ANNUAL REPORT AND FINANCIAL STATEMENTS

Transcription

1 ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE

2 Core Statements Our Vision Our Vision is an Efficient Road Network for a Prosperous Nation Our Mission Our Mission is to Fund, Oversee and Coordinate Roads Development, Rehabilitation and Maintenance. We Shall Ensure Prudent Sourcing and Optimal Utilization of Resources for Socioeconomic Development. Our Core Values 1. Excellence We are committed to timely delivery of high quality cost effective services and encourage peak performance, enthusiasm and passion for work. We shall encourage productivity and be responsive and acknowledge individual and team accomplishments. 2. Customer Focus We are committed to meeting our stakeholder requirements to their satisfaction by ensuring effective and efficient use of resources. We encourage continual improvement of our services and processes. 3. Integrity and Impartiality We are committed to promoting transparency, accountability and professionalism in our work. We shall be impartial, objective and unbiased in how we relate to each other and our stakeholders. 4. Staff Focus As our most valuable resource, we shall promote a good working environment for our staff as well as promote growth, respect, unity and openness amongst our staff. 5. Diversity and Inclusiveness We shall embrace diversity and promote inclusiveness in our organization and shall not discriminate on the basis of age, gender, race, religion, tribe or physical ability. 6. Good Corporate Citizenship We shall comply with all laws that affect our operations. We shall ensure good corporate citizenship by protection of vulnerable groups/marginalized minorities and ensuring compliance with our legal and statutory obligations. We shall endeavour to be sensitive to issues that affect Kenyans such as poverty and environment degradation and shall ensure they form part of our planning processes National Values We shall be guided by the national values as enshrined in Article 10 of the Constitution as we make policies and decisions

3 CONTENTS 1 KEY HIGHLIGHTS Who We Are...4 What We Do...5 Corporate Information...6 Kenya Roads Board at a Glance BUSINESS REVIEW Chairman s Statement Executive Director s Statement Who Leads Us Business Performance GOVERNANCE & CORPORATE RESPONSIBILITY Who Governs Us Corporate Governance Statement Sustainability Statement FINANCIAL REVIEW Page FUND FINANCIAL STATEMENTS Report of the Directors...54 Statement of the Board s Responsibilities...55 Page Report of the Independent Auditors Statement of Financial Performance...58 Statement of Financial Position...59 Statement of Changes in Net Assets...60 Statement of Cash Flows Statement of Comparison of Budget and Actual Amounts...62 Notes to the Financial Statements Progress on Follow up of Auditor s Recommendations...75 FINANCIAL STATEMENTS Report of the Directors...79 Statement of the Board s Responsibilities...80 Report of the Independent Auditors Statement of Financial Performance...83 Statement of Financial Position...84 Statement of Changes in Net Assets...85 Statement of Cash Flows...86 Statement of Comparison on Budget and Actual Amounts...87 Notes to the Financial Statements Progress on Follow up of Auditor Recommendations

4 ABBREVIATIONS APRP CBS FY HIV/AIDS IPSAS KeRRA KeNHA KRB KRBF KURA KWS MBS RMLF RSIP RML Annual Public Roads Programme Chief of Burning Spear Financial Year Human Immune Deficiency Virus / Acquired Immune Deficiency Syndrome International Public Sector Accounting Standards Kenya Rural Roads Authority Kenya National Highways Authority Kenya Roads Board Kenya Roads Board Fund Kenya Urban Roads Authority Kenya Wildlife Services Moran of the Burning Spear Road Maintenance Levy Fund Road Sector Investment Programme Road Maintenance Levy 2

5 1 KEY HIGHLIGHTS Who We Are What We Do Corporate Information Performance at a Glance 3

6 Who We Are Incorporation Kenya Roads Board (KRB) is a statutory body established by the Kenya Roads Board Act No. 7 of 1999 in accordance with Chapter 446 (State Corporations Act) of the Laws of Kenya. Kenya Roads Board is a State Corporation under the Ministry of Transport, Infrastructure, Housing and Urban Development. Kenya Roads Board Fund (KRBF) is a Fund established under Chapter 408 of the Laws of Kenya - Kenya Roads Board Act, which came into effect under Legal Notice No. 7 of The Board was established in accordance with the Chapter 446 of the Laws of Kenya (State Corporations Act). The State Corporations Act is An Act of Parliament to make provision for the establishment of state corporations: for control and regulation of state corporations; and for connected purposes. The Kenya Roads Board Fund is managed by Kenya Roads Board. The Board is domiciled and operates within the Republic of Kenya. 4

7 What We Do Principal Activity As stipulated in the Kenya Roads Board Act of 1999, the object and purpose for which the Board was established is to oversee the road network in Kenya and coordinate the maintenance, rehabilitation and development funded by the Fund and to advise the Minister on all matters related thereto. Specific Mandates The mandates of KRB are provided for in the Kenya Roads Board Act, No. 7 of 1999 as hereunder: a) Coordinate the optimal utilization of the Fund in implementation of programmes relating to the maintenance, rehabilitation and development of the road network; b) Seek to achieve optimal efficiency and cost effectiveness in roadworks funded by the Fund; c) Manage the Fund; d) Based on a five year road investment programme approved by the Minister for Roads and the Minister for Finance, determine the allocation of financial resources from the Fund, or any other source available to the Board required by Road Agencies for the maintenance, rehabilitation and development of the road network to ensure that the allocation of funds is pegged to specific categories of roads e) Ensure that a maximum of ten percent (10%) of all monies allocated to each road agency is utilized for development purposes by the said agency; f) Monitor and evaluate, by means of technical, financial and performance audits, the delivery of goods, works and services funded by the Fund; g) In implementing paragraph (f), pay due regard to public procurement and disposal regulations and additional guidelines issued or approved by the Minister; h) Recommend to the Minister appropriate levels of road user charges, fines, penalties, levies or any sums required to be collected under the Road Maintenance Levy Fund Act, 1993 and paid into the Fund; i) Recommend to the Minister such periodic reviews of the Fuel Levy as are necessary for the purposes of the Fund; and j) Identify, quantify and recommend to the Minister such other potential sources of revenue as may be available to the Fund for the development, rehabilitation and maintenance of roads. 5

8 Corporate Information Registered Office Kenya Re-Towers, 3rd Floor Off Ragati Road, Upper Hill P.O. Box , City Square NAIROBI, KENYA Tel. No.: , /6 Fax No.: Website: address: Independent Auditors Auditor-General Kenya National Audit Office P.O. Box , GPO NAIROBI, KENYA Principal Bankers Central Bank of Kenya P. O. Box , City Square NAIROBI, KENYA Citibank N.A Citibank House, Upper Hill P.O. Box , GPO NAIROBI, KENYA Co-operative Bank of Kenya P.O. Box , GPO NAIROBI, KENYA 6

9 Kenya Roads Board at a Glance Our Footprint/ Financial Highlights FY 2015/16 RMLF Collections in KShs. Billion FY 2015/16 RMLF Disbursements in KShs. Billion 31 Annual Percentage Growth in RMLF Collections 36,690 Number of Kilometers maintained in FY 2015/ RMLF Rate per Litre in KShs. Number of employees 7

10 Kenya Roads Board at a Glance - Cont d Allocation Criteria of Road Maintenance Levy Fund - Kenya Roads Board Act, 1999 Historical Collections and Growth of Road Maintenance Levy 8

11 Kenya Roads Board at a Glance - Cont d Growth in Employees No FY11/12 FY12/13 FY13/14 FY14/15 FY15/16 Financial year Permanent Employees Contract Employees 9

12 10

13 2 BUSINESS REVIEW Chairman s Statement Executive Director s Statement Who Leads Us Business Performance 11

14 Chairman s Statement On behalf of the Members of the Board, it is my pleasure to present the Annual Report and Financial Statements for Kenya Roads Board Fund and Kenya Roads Board Operations for the year ended 30th June General Economic Environment The outlook for global economy has deteriorated in recent months due to weaker growth prospects in advanced and emerging market economies. Uncertainties in the global financial markets have increased due to risks posed by, among other factors, slower growth in China and the timing of the U.S. Fed s next increase in interest rates. However, the growth outlook for Kenya s main trading partners in the region remains strong, suggesting better prospects for exports performance. The performance of the Kenyan economy remains strong, posting a growth of 5.6 percent in 2015, from 5.3 percent in The Monetary Planning Committee (MPC) Market Perception Survey conducted in May 2016, shows that the private sector remains optimistic supported by macroeconomic stability, stronger agriculture performance, public infrastructure investment, and tourism recovery. According to the latest Gross Domestic Product (GDP) estimates from the Kenya National Bureau of Statistics, the country s economy expanded by 5.9 per cent during the first quarter of 2016 (compared to 5.0 per cent recorded during a similar quarter of 2015). ENG. JACOB ZECHA RUWA, OGW EXECUTIVE DIRECTOR For CHAIRMAN Faster growth rates were seen in manufacturing (3.6 percent from 1.2 percent in Q4), wholesale and retail trade (7.3 percent from 6 percent); transportation (8.4 percent from 5.5 percent); education (5.5 percent from 4.2 percent) and financial and insurance (8 percent from 6.5 percent). In addition, real estate activities rebounded (6.7 percent from -4.9 percent in Q4) while agriculture (4.8 percent from 11.8 percent) and construction (9.9 percent from 14.9 percent) slowed. Activities of accommodation and restaurants grew 12.1 percent, easing from a 21.2 percent jump in the previous quarter but marking the second straight period of growth after two years of falls as security issues hurt the tourism sector. 12

15 Chairman s Statement Strategy The Board has continued to implement the five-year Strategic Plan ( ). The Board s business plan FY 2015/16 was extracted from the five year strategic plan. The deliverables set out in the business plan and performance contract for FY 2015/16 were achieved. Specifically, the Kenya Roads Board Fund collections exceeded the estimates, the APRP was approved and implemented during the year, the Board carried out monitoring and evaluation of utilization of the KRB Fund, and the internal capacity was strengthened to ensure effective delivery of the Board s mandates. Corporate Governance Strong Corporate Governance is integral to the Board s long-term success and is essential in delivering the KRB s strategy. The Statement of Corporate Governance, included in this report, details the measures that the Board has undertaken to ensure a robust corporate governance environment. The Board also takes recognizance of its long term sustainability while delivering on its mandates as highlighted in the Sustainability Statement. With regard to excellence in Financial Reporting and disclosure, the Board, for the fourth year running has won the Financial Reporting (FiRe) Awards (Public Sector Category). The FiRe Awards are jointly organized by the Nairobi Securities Exchange, the Institute of Certified Public Accountants of Kenya and the Capital Markets Authority. Future Outlook FY 2016/17 Kenya Roads Board will align itself with the new Constitutional dispensation to serve Kenyans at the National and County levels of government. The Board is actively engaged in activities aimed at increasing and sustaining the KRB Fund to meet the ever increasing road maintenance needs. The Board remains committed to strengthening relationships with its stakeholders and key partners. The Board shall continue to develop its internal capacity (people, policies, practices, processes), innovative and cost-effective methods of road construction and maintenance. Acknowledgement On behalf of KRB directors and staff, I express my sincere gratitude to the Government of Kenya, Ministry of Transport, Infrastructure, Housing & Urban Development, Road Agencies, taxpayers and other stakeholders for their continued support. This has gone a long way towards building a solid institution that is responsive to its mandates and stakeholders expectations. I also wish to thank my fellow directors for dedicating their time and effort to steer the Board. Their advice and guidance has played a key role in the attainment of the impressive results. Our management and staff have risen to the challenges with a great deal of resourcefulness, diligence, resilience and determination. We are proud of the team and greatly appreciate their ability and commitment towards achieving the Board s vision, mission and objectives. I look forward to a promising financial year 2016/17. God Bless you all. Eng. Jacob Zecha Ruwa, OGW Executive Director FOR: CHAIRMAN 26th August,

16 Executive Director s Statement Overview Kenya Roads Board has continued to carry out its mandate of effectively and efficiently managing the Kenya Roads Board Fund. We are happy to note that the Board continues to achieve its ambitious performance targets set in the annual business plans, derived from the Strategic Plan Currently, Road Maintenance Levy Fund (RMLF) funds covers an average of 30% of the road network. The table below shows the total length of the road network that has been maintained in the last five financial years using RMLF. Financial Year Works Achieved Percentage (in Kilometers) of Network Maintained FY 2011/ ,572 43% FY 2012/ ,890 39% FY 2013/ ,679 37% FY 2014/ ,625 42% FY 2015/ ,690 23% General Condition of Roads In Kenya, ninety three percent (93%) of all freight and passenger traffic is carried by road. The road network is extensive, consisting of approximately 161,451.4 kilometers (out of which 10% is paved, while the rest of the network is either gravel or earth roads). ENG. JACOB ZECHA RUWA, OGW EXECUTIVE DIRECTOR It is estimated that about 30% of the paved roads are in good condition while only about 20% of the unpaved roads is in maintainable condition. Hence a large portion of the network is in either poor or failed condition and requires urgent rehabilitation to restore it to a maintainable condition. According to the latest data from the Road Inventory and Condition Survey (RICS) of The condition of paved roads is 19% good, 22% fair and 59% poor; while condition of unpaved roads is - 12% good, 22% fair and 66% failed. KRB is currently preparing a consultancy for a Road Inventory and Condition survey to update this information. Performance & Utilization of Funds The Board received Kshs billion from Fuel Levy, Transit Tolls, Agricultural Cess and Interest income in the financial year, compared to a target of Kshs billion and receipts of Kshs 32.2 billion in FY 2015/16. The receipts are analyzed as follows: 14

17 Executive Director s Statement FY 2015/16 FY 2014/15 Kshs 000 Kshs 000 Fuel Levy 51,068,986 32,133,023 Agricultural Cess 101, ,105 TOTAL RECEIPTS 51,170,783 32,276,128 During the financial year ended 30th June 2016, the Board allocated funds to the road agencies totaling to Kshs billion (2015: Kshs 25.8 billion). The disbursements are higher than forecast and prior year due to increased collections arising from the increase in Fuel Levy from Kshs 9.00 to Kshs per litre of petrol and diesel. The increment of Kshs 3.00 was as a result of the introduction of the Roads Annuity Fund. During the year a sum of Kshs 3.3 billion was released to County Governments in accordance with the County Allocation of Revenue Act (CARA), The Annual Public Roads Programme (APRP) During the year, the Board allocated and released funds in accordance with the published Annual Public Roads Programme (APRP). During the year, the Road Agencies reported an expenditure of KShs Billion for maintenance of 36,689km of roads, against the target of KShs Billion for maintenance of 49,350km. The Board will continue to evaluate the delivery of road works to assure value for money. As the process of alignment of the Roads Sector to the new Constitution continued, road works contained in the Annual Public Roads Programme for FY 2015/16 continued uninterrupted and were undertaken by the designated road agencies. Performance Contracting Kenya Roads Board signed the sixth performance contract with the Government of Kenya through the Ministry of Transport, Infrastructure, Housing and Urban Development. The Key Performance Indicators outlined in the Performance Contract include financial & stewardship, service delivery, operational and qualitative indicators derived from the Medium Term Expenditure Framework, Vision 2030 and Sector Performance standards. Human Capital At Kenya Roads Board, we believe that human capital is a key pillar to the successful execution of the Board s Strategic Plan. KRB has therefore continued to develop the human capital. The Board s members of staff have received high quality training through an elaborate training plan for all staff. The performance management system implemented has led to realization of the Board s goals. ISO Certification The Board has maintained ISO 9001:2008 Quality Management System (QMS) certification. The Board endeavors to maintain and continually improve the effectiveness of its quality management systems that meet the stakeholders expectations in accordance with ISO 9001:2008 requirements. Future Outlook KRB shall align its operations and policies with the constitutional dispensation to serve Kenyans at the National and County levels of government. KRB is involved in the discussion on the Kenya Roads Bill, 2015 which is expected to become Law soon. KRB shall align its operations and strategies to the same once enacted. The Board is also actively engaged in activities aimed at increasing and sustaining the KRB Fund to meet the ever increasing maintenance needs. Appreciation I would like to thank the Board of Directors, Management and Staff of Kenya Roads Board for their continued support and dedication, without which our ambitious objectives could not have been achieved. I would also wish to extend our gratitude to the Government of Kenya, the Ministry of Transport, Infrastructure, Housing and Urban Development, the National Treasury and Road Agencies for their continued support. Finally, I would like to thank all taxpayers and stakeholders, and assure them of our strong commitment to deliver outstanding value to Kenya for we know roads are to what blood veins are to human body. ENG. JACOB ZECHA RUWA, OGW Executive Director 26th August

18 Who Leads Us Eng. Jacob Zecha Ruwa, OGW Eng. Ruwa is the Executive Director, Kenya Roads Board. Eng. Ruwa holds a Bachelor of Science degree in Civil Engineering. He is a registered member with Engineers Registration Board and Institution of Engineers of Kenya. Eng. Ruwa has more than twenty years practical experience in road planning, design, construction and maintenance under the Ministry of Transport, Infrastructure, Housing & Urban Development heading various projects and regional offices. Eng. Stephen Waireri Ndinika, Eng. Ndinika is the General Manager, Technical Compliance. Eng. Ndinika holds a Bachelor of Science in Civil Engineering from University of Nairobi and Masters of Science in Highway Engineering, from Birmingham University in the United Kingdom. He is a registered member with Engineers Registration Board and Institution of Engineers of Kenya. Eng. Ndinika has more than twenty years practical experience in roads construction and maintenance in developing countries having worked in both public and private sectors and has also managed projects funded by various international funding agencies. CPA Rashid Kamis Mohamed, MBS CPA Mohamed is the General Manager, Finance. He holds a Bachelor of Commerce degree from the University of Nairobi and a Master s in Business Administration from the University of Oxford in the United Kingdom. He is a registered member of the Institute of Certified Public Accounts of Kenya. He has over fifteen year s managerial experience in finance in both private and public organizations. CPA Mohamed has also been engaged in public policy and advocacy matters of governance and financial management and is also involved in various social initiatives. 16

19 Who Leads Us Eng. Benjamin Maingi, Eng. Maingi is the General Manager, Planning and Programming. Until his appointment, he served the Board in the capacity of Manager, Technical Compliance Department. He holds a Bachelor of Science degree in Civil Engineering from University of Nairobi and Masters of Science in Highway Engineering, from Birmingham University in the United Kingdom. In the Engineering profession, he is a registered member with Engineers Board of Kenya and the Institution of Engineers of Kenya and is also a member of Kenya Geotechnical Society. In the area of management and corporate governance, he is a member of the Institution of Directors of Kenya (IoD). Eng. Maingi has more than thirty years practical experience in roads construction and maintenance in tropical countries having worked in both public and private sectors. Ms. Lucy Kabura Gathika, Ms. Gathika is the General Manager, Legal and Corporate Affairs. Ms. Gathika holds a Bachelor of Law and a Master s in Business Administration from the University of Nairobi. Ms. Gathika is also a member of the Institute of Certified Public Secretaries of Kenya and is an Advocate of the High Court of Kenya. Ms. Gathika has a wealth of more than fifteen years experience having worked in both public and private sector. Mrs. Ruth Moraa Bita, Mrs. Bita is the General Manager, Human Resources and Administration. Mrs. Bita holds a degree in Business Administration and a Master s in Business Administration from the University of Nairobi. Mrs. Bita is also a Certified Public Secretary and a member of Institute of Human Resource Management. She has over 15 year s managerial experience in both public and private sectors. 17

20 Business Performance SOURCES OF FUNDS Kenya Roads Board Fund (KRBF) The Kenya Roads Board Fund (KRBF) mainly comprises Fuel Levy, Transit Tolls and Agricultural Cess, as discussed below: KShs. 12 per litre of petrol and diesel is charged as levy. (i) Road Maintenance Levy Fund (RMLF) Road Maintenance Levy Fund (RMLF) comprises Fuel Levy and Transit Tolls. Fuel levy is charged at the rate of KShs. 12 per litre of petrol and diesel imported into the country. Fuel levy is collected from the oil marketers on the Board s behalf by Kenya Revenue Authority, which charges an agency commission of 2% on all fuel levy remittances. Out of these KShs 3 per litre of petrol and diesel imported to the country is allocated to the Roads Annuity Fund which was established through Legal Notice No. 36 of the Public Finance Management (Roads Annuity Fund) Regulations Transit Tolls are charged on foreign-registered commercial trucks exceeding 2 tonnes that ply the roads in Kenya, and are based on distance covered, axle load and country of origin of the truck. Other sources of funds include income from treasury operations. Income from treasury activities represents interest earned from the Board s liquid assets. 148m is the amount of money released to various constituencies in coffee growing areas for maintenance of roads as per the approved Work Plans. The Kenya Roads Board Act No. 7 of 1999 empowers the Board to manage such moneys or assets as may accrue to or vest in the Board in the course of its functions under the Act or under any other written law. (ii) Agricultural Cess Agriculture Cess funds are administered by the Kenya Rural Roads Authority (KeRRA), for maintenance of feeder roads that provide access to the coffee growing areas. The Work Plans for coffee cess funds are prepared by the Constituency Roads Committees in consultation with coffee stakeholders, and submitted to the KeRRA Regional Office. KeRRA then forwards the Work Plans to the Kenya Roads Board for review and approval. Once Work Plans are approved, funds are released to the KeRRA Regional Office through KeRRA Headquarters, for implementation of the road works. During the year, the Board released KShs. 148 Million to various constituencies in coffee growing areas for maintenance of roads as per the approved Work Plans. Levying crop cess has since been devolved effective July ALLOCATION CRITERIA The Board prepares an Annual Disbursement Program based on the historical collection trends and the annual budget. This program details the funding available to each Road Agency during the course of the year for the planning of works. Based on this program and the monthly collections, the Board disburses funds to the Road Agencies in accordance with the Kenya Roads Board Act 1999 and as amended by the Kenya Roads Act of 2007 and the County Revenue Allocation Act, summarized on page 8 of this report. GROWTH IN RMLF COLLECTIONS Annual fuel levy collections have improved since 1993 due to the upward reviews of the rate charged per litre of fuel and increased economic activity. The last review was done in July 2015, when the rate was increased from KShs to KShs per litre of petrol and diesel. 18

