THE AUDITOR GENERAL ON THE

Transcription

1 REPUBLIC OF KENYA KENYA NATIONAL AUDIT OFFICE REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL OPERATIONS OF THE COUNTY GOVERNMENT OF NANDI AND ITS DEFUNCT LOCAL AUTHORITIES FOR THE PERIOD I JANUARY TO 30 JUNE 2013

2 Table of Contents 1.0 Introduction Audit Objectives Key Audit Findings... 2 NANDI COUNTY EXECUTIVE AND COUNTY ASSEMBLY Handing over of assets and liabilities of former Local Authorities to County Government Cash and Bank Balances... 2 (a) Failure to maintain cashbooks and bank reconciliation statements... 2 (b) Closure of Bank Accounts Motor Vehicles and Equipment Debtors Creditors Staff Establishment Expenditure... 4 ii) Failure to Follow Laid Down Procurement Rules and Regulations Summary of Audit of Information Communication Technology (ICT) and... 5 G-pay... 5 THE DEFUNCT MUNICIPAL COUNCIL OF KAPSABET Handing Over to County Government Motor Vehicles Cash and Bank Balances Debtors Outstanding Creditors Staff Establishment Revenue Collection and Banking... 7 THE DEFUNCT COUNTY COUNCIL OF NANDI Handing Over to County Government Non Closure of Bank Accounts Debtors Balances Outstanding Creditors... 8

3 3.20 Motor Vehicles and Other Fixed Assets Staff Establishment Other Audit Findings - Revenue Collection and Banking... 9 FORMER TOWN COUNCIL OF NANDI HILLS Failure to Handover to Transition Authority and County Government Non Closure of Bank Accounts Debtors Creditors Other Audit Finding - Unbanked Revenue Conclusion Audit Objectives Detailed Audit Findings NANDI COUNTY EXECUTIVE AND COUNTY ASSEMBLY Handing Over of Assets and Liabilities to County Government Cash and Bank Balances Debtors and Creditors Motor Vehicles and Equipment Staff Establishment Expenditure ii) Single Sourcing of Computers and Other Equipment Audit of Information and Communication Technology ICT Internal Control Environment Former Municipal Council of Kapsabet Improper Hand-over to Transition Authority and County Government Non-closure of Bank Accounts Debtors Creditors Unregistered Motor Vehicles Staff Establishment Revenue Collection THE DEFUNCT COUNTY COUNCIL OF NANDI ii

4 2.16 Improper Hand-over to the County Government Failure to Close Bank Accounts Outstanding Debtors Creditors and Accruals Motor Vehicles and Other Fixed Assets Staff Establishment Revenue Collection and Banking THE DEFUNCT TOWN COUNCIL OF NANDI HILLS Handing Over Assets and Liabilities to the County Government Non Closure of Bank accounts Debtors Staff Establishment Unbanked Revenue Conclusion iii

5 REPORT OF THE AUDITOR-GENERAL ON THE OPERATIONS OF NANDI COUNTY GOVERNMENT AND FORMER LOCAL AUTHORITIES FOR THE PERIOD 1 JANUARY TO 30 JUNE 2013 EXECUTIVE SUMMARY 1.0 Introduction 1.1 The Auditor General has the mandate to audit and report on the accounts of National and County Governments under Article 229 of the Constitution and the Public Audit, Further, the County Government Act, 2012 replaced the Local Government Act Cap 265, thus dissolving all the 175 Local Authorities and creating 47 County Governments. 1.2 According to Transition to Devolved Governments Act, 2012, after the general election on 4 March 2013, the functions, assets, liabilities and staff of the former Local Authorities were to be taken over by the County Governments. The objective of the special audit exercise was to ensure existence of a seamless transition process and proper systems for accountability of public resources before, during and after transition to County Governments. 2.0 Audit Objectives The audit covered operations and some transactions of Nandi County Government which comprise the Nandi County Executive, County Assembly and the former Municipal Council of Kapsabet, County Council of Nandi and former Town Council of Nandi Hills transactions for the transition period from 1 January to 30 June, 2013 and took into account transactions before, during and after the transition period. The terms of reference set for the audit included verification events, procedures and confirmations of transactions in respect to, but not limited to, the following areas: The taking over of the former Local Authorities Cash and bank balances Current debtors and suppliers balances Motor vehicles and office equipment IPPD Payroll and establishment Recurrent and development expenditure items Procurement and procurement procedures ICT and G-Pay System 2.1 The audit teams faced several constraints during the audits, including delay in getting various documents and non-availability of key staff of the former Local Authorities. These constraints resulted in delay in concluding the audits within the planned timelines. 1

