at 30 June 2012, and of its operations for the year then ended in accordance with the Financial Government Financial Regulations and Procedures and Public Finance Management Act, Further, I was not able to fully comply with the constitutional provision of Article 229 (6) requiring that I confirm whether or not the public money has been applied lawfully and in an effective way. Under the current audit set up, the office was unable to undertake a continuous audit throughout the financial year that would have enabled me to fully comply with Article 229(6) of the new constitution. Edward R. O. Ouko, CBS AUDITOR-GENERAL NAIROBI Date xxiii xxiii

26 REPORT OF THE AUDITOR-GENERAL ON THE ACCOUNTS OF THE GOVERNMENT OF KENYA FOR THE YEAR ENDED 30 JUNE 2012 I have audited the financial statements of the Government of Kenya for the year ended 30 June 2012 which are listed in Appendices A, B, C and D in accordance with Section 229(4) of the Constitution of Kenya and Section 8 of the Public Audit Act, 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 for the financial statements listed in Appendix A, B and C. Management s Responsibility for the Financial Statements The Permanent Secretary, Treasury and the respective Accounting Officers are responsible for the preparation and fair presentation of financial statements, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatements, whether due to fraud or error. The Management is also responsible for the submission of the financial statements to the Auditor-General in accordance with the provisions of Sections 4, 5, 6 and 7 of the Public Audit Act, Auditor-General s Responsibility My responsibility is to express an opinion on the financial statements based on the audit and report in accordance with the provisions of Section 8 of the Public Audit Act, The audit was conducted in accordance with International Standards on Auditing. Those standards require compliance with ethical requirements and that the audit be planned and performed to obtain reasonable assurance that the financial statements are free from material misstatement. An audit involves performing procedures to obtain evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgement, 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 Government s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the management, as well as evaluating the overall presentation of the financial statements. xxiv xxiv

27 I believe the audit evidence obtained is sufficient and appropriate to provide a basis for my adverse audit opinion. Basis for Adverse Opinion Details of the basis for adverse opinion are as per the accompanying detailed audit Report. These includes various material misstatements, unexplained discrepancies and omission of expenditure from the Accounts. Adverse Opinion In my opinion, because of the significance of the matters discussed in the Basis for Adverse Opinion paragraphs, the financial statements listed in Appendix C, do not present fairly, in all material respects, the financial position of the Government of Kenya and its funds as at 30 June 2012, and of its operations for the year then ended in accordance with the Financial Government Financial Regulations and Procedures and Public Finance Management Act, Further, I was not able to fully comply with the constitutional provision of Article 229 (6) requiring that I confirm whether or not the public money has been applied lawfully and in an effective way. Under the current audit set up, the office was unable to undertake a continuous audit throughout the financial year that would have enabled me to fully comply with Article 229(6) of the new constitution. Edward R. O. Ouko, CBS AUDITOR-GENERAL NAIROBI Date xxv xxv

28 REPORT OF THE AUDITOR-GENERAL ON THE ACCOUNTS OF THE GOVERNMENT OF KENYA FOR THE YEAR ENDED 30 JUNE 2012 I have audited the financial statements of the Government of Kenya for the year ended 30 June 2012 which are listed below in accordance with Section 229(4) of the Constitution of Kenya and Section 8 of the Public Audit Act, Management s Responsibility for the Financial Statements The Permanent Secretary, Treasury and the respective Accounting Officers are responsible for the preparation and fair presentation of financial statements, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatements, whether due to fraud or error. The Management is also responsible for the submission of the financial statements to the Auditor-General in accordance with the provisions of Sections 4, 5, 6 and 7 of the Public Audit Act, Auditor-General s Responsibility My responsibility is to express an opinion on the financial statements based on the audit and report in accordance with the provisions of Section 8 of the Public Audit Act, The audit was conducted in accordance with International Standards on Auditing. Those standards require compliance with ethical requirements and that the audit be planned and performed to obtain reasonable assurance that the financial statements are free from material misstatement. An audit involves performing procedures to obtain evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgement, 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 Government s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the management, as well as evaluating the overall presentation of the financial statements. xxvi xxvi