21 The annual RML collections have increased from KShs Billion in FY 2014/15 to KShs 49.6 Billion in FY2015/16. The growth over the five year period is shown on page 8 of this report. RMLF RECEIPTS AND DISBURSEMENTS - FY 2015/2016 Business Performance - (Cont d) The Board received Kshs billion from Fuel Levy, Transit Tolls, Agricultural Cess and Interest income in the financial year, compared to a target of Kshs billion and receipts of Kshs 32.2 billion in FY 2015/16. From the receipts, the Board allocated funds to the road agencies totaling to Kshs billion (2014/15: Kshs 25.8 billion). The funds were disbursed in accordance with the statutory provisions. FORWARD ESTIMATES KShs.40.54B was allocated to road agencies. The Board prepares its annual budget based on the Medium Term Expenditure Framework. The budget is then submitted to the Ministry of Transport, Infrastructure, Housing and Urban Development and Treasury for approval by the end of January every year. Based on the Medium Term Expenditure Framework, the forward budgets are as follows: FY 2016/17 FY 2017/18 FY 2018/19 KShs Billions KShs Billions KShs Billions Road Maintenance Levy Fund Forecast UTILIZATION OF THE FUND The Kenya Roads Board is committed to ensure that the proceeds from the KRBF have been applied for the purpose for which they were intended and that the use of such resources is efficient and transparent, in accordance with the principles, procedures and requirements of KRB and sound professional practice. The Board monitors the utilization of funds on a regular basis through Technical, Performance and Financial audits and APRP Implementation monitoring through field visits and review of progress reports submitted to ensure value for money on KRBF funded road maintenance works. The Kenya Roads Board Act requires each Road Agency to submit its audited accounts to the board within six months of the end of the financial year. However, the audited financial statements of the road agencies had not been audited as at the date of this report. From the unaudited financial statements for the Road Agencies for FY2015/2016 and the APRP implementation reports, the summary of the total expenditure of the Fund for FY 2015/2016 is shown over leaf:- 19

22 Business Performance - (Cont d) Road Agency Network Category Budget - APRP FY2015/16 KShs Opening B a n k B a l a n c e 1st July 2015 KShs Transfers from KRB Fund to Road Agencies KShs Total Funds for Road Works FY2015/16 KShs Expenditure for APRP FY2015/16 KShs Expenditure for CARRYOVER - FY14/15 Works KShs TOTAL EXPENDITURE IN FY2015/16 KShs KeNHA ABC roads (40% & tolls) 11,940,279,898 2,057,605,220 11,940,279,898 14,121,685,118 9,337,621,031 1,975,002,159 11,312,623,190 10% by Minister/KRB ,800,000 KeRRA D,E & others (32%) 10% by Minister/KRB Coffee cess 9,188,761,519-1,716,300, ,931,611 71,348,715 9,188,761,519 2,002,688, ,188,144 14,116,218,278 6,066,101,642 2,380,855,165 8,446,956,807 KURA Urban roads (15%) 10% by Minister/KRB 4,307,231,962-2,053,061,544-4,307,231, ,800,000 6,666,093,506 1,479,509,610 3,887,075,319 5,366,584,929 KWS Park & reserves (1%) 287,148, ,137, ,148, ,286, ,696, ,696,309 MOTIHUD 10% by Minister/KRB (*) 135,126, ,126, ,126,989 KRB 2% admin 649,272, ,905, ,272,000 1,080,177, ,688, ,688,000 - County Governments (**) 3,300,000, Roads Annuity Fund TOTAL 40,544,182,151 7,485,289,510 32,388,297,403 39,873,586,913 17,856,047,272 8,512,628,952 26,368,676,224 Closing Balance 30th June 2016 KShs 854,225,401 6,311,816,862 2,711,895, ,333,990 - Chief Engineer - Roads 2,871,487, ,941,550 Other ,185, ,489,000 - County Roads 3,300,000,000-3,300,000,000-8,000,000, Note (*) Minister/KRB funds are allocated/released to each road agency after approval from the Cabinet Minister responsible for roads. (**) Most of the County Governments had not submitted their reports for FY2015/16 8,000,000,000 18,485,760,976 Unreported/ Over reported funds FY2015/16 KShs 1,954,836,527 (642,555,391) (1,412,387,146) (180,744,277) - - 3,300,000,000-3,019,149,713 20

23 Business Performance - (Cont d) The Road Agencies reported on KShs billion out of KShs billion funds available for road works. The road agencies held KShs billion in their bank accounts and KShs 3.02 billion was unreported as at the end of the financial year. The low level of utilization of funds was due delayed implementation of works, low contracting capacity and a High Court ruling in December 2015, which temporarily froze procurement by KeRRA and KURA. The court order was to ensure devolvement of roads and funds for County Governments. A comprehensive report on the expenditure and performance of the Road Agencies for the year is detailed in the Annual Public Roads Programme Implementation Report FY 2015/2016. The Road Agencies utilized Kenya Roads Board funds to maintain roads as follows during the financial year: Road Agency Network Category Total Road Network Planned Achieved kms % Achieved of Length(km) Length(km) network(kms) planned network KeNHA A, B, C Roads 17, ,294 8,473 91% KeRRA D, E & Others 126, ,074 24,913 69% KURA Urban Roads 13, ,181 1,593 73% KWS Parks & Game Reserves 4, ,801 1,711 95% County Governments* County Roads TOTAL 161, , , % *Note: The County Governments had not submitted their work plans and the achieved works for the financial year. Based on the available RMLF funding, the RAs planned for 49,350 km against the entire road network of 161,452 km. This represents 30% of the network. The coverage of the network has decreased over the last six years as shown in the table below. This is attributed to the increase in the cost of construction which does not match with the growth of the RMLF collections. Financial Year Network coverage in kms % Network coverage FY 2010/11 73, FY 2011/12 66, FY 2012/13 62, FY 2013/14 61, FY 2014/15 52, FY 2015/16 49, Kshs M was released to KeNHA under 10% KRB/ Minister allocation. The Kenya National Highways Authority (KeNHA) The budgetary allocation for KeNHA for FY 2015/16 was KShs 11,940,279,899 comprising KShs 8,999,951, % allocation and KShs 2,486,000, Development and 454,328, transit tolls. KeNHA also received Kshs million under 10% KRB/ Minister allocation. By the close of the financial year, KeNHA had received all their allocation. In addition KeNHA had KShs 2,057,605,220 opening bank balance as carry-over funds FY 2014/2015. KeNHA therefore had a total of KShs 14,116,218,278 for implementation of works in the FY 2015/2016. Out of this, the authority reported an expenditure of KShs 11,312,623,190 and a closing bank balance of KShs 854,225,401. KeNHA utilized fuel levy funds to maintain 8,473 Kms against a planned target of 9,294Kms. 21

24 Business Performance - (Cont d) The Kenya Rural Roads Authority (KeRRA) In FY 2015/16 KShs. 11,191,449,613 was released to KeRRA and in addition the authority had KShs 2,705,231,806 opening balance as carry-over funds FY 2014/15 from RMLF. KeRRA had a total of KShs 13,896,681,419 for implementation of works in the FY 2015/16 from the Fund. The authority expended KShs 8,400,724,632 and achieved 24,649 Kms of the planned road network of 36,074Kms (68% of the planned road network). Coffee Cess The Board released KShs 148,188,144 funds for coffee cess to KeRRA for implementation of works in coffee growing areas. KeRRA spent Kshs 46,232,177 to achieve 264 kms. 1,593Kms of road network was maintained by KURA using the fuel levy fund out of the planned 2,181 kms. 1,711Kms of road network was maintained by KWS out of the planned 1,801kms The Kenya Urban Roads Authority (KURA) The Board released KShs 4,613,031,962 to KURA in FY 2015/16. In addition KURA had KShs 2,053,061,554 as opening balance on account from FY 2014/15 funds. Therefore the authority had KShs 6,666,093,506 for implementation of road works in the FY 2015/2016(this includes Kshs million 10% KRB/Minister allocation). The Authority utilized fuel levy funds to maintain 1, 593Kms of the road network out of the planned 2,181Kms (73% of planned). The Kenya Wildlife Service (KWS) A total of KShs 287,148,797 was budgeted and released for road maintenance works in National Parks in FY 2015/16. KWS reported KShs 454,286,022 as available for road works which included opening balance from prior years. KWS maintained a total of 1,711 Kms of roads under routine maintenance out of the planned 1,801Kms of the roads (95% of Planned). Kenya Roads Board Operations KRB had a budget allocation of KShs 649,272,000 for administering the KRBF. The audited financial statements indicating the utilization of funds received by the Board for its operations are on pages 77 to 105. By the close of the financial year, the entire budget had been disbursed. THE ANNUAL PUBLIC ROADS PROGRAMME (APRP) The Kenya Roads Board Act requires the Board to review, individually, the Annual Road Works Programmes (ARWPs) submitted by Road Agencies and consolidate them into an Annual Public Roads Programme (APRP). The APRP forms the basis of funds allocation and auditing of works by the Board and is not to be varied by any Road Agency without prior written approval from the Board. It provides detailed allocations for all the funds accruing from KRBF in the Financial Year and outlines funding for road works to be undertaken by Road Agencies as identified in the KRB Act and subsequent legal statutes. During the year, the Board allocated and released funds in accordance with the approved FY2015/2016 Annual Public Roads Programme. A High Court ruling in December 2015, temporarily froze procurement in KeRRA and KURA in order to devolve Class D and below roads to County Governments. This led to delayed implementation of works by the two Road Agencies hence the decrease in km maintained this FY 2015/2016 compared to FY 2014/2015. The summary of APRP implementation achievement in FY 2015/2016 is tabulated below; 22

25 Business Performance - (Cont d) Road Agency Network Category Total Road Network Planned Achieved kms % Achieved of Length(km) Length(km) planned network KeNHA A, B, C Roads 17, ,294 8,473 91% KeRRA D, E & Others 126, ,074 24,913 69% KURA Urban Roads 13, ,181 1,593 73% KWS Parks & Game Reserves 4, ,801 1,711 95% County Governments* County Roads - -* -* 0%* TOTAL 161, , , % * - Most County Governments had not submitted work plans and progress reports for FY2015/16 as at the date of these report. TECHNICAL COMPLIANCE, FINANCIAL AND PERFORMANCE AUDIT The KRB Act legislates the auditing of KRBF under Section 6(g) and in particular, Section 26(1) of the Act requires the Board to regularly cause Technical, Financial and Performance (T, F&P) audits to be made on the delivery of works, goods and services financed by the Fund. The overall purpose of the audit assignment is to independently verify that the proceeds from the Kenya Roads Board Fund (KRBF) have been applied for the purpose of which they were intended and that the use of such resources is efficient and transparent and in accordance with principles, procedures and requirements of KRB and sound professional practice. Inspection of RMLF funded works implemented by Road Agencies i.e. KeNHA, KeRRA, KURA, KWS and County Governments, is done during these audits as well as verification of the utilization of RMLF funds released to these Agencies. These audits are conducted for both KRB Funded works and development partner funded projects (upon request by the development partner). The Board carries these audits using in-house personnel and through the use of consultancy engagements with engineering and financial audit firms. For purposes of conducting the T, F & P audits, Kenya Roads Board has sub-divided the country into seven regions and engaged Consultancies to carry out these audits. The audit consultancy service contracts covered the three year period i.e. from FY 2015/2016 to FY 2017/2018. The audit for FY 2015/2016 covered a representative sample of activities funded by the RMLF and implemented by RAs as contained in the APRP for that financial year. Road works activities implemented during the period were executed by either force account or through contracting. The works included routine and periodic maintenance works, rehabilitation, emergency and development works and administration of RMLF activities by RAs. For the development partner funded programs, the audit exercise captures a percentage of works that is agreed jointly between KRB and the development partner. During the year, the Board was engaged in the audits for road works funded by European Commission in Eastern, AfD in Central, PALWECO, and KfW in Western regions. These audits are carried out using in-house personnel and through consultancy engagements with engineering and financial audit firms. The overall purpose of the audit assignment is to independently verify that the proceeds from the Kenya Roads Board Fund (KRBF) have been applied for the purpose of which they were intended. Both KRB funded works and development partner programs are audited on an interim and annual basis. The consultants discuss the audit findings with the auditees before submitting them to KRB. KRB reviews the audit findings and disseminates them to road agencies and donors for action. Regional workshops are to disseminate audit findings to the Road Agencies and donors (where applicable). Some of the gains attributed to audits include: (a) Payment to contractors have been streamlined and take reasonable time to settle; (b) An accounting system has been acquired by KeNHA and KURA; 23

26 Business Performance - (Cont d) The Board shall continue to monitor the implementation of road works funded by the fund to ensure value for money is achieved, and assist in driving the economy towards Vision 2030 goals. (c) Increased use of contracting rather than the use of force account in project implementation; (d) Progressive increased compliance with APRP; (e) Increased adherence with government procedures, rules and regulations; (f) Establishment of effective accounting systems by road agencies; (g) Reduced time in disbursement of funds to the implementing units, among others. The following audit issues have remained a major challenge to the Roads sub-sector: (a) Poor preliminary investigations, technical designs and tender documentation; (b) Works outside the APRP; (c) Cost Overruns; (d) Payments made over and above the value of work done; (e) Inappropriate procurement procedures for works; (f) Delay in implementation of funded works; (g) Poor quality of maintenance works; (h) Misapplication of proceeds from RMLF e.g. Ineligible and unsupported payments; and (i) Non adherence to GOK financial regulations and guidelines. The detailed audit reports are available for review at KRB offices. The Board shall continue to monitor the implementation of road works funded by the fund to ensure value for money is achieved, and assist in driving the economy towards Vision 2030 goals. ROAD SECTOR INVESTMENT PROGRAMME (RSIP) The Road Sector Investment Programme (RSIP) forms the basis of prioritization of roads in the APRP prepared by Road Agencies. The Kenya Roads Act, 2007 provides that the Minister shall once in every five years, in consultation with the Road Authorities and the Kenya Roads Board cause to be prepared a road investment program for approval by the Minister responsible for finance. The 1st Phase of RSIP ( ) expired on June Although projects implemented during Phase 1 of the RSIP were largely in line with the priorities set out in the RSIP, only approximately 50% of the RSIP targets had been achieved. The Board shall continue to ensure that the RSIP is completed in time and monitor the implementation of the RSIP through regular reports and stakeholders meetings. The 2nd Phase of the Road Sector Investment Programme ( ) is under preparation using HDM-4 (a road investment appraisal tool). The RSIP is expected to be ready by March Achievements to date are as follows:- (i) KRB conducted 7 regional workshops to sensitize road agency staff on RSIP. (ii) Road condition data collected between Nov 2015 and Apr 2016 covering 8,000km. Consultant has configured and calibrated HDM-4 Kenya Workspace to local conditions. (iii) Draft RSIP report submitted in July 2016 (iv) Multi-criteria analysis to be applied on RSIP developed using HDM-4 in order to integrate social and economic criteria. In this regard, stakeholder surveys were conducted in August covering 10 Ministries, 10 Counties and 40 sub-counties. The Board shall continue to ensure that the RSIP is completed in time and monitor the implementation of the RSIP through regular reports and stakeholders meetings. OVERLOADING CONTROL In order to protect the country s road infrastructure assets from premature failure due to overloading, Kenya Roads Board carries out independent monitoring to assess the effectiveness of Axle Load Control operations in the country. Half yearly briefs highlighting the key findings and recommendations from the study are forwarded to the Principal Secretary for Infrastructure for implementation. 24

27 Business Performance - (Cont d) Some of the key improvements which have been noted during 2015/16 include over 90% compliance with axle load limits, the management of weighbridge operations has been outsourced to private management contractors which has led to enhanced efficiency of the facilities. In addition, introduction of the High Speed Weigh in Motion (HSWIM) at the major weighbridge stations (Gilgil, Mariakani and Athi River) has significantly reduced congestion queuing time at the weighbridges has reduced facilitating faster movement of goods within the region. To further enhance axle load compliance, KeNHA is currently upgrading and modernizing some of its existing weighbridge stations along the major corridors. The Board shall continue to monitor axle load compliance levels. To further enhance axle load compliance, KeNHA is currently upgrading and modernizing some of its existing weighbridge stations along the major corridors. ROAD NETWORK MANAGEMENT DATA IN KENYA KRB, with funding support from the World Bank under the Kenya Transport Sector Support Project (KTSSP), will collect and collate road network management data in Kenya. The components of the study are as follows:- Phase 1: Narrow Roads RICS and Road Condition for classified roads with a delivery period of 15 months; Phase 2: Formulation of policy on management of Narrow Roads with a delivery period of 3 months; Phase 3: Transport Sector Indicator Framework, Road Asset Valuation and Traffic Counts studies with a delivery period of 9 months. Phase 1 of the project will commence in August 2016 under three different contracts covering the entire country, which will run concurrently for a period of 15 months. Implementation of The specific objectives of Phase 1 of the study are: a) Establish an inventory and condition of the narrow roads network in Kenya which is currently not captured in the KRB RICS database estimated at 90,000Km. b) Have these roads assigned numbers and integrate the new data into the existing Road Inventory and Condition database. c) Collect road condition data for the classified road network (160,886Km) and update the KRB Road Inventory and Condition geo-database. Phase 2 and 3 will commence after Phase 1 is completed because they require inputs from Phase 1. ROAD CLASSIFICATION The Constitution of Kenya recognizes National Trunk Roads and County Roads. However it does not identify the two types of roads. The Board in consultation with the Ministry of Transport, Infrastructure, Housing & Urban Development prepared the roads register for National and County Roads. The Board in consultation with the Ministry of Transport, Infrastructure, Housing & Urban Development prepared the roads register for National and County Roads. A new classification system based on the road function and covering the entire road network was adopted and gazetted in January 2016, categorized roads into National trunk roads and County roads. The road network was inventoried at 161, kilometres long, comprising of 39, kilometres of National roads and 121, kilometres of County roads, as analyzed in the table below: 25

28 Business Performance - (Cont d) Road Class Paved Unpaved Total Classification Length in Kilometers S A 3, , ,617.3 B 3, , ,851.4 C 2, , ,445.5 Sub-total 9,964 30, ,995.1 National Roads D , ,123.3 E , ,047.7 F , ,625.6 G 1, , ,659.8 Sub-total 3, , ,456.4 County Roads Sum-Total 13, , ,451.5 Entire Road Network ROADS 2000 (R2000) STRATEGY The Medium Term Plan II of Vision 2030 recognizes R2000 strategy as a foundation for national transformation through improvement of rural accessibility and increasing youth employment and promoting sustainable livelihoods through capacity building. Kenya Roads Board in liaison with the MOTHUD co-ordinates the implementation of the Roads 2000 (R2000) Road Maintenance Strategy. The Roads 2000 Strategy is a method of road development and management that ensures optimum utilization and development of locally available resources where technically; and economically feasible and in a socially responsive manner. The Roads 2000 Strategy is a method of road development and management that ensures optimum utilization and development of locally available resources where technically; and economically feasible and in a socially responsive manner. The main components of R2000 can be summarized as follows: - Maintain good roads first, and then increase the amount of good roads through spot improvements to improve access to the majority of people in the rural and urban areas. Train local contractors on labour based methods of road construction and use them in order to enhance employment creation. Encourage the use of local materials in the maintenance and management of roads Improve the quality of road works through national standards, training and planning, reporting and monitoring systems. Mainstream cross cutting issues such as Health & Safety, Gender, environment and HIV/Aids. The Board has continued to encourage Road Agencies to use R2000 strategy in implementing road maintenance and development activities funded by the fund, hence enabling creation of jobs within the road sub-sector. The strategy has helped in building capacity for small and emerging contractors through various training initiatives financed by the fund in various institutions such as Kenya Institute of Highways & Building Technology. In the FY 2015/16, the implementing agencies reported that 18,225 Kms of roads were maintained through the R2000 strategy with 2.18 million person days of employment created. In addition, 889 labour based contractors and 115 members of staff have been trained using RMLF. In addition, there are ongoing development partners R2000 programmes to supplement the government efforts as shown in the table below: - 26

29 Business Performance - (Cont d) Project Name (Development Partner) Names of Counties Covered Number of Counties 1 R2000 Western Phase II (KfW - German) Busia, Kakamega, Bungoma and Vihiga 4 2 PALWECO (Finland) Busia 1 3 R2000 Central Phase II (AfD - French) Nyandarua, Murang a, Kiambu, Kirinyaga, Nyeri and Laikipia 6 4 EU R2000 Phase III Meru, Tharaka Nithi, Embu, Machakos and Makueni 5 Total Number Of Counties Covered 16 The Board shall continue to monitor the implementation of the R2000 Strategy and ensure more jobs are created to reduce the unemployment rate in the country and contribute towards making Kenya a middle income economy as envisioned in Vision RESEARCH AND DEVELOPMENT Vision 2030 recognizes the critical role of deploying cost effective world class infrastructure facilities and services as well as Research and Development (R&D) to support the country s socio-economic development. The impact of the road development programmes will be limited unless these programmes are continuously informed by research. Kenya Roads Board established an Interagency Research and Development Committee (IRDC) in order to enhance coordination of research efforts within the Roads sub-sector. Key Road Subsector institutions, practitioners, academia and other institutions are represented in this committee. The purpose of the IRDC is to provide technical and logistical oversight for the design and implementation of research activities in the road sub-sector including data collection, analysis, documentation and dissemination of research findings. The following research activities are being undertaken by the Board:- (a) A baseline survey on research undertakings in the road sub sector. The study identified past and current research efforts within the road subsector, priority areas for further research, policy recommendations to enhance road research in the country and establishment of a centralized road research knowledge base. Procurement of consultant to develop the Knowledge base system as additional module to AMLIB Library Information Management System is on-going. It is expected that the research knowledge base will be in place in FY 2016/17 Vision 2030 recognizes the critical role of deploying cost effective world class infrastructure facilities and services as well as Research and Development. Going forward the IRDC will implement the recommendations of the study. (b) Second phase of the cobblestone project along Ngong Ololua (E192) road The Board approved funding to support a second phase of the cobblestone project in Ngong in order to establish the construction costs of the technology. The project will be implemented by KeRRA in collaboration with Material Testing & Research Department (MTRD) and KIHBT. The construction is scheduled to commence once the design and procurement is completed. (c) International Conference on Transport and Road Research (itrarr) KRB in collaboration with Materials Testing and Research Department (MTRD) and DfID funded African Community Access Partnership (AFCAP) hosted the first International Conference on Transport and Road Research in Kenya dubbed itrarr Conference 2016 from 15th to 17th March 2016 in the Sarova Whitesands Hotel, Mombasa. The conference was attended by more than 200 delegates from 24 countries from Africa, South East Asia and Europe. The overall aim of the Conference was to enhance coordination of transport related research efforts within the region and the theme of the conference Transport Solutions to transform lives in the region: From Research & Innovation to uptake and 27