6 3.0 Key Audit Findings NANDI COUNTY EXECUTIVE AND COUNTY ASSEMBLY 3.1 Handing over of assets and liabilities of former Local Authorities to County Government The County Government of Nandi had not officially taken over the assets and liabilities of the former Municipal Council of Kapsabet, County Council of Nandi and Town Council of Nandi Hills as at the conclusion of the audit on 25 September Failure to have officially taken over the assets and liabilities of the former County Councils of former Local Authorities was contrary to instructions issued by the Ministry of Local Government vide Circular No. MLG/1333/TY/52 of 18 February, Arrangements should be made by Transition Authority to have assets and liabilities of the former Local Authorities handed over to Nandi County Government. The former Councils assets and liabilities closing balances will assist the County Government in determining opening balances for the books of account. 3.2 Cash and Bank Balances (a) Failure to maintain cashbooks and bank reconciliation statements The County Executive was authorized by the National Treasury to operate six (6) bank accounts namely County Revenue Fund Account, County Recurrent account and County Development account all of them at Central Bank of Kenya and another three namely County Standing Imprest Account (Cooperative bank), County Revenue Collection Account (Equity bank) and LATF Account (KCB) at Kapsabet branch. Cashbooks and bank reconciliation statements for l the bank accounts with exception of Imprest Account were not prepared. (b) Closure of Bank Accounts The bank accounts for the defunct Local Authorities were not closed by 28 February 2013 as directed by the Ministry of Local Government. The County Government did not open the Revenue Account as required and it continued to operate eighteen (18) bank accounts of the defunct Local Authorities until opening the County bank accounts in April The eight (8) bank accounts of the defunct Municipal Council of Kapsabet and five (5) accounts opened by each of the defunct County Council of Nandi and Town Council of Nandi Hills had not been closed as at the conclusion of the audit exercise on 25 September Further, the County Government maintained one cashbook which was used to record transactions for both the Executive and the County Assembly, although these are distinct accounting units within the County. 2

7 Failure to close bank accounts implied that revenue collections continued to be banked in these accounts and expenditure incurred, contrary to the law. The bank accounts should be closed and balances transferred to County Revenue Account. Expenditure incurred during the period should also be investigated and confirmed proper charge to public funds. In addition: The County government should ensure that cashbooks are updated and monthly bank reconciliation statements are prepared and checked by a senior County Government officer. Separate cashbooks should be opened and maintained for each unit to enhance proper accountability of funds allocated to them as well as retaining their operational independence. 3.3 Motor Vehicles and Equipment A fixed assets register was not maintained by the County. It was also noted that the County Government took over motor vehicles and other equipment from former Local Authorities without proper recording. The County Government should identify, take stock and tag all the assets taken over from the three defunct Local Authorities and those being acquired by the County Government. All the assets should systematically be recorded in the Fixed Assets Register of the County Government. The register should be updated on a regular basis. The assets should be valued to ascertain and record their fair values. 3.4 Debtors The County Government of Nandi did not consolidate its debtors, especially those from defunct Local Authorities totalling Kshs.232,658, as at 28 February 2013 comprising of amounts owed to former Municipal Council of Kapsabet (Kshs.155,781,104.00), County Council of Nandi (Kshs.58,249,532.00) and former Town Council of Nandi Hills (Kshs.18,627,727.00). Further, the County Government did not maintain debtors ledger. Appropriate systems for recording debtors by the County Government should be developed to ensure accuracy of records. In addition, debt collection policy should be put in place to facilitate collection of County debts as and when they fall due. It is further recommended that proper analysis of debts owed to the constituent defunct Local Authorities be undertaken. Debtors records should be reconstituted starting with the audited balances as at 30 June 2012 and recorded in the debtors ledger. Monthly debtors reconciliation should be done. 3.5 Creditors The County Government of Nandi did not validate or consolidate its creditors, especially those from defunct Local Authorities which totaled Kshs.40,787, as 3

8 at 28 February However, a creditors ledger was not maintained and hence the accuracy of this balance could not be ascertained. The creditors should be promptly recorded in the creditors ledger detailing particulars of each creditor and the same updated on a regular basis. The creditors balances should be confirmed independently before effecting any payments. 3.6 Staff Establishment The staff establishment increased from 164 in February 2013 to197 as at 30 June Similarly, the monthly wage bill increased from Kshs.10,394, in February 2013 to Kshs.15,109,055 as at 30 June 2013.The increase is attributed to new staff and Members of County Assembly and the Executive members after the 4 March 2013 general elections. However, the County Government had not carried out staff head count to validate number of staff taken over from the three former Local Authorities. An urgent staff head count is recommended and the County Government Organization Structure should be professionally drawn with clear roles and responsibilities of each key position. Job evaluation should be done by a professional institution to assist the County Government with the job contents for each position, the salary structures, the requisite qualifications of personnel for each key position in the entire County Government structure and guide in recruitment of staff with required skills and knowledge. Further the County Government should consider staff rationalization and redeployment of under-utilized and redundant staff. 3.7 Expenditure i) Undelivered Motor Vehicle The County Government issued Local Purchase Order (LPO) No dated 15 May 2013 for the supply of Governor s motor vehicle from Toyota Kenya Kericho Branch at a cost of Kshs.10,985, An advance payment, amounting to Kshs.5,500, was made to the supplier vide cheque No of 29 May The vehicle had not been delivered as at the time of conclusion of audit on 25 September 2013, almost 90 days after the down payment. The whereabouts of the vehicle should be established and delivered to the County and proper explanation for effecting advances payment before delivery of the vehicle. All future procurement of goods and services should be done in accordance with the Public Procurement and Disposal Act, 2005 and related 2006 Regulations in order for the County to ensure competitiveness and realize value for money. ii) Failure to Follow Laid Down Procurement Rules and Regulations The County procured computers, laptops, furniture and other equipment valued at Kshs.1,777, through single sourcing in June 2013, and without specifications for computers. Further physical verification of the assets was not possible as they 4