29 Because of the matters described in the detailed Report for the financial statements contained in Appendix B, I was unable to obtain sufficient and appropriate audit evidence to provide a basis for an audit opinion. Basis for Disclaimer of Opinion Details of the Basis for Disclaimer of Opinion are as per the accompanying detailed audit Report. These include various unexplained discrepancies, omission of expenditure from the Accounts, lack of documentation to support some of the figures shown in the financial statements listed in Appendix D and failure by the Accounting Officers to provide information and explanation considered necessary for the purpose of the audit. Disclaimer of Opinion Because of the significance of the matters described in the Basis for Disclaimer of Opinion paragraphs, I have not been able to obtain sufficient and appropriate audit evidence to provide a basis for an audit opinion. Accordingly, I do not express an opinion on the financial statements contained in Appendix D. Further, I was not able to fully comply with the constitutional provision of Article 229 (6) requiring that I confirm whether or not the public money has been applied lawfully and in an effective way. Under the current audit set up, the office was unable to undertake a continuous audit throughout the financial year that would have enabled me to fully comply with Article 229(6) of the new constitution. Edward R. O. Ouko, CBS AUDITOR-GENERAL Nairobi 23 May 2013 xxvii

30 APPENDIX A The following is a list of financial statements for which I express an unqualified opinion as I was provided with sufficient and accurate information and explanations. CONSOLIDATED FUND SERVICES Page Paragraph 1. Statement of Outstanding Public Debt APPROPRIATION ACCOUNTS - RECURRENT 1. National Gender and Equality Commission Controller of Budget Director of Public Prosecution STATEMENTS OF ASSETS AND LIABILITIES DEPOSITS 1. Ministry of Justice, National Cohesion and Constitutional Affairs Office of the Prime Minister STATEMENTS OF REVENUE 1. Office of the Vice President and Ministry of Home Affairs Ministry of State for Defence Ministry of Environment and Mineral Resources STATEMENT OF OUTSTANDING LOANS 1. Ministry of Finance STATEMENT OF PARTICIPATION BY THE GOVERNMENT OF KENYA IN QUASI GOVERNMENT ORGANIZATION AND OTHER STATUTORY ORGANIZATIONS 1. Ministry of Finance FUNDS 1. Government Press Fund National Assembly Car Loan Scheme Fund Intelligence Service Development Fund Water Towers Conservation Trust Fund xxviii xxviii

31 APPENDIX B The following is a list of financial statements for which I was able to express qualified opinion as I was not provided with sufficient and accurate information and explanations. Page Paragraph 1. EXCHEQUER ACCOUNT CONSOLIDATED FUND SERVICES The Statement of Assets and Liabilities for Consolidated Fund Services (CFS) Public Debt - Statement of Expenditure Salaries, Allowances and Miscellaneous Services Statement of Expenditure Pensions and Gratuities Statement of Expenditure The Statement of Assets and Liabilities - Pensions and Gratuities APPROPRIATION ACCOUNTS - RECURRENT 1. R.02 State House R.03 Ministry of State for Public Service R.04 Ministry of Foreign Affairs R.06 Ministry of Planning, National Development and Vision R.07 Ministry of Finance R.08 Ministry of State for Defence R.09 Ministry of Regional Development Authority R.12 Ministry of Local Government R.17 Ministry of Justice, National Cohesion and Constitutional Affairs Commission for Truth, Justice and Reconciliation R.18 Ministry of Gender, Children and Social Development Public Trustee R.27 Public Service Commission R.31 Ministry of Education R.32 Ministry of Information and Communication R.36 Ministry of Lands R.41 Office of the Vice President and Ministry of State for National Heritage and Culture R.44 Ministry of Housing R.45 National Security Intelligence Service R.46 Ministry of Tourism R.48 Office of the Prime Minister R.55 Ministry of Forestry and Wildlife R.56 Ministry of Fisheries Development R.57 Ministry of Nairobi Metropolitan Development R.58 Ministry of State for Development of Northern Kenya and Other Arid Lands R.60 Ministry of Industrialization R.61 - Independent Interim Boundaries Review Commission (IIBRC) R.64 Kenya National Commission on Human Rights xxix xxix