30 Business Performance - (Cont d) implementation. The conference report was disseminated to key stakeholders in the road sub-sector. (d) Other research proposals The Board has identified the following as a priority for funding to establish the performance and recommended on the best technologies for road maintenance and development for a sustainable road network:- (i) Monitoring and Evaluation of Road Research Trail Sections The Ministry and various donors have constructed various road research trial sections in the country, however there is no coordinated approach to monitoring the trials. At the commencement of the FY 2015/16, the Board signed an annual Performance Contract with the Government of Kenya through the Parent Ministry which sets out targets that the Board is expected to achieve during the fi nancial year. (ii) (iii) Field Trials on Hydraulic Road Binders (HRBs) During the Research Conference held in March 2016, it was recommended that field trials be undertaken to validate the findings of the laboratory trials and following conclusion of the field trials, specifications be drawn for the of use of HRBs in stabilization of capping and pavement layers for road works in Kenya. Fast Tracking Sub Base/Base in LVS Roads 2000 Projects. The proposals is to design and develop an equipment for mixing sub base/ base ETB in LVS Roads under R2000 Projects. PERFORMANCE CONTRACTING At the commencement of the FY 2015/16, the Board signed an annual Performance Contract with the Government of Kenya through the Parent Ministry which sets out targets that the Board is expected to achieve during the financial year. The annual targets are monitored on quarterly basis; progress reports submitted to the Board for approval and subsequently submitted to State Corporations Advisory Committee under the Office of the President. During FY 2015/2016, the Board scored an average rating of 2.33 very good compared to a rating of very good) in FY 2014/2015, which was an improvement from the previous financial year. 28

31 3GOVERNANCE & CORPORATE RESPONSIBILITY Who Governs Us Corporate Governance Statement Sustainability Statement 29

32 Who Governs Us From left to right: Ms. Monika Solanki, Mr. Alfred Kitolo, Eng. Jacob Zecha Ruwa, Mr. Joel Kipkemboi Yego Eng. John K. Mosonik, CBS PS, State Department of Infrastructure Eng. Mosonik is the Principal Secretary, State Department of Infrastructure. Eng. Mosonik holds a Bachelor of Science degree in Electrical Engineering. He is a registered member with Engineers Registration Board and Institution of Engineers of Kenya. Eng. Mosonik has more than twenty years practical experience. Dr. Kamau Thugge, CBS, MBS PS, The National Treasury Dr. Kamau Thugge, is currently the Principal Secretary at The National Treasury. Dr Kamau Thugge is the first Principal Secretary, National Treasury. Prior to his appointment as Principal Secretary, he worked as a Senior Economic Advisor in the Ministry of Finance from the year He has also worked at the International Monetary Fund (IMF) in various capacities for over 21 years. He was the Head of the Fiscal and Monetary Affairs Department, Treasury between 2004 to 2005 and the Economic Secretary and Head of Economic Affairs Department, Treasury between 2005 and He has represented the Permanent Secretary, Finance on various Boards. Dr. Thugge holds a Bachelor of Arts (Economics) from Colorado College, USA; Masters in Economics and Doctor of Philosophy (PhD) in Economics, also from Johns Hopkins. Ms. Mwanamaka Amani Mabruki PS, Ministry of Devolution & Planning Ms. Mwanamaka Amani Mabruki is currently the Principal Secretary for devolution. Prior to his appointment she was served as the Principal Secretary in the State Department of East African Affairs. She served in various leadership capacities Managing Director-Kenya National Shipping Line, Head of Corporate Development-Kenya Port Authority. She holds Master and Bachelor degrees in Economics from the University of Nairobi. Mrs. Betty Maina, MBS PS, Ministry of East African Affairs, Commerce & Tourism The Principal Secretary for East African Affairs. Ms Betty Maina, has a great wealth of experience and professional capability built over two decades of engagement with topnotch public and private sector organizations. Prior to joining the State Department, Ms Maina was the Director of her consultancy firm: BECEM Solutions and 30

33 Who Governs Us From left to right: CPA Osman Hassan Ibrahim, Mr. Kennedy C. Nyamao, Mrs. Theodora Gichana, Mr. Michael Karanja East Africa Regional Representative of Genetics Analytics. Ms Maina was Chief Executive of the Kenya Association of Manufacturers for 11 years (between June 2010 July 2015). Ms Maina has served as the Chief Executive of the Institute of Economic Affairs in Kenya (IEA). Between 1996 and 1997, she was a consultant with the Local Government Reform Program in Kenya and she was also team leader in programme initiation for the Migori Integrated Urban Development Programme between 1994 and During the same period, Ms Maina was also a Gender Advisor, under the Arid and Semi-Arid Programmes in (then) Keiyo and Marakwet districts (now Elgeyo Marakwet County). She served as a Research Assistant at the United Nations Center for Human Settlements (UN/Habitat) between 1991 and 1993; and Assistant Project Officer at Shelter Afrique ( ). Ms Maina holds a Master of Science Degree in Development Administration and Planning from the University College of London and a Bachelors of Land Economics from the University of Nairobi. He was previously the Managing Director, Equity Investment Bank. Prior to this, he served as the Regional Director, East and Southern Africa of GuarantCo (a USD 215million fund jointly owned by DfID, SECO, FMO and SIDA). Mr. Irungu also has previous experience as the Managing Director NIC Capital Limited. Before joining NIC capital, Mr. Irungu served as Financial Analyst, Emerging Markets Investment Banking Team based in London, UK at Citigroup Global. Mr. Irungu holds a Bachelor of Engineering (Financial Analysis and Decision Engineering) from Stanford University, CA, USA. He is a Certified public Accountant in Kenya and has a Post Graduate qualification at Deerfield Academy, MA, USA and is a graduate from the Kenya Institute of Management with a certificate in Management Information Systems. Mr. Irungu Nyakera PS, State Department of Transport Mr. Irungu is currently the Principal Secretary, State Department of Transport in the Ministry of Transport, Infrastructure, Housing & Urban Development. Ms. Rita Kavashe Automobile Association of Kenya Ms. Kavashe nominated from the Automobile Association of Kenya. She holds a Bachelor s Degree in Education from Moi University and a Master s in Business Administration from the University of Nairobi. She is the Managing Director 31

34 Who Governs Us - (Cont d) and Export Director Sub-Saharan Africa of General Motors East Africa Limited. She has over 16 years experience in the Motor Industry. Coast KATO branch and a member of the Executive Board of KATO. She has over 25 years experience in tours and travel and is the Managing Director of Lofty Tours. Mr. Joel Kipkemboi Yego* Institute of Surveyors of Kenya Mr. Yego nominated from the Institution of Surveyors of Kenya and is serving his second term. He holds a Master s Degree in Remote Sensing and a Bachelor of Science degree in Survey and Photogrammetry. He has served as lecturer in the Department of Survey at the University of Nairobi. He has also served as a Commissioner in the Njonjo Commission of Inquiry and is currently the Managing Consultant at Chalan Associates. Mr. Michael Karanja* Kenya Association of Manufacturers Eng. Karanja is a Board member nominated from the Kenya Association of Manufacturers. He holds a Bachelor of Science degree in Engineering and is a registered Engineer. He was previously the managing director of Sameer Africa Limited and has over 27 years experience in engineering, supply chain management and general management. He is also a founder member and non-executive director of the Center for Corporate Governance. CPA Osman Hassan Ibrahim, OGW* Institute of Certified Public Accountants of Kenya CPA Ibrahim nominated from the Institute of Certified Public Accountants of Kenya. He holds a Master s in Business Administration in Finance and a Bachelor of Commerce degree both from the University of Nairobi. He is the Director Finance at Independent Electoral and Boundaries Commission. He has extensive experience in strategic planning, financial and procurement management in both public and private sectors. Ms. Monika Solanki* Kenya Association of Tour Operators Mrs. Mary W. Wambugu League of Kenya Women Voters Mrs. Mary Wangui Wambugu is a Board member nominated from the League of Kenya Women Voters. Mrs. Wambugu is an Economics graduate of the University of Nairobi and holds CPA qualifications and an alumnus of Alliance Girls. She also holds certificates in Corporate Governance and Labour Laws. She is the Finance Director of a group of companies specializing in Construction and Real Estate business. She has previously served on the board Suntra Investment Bank. As an ardent golfer, she has risen to the prestigious position of Chairlady of Kenya Ladies Golf Union. Mrs. Solanki nominated from the Kenya Association of Tour Operators (KATO) in the Board. She is the Chairperson of * - Terms of these directors expired on 1st September 2015 Alternate Representatives Alternate Representative Mr. Philip Wachira - (Up to 13th August, 2015) Bernard Masiga - (From 14th August, 2015) Mr. Ontweka Onderi Naftal Mr. Kennedy C. Nyamao - (Up to 16th July, 2015) Mr. Martin Mosiria - (From 17th July, 2015) Mr. Alfred M. Kitolo Mr. Geoffrey Irungu - (Up to 12th July, 2015) Mrs. Grace Kamasara (From 13th July, 2015 up to 29th May, 2016). Mr. Paul King ori - (From 30th May, 2016) Organization PS, State Department of Infrastructure PS, The National Treasury PS, State Department for Devolution PS, Ministry of East African Affairs, Commerce & Tourism PS, State Department of Transport 32

35 Corporate Governance Statement INTRODUCTION The Board of Directors recognizes the importance of applying the highest standards of corporate governance as a key contributor to its long term success, long term value and prosperity. The Board regards corporate governance as pivotal to the attainment of the Board s core mandates and ensuring that KRB remains the best managed fund for an effective road network. Good corporate governance enables effective and efficient decision making and gives a structural aid for the Directors to discharge their duty to promote the success of KRB while taking into account the interest of stakeholders. Effective governance is achieved through a combination of strong policies process and structures, underpinned by the right values and culture. The Board recognizes that for governance to be effective, it must be realized through leadership and collaboration, with the Board at the helm leading by example and complimenting the senior management. The board has complied with the provisions of the Mwongozo Code of Governance for public corporations as indicated below:- THE BOARD BOARD COMPOSITION, APPOINTMENT AND SIZE The size, composition and appointments of the Members of the Board are prescribed in the Mwongozo, the code of governance for state corporations and Kenya Roads Board Act. Kenya Roads Board comprises of thirteen (13) independent non-executives board of directors of which eight (8) are from the private sector institutions and five (5) members representing the public sector. The Chairperson of the Board is appointed by the President from amongst the eight members from the private sector. The members are appointed by the Cabinet Secretary. The appointment is gazetted and each member is issued with a letter of appointment. Each member serves for a maximum of two terms of three (3) years each. All directors have signed into the Mwongozo code of governance. The public sector representatives are the permanent secretaries or designated alternates not below the level of deputy secretary from the ministries responsible for matters relating to roads, finance, devolution, regional co-operation, transport & communications. The representatives from the private sector are nominated from the various organizations:- The Automobile Association of Kenya, The Institution of Engineers of Kenya, The Institution of Surveyors of Kenya, The Kenya Association of Tour Operators, The Institute of Certified Public Accountants of Kenya, The Kenya Transporters Association, The Kenya Association of Manufacturers and The League of Kenya Women Voters. The Board regards corporate governance as pivotal to the attainment of the Board s core mandates and ensuring that KRB remains the best managed fund for an effective road network. The Board is well composed in terms of range and diversity of skills, knowledge, age, competencies, gender and experience in various sectors which makes it effective and provides an appropriate balance for the oversight and achievement of the Board s mandate and long term goals. The Board has three (3) women out of eight (8) members from the private sector. The Executive Director s position is filled through public advertisement. The Executive Director is appointed by the Board in consultation with the Minister responsible for roads. The Executive Director is an ex-official member of the Board but has no voting rights and is the secretary to the Board. A member of the Board may resign or vacate office if the member meets the conditions stipulated in the Kenya Roads Board Act and Mwongozo. The Board may recommend the removal of a member based on non-performance, non-attendance of meetings, unethical conduct or as set out in any constitutive documents or applicable law. The directors abridged biographies appear on pages 30 to 32 of this Annual Report. The Board membership is shown on page

36 Corporate Governance Statement - (Cont d) INDEPENDENCE AND SEPARATION OF ROLES & RESPONSIBILITIES The roles and responsibilities of the Chairman of the Board, the Executive Director and non-executive directors remain distinct and separate which ensures a balance of power of authority and provides for checks and balances. Their roles have been documented and they are expected to be independent. The board sets the strategic direction of the organization, oversees implementation of policies, evaluates the performance and reports to stakeholders. The Chairman provides overall leadership to the Board without limiting the principles of collective responsibility for Board s decisions. The Chairman provides overall leadership to the Board without limiting the principles of collective responsibility for Board s decisions. The Chairman builds an effective board and sets the board agenda in consultation with the Secretary/Executive Director and ensures effective communication to stakeholders. The Executive Director is responsible to the Board and has overall responsibility for the day to day management of the Kenya Roads Board Fund. The Executive Director recommends strategy to the Board and implements it and makes operational decisions. Noting that the position also dubs as the secretary to the Board, the Executive Director ensures appropriate and timely information flows within the Board, its committees and management. The non-executive directors are independent and are expected to maintain their independence during their term in office. The Board appoints the Executive Director and establishes a framework for the delegation of authority. The board ensures succession planning for the Executive Director and senior management is in place. BOARD RESPONSIBILITIES The Board s responsibility is to promote the long term success of the Board. The Board provides leadership and concentrates its efforts on the strategic and governance issues. The Kenya Roads Board Act, the Board Charter and the Directors Code of Ethics defines the governance parameters within which the Board exists and operates, the specific responsibilities to be discharged and powers of the Board, its committees and directors collectively, as well as certain roles and responsibilities incumbent upon directors as individuals. The Board s responsibility is to promote the long term success of the Board. The Board is charged with the following responsibilities:- (a) Defining the purpose of the Kenya Roads Board, that is, its strategic intent and objectives, and its values which should be clear, concise and achievable; (b) Strategy formulation and ensuring there are appropriate policies, systems and structures to effectively and successfully implement the strategies; (c) Provide leadership within a framework of prudent and effective structures which enable risks to be assessed; (d) Identify the opportunities as well as the principle risks in its operating environment including the preparation of the risk policy plans/risk management policies and implementation of appropriate measures to manage such risks or anticipated impact on the corporate business; (e) Review on a regular basis the adequacy and integrity of the internal controls, acquisition and divestures, management information systems including compliance with applicable laws and regulations; (f) In stewardship and in discharging its obligations, the Board assumes responsibility in the following areas: (i) Retaining full and effective control over KRB, and monitoring management in implementing Board plans and strategies; (ii) Ensuring ethical behavior and compliance with relevant laws and regulations, audit and accounting principles, and KRB s own governing documents and Code of Ethics; and (iii) Defining levels of materiality, reserving specific powers to the Board and 34

37 Corporate Governance Statement - (Cont d) delegating other matters with the necessary written authority to management and instituting effective mechanisms that ensure Board responsibility for management performance of its functions; among other mandates and responsibilities as stipulated in the Kenya Roads Board Act. BOARD AND BOARD COMMITTEE MEETINGS Kenya Roads Board Act provides that the Board holds meeting at least once every month. The Board therefore holds regular scheduled meetings throughout the year as set up in the Board work plan and supplementary meetings are held as and when necessary. Notices and agenda of the meeting, including venue and time, are issued at least 14 days prior to the meetings. The quorum for board meetings is half of the membership. In case of non-attendance of a member due to other commitments, such information was communicated to the chairperson and the secretary prior to the date of the scheduled meeting. The chairperson chairs all board meetings and in case of absence or inability to chair, the members present shall appoint one of their number to preside over the meetings. Board papers are availed to the members at least seven days before the date of the meeting. The secretary of the board attends all meetings and in their absence the Board will appoint a secretary for the meeting from one of the staff of the KRB. The Board may at its discretion, at any time and for any length of time co-opt any person to attend any of its deliberations, but such person shall not be entitled to vote on any matter at any meeting of the Board. The procedure of meetings is guided by the relevant laws, regulations and best practices. The chairperson chairs all board meetings and in case of absence or inability to chair, the members present shall appoint one of their number to preside over the meetings. During the financial year 2015/16, the Board held only two meetings due to lack of quorum as most of the members terms expired on 1st September The Cabinet Secretary had not gazetted new board members as at the end of the financial year. The table below analyses the attendance of board meetings during the financial year ended June Director Organization Attended Meetings Held % Attendance Meetings Joel Kipkemboi Yego Institute of Surveyors of Kenya % Monika Solanki Kenya Association of Tour Operators % Michael Karanja Kenya Association of Manufacturers % Grace Kamasara PS, State Department of Transport % Alfred Kitolo PS, Ministry of East African Affairs, Commerce & Tourism % Philip Wachira PS, State Department of Infrastructure % Bernard Masiga 1 1 Osman Ibrahim Institute of Certified Public Accountants of Kenya % Kennedy Nyamao PS, State Department for Devolution % Martin Mosiria 1 1 Mary Wambugu 1 League of Kenya Women Voters % Rita Kavashe 1 Automobile Association of Kenya % Note 1: An apology was received and accepted by the Chair of the meetings in advance of the schedule meetings Note 2: The representative from the institution of Engineers of Kenya and the Chairman of the Board had not been appointed as at close of the Financial year. 35

38 Corporate Governance Statement - (Cont d) BOARD COMMITTEES AND RESPONSIBILITIES The Board has delegated certain functions to well-structured committees but without abdicating its own responsibilities. The Board has developed a committee structure that assists in the execution of its duties, powers and authorities. Each Committee is guided by a Committee Charter/Terms of Reference, which outlines its responsibilities as mandated by the Board and is reviewed on a yearly basis. The Committees are appropriately constituted drawing membership from amongst the board members with appropriate skills and experience. The Chairman of the Board, management and external parties/advisors are required to attend the committee meetings only by invitation. The Board delegates certain functions to wellstructured committees but without abdicating its own responsibilities. The committees operate transparently and full disclosure to the Board and also to conduct themselves within the rules and procedures set out by the board. Matters deliberated by the Committees are presented to the board by the respective chairman during the next board meeting for adoption. The Board Committees are Audit & Risk Management, Finance & Planning, Management and Interagency Research and Development. There were no scheduled meetings during the year due to expiry of the term for some directors. Finance & Planning Committee The Finance and Planning Committee assists the board in fulfilling its oversight responsibilities for funds collection and sourcing, funds allocation & disbursements, review of budgets and APRP and the implementation reports. The responsibilities of the committee are as follows:- (a) Review KRB budgeting process, systems and cycle to ensure that they promote openness accountability and prudence; (b) Constantly review and monitor the collections of RMLF including seeking explanations for certain trends; (c) Periodically review the extent of utilization and compliance with budgetary levels and make appropriate recommendations; (d) Review the Ceilings for road agencies to ensure compliance with the KRB Act and the approved Road Sector Investment Programme; (e) Review the consolidated annual public roads programme to ensure compliance with the guidelines from KRB and the proposals from the road agencies; (f) Review the reports on works carried out to ensure that they are within specifications, costs and time; (g) Review financial statements, management accounts and audit reports and make appropriate recommendations. The attendance of meetings during the year is as summarized below:- Director Organization Meetings Meetings % Attendance Attended Held Martin Mosiria PS, State Department for Devolution % Onderi Ontweka PS, The National Treasury % Bernard Masiga PS, State Department of Infrastructure % Michael Karanja Kenya Association of Manufacturers % 36

39 Audit & Risk Management Committee The Audit and Risk Management Committee assists the board in fulfilling its oversight responsibilities for the work s programming and monitoring as well as the advisory role to the Minister for Roads. The Audit and Risk Management committee has authority to conduct or authorize investigations into any matters within its scope of responsibility. The committee has the following responsibilities:- (a) Review and ensure the integrity of financial statements and appropriate accounting principles prior to review and approval by the Board; (b) Review audit reports and make recommendations to the Board; (c) Review the effectiveness of the Board s internal control systems and compliance as well as advice the board on risks and mitigation measures; (d) Review the effectiveness of the system for monitoring compliance with laws and regulations and ensure business continuity amongst other responsibilities as may be delegated by the Board. There were no scheduled meetings during the year due to expiry of the term for some directors. Management Committee Corporate Governance Statement - (Cont d) The Management Committee oversees strategic planning, staff matters, performance contracting and general management oversight. Specifically the committee is responsible for the following:- (a) Setting the policies and strategic direction of the organization; (b) Review the Strategic Plan and the Business Plan for approval by the Board; (c) Monitoring the implementation of the Strategic Plan; (d) Evaluation of the performance of the organization, Executive Director, staff and departments; (e) Negotiating the annual performance Contract between KRB and the Ministry of Transport, Infrastructure, Housing & Urban Development; (f) Reviewing of the organization structure of KRB; (g) Reviewing KRB s staff terms and conditions of service; (h) Reviewing the various management policies aimed at enhancing staff performance; The attendance of meetings during the year is as summarized below:- Director Organization Meetings Meetings % Attendance Attended Held Joel Yego Institute of Surveyors of Kenya % Monika Solanki Kenya Association of Tour Operators % Mary Wambugu League of Kenya Women Voters % Alfred Kitolo PS, Ministry of East African Affairs, % Commerce & Tourism Interagency Research and Development Committee The Interagency research and development committee is composed as follows; 2 Members from the Private Sector (From whom the Chairman and Vice Chairman are appointed) Ministry of Transport, Infrastructure, Housing & Urban Development representative KRB Management (Planning & Programming) University Representative Institution of Engineers of Kenya (IEK) and The Roads & Civil Engineering Contractors Association (RACECA) 37