9 were not recorded. In addition all the items were not taken on charge in a fixed assets register. The Public Procurement and Disposal Act, 2005 and related 2006 and 2013 Regulations requirements should be followed on all procurements made by the County Government. Also, a fixed assets register with detailed information for all the assets should be maintained. 3.8 Summary of Audit of Information Communication Technology (ICT) and G-pay Assessment of how the County has put in place structures to govern and manage the information systems revealed the following weaknesses amongst others: The County was yet to develop and implement some of the key ICT documents including: ICT policies and procedures, ICT Strategic Plan, Business Continuity Policies (BCP) and Disaster Recovery Plans (DRP). There was also no ICT Steering Committee in place. The County had three (3) operating servers at the former Local Authorities offices of Kapsabet, Nandi and Nandi Hills. However, the server room is not a restricted area and therefore easily accessible to unauthorized persons. There was no firewall to protect the network from harmful intrusions after establishing an internet connection. The County had received seventeen (17) desktop computers from The National Treasury (IFMIS Department) one of which was faulty and none had anti-virus software. There was no established Wide Area Network at the County to connect various Sub-County offices. Local Area Network also had not been installed at the County Headquarters to connect various County offices and Departments. Nandi County prepared its 2013/2014 budget using IFMIS Plan to Budget Module. However, the rest of the modules were yet to be utilized and the financial operations were still manual. The connectivity was through modems but the signal was significantly weak in the region therefore limiting the usage of the system. Fourteen (14) County staff had been trained on IFMIS, however, none was nominated from ICT department yet this department may be required to provide support services to IFMIS operations. LAIFOMS has been installed in all three former Local Authorities. The Receipting Module was the only active module The County had fully implemented the IPPD system and payroll beginning July Two (2) users were trained on the use of the system. However, data migrated from LAIFOMS to IPPD had several errors which need to be corrected to ensure accuracy of the payroll information. In order to mitigate the above risks, the County Government should develop and approve the key ICT documents that ensure proper management of IT operations. Wide area network (WAN) may also be installed that connects all the Sub-Counties with the County headquarters to ensure the operations are centrally managed. In 5

10 addition, all IT systems in place should be fully utilized and all financial operations automated. THE DEFUNCT MUNICIPAL COUNCIL OF KAPSABET 3.9 Handing Over to County Government The former Municipal Council of Kapsabet did not officially hand over assets and liabilities to the County Government as required by the Ministry of Local Government Circular No. MLG/1333/TY/52 of 18 February, As a result, the County Government has no records of assets and liabilities owned by the former Local Authority. The Transition Authority should arrange for proper handing over of assets, liabilities and staff of the former Council to the County Government to enable the County have a basis of opening balances to be reflected in the books of accounts Motor Vehicles A review of the Council log books revealed that two motor vehicles; KAA 264R and KAH 988E were registered in the name of a construction company. No reason was given for the delay in regularizing ownership documents of the vehicles. In addition, the defunct Council did not maintain an assets register to record assets taken over from the defunct County Councils and those purchased. An assets register to record assets taken over from the defunct Local Authorities and those being acquired by the County Government should be maintained and updated on a regular basis. The assets should be valued to ascertain the fair values. The County Government should ensure that all motor vehicles are properly registered Cash and Bank Balances The former Council operated eight (8) accounts in various commercial banks for GRF, LATF, Road Levy (RMLF), Sewerage, Salaries and Fixed deposits accounts. The County Government bank accounts were not closed by 28 February 2013, instead it continued to operate the accounts without change of signatories and as at the time of conclusion of audit on 25 September 2013, the accounts had not been closed. Further, relevant cashbooks and bank reconciliation statements were not maintained for all the bank accounts. The County Government should ensure that the bank accounts are closed and balances transferred to County Revenue Account. Cashbooks should also be promptly updated and monthly bank reconciliation statements prepared and checked by a senior County Government official. 6