32 Page Paragraph APPROPRIATION ACCOUNTS DEVELOPMENT Votes 1. D.02 State House D.03 Ministry of State for Public Service D 06 Ministry of Planning, National Development and Vision D.09 Ministry of Regional Development Authority D.10 Ministry of Agriculture D.12 Ministry of Local Government D.14 Ministry of Transport D.15 Ministry of Labour and Human Resource Development D.16 Ministry of Trade D.24 Ministry of East African Community D.29 National Assembly D.32 Ministry of Information and Communication D.41 Office of the Vice President and Ministry of State for National Heritage and Culture 14. D.48 Office of the Prime Minister D.49 Ministry of Public Health and Sanitation D.55 Ministry of Forestry and Wildlife D.56 Ministry of Fisheries Development D.57 Ministry of Nairobi Metropolitan Development D.58 Ministry of State for Development of Northern Kenya and Other Arid Lands 20. D.60 Ministry of Industrialization STATEMENTS OF ASSETS AND LIABILITIES - DEPOSITS Votes State House Ministry of State for Public Service Office of the Vice President and Ministry of Home Affairs Ministry of Planning, National Development and Vision Ministry of State for Defence Ministry of Regional Development Authority Ministry of Agriculture Ministry of Medical Services Ministry of Local Government Ministry of Transport Ministry of Labour and Human Resource Development Ministry of Trade Ministry of Livestock Development Ministry of Water and Irrigation Ministry of Environment and Natural Resources Ministry of Co-operative Development and Marketing The Judiciary Ministry of Information and Communication Ministry of Lands Office of the Vice President and Ministry of State for National Heritage and xxx xxx

33 Culture Ministry of Higher Education, Science and Technology 45 National Security Intelligence Service Page Paragraph Ministry of Tourism Ministry of Public Health and Sanitation Ministry of Forestry and Wildlife Ministry of Fisheries Development Ministry of Nairobi Metropolitan Development Ministry of Industrialization STATEMENTS OF REVENUE 1. Development Revenue Head DR Redemption Receipts from Domestic Lending and On-Lending Sales of Goods and Services Social Security Contributions Taxes on International Trade and Transactions Sub Head Property Income Taxes on Goods and Services Property Income Rent of Land Sub-Head Loan Interest Receipts Other Taxes (Not Elsewhere Classified) Other Receipts Not Classified Elsewhere Taxes on Income, Profits and Capital Gains Recurrent Revenue Head R Vote 20 Ministry of Water and Irrigation-Arrears of Water Revenue Vote 25 State Law Office Vote 32 Ministry of Information and Communication Vote 40 Ministry of State for Immigration and Registration of Persons Vote 46 Ministry of Tourism Head Fishing Rights STATEMENT OF OBLIGATIONS GUARANTEED BY GOVERNMENT OF KENYA THE 1. Ministry of Industrialization STATEMENT OF INVESTMENTS BY THE PERMANENT SECRETARY/TREASURY IN VARIOUS COMPANIES 1. Ministry of Finance STATEMENT OF PARTICIPATION BY THE GOVERNMENT OF KENYA IN QUASI GOVERNMENT ORGANIZATION AND OTHER STATUTORY ORGANIZATIONS 1. Ministry of Energy xxxi xxxi

34 STATEMENTS OF THE SUBSCRIPTIONS BY THE KENYA GOVERNMENT TO INTERNATIONAL ORGANIZATIONS 1. Ministry of Finance Page Paragraph STATEMENT OF OUTSTANDING LOANS 1. Ministry of Tourism FUND ACCOUNTS 1. Provident Fund Asian Officers Family Pension Fund Pensions and Gratuities Funds and Deposits - Statement of Assets and Liabilities European Widows and Orphans Pension Scheme Fund District Cash Fund Account-Finance Civil Contingencies Fund Rural Enterprise Fund Kenya Local Loan Support Fund Asiatic Widows And Orphans Pension Fund Petroleum Development Levy Fund-Finance District Cash Fund Account-State for Provincial Administration and Internal Security Kenya Prisons Industries Revolving Fund Kenya Prisons Farms Revolving Fund Local Authorities Transfer Fund (LATF) Road Maintenance Fuel Levy Mechanical and Transport Fund Occupational Safety and Health Fund Women Enterprise Fund Management, Supervision and Liquidation Fund Parliamentary Mortgage Scheme Fund Petroleum Development Levy Fund-Energy Strategic Grain Reserve Trust Fund Faza Fire Disaster Fund Nakumatt/Molo Fire Victims Fund FINANCIAL STATEMENT 1. Nuclear Electricity Project Committee xxxii