40 Corporate Governance Statement - (Cont d) Specifically the committee is responsible for the following:- a) Provide comment for approval of planned research activities and will provide guidance on identifying needs, scope and approaches b) Monitor progress of on-going research activities in terms of major activities; milestones and deliverables c) Endorse final outputs from the research projects and programmes and agree on any next steps d) Keep the local industry aware of the research activities and promote a wide dissemination of project results e) Promote collaborative working arrangements with like-minded organizations in the Africa Region and elsewhere The Board has developed a board charter which defi nes the role and responsibilities and functions of the board in line governance of Kenya Roads Board. There were no scheduled meetings during the year due to expiry of the term for some directors. BOARD CHARTER AND WORK PLAN The Board has developed a board charter which defines the role and responsibilities and functions of the board in line governance of Kenya Roads Board. The Board charter is reviewed periodically. Board members prepare an annual work plan. The work plan focuses at minimum on a review of the management s implementation of strategies, policies and plans; risk assessment and management; budgeting and financial management, quality assurance processes, board evaluation, governance and compliance; competence development for its members; strategic planning, among others. DIRECTORS INDUCTION AND CONTINUOUS SKILLS DEVELOPMENT The Board develops an induction and training programs designed to introduce new directors to the operations of the Kenya Roads Board and related governance matters. The Board carries out a competence needs assessment and develops an annual development programme for its members. Additionally, the board receives briefing/training on programs aimed at deepening the understanding of the changes in risks, laws/regulations, business and political environment in which the Board operates. BOARD EFFECTIVENESS AND EVALUATION In order to assess and improve the capacity, functionality and effectiveness of the Board and its committees, an annual evaluation is undertaken in accordance with the widely accepted principles of corporate governance and the Board Evaluation Tool. The Board develops an induction and training programs designed to introduce new directors to the operations of the Kenya Roads Board and related governance matters. The evaluation reviews the capacity, functionality and effectiveness of the Board/board committees performance in the achievement of its goals and objectives. It assesses the performance and independence of the Board as a whole, its committees, individual members, the chairperson, the Executive Director and the Board Secretary. The Executive Director is assessed in his roles as the CEO and the secretary to the Board. The Chairman s ability to add value, his performance against what is expected of his role and function, is also assessed. The results of the evaluation form the basis on which action/work plans for the preceding year are formulated, assists to identify the training needs for directors and it also forms the basis of re-appointment. The report is shared with the Cabinet Secretary for roads among other relevant stakeholders. 38

41 Corporate Governance Statement - (Cont d) REMUNERATION OF THE BOARD Remuneration of chairpersons, board members, Executive Director is determined by the State Corporations Advisory Committee in accordance with State Corporations Act, Cap 446. The Board members are paid taxable sitting allowance. The Chairman is paid honoraria at a rate approved by the Government. The Board members are also entitled to daily subsistence allowances (both local and foreign), while attending official meetings approved by the Board, and a bonus which is linked to performance. Transport expenses are reimbursed on travel for Board business at the prevailing AA rates. The members are also entitled to outpatient and inpatient medical cover and a personal accident cover as applicable. These are detailed on page 97 of this report. ETHICAL LEADERSHIP AND CORPORATE CITIZENSHIP The directors and employees of the Board have a fiduciary duty to act honestly and in the best interest of the Board. Business transactions with all parties must be carried out at arm s length and with integrity. The Board provides effective leadership based on ethical foundation and ensures all deliberations, decisions and actions are based on the Boards core values underpinning good governance. The Board has put various measures in place to ensure that there is no conflict of interest amongst its directors and staff. The directors and employees of the Board have a fi duciary duty to act honestly and in the best interest of the Board. (i) Corruption Prevention and Code of Conduct & Ethics policies (ii) The Board has developed a Corruption Prevention and Code of Conduct & Ethics policies whose aim is to enhance relationships and fostering teamwork among board members and staff and to build respect, public confidence and credibility with its citizens. The Code provides guidance to its members regarding ethical and behavioral considerations as they address their duties and obligations during their appointment and their term in KRB. The Corruption Prevention and Code of Conduct & Ethics policies are published in the KRB website. (iii) Declaration of Conflicts of Interest At the beginning of the financial year, all directors and employees signed a declaration of interest form declaring that they will disclose any interest that conflicts or possibly may conflict with the interests of the Board. At the commencement of any business to be transacted, all directors/staff are required to declare their interest, if any. (iv) Audits Legal Audit, Internal audit and External Audit During the year, the directors and employees demonstrated their commitment to the public service through professionalism, integrity, moral and ethical requirements, conflict of interest, and political neutrality through compliance with relevant laws as evident from the legal audit, internal audit, and external audit reports presented to the Board. (v) Declaration of wealth All staff and directors declared their wealth as required to the Public Service Commission. (vi) Register of Gifts and Advantages The gifts register has been opened for staff and directors to disclose any gifts and other advantages as set out in the Public Officer Ethics Act, With the exception of officially approved activities such as those relating to Corporate Social Responsibility, Board members and employees are not required to solicit gifts, hospitality or transfers of economic value. 39

42 Corporate Governance Statement - (Cont d) (vii) Mwongozo Code of Conduct and Governance Directors were sensitized on the provisions of the Mwongozo Code of Governance and have signed declaration on the same. (viii) Whistle blowing policy was published in the KRB website. The Board has put in place a succession plan to ensure smooth transition will less likelihood of disruption in case a position becomes vacant and the same is reviewed every three years or when circumstances change. (ix) Compliance with Legislation By exemplifying the ethical and corporate values described in the Code, the Board members and staff will continue to uphold Article 10 of the Constitution of Kenya on National Values and Principles of Governance and Chapter 6 on Leadership and Integrity, Public Officer Ethics Act, 2003 and Leadership & Integrity Act, 2012; Ethic & Anti-corruption Act, 2011; Bribery Act, 2016; Proceeds from Economic Crimes Act. SUCCESSION PLANNING Succession planning is an ongoing process of systematically identifying, assessing and developing talent and capacity to ensure continuity in specific positions within the organization. A succession plan is designed to identify and prepare candidates for positions that become vacant due to retirement, resignation or death. The Board has put in place a succession plan to ensure smooth transition will less likelihood of disruption in case a position becomes vacant and the same is reviewed every three years or when circumstances change. GOVERNANCE AUDIT The Board carries out a governance audit of the organization on annual basis. The purpose of the audit is to ensure that KRB conforms to the highest standards of good governance, legal and statutory requirements and is not limited to the following among other parameters:- a) Leadership and strategic management; b) Transparency and disclosure; c) Compliance with laws and regulations; d) Communication with stakeholders; e) Board independence and governance; f) Board systems and procedures; g) Consistent shareholder and stakeholders value enhancement and; h) Corporate social responsibility and investment ACCOUNTABILITY, RISK MANAGEMENT AND INTERNAL CONTROL The Board is required to present an objective and understandable assessment of the Fund s and Board s operation position and prospects. The Board has ensured that accounts are presented in accordance with the International Public Sector Accounting Standards and obtained an unqualified audit report. The Board received unqualified audit report on the activities of the Fund and its operations for the financial year 2015/16. EXTERNAL AND INTERNAL AUDITS (i) External Auditors The Kenya Roads Board Fund and its operations account is audited by the Auditor- General. The Auditor-General is an independent office established and whose role and responsibilities are defined under the Constitution of Kenya. 40

43 Corporate Governance Statement - (Cont d) (ii) Internal Auditors The Board in furtherance of its duties to ensure that the process, structure and internal controls are maintained and adhered to may appoint independent audit consultants or recruit in-house staff to carry out such functions. The Internal Audit firm was appointed through a competitive open tendering process. The Board engaged the services of Davle Consulting & Associates to carrying out the internal audit function and present reports on compliance. Further, the Board engaged the services of Technical, Financial and Performance consultants to evaluate the efficiency, effectiveness and economy, value for money, on the utilization of funds by Road Agencies. INTERNAL CONTROLS AND RISK MANAGEMENT The Board has the responsibility for identifying internal risk exposures and developing measures to mitigate against the identified risks. The Board reviews and monitors the development and implementation of systems of internal controls. The Board has the responsibility for identifying internal risk exposures and developing measures to mitigate against the identifi ed risks. The Board must have an understanding of these risks and mitigate them by implementing sound internal controls and risk management practices. The Board has developed the risk management framework and management control which identifies the risks. The Board recognizes that information technology form an integral part of the risk management process therefore it has developed the business continuity plan, disaster preparedness plan and the IT policy. The Board reviewed the internal controls, policies and procedures and satisfied that appropriate controls and procedures were in place. This review was done by the internal auditors who report directly to the audit committee. The Board also delegated the day to day management of risks to management through systems and process carried out on a day to day basis. RELATIONSHIP WITH STAKEHOLDERS The Board appreciates that stakeholder perception affect the organizations reputation. Therefore the Board strives to achieve an appropriate balance between its various stakeholders in the best interest of the organization by taking into account their legitimate interest and expectations in decision making. The board seeks to protect the rights of all stakeholders and optimize the stakeholders value. In the KRB Strategic Plan and Annual Business Plans Kenya Roads Board identified key stakeholder groups who may have influence on its performance and sustainability. The stakeholder analysis has identified the nature of their engagement and outcome and any relevant information that enables them exercise their rights. The Board values the importance of complete, timely, transparent and effective communication with its stakeholders for building and maintaining their trust and confidence by providing regular information on its performance, activities and addressing their concerns whilst having regard to legal and strategic considerations. The Board has developed a Corporate Communications Strategy which encompasses internal & external communication, customer service and public relations. COMPLIANCE WITH LAWS, REGULATIONS AND STANDARDS Kenya Roads Board conducts its business affairs in compliance with all applicable laws, rules and regulations and accepted national and international standards as well as internal policies of the Board. Kenya Roads Board conducts its business affairs in compliance with all applicable laws, rules and regulations and accepted national and international standards as well as internal policies of the Board. Constitution of Kenya The Kenya Roads Bill 2015 which aligns the functions and operations of Kenya Roads Board with the Constitution, is in parliament for discussion and enactment. Kenya Roads Board through the Minister responsible of roads prepared the National and County Roads register which defined National Trunk roads and County roads as envisioned in the Constitution. 41

44 Corporate Governance Statement - (Cont d) Applicable laws and Regulations - The Board is compliant with the Public Finance Management Act, 2012 and Regulations 2015 in respect of financial management, budgeting and reporting. The Board is disbursing 15% of the funds to County Governments for road maintenance in compliance with the Constitution and the County Allocation of Revenue Act. The Board has continued to review its manuals and policies in accordance with the prevailing laws and provisions including the Leadership and integrity Act, 2012; Public Officers Ethics Act, 2003; Public Procurement and Assets Disposals Act and Regulations in respect of all procurements and asset disposal; Kenya Roads Board Act, 1999; Compliance Strategy The Board has established internal policies and manual to ensure internal procedures comply with all applicable laws, regulations and standards including Finance, Human Resources and Administration, Procurement, Information Communication Technology strategy. The Board has also developed policies on cross cutting issues and requirements of various laws and executive orders such as National Values Policy. Monitoring on compliance of such laws is entrenched in the day to day operations and reports are prepared on quarterly/ semiannual basis. Legal Compliance Audit and Reporting The Board carries out legal compliance audits annually to establish the level of adherence to applicable laws, rules and procedures. The recommendations are submitted to the Board and other stakeholders. Axle load control monitoring by KRB Staff 42

45 Sustainability Statement INTRODUCTION The Board works with its staff and stakeholders to enrich community life and participates in charitable projects. The Board recognizes the importance of conducting operations in a manner that meets existing needs without compromising the ability of the future generation to meet their needs; therefore it carries out its operations in a manner that ensures the economic life of the community in which it operates. It remains the Board policy to ensure that activities meet and exceed the social, economic and environmental expectations of stakeholders. The Board believes that ethical leadership and corporate citizenship should direct the strategy and operations to build sustainable business. Kenya Roads Board is a going concern, the Board of Directors will continue to ensure that it shall continue to meet its financial, social, environmental and economic obligations for long term sustainability of the organization. The Board executes the objectives through the following:- (a) Our people, values and processes; (b) Stakeholder engagement; (c) Protecting the environment; and (d) Corporate Social Responsibility and Investment. The Board recognizes the importance of conducting operations in a manner that meets existing needs without compromising the ability of the future generation to meet their needs. OUR PEOPLE, VALUES AND PROCESSES At KRB, people are the primary asset. The Board therefore recruits and invests in the best talent in the market. Our success has been and will continue to be highly dependent on the performance and accountability of our youthful team. Diversity and Equal Opportunity The Board endeavours to preserve gender and cultural diversity in our employee mix and takes pride as an equal opportunity employer for all qualified persons. This has created an inclusive environment where individuals and teams harness strengths in diversity to maximize potential and excel in performance. Our Culture and Values Our vision of an efficient road network for a prosperous nation describes who we are, what we stand for and is what makes our culture distinctive. The staff and directors are committed to live their values of excellence, customer focus, integrity and impartiality, staff focus, diversity inclusiveness and good corporate citizenship. The Board strives to create a culture where people have a strong sense of personal accountability and are able to make good personal judgments, based on its values. This is driven by the Board s mission to fund, oversee and coordinate road development, rehabilitation and maintenance and the commitment to ensure prudent sourcing and optimal utilization of resources for socio-economic development. During the year the Board strengthened this emphasis in the definitions of its values and will continue to reflect them in future strategic and business plans. The Board values its employees for who they are and what they bring to the Board and recognizes that different views create innovation. The Board encourages its staff to pursue their careers and personal aspirations and strive to create an open and collaborative working environment in which they can maximize their talents. The Board maintains an open and collaborative dialogue with our employees, through regular staff meetings, open door policy as well as our annual employee opinion survey, in which participation has remained above 80% in the last five years. In addition, providing world-class training and development opportunities remains central to our long-term commitment to invest in its people. The Board strives to create a culture where people have a strong sense of personal accountability and are able to make good personal judgments, based on its values. 43

46 Sustainability Statement - (Cont d) Further the Board has been complying with the provisions of the Constitution with respect to National Values and principles of governance, gender ratios, and procurements reservations for the Youth, Women and Persons with Disabilities. Employee Welfare At KRB, the staff and directors view each other as part of one big family and each member s welfare is our collective responsibility. The Board takes every effort to ensure that employees well-being (physical, emotional and financial) is considered as this affects them both at home and at work. The Board will continue to invest in out-of-offi ce staff activities such as teambuilding in refl ection of our deep commitment to staff welfare. The Board will continue to invest in out-of-office staff activities such as teambuilding in reflection of our deep commitment to staff welfare. During the year, the Board held its team building activities and rewarded staff who had exemplary performance and those who had served the Board for long. The Board has also continued to ensure that all cross cutting issues have been addressed; in particular the policies and work plans for HIV/AIDs, Persons with Disability and Gender have been developed and are being implemented. Staff Training and Long Tern Talent Development To ensure that KRB not only attracts but also retains the best talent, the Board aims to nurture people s careers by making relevant opportunities accessible and helping them to develop skills, knowledge and experience in different functions or specialism. Staff training and development are a prerequisite for employees growth. In FY 2015/16, training continued to focus on departmental technical competencies and people management skills at all levels. Strengthening the leadership capability remains a key business priority to ensure that the Board has strong leaders today and in the future. The Board also provides opportunities for groups of existing and future senior leaders to benchmark with best practices on management. Capacity building will remain a key objective for the Board. Employee Engagement The staff are committed to the realization of the Board s mandates. Focus is on delivering an employee experience where staff feel strongly connected to the realization of the Board s mandates and are able to do what they do best each day. One way in which employees experience is enhanced is by conducting the employee opinion survey. In FY 2015/2016, the overall employee satisfaction survey was at 84% compared to FY 2014/2015 achievement of 89.5%. The staff are committed to the realization of the Board s mandates. Occupational Health and Safety In 2015, our focus remained on building a positive health and safety culture across our operations with an aim of creating a positive attitude towards risk management and compliance with our control processes and further improve on the ability to learn from failures and safety performance indicators. We continue setting up health programs in line with the Group 2020 ambitions through the 4 pillars strategy that includes, Occupational health risk prevention, medical intervention, health promotion, wellness and stake holder s health. For the year 2015/16, we achieved 100% annual occupational health assessment for our internal staff and contractors. We remain committed to health promotion and awareness programs for our staff and stake holders. Good health and safety standards are ideal and remain an individual and corporate responsibility for the staff and the Board. The Board is committed to proactively managing all health and safety risks associated with its mandates. 44

47 Sustainability Statement - (Cont d) During the year, the Board organized several workshops to sensitize staff and evaluated the work environment to ensure it meets the set standards. An annual health and safety audit was conducted at the Board s premises. The audit was carried out with the view of evaluating compliance of the work place and the associated operations with the provisions of the Occupational Safety and Health Act, Specifically, the following areas were assessed:- Work place information; Management of Occupational Safety and Health policies; Work place safety, Health and Welfare conditions including safety, occupational hygiene conditions as well as general conditions; and Emergency response plan. Additionally, the Board has several medical policies for its staff and directors. The policies are reviewed annually to ensure that the Board maintains a healthy workforce and safe environment. The Board has several medical policies for its staff and directors. Zero Tolerance to Corruption KRB has a zero tolerance policy towards corruption. The Board has an elaborate corruption prevention programme and has undertaken various sensitization and training activities to prevent corruption. The Board, under its current performance contract scored 74%, compared to a score of 71% in FY 2014/2015, by undertaking activities such as Corruption Risk Assessment and Implementing Corruption Control measures. The Board was also issued with unqualified audit report for FY 2015/2016 by the Auditor-General for both the Fund and the Kenya Roads Board s operations. Further, the internal audit reports have not identified any issues on corruption. Ethics and Integrity The Board has in place a Code of Conduct, Ethics and a Corruption Prevention Policy. This policy requires employees and members of the Board to conduct business with integrity, in accordance with the Public Officers Ethics Act and ensure the enforcement of corruption prevention plans. Accordingly, corruption prevention, training, risk assessments and surveys form part of the Performance Contract between the Government of the Republic of Kenya (through Ministry of Transport, Infrastructure, Housing & Urban Development, state department of Infrastructure) and the Board of Directors. The Board is cognizant of the financial crime risks that arise from internal and external sources. The Board conducts business in compliance with high ethical standards of business practice. To this end, the Board has conducted various training courses on anticorruption and financial fraud practices. The Board has put in place various systems and procedures which are implemented and monitored on regular basis. The internal audit reports have not identified any non-compliance with the ethics policies. The Board is committed to ensure compliance with all laws and regulations. The compliance is monitored through legal audits which are submitted to the Board. STAKEHOLDER ENGAGEMENT The Board conducts business in compliance with high ethical standards of business practice. The Board is committed to open dialogue which helps to understand the concerns of its stakeholders and respond to them appropriately. These engagements assist to get feedback on the policies, procedures and ways of working. Stakeholder engagement is done through the following:- 45

48 Sustainability Statement - (Cont d) Reporting The Board is committed to transparency in reporting of its activities to its stakeholders. This is done regularly through the print and electronic media, published annual reports and financial statements. During the Nairobi International Show, International Conference on Transport and Road Research, the African Road Maintenance Funds Association and other stakeholder s workshops, the Board got to interact with the public and provide information on its activities. The Board is committed to meeting stakeholder requirements to their satisfaction by ensuring effective and effi cient use of resources. Customer Focus The Board is committed to meeting stakeholder requirements to their satisfaction by ensuring effective and efficient use of resources. It encourages continual improvement of its services and processes. The performance and interaction with its stakeholders is also guided by the Constitution of Kenya - Bill of Rights. To demonstrate that the Board is living on this promise, a resolved service charter was rolled out, and cascaded to all the staff and is displayed at various strategic places in the organization. The compliance to the service charter is monitored on a regular basis, plans are made on how to reduce or eliminate the non-compliances. During the year, the Board carried a customer satisfaction survey which revealed satisfaction levels of 66% against the estimate target of 60%. For the coming financial year, the board plans to implement the recommendations of the customer satisfaction survey. The Board is also committed to implement innovative service delivery methods. Grievance Mechanisms and Procedures The Board has put in place a grievance handling mechanisms for both the directors and employees. The employees issues are dealt with by the Management Committee of the Board. The Board has set up a complaints handling mechanism which is handled by the management. The Board submits quarterly reports on complaints to the Commissioner of Administrative Justice who evaluates the extent to which the Board has complied with the procedures and issues a certificate. During FY 2015/16, the Board achieved 98% in the performance contract evaluation on resolution of public complaints. Stakeholder Meetings and Tour to Road Projects In June 2015/2016, KRB staff sensitized 35 No. county governments on the RMLF conditional Grant to counties. The staff also held meetings in November and December 2015 with road agencies and County Governments to disseminate the audit reports and discuss on the way forward on management of road maintenance funds. During the meeting the Board received feedback on various cross cutting issues and they interacted with stakeholders and road users. CORPORATE SOCIAL RESPONSIBILITY AND INVESTMENT The Board continued to invest in the communities in which its operates through various corporate social responsibility initiatives, which include; Research and Development The Board has set an inter-agency Research and Development Committee to explore the innovative technology in road design, construction and maintenance. The committee has requested for proposals from the universities on researches that among others include construction of low volume cost roads. It is also noted that gravel in Kenya is diminishing at a very high rate; the committee is also tasked with the responsibility of research on alternative materials for road construction and maintenance. Over the years, the Board in Consultation with the Minister set aside funds for research and development. 46