11 3.12 Debtors The Council had outstanding house rent and property rates totalling Kshs.155,781, as at 28 February However, a debtors ledgers and detailed schedules were not maintained, thus raising doubt on the accuracy of the balances. Further, overdue imprest amounting to Kshs.2,489, had not been surrendered or accounted for as at the time of audit. An appropriate system for recording debtors should be developed to ensure accuracy and completeness. Also the County Government should ensure that imprests issued are surrendered or accounted for before the closure of the financial year Outstanding Creditors The statement of assets and liabilities prepared by the defunct Council indicate that liabilities amounting to Kshs.18,065, had not been settled as at 28 February However, invoices and statements were not provided for verification, while creditors ledger was also not updated. In addition unpaid audit fees amounting to Kshs.2,196, was not disclosed by the defunct Council. Creditors should be promptly recorded in a ledger indicating particulars of each creditor and the same updated on regular basis Staff Establishment The Council had sixty four (64) permanent staff as at 28 February All were taken over by the County Government although no head count had been finalized as at the time of audit in September, Proper handing over to the County Government should be done. The County Government should also carry out job evaluation and assessment is to facilitate redeployment of key staff to relevant departments Revenue Collection and Banking Analysis of revenue collected during the period 01 January to 30 April 2013 and banking into the defunct Council s GRF bank account revealed that revenue amounting to Kshs.105, was not banked. No information was provided on how the unbanked revenue was utilized. Revenue collections during the transition period should be reconciled. All revenue collected should be banked intact in accordance with government financial regulations and procedures. Revenue collection and recording should be digitized and recording of the same automated and instantaneous. 7

12 THE DEFUNCT COUNTY COUNCIL OF NANDI 3.16 Handing Over to County Government The defunct County Council of Nandi ceased operation effective 4 March 2013 and was supposed to prepare a statement of assets and liabilities for handing over to County Government. However, no formal handing over to the Transition Authority had been done as at the time of audit in September Arrangements should be made by the Transition Authority to have the assets and liabilities of the defunct Local Authorities officially handed over to the County Government to enable the County Government have a basis for the opening balances to be reflected in its books of account Non Closure of Bank Accounts The former County Council of Nandi operated five (5) bank accounts. However, all the bank accounts were not closed by 28 February The County Government continued to process payments through the accounts in contravention of the law. Further, cashbooks and monthly bank reconciliation statements were not maintained during the period from 01 January to 30 June The County Government should ensure that the bank accounts are closed and balances transferred to County Revenue Account. Also, cashbooks should be promptly updated and monthly bank reconciliation statements prepared and checked by a senior County Government official Debtors Balances The defunct council had debtors totaling Kshs.58,249, as at 30 June Details on outstanding balance as at 28 February 2013 were not provided while detailed schedules, ledgers and registers were not updated. As a result, accuracy and recoverability of the debtors could not be ascertained. An appropriate system for recording debtors should be developed to ensure accuracy and completeness. The County Government should also ensure that imprests issued are surrendered or accounted for before the closure of the financial year. Debtors ledger should be reconstructed and updated to ensure accurate balances Outstanding Creditors According to the statement of assets and liabilities as at 28 February 2013, the defunct Council had creditors totaling Kshs.22,721, comprising of staff gratuity and audit fees of Kshs.21,561, and Kshs.1,160, respectively. However, 8

13 the staff gratuity due was not supported with relevant documents and ministerial approval. Appropriate creditors records should be maintained to include particulars of each creditor. Also, no creditors should be settled before validation of the balances Motor Vehicles and Other Fixed Assets The defunct County Council of Nandi had fixed assets valued at Kshs.485,470, as at 28 February The assets which included nine (9) motor vehicles, two (2) motor cycles, three (3) lorries, three (3) tractors, three (3) motor graders, a bulldozer and several furniture and equipment among other assets were all listed in the report of the Council dated 28 February 2013 for handing over to the County Government. Fixed assets register was not updated while a new Toyota pickup registration number KBR 844U and four (4) file cabinets were not recorded in the fixed assets register. The County Government should identify, take stock and tag all the assets taken over the defunct Local Authorities and those being acquired by the County Government. All the assets should be systematically recorded in the Fixed Assets Register (FAR) of the County Government. The register should be updated on a regular basis. The assets should be valued to ascertain the fair values Staff Establishment The defunct County Council of Nandi had fifty one (51) employees with the monthly wage bill of Kshs.3,247, as at 28 February All employees were taken over by the County Government although staff head count had not been finalized as at the time of audit. Proper handing over of staff to the County Government should be done. It is also important that job evaluation and assessment is undertaken to facilitate deployment of key staff to relevant departments and also guide in recruitment of staff with required skills and knowledge Other Audit Findings - Revenue Collection and Banking Records maintained by the defunct Council indicated that revenue amounting to Kshs.8,371, was collected between January and June 2013 while Kshs.7,503, was banked during the same period. The resultant net difference totaling Kshs.868, of unbanked revenue had not been accounted for or reconciled. Proper systems should be put in place to ensure that revenue collected is promptly received, recorded and banked intact. All bank accounts of the defunct County Councils not yet closed should be investigated, closed and balances transferred to the County Revenue Account. 9

