REPUBLIC OF KENYA REPORT THE AUDITOR-GENERAL THE FINANCIAL STATEMENTS TECHNICAL UNIVERSITY OF KENYA FOR THE YEAR ENDED 30 JUNE 2014

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1 REPUBLIC OF KENYA REPORT OF THE AUDITOR-GENERAL ON THE FINANCIAL STATEMENTS OF TECHNICAL UNIVERSITY OF KENYA FOR THE YEAR ENDED 30 JUNE 2014

2 REPORT OF THE AUDITOR-GENERAL ON TECHNICAL UNIVERSITY OF KENYA FOR THE YEAR ENDED 30 JUNE 2014 REPORT ON THE FINANCIAL STATEMENTS I have audited the accompanying financial statements of Technical University of Kenya set out on pages 11 to 26, which comprise the statement of financial position as at 30 June 2014, statement of financial performance, statement of changes in net assets, statement of cash flows and statement of comparison of budget and actual amounts for the year then ended, and a summary of significant accounting policies and other explanatory information in accordance with the provisions of Article 229 of the Constitution of Kenya and Section 14 of the Public Audit Act, I have not obtained all the information and explanations which, to the best of my knowledge and belief, were necessary for the purpose of the audit. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Public Sector Accounting Standards (Accrual Basis) and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, 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 Section 13 of the Public Audit Act, Auditor-General s Responsibility My responsibility is to express an opinion on these financial statements based on the audit and report in accordance with the provisions of Section 15(2) of the Public Audit Act, 2003 and submit the audit report in compliance with Article 229(7) of the Constitution of Kenya. 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 about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit 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 statement, whether due to fraud or error. In making those risk assessments, the auditor considers internal control 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 University 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. I believe that the audit evidence obtained is sufficient and appropriate to provide a basis for my qualified audit opinion.

3 Basis for Qualified Opinion 1. Property, Plant and Equipment As similarly reported in the financial year 2012/13, the property, plant and equipment balance of 4,692,155,807 as at 30 June 2014 includes four (4) parcels of land reference Nos.209/7203, 209/8726, 209/16715, and motor vehicles owned by the University which still bear the name of the defunct Kenya Polytechnic. Further, the property, plant and equipment balance includes work-in-progress totalling 501,606,053 which includes an expenditure of 1,542,800 in respect of consultancy services on Human Immunodeficiency Virus (HIV) which has been capitalized under work-in-progress. This is contrary to paragraph 12 of International Public Sector Accounting Standards No.17 which defines property, plant and equipment as tangible assets held for use in the production or supply of goods or services, for rental and for administrative services and are expected to be used during more than one reporting period. Paragraph 13 further states that an item of property, plant and equipment should be recognized as an asset when it is probable that future economic benefit or service potential associated with the asset will flow to the entity and the cost or fair value of the asset can be measured reliably. In the circumstances, it has not been possible to confirm the accuracy and ownership status of the property, plant and equipment balance of 4,692,155,807 as at 30 June Going Concern Although the University recorded a surplus of 46,785,237 during the year under review, the current liabilities of 836,519,819 as at 30 June 2014 exceeded the current assets of 489,036,465 resulting into a negative working capital of 347,483,354. In particular the University was unable to remit pension deductions amounting to 391,861,174 as at 30 June 2014 to the Pension Scheme. The University is therefore technically insolvent and the financial statements have been prepared on a going concern basis on the assumption of continued financial support from the Government and its creditors. 3. Unsupported Balances During the year under review, the supporting schedules of the following balances reflected in the financial statements were not availed for audit verification: (a) Item Trade and Other receivables 2 Amount Kshs (i) Salary advances 562,345 (ii) Deposits to Suppliers 104,350 (iii) Nyayo vehicle project 500,000 (iv) Dishonored cheque 562,501 (b) Inventories 4,946,167

4 (c) Trade and other payables (i) Contractors & general creditors 84,532,037 (ii) Third party funds 22,604,888 (d) Income-Donor funds 6,081,550 In the circumstances, the validity and accuracy of the financial statement balances for the year ended 30 June 2014, could not be confirmed. 4. Cash and Cash Equivalents 4.1 As disclosed under note 9 (a) to the financial statements, the cash and cash equivalents balance of 160,668,439 includes a balance 631,731 in respect of student deposit caution money, 105,738 under needy students funds and 300,000 in respect of fixed deposit whose bank balance confirmation certificates were not availed for audit verification. 4.2 A review of bank reconciliation statements availed for audit review, revealed some old outstanding payments and outstanding deposits totalling 227,751 and 5,415,472 respectively, some of which date back to 2011/2012 financial year, that were still reflected as reconciling items as detailed below; Outstanding Payments Outstanding Deposits Account Kshs Kshs Hostel fund account 186, ,326 Fund account 41,320 4,647,146 Total 227,751 5,415, The following differences were noted between balances reflected in the financial statements and the balances in the cashbooks: Financial Statements Balance Cash book Balance Variance Production Unit 4,110,730 4,264,148 (153,418) Fund Account 166,499 4,773,033 (4,606,534) Equity Collection Account 20,152,880 20,131,835 21,045 Machine Replacement 769,795 1,008,826 (239,031) In addition, the cashbook in respect of production unit savings account balance of 431,311 and the main account balance of 5,718,067 were not availed for 3

5 audit verification. Further, the current status of unpresented cheques totalling to 69,000,000 in the main account as at 30 June 2014 was not provided for audit review. In the circumstances, the validity and accuracy of cash and cash equivalents balance of 160,668,439 as at 30 June 2014 could not be confirmed. 5. Inaccuracies in the Financial Statements The following differences were noted between the financial statement balances and the supporting schedule balances: Trade and other receivables Financial Supporting Statements Schedule Balances Balances Variance Kshs Kshs Kshs (i) Outstanding students fees 304,009,318 76,716, ,292,445 (ii) Contracted services 10,187,415 10,208,679 (21,264) In the circumstances, the validity and accuracy of outstanding students fees balance of 304,009,318 and contracted services figure of 10,187,415 for the year ended 30 June 2014 could not be confirmed. Qualified Opinion In my opinion, except for the effect of the matters described in the Basis for Qualified Opinion paragraph, the financial statements present fairly, in all material respects the financial position of the University as at 30 June 2014, and of its financial performance and its cash flows for the year then ended, in accordance with International Public Sector Accounting Standards (Accrual Basis) and comply with the Universities Act, Edward R. O. Ouko, CBS AUDITOR-GENERAL Nairobi 25 June

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