49 The following research activities are being undertaken by the Board:- (a) A baseline survey on research undertakings in the road sub sector. The study identified past and current research efforts within the road subsector, priority areas for further research, policy recommendations to enhance road research in the country and establishment of a centralized road research knowledge base. It is expected that the research knowledge base will be in place in FY 2016/17. Going forward the IRDC will implement other recommendations of the study. (b) Second phase of the cobblestone project along Ngong Ololua (E192) road Sustainability Statement - (Cont d) The Board approved funding to support a second phase of the cobblestone project in Ngong in order to establish the construction costs of the technology. The project will be implemented by KeRRA in collaboration with Material Testing & Research Department (MTRD) and KIHBT. The construction is scheduled to commence once the design and procurement is completed. (c) International Conference on Transport and Road Research (itrarr) KRB in collaboration with Materials Testing and Research Department (MTRD) and DfID funded African Community Access Partnership (AFCAP) hosted the first International Conference on Transport and Road Research in Kenya dubbed itrarr Conference 2016 from 15th to 17th March The conference was attended by more than 200 delegates from 24 countries from Africa, South East Asia and Europe. The overall aim of the Conference was to enhance coordination of transport related research efforts within the region and the theme of the conference Transport Solutions to transform lives in the region: From Research & Innovation to uptake and implementation. The conference report was disseminated to key stakeholders in the road sub-sector. (d) Other research proposals The Board has identified the following as a priority for funding to establish the performance and recommended on the best technologies for road maintenance and development for a sustainable road network:- (i) Monitoring and Evaluation of Road Research Trail Sections (ii) Field Trials on Hydraulic Road Binders (HRBs) (iii) Fast Tracking Sub Base/Base in LVS Roads 2000 Projects. Refer to more details under Business Performance Section of this report. Standard Chartered Marathon During the year, KRB staff and families participated in the Standard Chartered Marathon. During the year, KRB staff and families participated in the Standard Chartered Marathon. The theme of the Marathon was Seeing is believing, which is the Standard Chartered Bank s flagship CSR initiative focusing on eradication of avoidable blindness in Kenya. The number of participants this year increased as more staff and their family members enrolled for the event. The Boards contribution towards the noble event was KShs 0.27 million. To ensure sustainability, the annual Standard Chartered Marathon now forms an important part of the Board s calendar as the Board shares vision with needy and disadvantaged persons. 47

50 Sustainability Statement - (Cont d) PROTECTING THE ENVIRONMENT To minimize the negative environmental impact, the Board requires the Road Agencies to factor in mitigation measures at the planning stage, during and after construction for all rehabilitation and periodic maintenance projects. R2000 This Strategy is a method of road development and management that ensures optimum utilization and development of locally available resources, where technically and economically feasible. Environmental Conservation is one of the enablers to the Social Pillar in the country s economic blue print Vision Road projects have the potential of damaging the natural resources upon which economies are based. The environment is the resource base for materials used in road construction. It assimilates road construction waste, hence affecting the lifespan of roads. To minimize the negative environmental impact, the Board requires the Road Agencies to factor in mitigation measures at the planning stage, during and after construction for all rehabilitation and periodic maintenance projects. These measures include control of soil erosion through construction of gabions, tree planting, covering and enhancing borrow pits to provide water catchment areas for use by local residents. The Board has put in place an environmental policy prepared in accordance with the provisions of the National Environmental Management Act. The Board has also prepared an environmental plan which guides the implementation of the policy within Kenya Roads Board and on projects implemented by Road Agencies. The plan is monitored on a regular basis. During the year the Board planted over 6,500 trees in Makueni, Machakos and Kitui Counties. To ensure survival of the trees, the Board partnered with primary and secondary schools. The Board catered for the tree planting while the schools were to ensure that watering and maintenance is done. The trees, which purchased from the local community, include casolina, Jacaranda, umbrella, gravellia and cypress species. During the tree planting exercise, KRB staff also mentored staff on the importance of conserving environment. Road Safety Activities The Board recognizes that 80% of all road traffic crashes were attributable to human error and therefore a need for behavior change to reduce needless fatalities and injuries on the roads. KRB held its road safety awareness campaign for Boda boda operators in Nakuru County. The objective of the awareness workshop was to influence behavior change and thereby reduce accidents caused by the operators. In its continued support to the Sector, KRB 48

51 Sustainability Statement - (Cont d) partnered with the National Police, Kenya Red Cross, AA of Kenya and Nakuru County Governments to train boda boda riders on basic driving and traffic rules, first aid and issued reflective jackets, helmets and first aid kits. The Board is confident that at least some lives may be saved as a result of the training. The Nakuru County Government officials noted that they had included construction of motor cycle lanes in the new road works contracts. The Board continued to fund the National Transport Safety Authority for the furtherance of road safety activities and the construction of foot bridges. Currently KRB has set aside KShs 50 million for the construction of the Pangani Foot Bridge. Roads 2000 (R2000) Strategy The R2000 Strategy is a method of road development and maintenance that ensures optimum utilization and development of locally available resources, where technically and economically feasible. The strategy focuses on the optimum use of labor and local resources with the support of appropriate tools and equipment. The use of this strategy provides employment to the local community and saves on foreign exchange substantially. This guarantees sustainable community investment and creation of wealth among the youth and women population in the country. The planned interventions of R2000 strategic plan ( ) are as stated below:- (i) improved 79,175 kilometers of rural roads to gravel standards at a cost of Kshs billion, generated 6.76 million person days of employment (ii) research on low volume seal roads surfacing, e.g. use of cold asphalt, emulsion treated base (ETB), Cobblestone, etc (iii) opened up development opportunities for emerging Small scale contractors/ entrepreneurs In the FY 2015/16, the implementing agencies reported that 18,225 Kms of roads were maintained through the R2000 strategy with 2.18 million person days of employment created. In addition, 889 labour based contractors and 115 members of staff have been trained using RMLF. The use of this strategy provides employment to the local community and saves on foreign exchange substantially. Refer to more details under Business Performance Section of this report. 49

52 50

53 4FINANCIAL REVIEW Kenya Roads Board Fund Financial Statements Kenya Roads Board Financial Statements 51

54 FUND ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE Prepared in accordance with the Accrual Basis of Accounting Method under the International Public Sector Accounting Standards (IPSAS) 52

55 CONTENTS Page Report of the Directors Statement of the Board s Responsibilities Report of the Independent Auditors Statement of Financial Performance Statement of Financial Position Statement of Changes in Net Assets Statement of Cashflows...61 Comparison of Budget and Actual Amounts Notes to the Financial Statements Progress on follow-up of Audit Recommendations

56 Report of the Directors The Directors have the pleasure of presenting their report together with the audited financial statements for the year ended 30th June 2016 which show the state of the Board s affairs. PRINCIPAL ACTIVITIES The Board is primarily engaged in management of the Kenya Roads Board Fund together with other mandates specified in the Kenya Roads Board Act, RESULTS The results for the year ended 30th June 2016 are set out on page 58 to 62. DIRECTORS The Board of Directors who held office during the year, and up to the date of this report, is shown on page 35. In accordance with Section 7(4) of the Kenya Roads Board Act, 1999 the Chairman and members of the Board, other than ex-official members shall hold office for a period of three years from the date of appointment but shall be eligible for reappointment for one further term of a period not exceeding three years. The appointment and vacation of office of any member of the Board shall be in accordance with Section 2 of the Second Schedule to the Kenya Roads Board Act, FINANCIAL STATEMENTS At the date of this report, the Board was not aware of any circumstances which would have rendered the values attributed to the assets in the financial statements misleading. AUDITORS The Auditor General is responsible for the statutory audit of the Board s books of account in accordance with Sections 14 and 39 (i) of Chapter 12 of the Laws of Kenya, Public Audit Act, BY ORDER OF THE BOARD ENG. JACOB ZECHA RUWA, OGW EXECUTIVE DIRECTOR 26th August,

57 Statement of the Board s Responsibilities The Kenya Roads Board Act, 1999 requires the Board to prepare financial statements of each financial year which give a true and fair view of the state of affairs of the Roads Board as at the end of the financial year and of the Board s operating results for that year. It also requires the Board to ensure that the Roads Board keeps proper accounting records which disclose with reasonable accuracy at any time the financial position of the Board and to ensure that the Financial Statements comply with the enabling Act. They are also responsible for safeguarding the assets of the Roads Board and taking reasonable steps for prevention and detection of fraud and other irregularities. The Board accepts responsibility for the financial statements which have been prepared using appropriate accounting policies supported by reasonable and prudent judgments and estimates, in conformity with International Public Sector Accounting Standards and the requirements of the Kenya Roads Board Act. The Board is of the opinion that the financial statements give a true and fair view of the state of affairs of the Roads Board and of its financial performance. The Board further accepts responsibility for the maintenance of accounting records which may be relied upon in the preparation of the financial statements, as well as designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of the financial statements that are free from material misstatements. The Board is required to prepare the financial statements on a going concern basis unless it is determined that after the reporting period, the Board intends to liquidate or cease it activities, or that it has no realistic alternative but to do so. The tenure of a majority of members constituting the KRB Board of directors expired on 1st September As at 30th June 2016, the Board of directors had not been fully constituted. Consequently, the Financial Statements have been prepared and submitted by the Management. Nothing has come to the attention of the Management to indicate that the Roads Board will not remain a going concern for at least the next twelve months from the date of this statement. Submitted by the Management and signed on its behalf by:- RASHID K. MOHAMED, MBS ENG. JACOB ZECHA RUWA, OGW GENERAL MANAGER, FINANCE EXECUTIVE DIRECTOR 26th August, th August,

58 Report of the Independent Auditors OFFICE OF THE AUDITOR-GENERAL REPORT OF THE AUDITOR-GENERAL ON FUND FOR THE YEAR ENDED 30 JUNE 2016 REPORT ON THE FINANCIAL STATEMENTS I have audited the accompanying financial statements of Kenya Roads Board Fund set out on pages 58 to 75 which comprise the statement of financial position as at 30 June 2016, the Statement of Financial Performance, Statement of Changes in Net Assets, the Statement of Cash flows for the year then ended, together with 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 35 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. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with the International Public Sector Accounting Standards and for such internal controls 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 47 of the Public Audit Act, Auditor-General s Responsibility My responsibility is to express an independent opinion on the financial statements based on the audit and report in accordance with the provisions of Section 48 of the Public Audit Act, 2015 and submit the audit report in compliance with Article 229(7) of the Constitution of Kenya. The audit was conducted in accordance with the International Standards of Supreme Audit Institutions. 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 judgment, 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 56

59 Report of the Independent Auditors on the effectiveness of the Fund s internal controls. 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 audit opinion. Opinion In my opinion, the financial statements present fairly, in all material respects, the financial position of Kenya Roads Board Fund as at 30th June 2016, and its financial performance and cash flows for the year then ended in accordance with the International Public Sector Accounting Standards (Accrual Basis) and comply with the Kenya Roads Board Act, Cap 408 of the Laws of Kenya. FCPA Edward R. O. Ouko, CBS AUDITOR-GENERAL Nairobi 14 December

60 Statement of Financial Performance FOR THE YEAR ENDED 30TH JUNE / /15 Note KShs 000 KShs 000 Receipts 6 51,170,784 32,276,128 Disbursements 7 (40,544,182) (26,065,272) Net Assets Available for Distribution 10 10,626,602 6,210,856 The notes on pages 63 to 74 form an integral part of these financial statements. 58

61 Statement of Financial Position AS AT 30TH JUNE / /15 Note KShs 000 KShs 000 ASSETS CURRENT ASSETS Cash and Cash Equivalents 8 19,665,708 6,946,324 TOTAL ASSETS 19,665,708 6,946,324 LIABILITIES CURRENT LIABILITIES Payables 9 9,039, ,468 TOTAL LIABILITIES 9,039, ,468 TOTAL NET ASSETS 10,626,602 6,210,856 NET ASSETS Net Assets Available for Distribution 10 10,626,602 6,210,856 TOTAL NET ASSETS 10,626,602 6,210,856 The notes on pages 63 to 74 form an integral part of these financial statements. The financial statements on pages 58 to 74 were submitted by the Management and signed on its behalf by: RASHID K. MOHAMED, MBS GENERAL MANAGER, FINANCE ENG. JACOB ZECHA RUWA, OGW EXECUTIVE DIRECTOR 26th August, th August,

62 Statement of Changes in Net Assets FOR THE YEAR ENDED 30TH JUNE / /15 Note KShs 000 KShs 000 Net Assets, as at 1st July 10 6,210,856 3,147,107 Collections in the year: Road Maintenance Levy 6 51,068,987 32,133,022 Agricultural Cess 6 101, ,106 Funds available 57,381,640 35,423,235 Releases to the Road Agencies 7 (46,755,038) (29,212,379) Net Assets, as at 30th June 10 10,626,602 6,210,856 The notes on pages 63 to 74 form an integral part of these financial statements. 60

63 Statement of Cash Flows FOR THE YEAR ENDED 30TH JUNE / /15 Note KShs 000 KShs 000 CASH FLOWS FROM OPERATING ACTIVITIES Cash from operations 11 18,930,240 6,227,397 Disbursements of prior year funds (6,210,856) (3,147,107) Net cash from operating activities 12,719,384 3,080,290 NET INCREASE IN CASH AND CASH EQUIVALENTS 12,719,384 3,080,290 MOVEMENT IN CASH AND CASH EQUIVALENTS: At the beginning of the year 6,946,324 3,866,034 Net increase in cash and cash equivalents (above) 12,719,384 3,080,290 At the end of the year 8(b) 19,665,708 6,946,324 The notes on pages 63 to 74 form an integral part of these financial statements. 61

64 Statement of Comparison of Budget and Actual Amounts FOR THE YEAR ENDED 30TH JUNE 2016 BUDGET ACTUAL VARIANCE VARIANCE 2015/ /16 KShs 000 KShs 000 KShs 000 % NOTES Receipts Road Maintenance Levy 40,544,182 51,068,987 10,524,805 26% 1 Agricultural Cess - 101, , % 2 Total Receipts 40,544,182 51,170,784 10,626,602 26% Disbursements (40,544,182) (40,544,182) - 0% Net Assets - 10,626,602 10,626,602 The notes on pages 63 to 74 form an integral part of these financial statements. NOTES: 1. The positive variance was due to increased collections which was attributed to fuel levy increase by KShs 3 per litre effective July Interest earned during the year increased due to high bank balances for Annuity Fund and high interest rates witnessed during the first half of the year 2015/ Agriculture cess had not been budgeted for during the financial year as the Agriculture Act was repealed, however coffee marketors continued to remit cess to the KRB Fund. 62

65 Notes to the Financial Statements 1.0 STANDARDS AND INTERPRETATIONS AFFECTING THE REPORTED RESULTS OR FINANCIAL POSITION Adoption of New and Revised International Public Sector Accounting Standards (IPSASs) (i) New Standards and Interpretations In Issue But Not Yet Effective in Year Ended 30th June 2016 The International Public Sector Accounting Standards Board (IPSASB) has not issued any new standards that are effective in year ended 30th June (ii) Proposed Amendments to IPSAS as per Exposure Draft 57 & 58 In October 2015, the International Public Sector Accounting Standards Board (IPSASB) issued the IPSASB issued Exposure Drafts 57 and 58, which is briefly discussed below. The following proposals are contained in IPSASB Exposure Draft 57 impairment of revalued assets and would see amendments/improvements made to IPSASs: (i) This Exposure Draft proposes amendments to IPSAS 21, Impairment of Non-Cash-Generating Assets, and IPSAS 26, Impairment of Cash-Generating Assets, so that assets measured at revalued amounts under the revaluation model in IPSAS 17, Property, Plant and Equipment, and IPSAS 31, Intangible Assets, are within the scope of IPSAS 21 and IPSAS 26. (ii) As a result of the proposals, an entity would be required to assess at each reporting date whether there is any indication that an asset may be impaired. If any indication exists, the entity would then be required to assess the recoverable service amount (non-cash-generating asset) or recoverable amount (cash-generating asset) of that asset and recognize an impairment loss if recoverable service amount or recoverable amount is less than carrying amount. (iii) However, where an impairment loss is recognized for an asset that is revalued, an entity would not necessarily be required to revalue the entire class of assets to which that impaired asset belongs as required by IPSAS 17. The following proposals are contained in IPSASB Exposure Draft 58 improvements to IPSAS s 2015 of IPSAS and would see amendments/improvements made to IPSASs. The objective of the Exposure Draft 58 is to propose improvements to IPSASs to ensure consistency with the Conceptual Framework for Financial Reporting in the Public Sector (the Conceptual Framework). The Improvements project deals with non-substantive changes to IPSASs through a collection of amendments which are unrelated. IPSAS Standard IPSAS 1, Presentation of Financial Statements; IPSAS 3, Accounting Policies. Changes in Accounting Estimates and Errors; IPSAS 16, Investment Property; IPSAS 18, Segment Reporting; IPSAS 20, Related Party Disclosures; IPSAS 22, Disclosures about the General Government Sector; IPSAS 24, Presentation of Budget Information in Financial Statements; IPSAS 29, Financial Instruments: Recognition and Measurement and IPSAS 30, Financial Instruments: Disclosure. IPSAS 5, Borrowing Costs; IPSAS 7, Investments in Associates; IPSAS 9, Revenue From Exchange Transactions; IPSAS 11, Construction Contracts; IPSAS 13, Leases; IPSAS 16, Investment Property; IPSAS 17, Property, Plant, and Equipment; IPSAS 18, Segment Reporting; IPSAS 19, Provisions, Contingent Liabilities and Contingent Assets; IPSAS 21, Impairment of Non-Cash-Generating Assets; IPSAS 23, Revenue From Nonexchange Transactions (Taxes and Transfers); IPSAS 25, Employee Benefits; IPSAS 26, Impairment of Cash Generating Assets; IPSAS 27, Agriculture; IPSAS 31, Intangible Assets; IPSAS 32, Service Concession Arrangements; IPSAS 33, First-Time Adoption of Accrual Basis International Public Sector Accounting Standards; IPSAS 34, Separate Financial Statements and IPSAS 36, Investments in Associates and Joint Ventures. Summary of Proposed Change Consequential amendments related to Chapters 1 4 of the Conceptual Framework for Financial Reporting in the Public Sector. These relate to the Qualitative Characteristics, accounting policies and the hierarchy of sources used in the selection and application of accounting policies. The Conceptual Framework for General Purpose Financial Reporting by Public Sector Entities was published in October Chapter 3 addresses the qualitative characteristics of information and constraints on information in general purpose financial reports. The Conceptual Framework adopted faithful representation as a qualitative characteristic, rather than reliability. The IPSASB decided not to make piecemeal changes to recognition criteria and guidance on measurement before considering changes to IPSASs arising from Chapter 5, Elements and Chapter 6, Recognition of the Conceptual Framework. Therefore an explanation of the term reliability will be included in a footnote on the first usage of reliably or reliable in IPSASs containing requirements on recognition or aspects of measurement uncertainty. 63

66 Notes to the Financial Statements - (Cont d) 2.0 SIGNIFICANT ACCOUNTING POLICIES The principle accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated. (a) Statement of Compliance The financial statements for the year ended 30th June 2016 have been prepared in accordance with and comply with International Public Sector Accounting Standards (IPSAS) as issued by International Public Sector Accounting Standards Board (IPSASB), the Public Finance Management Act, 2012, Public Audit Act, 2015 and Kenya Roads Board Act. For the Public Finance Management Act, 2012, Public Audit Act, 2015 and Kenya Roads Board Act reporting purposes, in these financial statements the balance sheet / statement of assets and liabilities is represented by and is equivalent to the statement of financial position and the profit and loss account / statement of income and expenditure is presented in the statement of financial performance. (b) (c) Basis of Preparation The financial statements have been prepared under the historical cost convention, unless otherwise stated. The financial statements are presented in the functional currency, Kenya Shillings (Kshs.), and all values are rounded to the nearest thousands (Kshs. 000) except when otherwise indicated. Presentation of Financial Statements The financial statements comprise of statement of financial performance, statement of financial position, statement of changes in net assets/equity and the statement of cash flows and the notes to the financial statements. The Board classifies its expenditure by the nature of expense methodology. The disclosure on risks are presented in the financial risk management objectives and policies contained in note 5. The statement of cash flows shows the changes in cash and cash equivalents arising during the period from operating, investing and financing activities. Starting 1st July 2010, Kenya Roads Board adopted the IPSAS 1 on Presentation of Financial Statements. In previous years the financial statements were prepared in accordance with the International Financial Reporting Standards (IFRSs). The change was necessitated by the reporting standards on public entities which are not Government Business Entities (GBE) as defined and required by IPSAS 1- Presentation of Financial Statements which states that the scope of application is for all public sector entities other than Government Business Enterprises. The requirement by the Auditor General to present separate financial statements for the Kenya Roads Board Operations and the Kenya Roads Board Fund has led to reclassification of assets and liabilities including prior year to each set of financial statements. (d) Budget Information International Public Sector Reporting Standards allow for non-disclosure where (a) an entity is not required to disclose its budget information publicly and (b) the entity has elected not to present its approved budget publicly. The Board is not required to publicly avail the approved KRB Operations budget and has elected not to present its budget publicly. Therefore the Board has not attached a Statement of Comparison of Budget and Actual amounts. However it is observed that the Approved KRB Budget amounts for the year have not been exceed. (e) Functional Currencies (i) Functional and Presentation Currency The financial statements are presented in the functional currency, Kenya Shillings (Kshs.), which is the Board s presentational currency. The financial information is rounded to the nearest thousands (Kshs. 000) except when otherwise indicated. 64