14 FORMER TOWN COUNCIL OF NANDI HILLS 3.23 Failure to Handover to Transition Authority and County Government The defunct Town Council of Nandi Hills ceased operation effective 4 March 2013 and was expected to prepare a statement of assets and liabilities for handing over to County Government. However, no formal handing over to Transition Authority had been done as at the time of audit in September Arrangements should be made by the Transition Authority to have the assets and liabilities of the defunct local authority officially handed over to the County Government to enable the County Government have a basis of opening balances to be reflected in its books of account Non Closure of Bank Accounts The defunct Council operated five (5) bank accounts in various commercial banks which the County Government had not closed by 28 February 2013, instead it continued to operate the accounts without change of signatories and as at the time of conclusion of audit on 25 September 2013, the accounts were still not closed. Further, relevant cashbooks and bank reconciliation statements for the period January to June 2013 were not maintained. The accounts should be closed without further delay. The County Government should also ensure that bank reconciliations are prepared and cashbooks are maintained and balanced daily as required by the Government Financial Regulations and Procedures Debtors The defunct Town Council had debtors amounting to Kshs.18,627, as at 30 June 2013 comprising of commercial debtors (Kshs.16,570,107.00), single business permit ( Kshs.1,776,400.00) and house rent (Kshs.281,220.00). Detailed schedules and ledgers were not updated. An appropriate system for recording debtors should be developed to ensure accuracy and completeness. Reconciliation should also be carried out to ensure that accurate balances are taken over by the County Government Creditors The Council did not maintain creditors ledger hence it was not possible to ascertain accuracy and validity of balances handed over to the County Government. The creditors should be promptly recorded in a ledger indicating particulars of each creditor and the same updated on a regular basis. Additionally, creditors handed over 10

15 from the former Council should be validated and confirmed before effecting any payment to them Other Audit Finding - Unbanked Revenue Revenue amounting to Kshs.20,976, was collected by the Council from 1 January to 30 June 2013, but only Kshs.20,710, was banked, leaving an unaccounted for difference of Kshs.265, Internal control systems should be improved to ensure prompt recording of revenue to include checking of the records by senior officers, to ensure accuracy and prompt surrender of revenue and daily reconciliation of collections and banking. 4.0 Conclusion The audit has revealed that poor book keeping was very much evident in the defunct Local Authorities and appears to exist in the County Government. Financial controls are also weak as no financial policies have been formulated by the County Treasury that would help to strengthen the existing laws and regulations in ensuring full accountability of public resources. In addition the adoption of technology is very low and the County Government has not put in place mechanisms to improve the situation. It is also evident that the process of taking over of assets and liabilities, including staff of the former Councils was not properly handled due to apparent lack of leadership by officials of Transition Authority who had the responsibility to ensure a smooth and seamless transition process. The County Government should ensure full control of functions, including revenue collection, recording and proper accounting for the same while awaiting guidance from the National Treasury based on the accounting and reporting systems to be developed by the Public Sector Accounting Standards Board in accordance with Section 194 of the Public Finance Management Act, Further, the expenditure should be incurred in accordance with the requirements of the Public Finance Management Act, Detailed audit findings are contained in the main audit report herewith attached. Edward R. O. Ouko, CBS AUDITOR-GENERAL Nairobi 27 February

16 DETAILED AUDIT REPORT ON OPERATIONS OF THE NANDI COUNTY GOVERNMENT AND FORMER LOCAL AUTHORITIES FOR THE PERIOD 1 JANUARY TO 30 JUNE Audit Objectives The following were the main audit objectives: Confirm existence of proper accountability of cash and bank balances before, during and after transition to the County Government. Confirm that revenue and expenditure were recorded and properly accounted for before, during and after the transaction period. Confirm that operational debtors and creditors were accurately recorded and transferred from the defunct local authority to County Government. Establish that assets taken over by the County Government are properly listed, exist and are being used to provide services to the County. Ensure that assimilation of the defunct Local Authority s staff with other County Government staff is seamless and no ghost workers or irregular change of terms have been imported in the new IPPD system. Ensure that the County Assembly and Executive Committees comply with the budget and that expenditures are properly charged to County Revenue Fund. Ensure that the ICT system is not circumvented by manual system where IFMIS and G Pay systems are fully implemented. Confirm that where manual systems are in use a proper accountability system is put in place and specific plans for system changeover exist. Confirm that procurement of goods and services is done in accordance with the Public Procurement and Disposal Act, 2005, and related 2006 and 2013 Regulations. 2.0 Detailed Audit Findings NANDI COUNTY EXECUTIVE AND COUNTY ASSEMBLY 2.1 Handing Over of Assets and Liabilities to County Government The County Government of Nandi had not officially taken over the assets and liabilities of the former local authorities as at the time of the audit in September This has contrary to instructions issued by the Ministry of Local Government vide circular no. MLG/1333/TY/52 of 18 February, Under the circumstances, the accuracy, and validity of assets and liabilities taken over by the County Government could not be ascertained. 12

