AUDIT PRACTITIONERS TRAINING ON UNCLAIMED FINANCIAL ASSETS CASE OF PUBLIC ENTITIES Presentation by: CPA Rose N. Mutembei Chief Accountant, Kenyatta National Hospital. Monday, 27 th November 2017 Uphold public interest
Objective Understand public entities Audit approach on UFA in public entities. Public entity case study Analyze financial statements. Identify possible UFA. Substantive audit procedures.
Public Entities The National Government Ministries, Departments and Agencies e.g Office of AG, Judiciary, Commissions etc. Funds: e.g Women Enterprise Fund, Youth Enterprise Fund, Uwezo Fund etc. Financial reporting framework - IPSAS cash The County Governments Financial reporting framework - IPSAS cash
Public Entities Cont.. Semi-autonomous national and county Government corporations (Non-commercial) e.g State Corporations, Regulatory Authorities, Water Service Boards, Public Universities, etc. Financial reporting framework - IPSAS accrual State and County corporations (Commercial) e.g KENGEN, Kenya Power, KAA, KPA, etc. Financial reporting framework - IFRS
Understanding public entities Conduct a pre-audit research. Legal framework. Principle activities, mandate, historical infor. Review annual reports. Review performance contract reports (compliance to statutory requirements - UFA Act 2011). Nature of the entity (business operations) Policies.
Audit approach Understand the UFA Act 2011 and Regulations Understand the public entity Analyze the financial statements Identify possible unclaimed financial assets Carry out substantive audit procedures
Analyzing the financial statements Financial reporting framework Understand what makes up the entity s incomes, expenses, assets, liabilities, owners equity. Notes to the financial statements The accounting policies. Reference notes to the components in the FS. Study the audit report.
Identifying possible UFA What are the possible unclaimed financial assets for a specific public entity? Establish under which component(s) in the financial statements the identified possible UFA are reported. Basis of qualification for UFA : - Nature of the asset held by a holder - Period to qualify as unclaimed asset
Possible UFA in Public Entities UFA Act 2011 Asset Period Section 5 Cheques, drafts or similar instruments 2 years Section 9 Deposit for utility services 2 years Section 10 Determination or order by court of refund by holder 2 years Section 11 Ownership interest 3 years Sections 12 Assets from dissolved business entities 2 years Section 13 Assets held in fiduciary capacity 2 years Section 15 Unpaid wages 1 year Section 17 Assets held by court or government department 1 year
Public Entity : M (PE M) Period of study : FY 2012 to 2016
Understanding PE M State corporation established by an act of parliament and incorporated under laws of Kenya. Reporting framework - IFRS Mandate: Register members Receive pension contributions Manage funds of the scheme Pay out benefits to eligible beneficiaries Has not remitted unclaimed assets to the UFAA
PE M financial statements Statement of changes in net assets available for benefits Income include: - Members contribution - Investment income Expenses include: - staff cost (wages & salaries) Statement of net assets available for benefits Payables include - Unclaimed benefits - Payables due to vendors - House purchase deposits
PE M financial statements Statement of changes in accumulated members funds Members funds Accumulated reserves Reserve fund -No disclosure has been made in the financial statements as to the nature and purpose of the above funds /reserves
PE M financial statements Audit report One of the basis for a qualified opinion is: Members contributions held in suspense account due to lack of proper details of members from their employers.
Possible UFA case of PE M 1. Number of active members of the fund has been disclosed under the report of Trustees (section 13) Are there non-active members (dormant accounts)? Substantive audit procedures Determine the entity s policy on dormant accounts Obtain listing of all inactive/dormant accounts Review the members files/accounts Establish the how long accounts have been dormant Review re-activated accounts.
Possible UFA case of PE M cont 2. Unpaid benefits due to members (section 13) Substantive audit procedures Establish where these are reported in the financial statements? Is it under reserves/ funds? Why have they not been paid? Litigation? Obtain the aging analysis. Review members files/accounts. Establish whether there has been communication to beneficiaries.
Possible UFA case of PE M cont 3. Unclaimed benefits (section 3(a) and 13) FY 2016 2015 2014 2013 2012 Amount Ksh. m 278 291 290 270 260 Substantive audit procedures Obtain the aging analysis Review members files/accounts Establish whether there has been communication to beneficiaries. Why have the benefits not been claimed?
Possible UFA case of PE M cont 4.Payables (section 17) Item 2016 Ksh. m 2015 Ksh. m 2014 Ksh. m 2013 Ksh. m 2012 Ksh. m Payables due to vendors House purchase deposits 210 250 260 230 270 500 400 130 1,200 1,400 Carry out appropriate substantive audit procedures
Possible UFA case of PE M cont 5. Contributions in suspense a/c (sec 3(a) and 13) FY 2016 2015 2014 2013 2012 Amount Ksh. m 784 740 2,300 2,500 2,700 Substantive audit procedures Ascertain under which component in the financial statements this has been reported. Review the employers accounts. Obtain the aging analysis of these contributions. Review the movements on this suspense account.
Possible UFA case of PE M cont 7. Unpaid benefits due to staff (section 15). No disclosure has been made in the financial statements. Perform appropriate substantive audit procedures.
Possible UFA case of PE M cont 8. Accumulated members funds (sec 13). Fund/ Reserve 2016 Ksh. B 2015 Ksh. B 2014 Ksh. B 2013 Ksh. B 2012 Ksh. B Members funds 150 150 95 84 80 Accumulated Reserves 20 17 50 40 38 Reserve Fund - - 8 8 8 Substantive audit procedures Establish nature and purpose Review the movements on the reserves/funds and agree to the supporting documentation. Ascertain the entity s policy on reserves/funds
Possible UFA case of PE M 9. Unpresented cheques (section 5) Substantive procedures Trace all unpresented cheques over the years Examine any old unpresented cheques to assess the accounting treatment. Have they been written back into respective members accounts? Review members accounts and establish aging of any amounts written back into members a/c
General substantive audit procedures Review the entity s reports and submissions to UFAA: Ascertain how submissions were calculated Establish the correctness of submissions Determine applicable interest and/or penalties Examine internal controls in place with regard to identified possible UFA.
General substantive audit procedures cont For the identified potential unclaimed financial assets, establish: When they become payable to the owner(s) When they were presumed abandoned When they became due for surrender to UFAA Compliance to UFA Act 2011 (reporting and remitting) The penalties and interest due from the holder
Important to note Understanding the activities, business operations and financial transactions of a public entity is fundamental in the identification of what makes up UFA for that particular entity. Thorough examination of records and carrying out the appropriate substantive audit procedures will help the auditor identify unclaimed financial assets and assess compliance to the UFA Act 2011.
Interactive Session