67 Notes to the Financial Statements - (Cont d) (ii) Transactions and Balances a) Translation of Foreign Currencies Transactions in foreign currencies during the year are converted into the functional currency using the prevailing exchange rates ruling at the dates of the transactions. Assets and liabilities denominated in foreign currencies have been translated at the mean rates of exchange ruling at the end of the reporting period. The foreign currency exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized through the statement of financial performance in the year in which they arise. b) Translation of Foreign Operations The Board does not have any foreign operations. (f) Revenue Recognition In accordance with the Kenya Roads Board Act, 1999, the Board is allocated 2% of the Road Maintenance Levy Fund (RMLF) for its operations and is recognized on accrual basis. An inflow of the funds is recognized as revenue and a liability Is recognized in respect of the same inflow upon approval of the disbursements by the Board. Revenue is generally recognized in the Statement of Financial Performance on accrual basis. Interest income from all interest bearing financial instruments is recognized in the Statement of Financial Performance on accrual basis using the effective interest method. Other incomes are recognized as they accrue unless the collectability is in doubt. (g) Cash and Cash Equivalents For purposes of the cash flow statement, cash and cash equivalents comprise of cash and cash balances held at the bank with less than three months maturity from the statement of financial position date. These include notes and coins on hand and deposits held at call with banks. (h) Receivables Receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Board provides money or services directly to a debtor with no intention of trading the receivable. Receivables are amounts due from the Kenya Roads Board Fund which are accrued in the ordinary course of business and there is no intention of trading the receivable. Receivables are recognized initially at the fair value (transaction price/ carrying value less any discounts). They are subsequently measured at amortized costs using the effective interest method less provision for impairment. A provision for impairment of receivables is made when there is objective evidence that the Board will not be able to collect all amounts due according to the original terms of receivables. The carrying value less discounts and any impairment provision of impairment is assumed to approximate their fair values. For financial instruments such as short term receivables, no disclosure of fair value is required when the carrying amount is a reasonable approximation of fair value. Receivables are classified as current assets if payment is due within one year or less (or in the normal operating cycle of business, if longer). If not, they are presented as non-current assets. (i) Inventories Given the nature of the Board s operations and mandates, items in stock relate to stationery. Stationery costs are recognized as an expense when deployed for utilization in the ordinary course of the Board s operations. As at 30th of June 2016, the Board did not have any inventory. 65

68 Notes to the Financial Statements - (Cont d) (j) Property and Equipment and Depreciation All property and equipment are initially stated at cost and thereafter at historical cost less accumulated depreciation and any accumulated impairment loss. Historical cost comprises expenditure initially incurred to bring the asset to its location and condition ready for its intended use. Subsequent costs are included in the asset s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Board and the cost can be reliably measured. All other repairs and maintenance are charged to the Statement of Financial Performance during the financial year in which they are incurred. Depreciation is calculated on straight line basis at annual rates estimated to write down the carrying value of the assets over their expected useful lives. An item of property and equipment is de-recognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or losses on de-recognition of the asset is included in the Statement of Financial Performance in the year the asset is de-recognized. (k) Payables Payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Payables also include payments in respect social benefits where formal agreements for specific amounts exist. Payables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method. The historical cost carrying amount of payables subject to the normal credit terms usually approximates fair value. Payables are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of business if longer). If not, they are presented as non-current liabilities. (l) Leases The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets and the arrangement coveys a right to use the asset. Leases are classified as finance leases whenever the terms of the lease transfer substantially all risks and rewards of ownership to the Board as the lessee. All other leases are classified as operating leases. Where the Board is the lessee, the total payments made under operating leases are charged to the statement of financial performance on a straight line basis over the period of the lease. When an operating lease is terminated before the expiry of the lease period, any payment required to be made to the lessor by way of penalty is recognized as expense in the year in which termination takes place. Rentals payable under operating leases are amortized on the straight line basis over the term of the relevant lease. (m) Impairment of Non-financial Assets At each reporting period end, based on internal and external sources, the Board reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. Where it is not possible to estimate the recoverable amount of an individual asset, the Board estimates the recoverable value of the asset. Any impairment losses are recognized as an expense in the Statement of Financial Performance whenever the carrying amount of an asset exceeds its recoverable amount. Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount. A reversal of impairment loss is limited to the assets carrying amount that would have been determined had no impairment loss been recognized in prior years. A reversal of an impairment loss is credited to the Statement of Financial Performance in the year reversals are recognized. 66

69 Notes to the Financial Statements - (Cont d) (n) Provisions Provisions are recognized when the Board has a present obligation (legal or constructive) as a result of a past event, it is probable that the Board will be required to settle the obligation, and a reliable estimate can be made of the amount of obligation. The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the reporting period end, taking into account the risks and uncertainties surrounding the obligation. (o) Retirement Benefit Obligations The Board operates a defined contribution provident fund for eligible employees. The fund is administered by an independent administration company and Trustees. It is funded by contributions from both the employer and employees. The Board and its employees also contribute to the statutory pension scheme, the National Social Security Fund (NSSF). Contributions are determined by the local statute and are currently limited to Kshs. 200 per employee per month. The Board also sets aside on monthly basis the gratuity for its employees who are on contract basis. The Board s contributions in respect of staff retirement benefit costs are charged to the statement of financial performance, as they fall due or in case of service gratuity as they accrue to each employee. (p) Guarantees, Acceptances and Letters of Credit Guarantees are accounted for as off statement of financial position transactions and disclosed as contingent liabilities. (q) Subsequent Events There have been no subsequent events that would have an impact on the financial statements for the year ended 30th June (r) Comparatives Except otherwise required, all amounts are reported or disclosed with comparative information. Where necessary, comparative figures have been adjusted to conform to changes in presentation in the current year. 3.0 CRITICAL ACCOUNTING ESTIMATES, JUDGEMENTS AND ASSUMPTIONS In the process of applying the Board s accounting policies, the directors have made estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Although these estimates are based on the directors knowledge of current events and actions, actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. The key areas of judgments and sources of uncertainty in estimation are as set out below: (a) Critical Judgments in applying the Board s accounting policies In the process of applying the Board s accounting policies, judgments have been made in determining:- - Whether the assets are impaired; - The classification of financial assets; - The going concern. (b) Critical Accounting Estimates and Assumptions (i) Useful Lives of Property, Plant and Equipment The directors make estimates in determining the depreciation rates for property and equipment. The rates 67

70 Notes to the Financial Statements - (Cont d) used are set out in the accounting policy (j) above for property and equipment. The Board reviews the estimated useful lives of plant and equipment at the end of each reporting period. During the financial year, no changes to the useful lives were identified by the directors. (ii) Contingent Liabilities As disclosed in these financial statements, the Board is exposed to various contingent liabilities in the normal course of business. The Directors evaluate the status of these exposures on a regular basis to assess the probability of the Board incurring related liabilities. However, provisions are only made in the financial statements where, based on the directors evaluation, a present obligation has been established. (iii) Provision for Doubtful Debts The organization reviews its travel advances portfolio to assess the likelihood of impairment. Provision for impairment of receivables is established when there is objective evidence that the Board will not be able to collect all amounts due. Where necessary, an estimation of the amounts irrecoverable is made in that year. Provision for impairment shall be recognized upon approval by the Board of Directors. (iv) Other Provisions Other provisions are recognized when the Board has legal or constructive obligation as a result of past events, for which it is probable that an outflow of economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. (v) Impairment Losses At each reporting period end, the Board reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. Where it is not possible to estimate the recoverable amount of an individual asset, the Board estimates the recoverable value of the asset. Any impairment losses are recognized as an expense immediately. Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount. A reversal of an impairment loss is recognized as income immediately. 4.0 SEGMENT REPORTING The Board does not have any branches/reporting segments. All the operations of the Board are managed from the registered office. The core business of the Kenya Roads Board continues to be management of the Kenya Roads Board Fund together with other mandates as stipulated in the Kenya Roads Board Act. There is no distinguished component of the Board that is engaged in providing an individual service that is subject to risks and returns that are different from the main mandates of the Board. 5.0 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Board has initiated and facilitated the process that will see the enhancement of risk management. The Board has an integrated risk management framework/strategy. The Board s approach to risk management is based on risk governance structures, risk management policies, risk identification, measurement, monitoring and reporting. The risk management policies and systems are reviewed regularly to ensure they are in tandem with the micro and macro environment, regulatory guidelines, industry practice, market conditions as well as the services offered. The Board recognizes the critical role the risk management will continue to play in its endeavor to carry out its business in a dynamic environment. The Board is committed to ensure that corporate governance and risk management are deeply entrenched in the Board s strategy and culture. An elaborate risk management strategy that will provide direction on matters of policy and guide the implementation and control has been developed. This risk management framework captures the following among other things:- 68

71 Notes to the Financial Statements - (Cont d) The Board s risk appetite and parameters; The Board s risk matrix that highlights the rating of risks; The structure of managing risks and accountabilities The processes, procedures and reports that manage risks; The mitigating factors, prevention, contingency plans and controls. The Board s core business involves major engagements with financial transactions and processes which pose certain risks. Three types of risks are reported as part of the risk profile namely operational, strategic and business continuity risks. a) Operational risks are events, hazards, variances or opportunities which could influence the achievement of the Board s compliance and operational objectives. b) Strategic risk is a significant unexpected or unpredictable change or outcome beyond what was factored into the organization s strategy and business model which could have an impact on the entity s performance. c) Business continuity risks are those events, hazards, variances and opportunities which could influence the continuity of the entity. One of the key risks the Board has identified in both the operational and strategic areas is the sustainability of the Road Maintenance Levy in line with the Constitution. Financial risk as defined in IPSAS 15 and the management thereof, form part of this risk area. The Members of the Board have the overall responsibility for the establishment and oversight of the Board s risk management framework. The Board has delegated its risk management to the Audit and Risk Committee. One of the responsibilities of this committee is to review risk management strategies in order to ensure business continuity and survival. Most of the financial risks arising from financial transactions and processes are managed by the Finance and Planning Committee of the Board. The Board s exposure to risks, its objectives, policies and processes for managing the risk and the methods used to measure it have been consistently applied in the years presented, unless otherwise stated. The Board aims therefore to achieve an appropriate balance between the risk and return and minimize potential adverse effects on its financial performance. The financial management objectives and policies are as outlined below:- a) Liquidity Risk Liquidity risk is the risk that the Board will not have sufficient financial resources to meet its obligations when they fall due or will have to do so at excessive costs. This risk can arise from mismatches in the timing of cash flows from revenue and capital/ operational outflows, assets and liabilities according to their maturity profiles and can occur where cash flow streams have been discontinued, etc. Funding risk arises when the necessary liquidity to fund illiquid asset positions cannot be met at expected terms and when required. The objective of the liquidity and funding management is to ensure that all foreseeable operational, capital and loan commitment expenditure can be met under both normal and stressed conditions and the mismatch is controlled in line with allowable risk levels. The Board has adopted an overall balance sheet approach which consolidates all sources and uses of liquidity, while aiming to maintain a balance between liquidity, cash flows and interest rate considerations. The Board s liquidity and funding management process includes:- Projecting cash flows and considering the cash required and optimizing the short term requirements as well as the long term funding, Maintaining balance sheet liquidity ratios, Maintaining/soliciting for a diverse range of funding sources with adequate back up facilities, Managing the concentration and profile of debt maturities, where applicable, Maintaining liquidity and funding contingency plans. The table shows the undiscounted cash flows on the Board s financial assets and liabilities on the earliest possible contractual/maturity date. The liquidity ratio in FY 2015/16 is 2.2 (FY 2014/15: 9.4). 69

72 Notes to the Financial Statements - (Cont d) 2015/ /15 Note KShs 000 KShs 000 Financial Assets Cash & Cash Equivalents 8 19,665,708 6,946,324 Total Financial Assets 19,665,708 6,946,324 Financial Liabilities Payables 9 9,039, ,468 Total Financial Liabilities 9,039, ,468 NET LIQUIDITY 10,626,602 6,210,856 LIQUIDITY RATIO The Board has an established corporate governance structure and process of managing risks regarding guarantees and contingent liabilities. All guarantees issued are approved by the Members of the Board and are administratively managed by the finance department. The primary sources of revenue for the Board are receipts from the Kenya Roads Board Fund, mainly receipts from fuel levy fund. The Board is pursuing additional sources of revenue for which approval has been sought from Ministries of Finance and Roads. b) Market Risk Market risk is the risk that the fair value of future cash flows of financial instruments will fluctuate because of changes in foreign exchange rates, prices and interest rates. The objective of market risk management policy is to protect and enhance the Statements of Financial Position and performance by managing and controlling market risk exposures within acceptable parameters, and to optimize the funding of business operations and facilitate capital expansion. The Board is exposed to the following market risks:- (i) (ii) Currency Risk The currency risk is minimal as most of cash and cash equivalents held with banks are dominated in Kenya Shillings. Price Risk The Board collects Kshs. 12 per litre of diesel and petrol imported into the country. The Board is exposed to the extent that the levy on diesel and petrol is reduced or eliminated due to changes in the international fuel prices, inflation or other macro indicators. The Road Maintenance Levy is backed up by an Act of Parliament and changes thereof require approval by Parliament. (iii) Interest Rate Risk The Board s financial condition may be adversely affected as a result of changes in interest rate levels. The interest rate risk is minimal as the Board does not have any borrowings. c) Operational Risk Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Board s processes, personnel, technology and infrastructure and from external factors other than credit, market and liquidity risks such as legal and regulatory requirements and generally acceptable standards of corporate behavior. The Board seeks to ensure that key operational risks are managed in a timely and effective manner through a framework of policies, procedures and tools to identify, assess, monitor and report such risks. 70

73 Notes to the Financial Statements - (Cont d) The Board s objective is to manage operational risk so as to balance the avoidance of financial losses and damage to the Board s reputation with overall cost effectiveness and to avoid control procedures that restrict initiative and creativity. The primary responsibility for the development and implementation of controls to address operational risk is assigned to senior management. The responsibility is supported by the development of overall standards for the management of operational risk in the following areas:- Requirements for appropriate segregation of duties, including the independent authorization of transactions; Requirements for the reconciliation and monitoring of financial transactions; Compliance with regulatory and legal requirements; Documentation of controls and procedures; Requirements for the yearly assessment of operational risks faced and the adequacy of controls and procedures to address the risks identified; Requirement for the reporting of operational losses and proposed remedial action; Development of Business Contingency Plans; Training and professional development; Ethical and business standards; and Risk mitigation, including insurance where it is effective. Operational risks are documented in the Framework for Management Control and are managed by the Internal Audit function established to spearhead and coordinate risk management activities. The measures taken include proactively identifying, analyzing and mitigating risks in all facets of the business. d) Compliance and Regulatory Risk Compliance and regulatory risk includes the risk of non-compliance with regulatory requirements. The Board has complied with all externally imposed requirements throughout the year. e) Legal Risk Legal risks is the risk of unexpected loss, including reputational loss, arising from defective transactions or contracts, claims being made or some other event resulting in a liability or the loss for the Board, failure to protect the title to and inability to control the rights to assets of the Board (including intellectual property right), changes in law, or jurisdictional risk. The Board manages legal risk through the legal function, legal risk policies and procedures and the effective use of internal controls and external lawyers. 71

74 Notes to the Financial Statements - (Cont d) 6.0 RECEIPTS KShs 000 KShs 000 Road Maintenance Levy 51,068,987 32,133,022 Agricultural Cess 101, ,106 Total Operating Revenue 51,170,784 32,276,128 Revenue mainly represents receipts of Road Maintenance Levy from the Kenya Revenue Authority. The Board did not receive any transfers of any form, (including assets, gifts, donations, goods and service-in-kind, advance receipts, pledges, expenses paid on behalf and concessionary loans) from national and local government, public entities, Donor & International development agencies. 7.0 DISBURSEMENTS OF FUNDS The Board allocates funds to the road agencies in accordance with the allocation criteria set out in the Kenya Roads Board Act, 1999 as shown below: Road Agency: Particulars/ Class of Roads Allocation Kenya Roads Board Operations 2% Kenya National Highways Authority A, B, C Roads 40% Kenya Rural Roads Authority Constituency/Rural Roads 22% Kenya Rural Roads Authority Constituency Link Roads 10% Kenya Urban Roads Authority Urban Roads 15% Kenya Wildlife Service Park Roads 1% Allocation by Kenya Roads Board/Ministry Development of roads 10% Total 100% Effective July 2015, the Board began allocating funds to County Governments and the Road Annuity Program. The Board therefore disbursed funds as follows during the year: 2015/ /15 KShs 000 KShs 000 Agency Kenya Roads Board 649, ,869 Kenya National Highways Authority 11,940,280 10,571,035 Kenya Rural Roads Authority 9,188,761 8,293,444 Kenya Urban Roads Authority 4,307,232 3,904,803 Kenya Wildlife Service 287, ,920 Allocation by Kenya Roads Board/Ministry 2,871,488 2,279,201 County Governments 3,300,000 - Road Annuity Programme 8,000,000 - Total Disbursements 40,544,182 26,065,272 Add: Releases of Prior year funds 6,210,856 3,147,107 Total funds Released in the Year 46,755,038 29,212,379 72

75 8.0 CASH AND CASH EQUIVALENTS Notes to the Financial Statements - (Cont d) (a) Analysis of bank and cash balances: These represent cash held at various banks, as follows: 2015/ /15 KShs 000 KShs 000 Amounts held in local currency 19,563,914 6,803,218 Amounts held in foreign currency 101, ,106 Total 19,665,708 6,946,324 The Board has put mechanisms in place to mitigate against credit risk on cash and bank balances as the funds are held with sound financial institutions approved by the Central Bank of Kenya. (b) Cash and cash equivalents For the purposes of the cash flow statement, cash and cash equivalents comprise balances with less than three months maturity from the date of acquisition, including cash in hand, deposits held at call with banks and other short term highly liquid investments with original maturities of three months. Analysis of cash and cash equivalents is as set out below:- 2015/ /15 KShs 000 KShs 000 Bank and Cash Balances 19,665,708 6,946, PAYABLES These represent funds due to the road agencies, but not released as at 30th June 2016, as follows:- 2015/ /15 KShs 000 KShs 000 Road Agency Funds 9,039, , NET ASSETS AVAILABLE FOR DISTRIBUTION These represent amounts received over and above the approved budget for the year, as follows: 2015/ /15 KShs 000 KShs 000 Road Maintenance Levy 10,524,805 6,067,750 Agricultural Cess 101, ,106 Total 10,626,602 6,210,856 The funds are allocated to the road agencies in the subsequent year in accordance with the Kenya Roads Board Act,

76 Notes to the Financial Statements - (Cont d) 11.0 CASH GENERATED FROM OPERATIONS Reconciliation of Net Cash Flows from Operating Activities to Surplus for the year: Notes 2015/ /15 KShs 000 KShs 000 Net assets available for distribution 10 10,626,602 6,210,856 Changes in working capital balances: Increase in Road Agency Funds 8,303,638 16,541 Net cash flows from operating activities 18,930,240 6,227, CONTINGENT LIABILITIES The Board is involved in two legal proceedings, as follows: a) Nairobi H.C.J.R. No. 35 of 2014: Outdoor Advertising VS Kenya Roads Board with a claim amounting to Kshs 93.6 million. This matter is before the Court of Appeal, and the directors do not expect this matter to crystalize into a financial loss to the Board. b) H.C. Petition No. 56 of 2015: Rift Valley Railways (Kenya) Ltd VS Kenya Roads Board, Attorney General and others in which the petitioner is seeking an order declaring Section 3 of the Road Maintenance Levy Fund Act unconstitutional. The directors do not expect the court to grant the petitioner s request. The directors believe, based on the information currently available, that the legal matters above are not likely to have a material effect on the results of the Board s operations, financial position or liquidity. Therefore no provision has been made in the financial statements FAIR VALUE The directors consider that there is no material difference between the fair value and carrying value of the company s financial assets and liabilities, where fair value details have not been presented CAPITAL COMMITMENTS All capital commitments contracted for and authorized at the reporting period end have been recognized in the financial statements POST BALANCE SHEET EVENTS The Directors are not aware of any matter or circumstances arising since the end of the financial year, not otherwise dealt with in the financial statements, which would significantly affect the financial position of Kenya Roads Board Fund and results of its operation as laid out in these financial statements COMPARATIVES Where necessary, comparative figures have been adjusted to conform to changes in presentation of the Financial Statements as required by International Public Sector Accounting Standards, and any amendment whenever necessary in the current year CURRENCY The financial statements are presented in Kenya Shillings (KShs 000). 74

77 Progress on Follow up of Auditors Recommendations All audit issues raised by the external auditor were resolved and concluded during the audit process. There are no audit issues that were carried forward. RASHID K. MOHAMED, MBS GENERAL MANAGER, FINANCE ENG. JACOB ZECHA RUWA, OGW EXECUTIVE DIRECTOR 26th August, th August,

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79 FUND ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED JUNE Prepared in accordance with the Accrual Basis of Accounting Method under the International Public Sector Accounting Standards (IPSAS) 77

80 CONTENTS Report of the Directors Statement of the Board s Responsibilities Report of the Independent Auditors Statement of Financial Performance Statement of Financial Position Statement of Changes In Net Assets Statement of Cashflows Comparison of Budget And Actual Amounts Notes to the Financial Statements Progress on follow-up of Audit Recommendations

81 The Directors have the pleasure of presenting their report together with the audited financial statements for the year ended 30th June 2016 which show the state of the Board s affairs. PRINCIPAL ACTIVITIES The Board is primarily engaged in management of the Kenya Roads Board Fund together with other mandates specified in the Kenya Roads Board Act, RESULTS The results for the year ended 30th June 2016 are set out on page 83 to 87. DIRECTORS The Board of Directors who held office during the year, and up to the date of this report, is shown on page 35. In accordance with Section 7(4) of the Kenya Roads Board Act, 1999 the Chairman and members of the Board, other than ex-official members shall hold office for a period of three years from the date of appointment but shall be eligible for reappointment for one further term of a period not exceeding three years. The appointment and vacation of office of any member of the Board shall be in accordance with Section 2 of the Second Schedule to the Kenya Roads Board Act, FINANCIAL STATEMENTS At the date of this report, the Board was not aware of any circumstances which would have rendered the values attributed to the assets in the financial statements misleading. AUDITORS The Auditor General is responsible for the statutory audit of the Board s books of account in accordance with Sections 14 and 39 (i) of Chapter 12 of the Laws of Kenya, Public Audit Act, BY ORDER OF THE BOARD Report of the Directors ENG. JACOB ZECHA RUWA, OGW EXECUTIVE DIRECTOR 26th August,