17 The Transition Authority should ensure that an accurate statement of assets and liabilities as at 28 February 2013, is prepared by the relevant Council officials and that a proper handing over/taking over is done to enable the County Government have a basis for the opening balances to be recorded in the books of account. 2.2 Cash and Bank Balances (a) Funding The County received a total of Kshs.240,671, from the National Treasury during the period from 5 March 2013 to 30 June Appropriation in Aid (AIA) collected during the same period amounted to Kshs.9,101, while expenditure amounting to Kshs.196,195, was incurred on various expenditure items leaving a balance of Kshs.53,577, It was however established that Kshs.55,200, was returned from County Imprest account to Exchequer account in July 2013 resulting in a difference of Kshs.1,622, which has not be reconciled or explained. (b) Bank Accounts The County Government opened three (3) bank accounts at Central Bank of Kenya and one (1) each at Kenya Commercial Bank, Cooperative Bank and Equity Bank. The bank statements reflected balances amounting to Kshs.78,443, as at 30 June 2013 arrived at as follows: Details Account No. Bank statement balances on 30 June 2013 (Kshs) 1. County Recurrent Account CBK 0 2. County Revenue Fund CBK 9,108, Account 3. Development Account CBK 0 4. County Imprest Account ,112, (Cooperative Bank) 5. LATF Account KCB 179, County Revenue (Collection) ,042, Account (Equity Bank) Total 78,443, It was however observed that cash books and bank reconciliations were not maintained for five (5) bank accounts with the exception of the Imprest account maintained in Cooperative bank, Kapsabet branch. 13

18 In absence of cashbooks and bank reconciliation statements, balances as at 30 June 2013 could not be ascertained. Cashbooks and bank reconciliation statements should be maintained for all bank accounts for proper accountability of funds. 2.3 Debtors and Creditors The County Government did not maintain debtors and creditors ledgers. Further, proper handing over was not done. As a result debtors and creditors of the County and those transferred from the former Local Authorities could not be verified. Debtors and creditors ledger should be maintained and updated to ensure accurate balances. 2.4 Motor Vehicles and Equipment A fixed assets register was not maintained by the County. It was also noted that the County Government took over motor vehicles and other equipment from former Local Authorities without proper recording. A fixed assets register should be opened and proper handing over carried out to ensure that all assets are safeguarded from possible loss and that they are used to provide service to the County. 2.5 Staff Establishment The combined establishment increased from 164 staff in February 2013 to197 as at 30 June Similarly, the monthly wage bill increased from Kshs.10,394, in February 2013 to Kshs.15,109,055 as at 30 June 2013.The increase is attributed to new staff and Members of County Assembly. However, staff validation and head count was not carried out to confirm the personal emoluments taken over from former Local Authorities. (i) The County Government should carry out a staff head count in order to ensure that no ghost workers are inherited from the defunct Councils. 14

19 (ii) Job evaluation and assessment should be undertaken to facilitate deployment of key staff to relevant departments and also guide in recruitment of staff with the required skills and knowledge. 2.6 Expenditure i) Advance Payment for a Motor Vehicle The County Government issued Local Purchase Order (LPO) No dated 15 May 2013 for the supply of the Governor s motor vehicle from Toyota Kenya Kericho Branch, at a cost of Kshs.10,985, An advance payment, amounting to Kshs.5,500, was made to the supplier vide cheque No of 29 May However, the vehicle had not been delivered as at the time of audit in September 2013, almost 90 days after the down payment. This was in contravention of Public Procurement and Disposal Act, The Public Procurement and Disposal Act, 2005 and related 2006 and 2013 Regulations requirements should be followed on all procurements made by the County Government Payments should only be made based on evidence of receipt of goods and services. Appropriate action should also be taken to ensure the vehicle is delivered to the County. ii) Single Sourcing of Computers and Other Equipment The County procured computers, laptops, furniture and other equipment valued at Kshs.1,777, through single source contrary to the requirements of Section 74 of the Public Procurement and Disposal Act, 2005 and Public Procurement and Disposal (County Governments Regulations), Further procurement records including specifications from user department, delivery note and inspection reports were not made available for audit verification. In addition all the items were not taken on charge in a fixed assets register. There was no justified reason for the failure to adhere to the procurement law. The Public Procurement and Disposal Act, 2005 and related 2006 and 2013 Regulations requirements should be followed on all procurements made by the County Government. All assets inherited from former Councils should be labeled and recorded in fixed assets register which should be updated regularly. 15