82 Statement of the Board s Responsibilities The Kenya Roads Board Act, 1999 requires the Board to prepare financial statements of each financial year which give a true and fair view of the state of affairs of the Roads Board as at the end of the financial year and of the Board s operating results for that year. It also requires the Board to ensure that the Roads Board keeps proper accounting records which disclose with reasonable accuracy at any time the financial position of the Board and to ensure that the Financial Statements comply with the enabling Act. They are also responsible for safeguarding the assets of the Roads Board and taking reasonable steps for prevention and detection of fraud and other irregularities. The Board accepts responsibility for the financial statements which have been prepared using appropriate accounting policies supported by reasonable and prudent judgments and estimates, in conformity with International Public Sector Accounting Standards and the requirements of the Kenya Roads Board Act. The Board is of the opinion that the financial statements give a true and fair view of the state of affairs of the Roads Board and of its financial performance. The Board further accepts responsibility for the maintenance of accounting records which may be relied upon in the preparation of the financial statements, as well as designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of the financial statements that are free from material misstatements. The Board is required to prepare the financial statements on a going concern basis unless it is determined that after the reporting period, the Board intends to liquidate or cease it activities, or that it has no realistic alternative but to do so. The tenure of a majority of members constituting the KRB Board of directors expired on 1st September As at 30th June 2016, the Board of directors had not been fully constituted. Consequently, the Financial Statements have been prepared and submitted by the Management. Nothing has come to the attention of the Management to indicate that the Roads Board will not remain a going concern for at least the next twelve months from the date of this statement. Submitted by the Management and signed on its behalf by:- RASHID K. MOHAMED, MBS GENERAL MANAGER, FINANCE ENG. JACOB ZECHA RUWA, OGW EXECUTIVE DIRECTOR 26th August, th August,

83 Report of the Independent Auditors OFFICE OF THE AUDITOR-GENERAL REPORT OF THE AUDITOR-GENERAL ON (OPERATIONS) FOR THE YEAR ENDED 30 JUNE 2016 REPORT ON THE FINANCIAL STATEMENTS I have audited the accompanying financial statements of Kenya Roads Board (Operations) set out on pages 83 to 105 which comprise the statement of financial position as at 30 June 2016, the Statement of Financial Performance, Statement of Changes in Net Assets, the Statement of Cash flows for the year then ended, together with 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 35 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. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with the International Public Sector Accounting Standards (Accrual Basis) and for such internal controls 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 47 of the Public Audit Act, Auditor-General s Responsibility My responsibility is to express an independent opinion on the financial statements based on the audit and report in accordance with the provisions of Section 48 of the Public Audit Act, 2015 and submit the audit report in compliance with Article 229(7) of the Constitution of Kenya. The audit was conducted in accordance with the International Standards of Supreme Audit Institutions. 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 judgment, 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 81

84 Report of the Independent Auditors - (Cont d) to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Board s internal controls. 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 audit opinion. Opinion In my opinion, the financial statements present fairly, in all material respects, the financial position of Kenya Roads Board (Operations) as at 30th June 2016, and its financial performance and cash flows for the year then ended in accordance with the International Public Sector Accounting Standards (Accrual Basis) and comply with the Kenya Roads Board Act, Cap 408 of the Laws of Kenya. FCPA Edward R. O. Ouko, CBS AUDITOR-GENERAL Nairobi 14 December

85 Statement of Financial Performance FOR THE YEAR ENDED 30TH JUNE / /15 Note KShs 000 KShs 000 OPERATING REVENUE 6 668, ,896 OPERATING EXPENSES Director Costs 7 31,008 47,601 Staff Costs 8 243, ,068 Field Activity Costs 9 43,769 44,221 Other Operating Costs , ,683 Corporate Social Responsibility 11 1,465 1,041 TOTAL OPERATING EXPENSES 641, ,614 SURPLUS FROM OPERATIONS 27,702 8,282 Gain on Disposal of Property & Equipment ,007 NET SURPLUS FOR THE YEAR 12 27,827 10,289 The notes on pages 88 to 104 form an integral part of these financial statements. 83

86 Statement of Financial Position AS AT 30TH JUNE / /15 Note KShs 000 KShs 000 ASSETS Current Assets Cash and Cash equivalents 13 1,365,603 1,210,177 Receivables 14 2, ,367,840 1,210,657 Non-Current Assets Property & Equipment 15 35,911 54,583 TOTAL ASSETS 1,403,751 1,265,240 LIABILITIES Current Liabilities Payables 16 65,628 49,319 65,628 49,319 TOTAL NET ASSETS 1,338,123 1,215,921 NET ASSETS/EQUITY Reserves KRB Staff Fund 17(a) 262, ,601 KRB Capital Fund 17(b) 860, ,903 Accumulated Surpluses 7(c) 215, ,417 1,338,123 1,215,921 TOTAL NET ASSETS/EQUITY 1,338,123 1,215,921 The notes on pages 88 to 104 form an integral part of these financial statements. The financial statements on pages 83 to 104 were submitted by the Management and signed on its behalf by: RASHID K. MOHAMED, MBS GENERAL MANAGER, FINANCE ENG. JACOB ZECHA RUWA, OGW EXECUTIVE DIRECTOR 26th August, th August,

87 Statement of Changes in Net Assets FOR THE YEAR ENDED 30TH JUNE 2016 Note Accumulated Capital Staff Total Surpluses Fund Fund KShs 000 KShs 000 KShs 000 KShs 000 As at 1st July , , ,601 1,215,921 Growth in Staff fund 17(a) - - 6,586 6,586 Growth in Capital fund 17(b) - 87,789-87,789 Net Surplus for the year 17(c) 27, ,827 As at 30 June , , ,187 1,338,123 Note Accumulated Capital Staff Total Surpluses Fund Fund KShs 000 KShs 000 KShs 000 KShs 000 As at 1st July , , , ,063 Growth in Staff fund 17(a) - - 6,918 6,918 Transfer to Capital Fund 17(b) - 250, ,000 Growth in Capital fund 17(b) - 48,651-48,651 Net Surplus for the year 17(c) 10, ,289 As at 30 June , , ,601 1,215,921 The notes on pages 88 to 104 form an integral part of these financial statements. 85

88 Statement of Cash Flows FOR THE YEAR ENDED 30TH JUNE / /15 Note KShs 000 KShs 000 CASH FLOWS FROM OPERATING ACTIVITIES Cash generated from operations 18 49,877 25,066 Net cash generated from operating activities 49,877 25,066 CASH FLOWS FROM INVESTING ACTIVITIES Interest received 6 19,700 8,030 Purchase of property and equipment 15 (8,651) (26,920) Proceeds on disposal of equipment ,007 Net book value of disposed assets - - Net cash (used in) investing activities 11,174 (16,883) CASH FLOWS FROM FINANCING ACTIVITIES Growth in KRB Staff fund (Interest) 17(a) 6,586 6,918 Growth in KRB Capital fund (Interest) 17(b) 87,789 48,651 Transfer to KRB Capital fund 17(b) - 250,000 Net cash inflow from financing activities 94, ,569 NET INCREASE IN CASH AND CASH EQUIVALENTS 155, ,752 MOVEMENT IN CASH AND CASH EQUIVALENTS At the beginning of the year 1,210, ,425 Net increase in cash and cash equivalents 155, ,752 At the end of the year 13(b) 1,365,603 1,210,177 The notes on pages 88 to 104 form an integral part of these financial statements. 86

89 Statement of Comparison on Budget and Actual Amounts COL 1 COL 2 COL 3 COL 4 ANNUAL ACTUAL VARIANCE: % OF FORECAST YEAR ACTUAL TO ACTUAL TO FY 15/16 FY 15/16 ANNUAL ANNUAL (KSHS) (KSHS) FORECAST FORECAST NOTES (KSHS) INCOME Fuel Levy Fund 649,272, ,272, % Interest Earned 12,000,000 19,699,550 7,699, % 1 Sale of Tenders 120,000 20,880 (99,120) 17% 2 Gain on disposal 100, ,539 24, % 3 TOTAL INCOME 661,492, ,116,969 7,624, % EXPENDITURE Directors Costs 53,105,240 31,007,765 22,097,475 58% 4 Staff Costs 248,684, ,334,202 5,350,514 98% Operating Costs 304,802, ,489,696 13,312,348 96% 5 Audit Fees 2,900,000 2,900, % Departmental Costs 45,500,000 43,769,268 1,730,732 96% Corporate Social Responsibility 6,500,000 1,465,210 5,034,790 23% 6 TOTAL EXPENSES 661,492, ,966,141 47,525,859 93% Depreciation - 27,323,855 - N/A Operations Surplus 27,826,974 The notes on pages 88 to 104 form an integral part of these financial statements. NOTES: 1. The favorable variance was due to high interest yields, on KRB bank balances, witnessed during the first half of FY2015/ The prices of tenders reduced from KShs 5,000 per tender to KShs 500 per tender, while some tenders documents were issued to prospective bidders at no charge. 3. The gain was on sale of assorted computer equipment. Bidders quoted more than had been estimated. 4. The under expenditure was attributed to fewer board activities during the year as a result of the KRB Board of Directors not being fully constituted. 5. This was as a result of lower general office expenses and advertising costs due to government directive on cost reduction. KRB has been uploading its tender adverts in the Government e-procurement platform which is hosted by the National Treasury. 6. A major Corporate Social Responsibility activity that had been budgeted did not take place as the full Board of Directors was not fully constituted to approve the project. 87

90 Notes to the Financial Statements 1.0 STANDARDS AND INTERPRETATIONS AFFECTING THE REPORTED RESULTS OR FINANCIAL POSITION Adoption of New and Revised International Public Sector Accounting Standards (IPSASs) (i) New Standards and Interpretations In Issue But Not Yet Effective in Year Ended 30th June 2016 The International Public Sector Accounting Standards Board (IPSASB) has not issued any new standards that are effective in year ended 30th June (ii) Proposed Amendments to IPSAS as per Exposure Draft 57 & 58 In October 2015, the International Public Sector Accounting Standards Board (IPSASB) issued the IPSASB issued Exposure Drafts 57 and 58, which is briefly discussed below. The following proposals are contained in IPSASB Exposure Draft 57 impairment of revalued assets and would see amendments/improvements made to IPSASs: a) This Exposure Draft proposes amendments to IPSAS 21, Impairment of Non-Cash-Generating Assets, and IPSAS 26, Impairment of Cash-Generating Assets, so that assets measured at revalued amounts under the revaluation model in IPSAS 17, Property, Plant and Equipment, and IPSAS 31, Intangible Assets, are within the scope of IPSAS 21 and IPSAS 26. b) As a result of the proposals, an entity would be required to assess at each reporting date whether there is any indication that an asset may be impaired. If any indication exists, the entity would then be required to assess the recoverable service amount (non-cash-generating asset) or recoverable amount (cash-generating asset) of that asset and recognize an impairment loss if recoverable service amount or recoverable amount is less than carrying amount. c) However, where an impairment loss is recognized for an asset that is revalued, an entity would not necessarily be required to revalue the entire class of assets to which that impaired asset belongs as required by IPSAS 17. The following proposals are contained in IPSASB Exposure Draft 58 improvements to IPSAS s 2015 of IPSAS and would see amendments/improvements made to IPSASs. The objective of the Exposure Draft 58 is to propose improvements to IPSASs to ensure consistency with the Conceptual Framework for Financial Reporting in the Public Sector (the Conceptual Framework). The Improvements project deals with non-substantive changes to IPSASs through a collection of amendments which are unrelated. IPSAS Standard IPSAS 1, Presentation of Financial Statements; IPSAS 3, Accounting Policies. Changes in Accounting Estimates and Errors; IPSAS 16, Investment Property; IPSAS 18, Segment Reporting; IPSAS 20, Related Party Disclosures; IPSAS 22, Disclosures about the General Government Sector; IPSAS 24, Presentation of Budget Information in Financial Statements; IPSAS 29, Financial Instruments: Recognition and Measurement and IPSAS 30, Financial Instruments: Disclosure. IPSAS 5, Borrowing Costs; IPSAS 7, Investments in Associates; IPSAS 9, Revenue From Exchange Transactions; IPSAS 11, Construction Contracts; IPSAS 13, Leases; IPSAS 16, Investment Property; IPSAS 17, Property, Plant, and Equipment; IPSAS 18, Segment Reporting; IPSAS 19, Provisions, Contingent Liabilities and Contingent Assets; IPSAS 21, Impairment of Non-Cash-Generating Assets; IPSAS 23, Revenue From Non-exchange Transactions (Taxes and Transfers); IPSAS 25, Employee Benefits; IPSAS 26, Impairment of Cash Generating Assets; IPSAS 27, Agriculture; IPSAS 31, Intangible Assets; IPSAS 32, Service Concession Arrangements; IPSAS 33, First-Time Adoption of Accrual Basis International Public Sector Accounting Standards; IPSAS 34, Separate Financial Statements and IPSAS 36, Investments in Associates and Joint Ventures. Summary of Proposed Change Consequential amendments related to Chapters 1 4 of the Conceptual Framework for Financial Reporting in the Public Sector. These relate to the Qualitative Characteristics, accounting policies and the hierarchy of sources used in the selection and application of accounting policies. The Conceptual Framework for General Purpose Financial Reporting by Public Sector Entities was published in October Chapter 3 addresses the qualitative characteristics of information and constraints on information in general purpose financial reports. The Conceptual Framework adopted faithful representation as a qualitative characteristic, rather than reliability. The IPSASB decided not to make piecemeal changes to recognition criteria and guidance on measurement before considering changes to IPSASs arising from Chapter 5, Elements and Chapter 6, Recognition of the Conceptual Framework. Therefore an explanation of the term reliability will be included in a footnote on the first usage of reliably or reliable in IPSASs containing requirements on recognition or aspects of measurement uncertainty. 88

91 2.0 SIGNIFICANT ACCOUNTING POLICIES The principle accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated. (a) Statement of Compliance The financial statements for the year ended 30th June 2016 have been prepared in accordance with and comply with International Public Sector Accounting Standards (IPSAS) as issued by International Public Sector Accounting Standards Board (IPSASB), the Public Finance Management Act, 2012, Public Audit Act, 2015 and Kenya Roads Board Act. For the Public Finance Management Act, 2012, Public Audit Act, 2015 and Kenya Roads Board Act reporting purposes, in these financial statements the balance sheet / statement of assets and liabilities is represented by and is equivalent to the statement of financial position and the profit and loss account / statement of income and expenditure is presented in the statement of financial performance. (b) Basis of Preparation The financial statements have been prepared under the historical cost convention, unless otherwise stated. The financial statements are presented in the functional currency, Kenya Shillings (Kshs.), and all values are rounded to the nearest thousands (Kshs. 000) except when otherwise indicated. (c) Presentation of Financial Statements The financial statements comprise of statement of financial performance, statement of financial position, statement of changes in net assets/equity and the statement of cash flows and the notes to the financial statements. The Board classifies its expenditure by the nature of expense methodology. The disclosure on risks are presented in the financial risk management objectives and policies contained in note 5. The statement of cash flows shows the changes in cash and cash equivalents arising during the period from operating, investing and financing activities. Starting 1st July 2010, Kenya Roads Board adopted the IPSAS 1 on Presentation of Financial Statements. In previous years the financial statements were prepared in accordance with the International Financial Reporting Standards (IFRSs). The change was necessitated by the reporting standards on public entities which are not Government Business Entities (GBE) as defined and required by IPSAS 1- Presentation of Financial Statements which states that the scope of application is for all public sector entities other than Government Business Enterprises. The requirement by the Auditor General to present separate financial statements for the Kenya Roads Board Operations and the Kenya Roads Board Fund has led to reclassification of assets and liabilities including prior year to each set of financial statements. (d) Budget Information Notes to the Financial Statements - (Cont d) International Public Sector Reporting Standards allow for non-disclosure where (a) an entity is not required to disclose its budget information publicly and (b) the entity has elected not to present its approved budget publicly. The Board is not required to publicly avail the approved KRB Operations budget and has elected not to present its budget publicly. Therefore the Board has not attached a Statement of Comparison of Budget and Actual amounts. However it is observed that the Approved KRB Budget amounts for the year have not been exceed. 89

92 Notes to the Financial Statements - (Cont d) (e) Functional Currencies (i) Functional and Presentation Currency The financial statements are presented in the functional currency, Kenya Shillings (Kshs.), which is the Board s presentational currency. The financial information is rounded to the nearest thousands (Kshs. 000) except when otherwise indicated. (ii) Transactions and Balances a) Translation of Foreign Currencies Transactions in foreign currencies during the year are converted into the functional currency using the prevailing exchange rates ruling at the dates of the transactions. Assets and liabilities denominated in foreign currencies have been translated at the mean rates of exchange ruling at the end of the reporting period. The foreign currency exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized through the statement of financial performance in the year in which they arise. b) Translation of Foreign Operations The Board does not have any foreign operations. (f) Revenue Recognition In accordance with the Kenya Roads Board Act, 1999, the Board is allocated 2% of the Road Maintenance Levy Fund (RMLF) for its operations and is recognized on accrual basis. An inflow of the funds is recognized as revenue and a liability Is recognized in respect of the same inflow upon approval of the disbursements by the Board. Revenue is generally recognized in the Statement of Financial Performance on accrual basis. Interest income from all interest bearing financial instruments is recognized in the Statement of Financial Performance on accrual basis using the effective interest method. Other incomes are recognized as they accrue unless the collectability is in doubt. (g) Cash and Cash Equivalents For purposes of the cash flow statement, cash and cash equivalents comprise of cash and cash balances held at the bank with less than three months maturity from the statement of financial position date. These include notes and coins on hand and deposits held at call with banks. (h) Receivables Receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Board provides money or services directly to a debtor with no intention of trading the receivable. Receivables are amounts due from the Kenya Roads Board Fund which are accrued in the ordinary course of business and there is no intention of trading the receivable. Receivables are recognized initially at the fair value (transaction price/ carrying value less any discounts). They are subsequently measured at amortized costs using the effective interest method less provision for impairment. A provision for impairment of receivables is made when there is objective evidence that the Board will not be able to collect all amounts due according to the original terms of receivables. The carrying value less discounts and any impairment provision of impairment is assumed to approximate their fair values. For financial instruments such as short term receivables, no disclosure of fair value is required when the carrying amount is a reasonable approximation of fair value. Receivables are classified as current assets if payment is due within one year or less (or in the normal operating cycle of business, if longer). If not, they are presented as non-current assets. 90

93 (i) Inventories Notes to the Financial Statements - (Cont d) Given the nature of the Board s operations and mandates, items in stock relate to stationery. Stationery costs are recognized as an expense when deployed for utilization in the ordinary course of the Board s operations. As at 30th of June 2014, the Board did not have any inventory. (j) Property and Equipment and Depreciation All property and equipment are initially stated at cost and thereafter at historical cost less accumulated depreciation and any accumulated impairment loss. Historical cost comprises expenditure initially incurred to bring the asset to its location and condition ready for its intended use. Subsequent costs are included in the asset s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Board and the cost can be reliably measured. All other repairs and maintenance are charged to the Statement of Financial Performance during the financial year in which they are incurred. Depreciation is calculated on straight line basis at annual rates estimated to write down the carrying value of the assets over their expected useful lives. The annual depreciation rates in use are:- Rate Rate Computer 33 1/3% Motor 25.0% Equipment Vehicles Office Furniture & Equipment 12.5% Fittings 12.5% An item of property and equipment is de-recognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or losses on de-recognition of the asset is included in the Statement of Financial Performance in the year the asset is de-recognized. (k) Payables Payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Payables also include payments in respect social benefits where formal agreements for specific amounts exist. Payables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method. The historical cost carrying amount of payables subject to the normal credit terms usually approximates fair value. Payables are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of business if longer). If not, they are presented as non-current liabilities. (l) Leases The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets and the arrangement coveys a right to use the asset. Leases are classified as finance leases whenever the terms of the lease transfer substantially all risks and rewards of ownership to the Board as the lessee. All other leases are classified as operating leases. Where the Board is the lessee, the total payments made under operating leases are charged to the statement of financial performance on a straight line basis over the period of the lease. When an operating lease is terminated 91

94 Notes to the Financial Statements - (Cont d) before the expiry of the lease period, any payment required to be made to the lessor by way of penalty is recognized as expense in the year in which termination takes place. Rentals payable under operating leases are amortized on the straight line basis over the term of the relevant lease. (m) Impairment of Non-financial Assets At each reporting period end, based on internal and external sources, the Board reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. Where it is not possible to estimate the recoverable amount of an individual asset, the Board estimates the recoverable value of the asset. Any impairment losses are recognized as an expense in the Statement of Financial Performance whenever the carrying amount of an asset exceeds its recoverable amount. Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount. A reversal of impairment loss is limited to the assets carrying amount that would have been determined had no impairment loss been recognized in prior years. A reversal of an impairment loss is credited to the Statement of Financial Performance in the year reversals are recognized. (n) Provisions Provisions are recognized when the Board has a present obligation (legal or constructive) as a result of a past event, it is probable that the Board will be required to settle the obligation, and a reliable estimate can be made of the amount of obligation. The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the reporting period end, taking into account the risks and uncertainties surrounding the obligation. (o) Retirement Benefit Obligations The Board operates a defined contribution provident fund for eligible employees. The fund is administered by an independent administration company and Trustees. It is funded by contributions from both the employer and employees. The Board and its employees also contribute to the statutory pension scheme, the National Social Security Fund (NSSF). Contributions are determined by the local statute and are currently limited to Kshs. 200 per employee per month. The Board also sets aside on monthly basis the gratuity for its employees who are on contract basis. The Board s contributions in respect of staff retirement benefit costs are charged to the statement of financial performance, as they fall due or in case of service gratuity as they accrue to each employee. (p) Guarantees, Acceptances and Letters of Credit Guarantees are accounted for as off statement of financial position transactions and disclosed as contingent liabilities. (q) Subsequent Events There have been no subsequent events that would have an impact on the financial statements for the year ended 30th June (r) Comparatives Except otherwise required, all amounts are reported or disclosed with comparative information. Where necessary, comparative figures have been adjusted to conform to changes in presentation in the current year 92