20 2.7 Audit of Information and Communication Technology ICT (a) Management of IT Control Environment An audit carried out on control environment revealed the following weaknesses which hamper effective and efficient management of IT operations: The County was yet to develop and implement some of the key ICT documents including: ICT policies and procedures, ICT Strategic Plan, Business Continuity Policies (BCP) and Disaster Recovery Plans (DRP). There was also no ICT Steering Committee in place. The server room did not have adequate physical and environmental access controls. The IT section had three (3) officers hence delivery of IT services to the County could be curtailed because of few officers. (b) Hardware i) Computers The County had received seventeen (17) desktop computers from The National Treasury (IFMIS Department) one of which was faulty and none had anti-virus software in place. ii) Data Centre There were three (3) operating servers at the former Municipal Council of Kapsabet, County Council of Nandi and Town council of Nandi Hills offices. However, there was no firewall to protect the network from harmful intrusions through the internet connection. iii) Network connectivity There was no established Wide Area Network at the County to connect various Sub- County offices. Local Area Network also had not been installed at the County Headquarters to connect various County offices and Departments. Operations were still manual. (c) Integrated Financial Management Information System (IFMIS) i) Active Module Nandi County prepared its 2013/2014 budget using the Plan to Budget Module. However, the rest of the modules were yet to be utilized and the financial operations were still manual. Connection to IFMIS was through the Orange modems but the signal was significantly weak in the region therefore limiting the usage of the system. 16

21 G-pay There was one computer received from the National Treasury for G-Pay. However the County is yet to utilize the system. ii) Training of Staff Fourteen (14) County staff had been trained on IFMIS.Hhowever, no ICT staff was trained yet this department may be required to provide support to the IFMIS. (d) Integrated Payroll and Personnel Database (IPPD) The County implemented the IPPD system in July Two (2) users had been trained on the use of the system. A review carried out on the data migrated from LAIFOMS to IPPD revealed the following: There were nineteen (19) officers with Incorrect Tax Personal Identification Numbers, one officer whose date of birth read 1900, and one employee who had no identification card number. Further, there were six (6) officers whose ID Numbers in IPPD were different from what was migrated from LAIFOMS and another officer whose status in LAIFOMS was terminated and yet he had been transferred to another station within the County. s In order to mitigate the above risks, the following recommendations are made: All Sub-County Offices should have adequate infrastructure and LAN to facilitate automation of the County operations. Budgetary provision to ICT Department should be made so as to ensure the achievement of the IT strategy and goals. The router should be configured to prevent and detect harmful intrusions. Adequate physical access and environmental controls in the server room need to be put in place. All IT systems in place should be fully utilized and all financial operations be automated. The ICT Department should ensure that all machines are installed with anti-virus software to prevent the risk of virus attacks. The County management should take control of the management of LAIFOMS previously installed in the former Local Authorities so as to ensure that all revenue collected is accounted for. The County should carry out a data clean-up of its human resource data to ensure the integrity of the payroll data. 17

22 2.8 Internal Control Environment A review of internal control environment revealed the following weaknesses: i) The management has not developed policies and procedures in line with the relevant financial management regulations. ii) The Internal Audit Department is understaffed as it has one officer seconded by the Transition Authority therefore cannot perform the oversight role effectively. iii) The County Government did not maintain proper books of accounts including vote book, Imprest and fixed assets registers, debtors and creditors ledgers. s Operational procedures and manuals should be developed to guide the County on its operations. Adequate staff should be posted to the internal audit department. Relevant financial records and books of account should be maintained as stipulated in the Public Finance Management Act, 2012 Former Municipal Council of Kapsabet 2.9 Improper Hand-over to Transition Authority and County Government An audit carried out in September 2013 revealed that formal handing over of the assets and liabilities to the Transition Authority had not been done. As a result, the County Government has no records of assets and liabilities owned by the former Municipal Council of Kapsabet. The Transition Authority should arrange for proper handing over of assets, liabilities and staff of the former County Council to the County Government Non-closure of Bank Accounts The Defunct Council operated eight (8) bank accounts. However, all the bank accounts were not closed by 28 February 2013 as directed by the Ministry of Local Government. The County Government continued to make payments through the accounts in contravention of the law. The net balance in the accounts as at 30 June 2013 was Kshs.1,392, arrived at as follows: 18

23 Type Account No. Account Balance (Kshs) 1. GRF-Recurrent account , GRF-Operations account LATF-Recurrent account , Fixed Deposit Nil 5. Fixed Deposit account , GRF-Salaries account Nil 7. Road Levy (RMLF) account ,238, GRF (Sewerage) account Total 1,392, Further, relevant cashbooks and bank reconciliation statements were not maintained. No reason was given as to why the bank accounts were not closed on 28 February 2013 or upon expiry of three months at the end of May 2013 to finalize reconciliations considering that the Council was dissolved on 4 March The Provisions of the County Governments Public Finance Management Transition Act, 2013 should be adhered to when effecting any transactions. Reconciliations should be carried out and all bank accounts of the former Council closed Debtors i) According to the list prepared by the Council, outstanding house rent and property rates as at 30 June 2013 were valued at Kshs.1,287, and Kshs.154,494, respectively. However, ledgers and detailed schedules were not maintained. ii) It was also noted that several imprests were issued to same officers before previous ones were accounted for. The weak internal controls over imprest led to overdue outstanding imprest totaling Kshs.2,489, which ought to have been surrendered by 30 June i). Debtors ledger should be maintained and updated to ensure accurate balances. ii). Issuance of imprest should also be managed according to financial regulations in force 2.12 Creditors i) The statement of assets and liabilities prepared by the defunct Council indicate that liabilities amounting to Kshs.18,065, had not been settled as at 28 February Additonally, proper records including ledgers were not updated 19

24 as required and as such the completeness and accuracy of these balances could not be ascertained. Creditors ledgers should be updated and reconciliation carried out to avoid paying fictitious debts There should be full disclosure of the former Council s outstanding debts to ensure that the County Government only inherits genuine debts Unregistered Motor Vehicles A review of the Council log books revealed that motor vehicles registration numbers KAA 264R and KAH 988E were registered in the name of a Construction company. No action had been taken by the Council to correct the anomaly. Registration of the motor vehicles should be done to regularize ownership status 2.14 Staff Establishment The Council had 64 permanent staff as at 28 February All were taken over by the County Government although no head count had been undertaken as at the time of audit in September, Further, no proper handing over had been done. The County Government should validate personnel records to ensure that only genuine employees are entered in the payroll Revenue Collection Records maintained by the defunct Council indicate that revenue amounting to Kshs.72,679, was collected in the period between January to June 2013 and an amount of Kshs.72,592, was banked during the same period. The resultant net difference totaling Kshs.105, of unbanked revenue was not accounted for. The analysis is as follows: 20

25 Month Amount collected (Kshs) Total Bankings (Kshs) Difference (Kshs) 1. January 28,614, ,552, , February 5,333, ,399, , March 4,737, ,447, , April 3,845, ,130, , May 3,177, ,095, , June 26,970, ,948, , Total 72,679, ,574, , The County Government should ensure that revenue collected during the transition period is banked promptly as required by the Financial Regulations in force. All revenue collected should be banked intact in accordance with government financial regulations and procedure Revenue collection and recording should be digitized and recording of the same be automated and instantaneous. THE DEFUNCT COUNTY COUNCIL OF NANDI 2.16 Improper Hand-over to the County Government There was no proper handing over of assets, liabilities and staff of the defunct County Council of Nandi to the County Government as required by the Ministry of Local Government Circular No. MLG/1333/TY/52 of 18 February, As a result, the County Government has no opening balances of assets and liabilities owned by the former Council. The Transition Authority should ensure that former chief officers of the defunct Local Authority properly hand over the assets and liabilities to the County Government Failure to Close Bank Accounts The Council was required to close and transfer bank balances to the County Government Revenue Fund Account by 28 February However five (5) bank accounts operated by the Council in various banks had not been closed as at 25 September No reason was provided for the failure to close the following bank accounts: 21

26 Details Account No. Balances as at 28 February 2013 (Kshs) 1. LATF Recurrent Account 2. Service Charge Account 3. GRF Recurrent Account 4. Renewals Fund Account 5. Produce Cess Account Balance as at 30 June 2013 (Kshs) ,256, , , , , , , , , Further, relevant cashbooks and bank reconciliation statement were not maintained for all the bank accounts. In the circumstances, the Council was clearly in breach of the law and the directive from the Transition Authority. s Reconciliations should be carried out and all bank accounts of former Council closed. Cashbooks and bank reconciliation statements should be maintained and updated regularly Outstanding Debtors The defunct Council had debtors totaling Kshs.58,249, as at 30 June No details on the Outstanding balance as at 28 February 2013 were provided. Further, detailed schedules, ledgers and registers were not updated. As a result, accuracy and recoverability of the following debtors could not be ascertained: Item Balance on 30 June 2013 (Kshs) 1. Plot Rent 22,871, House Rent 414, Property Rates 11,752, CILOR 23,210, Total 58,249,

27 The County Government should open and maintain registers and ledgers to record details of all debtors Debtors reconciliation should be carried out to ensure that accurate balances are taken over by the County Government Creditors and Accruals According to the statement of assets and liabilities as at 28 February 2013, the defunct Council had creditors totaling Kshs.22,721, comprising of staff gratuity and KENAO audit fees of Kshs.21,561, and Kshs.1,160, respectively. However, the accuracy and validity of staff gratuity could not be confirmed as relevant supporting documents and ministerial authority was not provided for audit review. Creditors ledger should be maintained and updated to ensure accurate balances. Reconciliation on creditors balances should be carried out to ensure that genuine and valid creditors are taken over by the County Government Motor Vehicles and Other Fixed Assets The defunct County Council of Nandi had fixed assets with a book value of Kshs.485,470, as at 28 February The assets which included nine (9) motor vehicles, two (2) motor cycles, three (3) lorries, three (3) tractors, three (3) motor graders, a bulldozer and several furniture and equipment among other assets were all listed in the report of the Council dated 28 February 2013 for handing over to the County Government. However, the fixed assets register was not updated while a new Toyota pickup registration number KBR 844U and four (4) file cabinets were not recorded in the fixed assets register. Proper handing over of assets and liabilities should be done All assets owned by the County Government should be tagged and entered in a register Staff Establishment The defunct County Council of Nandi had fifty one (51) employees. The wage bill for February 2013 amounted to Kshs.3,247, All employees were taken over by 23