95 Notes to the Financial Statements - (Cont d) 3.0 CRITICAL ACCOUNTING ESTIMATES, JUDGEMENTS AND ASSUMPTIONS In the process of applying the Board s accounting policies, the directors have made estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Although these estimates are based on the directors knowledge of current events and actions, actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. The key areas of judgments and sources of uncertainty in estimation are as set out below: (a) Critical Judgments in applying the Board s accounting policies In the process of applying the Board s accounting policies, judgments have been made in determining:- - Whether the assets are impaired; - The classification of financial assets; - The going concern. (b) Critical Accounting Estimates and Assumptions (i) Useful Lives of Property, Plant and Equipment The directors make estimates in determining the depreciation rates for property and equipment. The rates used are set out in the accounting policy (j) above for property and equipment. The Board reviews the estimated useful lives of plant and equipment at the end of each reporting period. During the financial year, no changes to the useful lives were identified by the directors. (ii) Contingent Liabilities As disclosed in these financial statements, the Board is exposed to various contingent liabilities in the normal course of business. The Directors evaluate the status of these exposures on a regular basis to assess the probability of the Board incurring related liabilities. However, provisions are only made in the financial statements where, based on the directors evaluation, a present obligation has been established. (iii) Provision for Doubtful Debts The organization reviews its travel advances portfolio to assess the likelihood of impairment. Provision for impairment of receivables is established when there is objective evidence that the Board will not be able to collect all amounts due. Where necessary, an estimation of the amounts irrecoverable is made in that year. Provision for impairment shall be recognized upon approval by the Board of Directors. (iv) Other Provisions Other provisions are recognized when the Board has legal or constructive obligation as a result of past events, for which it is probable that an outflow of economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. (v) Impairment Losses At each reporting period end, the Board reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. Where it is not possible to estimate the recoverable amount of an individual asset, the Board estimates the recoverable value of the asset. Any impairment losses are recognized as an expense immediately. Where an 93

96 Notes to the Financial Statements - (Cont d) impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount. A reversal of an impairment loss is recognized as income immediately. 4.0 SEGMENT REPORTING The Board does not have any branches/reporting segments. All the operations of the Board are managed from the registered office. The core business of the Kenya Roads Board continues to be management of the Kenya Roads Board Fund together with other mandates as stipulated in the Kenya Roads Board Act. There is no distinguished component of the Board that is engaged in providing an individual service that is subject to risks and returns that are different from the main mandates of the Board. 5.0 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Board has initiated and facilitated the process that will see the enhancement of risk management. The Board has an integrated risk management framework/strategy. The Board s approach to risk management is based on risk governance structures, risk management policies, risk identification, measurement, monitoring and reporting. The risk management policies and systems are reviewed regularly to ensure they are in tandem with the micro and macro environment, regulatory guidelines, industry practice, market conditions as well as the services offered. The Board recognizes the critical role the risk management will continue to play in its endeavor to carry out its business in a dynamic environment. The Board is committed to ensure that corporate governance and risk management are deeply entrenched in the Board s strategy and culture. An elaborate risk management strategy that will provide direction on matters of policy and guide the implementation and control has been developed. This risk management framework captures the following among other things:- The Board s risk appetite and parameters; The Board s risk matrix that highlights the rating of risks; The structure of managing risks and accountabilities The processes, procedures and reports that manage risks; The mitigating factors, prevention, contingency plans and controls. The Board s core business involves major engagements with financial transactions and processes which pose certain risks. Three types of risks are reported as part of the risk profile namely operational, strategic and business continuity risks. a) Operational risks are events, hazards, variances or opportunities which could influence the achievement of the Board s compliance and operational objectives. b) Strategic risk is a significant unexpected or unpredictable change or outcome beyond what was factored into the organization s strategy and business model which could have an impact on the entity s performance. c) Business continuity risks are those events, hazards, variances and opportunities which could influence the continuity of the entity. One of the key risks the Board has identified in both the operational and strategic areas is the sustainability of the Road Maintenance Levy in line with the Constitution. Financial risk as defined in IPSAS 15 and the management thereof, form part of this risk area. The Members of the Board have the overall responsibility for the establishment and oversight of the Board s risk management framework. The Board has delegated its risk management to the Audit and Risk Committee. One of the responsibilities of this committee is to review risk management strategies in order to ensure business continuity and survival. Most of the financial risks arising from financial transactions and processes are managed by the Finance and Planning Committee of the Board. The Board s exposure to risks, its objectives, policies and processes for managing the risk and the methods used to measure it have been consistently applied in the years presented, unless otherwise stated. The Board aims therefore to achieve an appropriate balance between the risk and return and minimize potential adverse effects on its financial performance. 94

97 The financial management objectives and policies are as outlined below:- a) Liquidity Risk Notes to the Financial Statements - (Cont d) Liquidity risk is the risk that the Board will not have sufficient financial resources to meet its obligations when they fall due or will have to do so at excessive costs. This risk can arise from mismatches in the timing of cash flows from revenue and capital/ operational outflows, assets and liabilities according to their maturity profiles and can occur where cash flow streams have been discontinued, etc. Funding risk arises when the necessary liquidity to fund illiquid asset positions cannot be met at expected terms and when required. The objective of the liquidity and funding management is to ensure that all foreseeable operational, capital and loan commitment expenditure can be met under both normal and stressed conditions and the mismatch is controlled in line with allowable risk levels. The Board has adopted an overall balance sheet approach which consolidates all sources and uses of liquidity, while aiming to maintain a balance between liquidity, cash flows and interest rate considerations. The Board s liquidity and funding management process includes:- Projecting cash flows and considering the cash required and optimizing the short term requirements as well as the long term funding, Maintaining balance sheet liquidity ratios, Maintaining/ soliciting a diverse range of funding sources with adequate back up facilities, Managing the concentration and profile of debt maturities, where applicable, Maintaining liquidity and funding contingency plans. The table shows the undiscounted cash flows on the Board s financial assets and liabilities on the earliest possible contractual/maturity date. The liquidity ratio in FY 2015/16 is (FY 2014/15: 24.55) Notes 2015/ /15 KShs 000 KShs 000 Financial Assets Bank and Cash Balances 13 1,365,603 1,210,177 Receivables 14 2, Total Financial Assets 1,367,840 1,210,657 Financial Liabilities Payables 16 65,628 49,319 Total Financial Liabilities 65,628 49,319 NET LIQUIDITY 1,302,212 1,161,338 LIQUIDITY RATIO The Board has an established corporate governance structure and process of managing risks regarding guarantees and contingent liabilities. All guarantees issued are approved by the Members of the Board and are administratively managed by the finance department. The primary sources of revenue for the Board are receipts from the Kenya Roads Board Fund, mainly receipts from fuel levy fund. The Board pursuing additional sources of revenue for which approval has been sought from Ministry of Finance. b) Market Risk Market risk is the risk that the fair value of future cash flows of financial instruments will fluctuate because of changes in foreign exchange rates, prices and interest rates. The objective of market risk management policy is to protect and enhance the Statements of Financial Position and performance by managing and controlling market risk 95

98 Notes to the Financial Statements - (Cont d) exposures within acceptable parameters, and to optimize the funding of business operations and facilitate capital expansion. The Board is exposed to the following market risks:- (i) Currency Risk Currency risk arises primarily from purchasing imported goods and services from overseas or indirectly via local supplies. The currency risk is minimal as cash and cash equivalents held with banks are dominated in Kenya Shillings and there are minimal dealings in foreign currency. (ii) Price Risk The Board is exposed to the price risk of the fuel levy. The Board collects Kshs. 9 per liter of diesel/petrol imported into the country. The Board is exposed to the extent that the levy on diesel and petrol is reduced or eliminated due to changes in the international fuel prices, inflation or other macro indicators. The Road Maintenance Levy is backed up by an Act of Parliament; changes thereof require approval by Parliament. (iii) Interest Rate Risk The Board is exposed to various risks associated with effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows. Interest margin may increase as a result of such changes but may reduce losses in the event that unexpected movement arises. The Board closely monitors interest rate movements and seeks to limit its exposure by managing the interest rate and maturity structure of assets and liabilities on the statement of financial position. The interest rates on call deposits held in financial institutions are fixed and agreed upon on monthly basis. The management is in regular contact with the approved banks in a bid to obtain the best interest rates and therefore able to plan for the resulting income. The interest rate risk is minimal as the Board does not have any borrowings. c) Operational Risk Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Board s processes, personnel, technology and infrastructure and from external factors other than credit, market and liquidity risks such as legal and regulatory requirements and generally acceptable standards of corporate behavior. The Board seeks to ensure that key operational risks are managed in a timely and effective manner through a framework of policies, procedures and tools to identify, assess, monitor and report such risks. The Board s objective is to manage operational risk so as to balance the avoidance of financial losses and damage to the Board s reputation with overall cost effectiveness and to avoid control procedures that restrict initiative and creativity. The primary responsibility for the development and implementation of controls to address operational risk is assigned to senior management. The responsibility is supported by the development of overall standards for the management of operational risk in the following areas:- Requirements for appropriate segregation of duties, including the independent authorization of transactions. Requirements for the reconciliation and monitoring of financial transactions Compliance with regulatory and legal requirements Documentation of controls and procedures Requirements for the yearly assessment of operational risks faced and the adequacy of controls and procedures to address the risks identified Requirement for the reporting of operational losses and proposed remedial action Development of Business Contingency Plans Training and professional development Ethical and business standards Risk mitigation, including insurance where it is effective. Operational risks are documented in the Framework for Management Control and are managed by the Internal Audit function established to spearhead and coordinate risk management activities. The measures taken include proactively identifying, analyzing and mitigating risks in all facets of the business. 96

99 d) Compliance and Regulatory Risk Compliance and regulatory risk includes the risk of non-compliance with regulatory requirements. The Board has complied with all externally imposed requirements throughout the year. e) Legal Risk Notes to the Financial Statements - (Cont d) Legal risks is the risk of unexpected loss, including reputational loss, arising from defective transactions or contracts, claims being made or some other event resulting in a liability or the loss for the Board, failure to protect the title to and liability to control the rights to assets of the Board (including intellectual property right), changes in law, or jurisdictional risk The Board manages legal risk through the Audit and Risk Committee, legal function, legal risk policies and procedures and the effective use of internal controls and external lawyers. 6.0 OPERATING REVENUE 2015/ /15 KShs 000 KShs 000 Particulars Revenue 649, ,845 Interest Earned 19,700 8,030 Other income Total Operating Revenue 668, ,896 Revenue mainly represents the 2% portion from the Kenya Roads Board Fund which is allocated in accordance with Section 6(2) (e) of the Kenya Roads Board Act. Interest is earned on the balances held in the bank accounts. Included in other income is Kshs million being gains on disposal of fully depreciated assets and Kshs. 21,000 being income from sale of tender documents. The operating revenue is recognized in accordance with the accounting policy on revenue recognition set out in policy 2 (f) above. The Board did not receive any transfers of any form, (including assets, gifts, donations, service-in-kind, advance receipts, pledges, expenses paid on behalf and concessionary loans) from national and local government, public entities, and government, donor & International development agencies. 7.0 DIRECTORS COSTS 2015/ /15 KShs 000 KShs 000 Particulars Emoluments 12,769 21,830 Insurance Field Activities 8,329 12,997 Training 9,516 10,048 Board Evaluation/Induction - 2,333 Total Directors Costs 31,008 47,601 97

100 Notes to the Financial Statements - (Cont d) 8.0 STAFF COSTS 2015/ /15 KShs 000 KShs 000 Particulars Salaries & Wages 168, ,667 Pension Costs 16,425 16,753 Training & Development 28,492 25,544 Staff Insurance 18,003 19,207 Other Staff Costs 12,321 7,897 Total Staff Costs 243, ,068 The average number of employees during the year was:- No. of Employees 2015/ /15 Permanent Employees Contract Employees 2 3 Total Employees FIELD ACTIVITY COSTS 2015/ /15 KShs 000 KShs 000 Departments/Sections Planning & Programming 9,992 9,368 Technical Compliance 9,484 9,468 Finance 8,271 8,482 Human Resource & Administration 6,437 6,498 Legal & Corporate Affairs 5,274 6,010 Infor. Comm. & Tech. 2,345 2,409 Procurement 1,966 1,986 Total Field Activities 43,769 44, OTHER OPERATING COSTS 2015/ /15 KShs 000 KShs 000 Particulars Advertising & Publicity 27,916 17,794 Audit fees 2,900 2,900 Conferences & Seminars 34,965 18,480 Depreciation 27,324 27,995 Consultancies 149,021 73,222 Rent & Rates 39,658 34,308 Telephone, Postages & Internet 7,052 6,509 Travelling, Vehicle Maintenance & Repairs 13,262 12,307 Other Costs 19,616 20,168 Total Other Operating Costs 321, ,683 98

101 11.0 CORPORATE SOCIAL RESPONSIBILITY The Board s contribution towards the Corporate Social Responsibility (CSR) amounts to Kshs million (2014/15: Kshs million). In FY 2015/16 the Board participated in the Standard Chartered Marathon, and environment sustainability implementation projects OPERATING SURPLUS Notes to the Financial Statements - (Cont d) The operating surplus of Kshs million (2014/15: Kshs million) is arrived at after charging/ (crediting): Notes 2015/ /15 KShs 000 KShs 000 Particulars Staff Costs 8 243, ,068 Depreciation 15 27,324 27,996 Directors emoluments 7 12,769 21,830 Auditors remuneration 10 2,900 2,900 Rent & Rates 10 39,658 34,308 Gain on Disposal of Assets 15 (125) (2,007) Interest earned 6 (19,700) (8,030) 13.0 CASH AND CASH EQUIVALENTS (a) Analysis of bank and cash balances: Notes 2015/ /15 KShs 000 KShs 000 Particulars Cash at Bank and in Hand 242, ,905 KRB Staff Fund 17(a) 262, ,601 Bank Term Deposit 17(b) 860, ,903 Cash Imprests and Advances ,365,603 1,210,177 The Board has put mechanisms in place to mitigate against credit risk on cash and bank balances which are held with sound financial institutions approved by Central Bank of Kenya. The carrying amounts of the Board s cash and cash equivalents are dominated in Kenya Shillings. (b) Cash and cash equivalents: For the purposes of the cash flow statement, cash and cash equivalents comprise balances with less than three months maturity from the date of acquisition, including cash in hand, deposits held at call with banks and other short term highly liquid investments with original maturities of three months. Analysis of cash and cash equivalents is as set out below: Notes 2015/ /15 KShs 000 KShs 000 Particulars Bank and Cash Balances 13 (a) 1,365,603 1,210,177 99

102 Notes to the Financial Statements - (Cont d) 14.0 RECEIVABLES Receivables constitute short term liquid assets which are recoverable within one year. Notes 2015/ /15 KShs 000 KShs 000 Particulars Prepayments & Deposits 2, , The maximum exposure to credit risk at the reporting date is the fair value of each class of receivable mentioned above. The Board does not hold any collateral as security. The aged analysis of receivables is as follows: 0-3 months 3-12 months 3-12 months Particulars KShs 000 KShs 000 KShs 000 Deposits & Prepayments - 2,237 2,237-2,237 2, PROPERTY AND EQUIPMENT COMPUTER OFFICE MOTOR FURNITURE TOTAL EQUIPMENT EQUIPMENT VEHICLES & FITTINGS Depn. Rate 33.30% 12.50% 25% 12.50% - Cost: Start of year 43,520,429 45,397,899 79,532,370 70,691, ,142,494 Disposals (1,865,910) (1,865,910) Additions 6,476, ,121-1,342,738 8,651,121 Total Cost 48,130,781 46,230,020 79,532,370 72,034, ,927,704 Depreciation: Start of year 37,767,309 32,444,425 60,667,870 53,679, ,559,044 Disposals (1,865,910) (1,865,910) For the period 5,654,896 4,318,841 12,317,001 5,033,117 27,323,855 Total Depreciation 41,556,295 36,763,266 72,984,871 58,712, ,016,989 NBV 30th June ,574,486 9,466,754 6,547,499 13,321,976 35,910,715 NBV 30th June ,753,120 12,953,474 18,864,500 17,012,355 54,583,449 The net book value of non-current assets decreased from Kshs million in prior periods to Kshs million in the review period. This is as a result of asset additions amounting to Kshs million, net of depreciation charge for the year amounting to Kshs million and disposals of Kshs million. Gain on disposal of assets during the year ended 30th June 2016 amounted to Kshs million (2014/15: Kshs million). The disposed assets had an accumulated depreciation amounting to Kshs million and a nil net book value. The Board is of the opinion that the net book values represent the fair value of the equipment. 100

103 Notes to the Financial Statements - (Cont d) 16.0 PAYABLES Payables are expected to be settled in KRBs normal operating cycle and within twelve months after the reporting period and are not attached to an unconditional right to defer payment of the liability for at least twelve months after the reporting period. Provisions and accruals relate to accrued expenses during the year. 2015/ /15 KShs 000 KShs 000 Particulars Provisions and accruals 61,394 46,270 Other Payables 4,234 3,049 65,628 49,319 The maturity analysis of payables is as follows: 0-3 months 3-12 months 0-12 months Particulars KShs 000 KShs 000 KShs 000 Provisions and accruals 61,394-61,394 Other Payables - 4,234 4,234 61,394 4,234 65,628 There were no staff payables as at the end of the financial year NET ASSETS The net assets are made of up of designated funds and accumulated reserve which are explained as follows: 17(a) KRB Staff Fund 2015/ /15 KShs 000 KShs 000 Particulars Car Loan Staff Fund 54,066 53,600 Mortgage Scheme Fund 208, , , ,601 The Board established independently managed Car Loan and Mortgage Scheme Funds for members of staff. Staff funds increased from Kshs million in prior period to Kshs million. The growth is represented by Kshs million being bank interest earned during the year. 17(b) KRB Capital Fund The Board established a Capital Fund in FY 2009/10 for the purpose of purchase of office premises. The KRB Capital fund increased from Kshs million in prior period to Kshs million. The growth is represented by Kshs million being bank interest earned during the year. 101

104 Notes to the Financial Statements - (Cont d) 2015/ /15 KShs 000 KShs 000 Particulars KRB Capital Fund 860, , , ,903 17(c) Accumulated Surpluses 2015/ /15 KShs 000 KShs 000 Particulars Accumulated Surpluses 215, , , ,417 Accumulated surpluses increased from Kshs million in prior period to Kshs million. Net surplus for the current year amounted to Kshs million (FY 2014/15 Kshs million) CASH GENERATED FROM OPERATIONS Reconciliation of Net Cash Flows from Operating Activities to Net Surplus from Ordinary Activities; 2015/ /15 Notes KShs 000 KShs 000 Net surplus from operating activities 12 27,827 10,289 Adjustments for: Depreciation 15 27,324 27,995 Interest Income 6 (19,700) (8,030) Gain on disposal of property and equipment 15 (125) (2,007) Operating income before working capital changes 35,327 28,247 Changes in working capital balances: (Increase) in receivables (1,757) - (Decrease) in payables 16,308 (3,181) Net cash flows generated from operating activities 49,877 25, CONTINGENT ASSETS & LIABILITIES a) Guarantees Guarantees commit the Board to make payments on behalf of the guaranteed in the event of a specific act and carry a certain risk. In the year under review, the Board had not issued any guarantees. b) Legal matters Though the Board is involved in some legal proceedings, the directors believe, based on the information currently available, that the Board does not have any contingent liabilities which are likely to have a material effect on the results of the Board s operations, financial position or liquidity. Therefore no provision has been made in the financial statements. 102

105 Notes to the Financial Statements - (Cont d) 20.0 COMMITMENTS : OPERATING LEASE RENTALS Non-cancellable operating lease rentals are payable as follows: 2015/ /15 KShs 000 KShs 000 Not later than one year 33,356 31,768 Later than one year and not later than five years 166, , , ,611 The Board has leased office premises under an operating lease. The lease typically runs for 5 years with an option for renewal. Lease payments are increased accordingly to reflect market rentals. The Board does not have an option to purchase the leased asset at the expiry of the lease period. There are no contingent rents recognized in the Statement of Financial Performance RETIREMENT BENEFITS SCHEME OBLIGATIONS The Board operates a defined contribution retirement benefit plan for eligible employees. The assets of the plan are held separately from those of the Board in funds under the control of trustees. The scheme is administered by an independent administration company and is funded by contributions from the Board and employees. The Board s obligations to the staff retirement benefits plan are charged to the Statement of Financial Position as they fall due or, in the case of service gratuity, as they accrue to each employee. The Board also makes contributions to the statutory defined contribution scheme, National Social Security Fund. This is a defined contribution scheme registered under the National Social Security Act. The Board s obligations under the Scheme are limited to specific contributions legislated from time to time, which are currently at Kshs. 200 per employee per month. The total pension expense recognized in the income statement of Kshs million (FY 2014/15: Kshs million) represents contributions payable to the retirement benefits scheme by the Board at rates specified in the rules of the plan. The expense has been included within the staff pension costs under staff costs FAIR VALUE The directors consider that there is no material difference between the fair value and carrying value of the company s financial assets and liabilities, where fair value details have not been presented CAPITAL COMMITMENTS All capital commitments contracted for/authorized at the reporting period end have been recognized in the financial statements POST BALANCE SHEET EVENTS The Directors are not aware of any matter or circumstances arising since the end of the financial year, not otherwise dealt with in the financial statements, which would significantly affect the financial position of Kenya Roads Board and results of its operation as laid out in these financial statements. 103

106 Notes to the Financial Statements - (Cont d) 25.0 COMPARATIVES Where necessary, comparative figures have been adjusted to conform to changes in presentation of the Financial Statements as required by International Public Sector Accounting Standards and any amendment whenever necessary in the current year 26.0 CURRENCY The financial statements are presented in Kenya Shillings (Kshs. 000). 104

107 Progress on Follow up of Auditors Recommendations All audit issues raised by the external auditor were resolved and concluded during the audit process. There are no audit issues that were carried forward. RASHID K. MOHAMED, MBS GENERAL MANAGER, FINANCE ENG. JACOB ZECHA RUWA, OGW EXECUTIVE DIRECTOR 26th August, th August,

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112 3rd Floor, Kenya Re-Towers, Off Ragati Road, Upper Hill P. O. Box , NAIROBI, KENYA W: T. No.: , /6 F: E: address: