Issues noted in the consolidation of financial statements Kenya School of Government (KSG) 7 December 2018 CPA Jonathan Mwaura FRU – National Treasury

Review issues arising from consolidation 1. Suspense balances: Most consolidated financial statements had suspense balances (un-cleared controls) in the statement of assets and the statement of cash flow. Resolution Each County should ensure that the control amounts are nil. Follow-up with individual entities on the resolution of suspense balances.

Review issues arising from consolidation (continued) 2.Inter-entity variances For some of the submitted financial statements we noted the following inter-entity variances: Transfers made by the CE to CAs, Water Companies, Council of Governors, County Health facilities and not recognized by one of the parties; Payments on behalf of CA by CE and not recognized in the FS by either CE or CA; Resolution The above resulted in inter-entity variances which required reconciliation to resolve. Transfers to and payments made to CGEs should be properly disclosed in the FS by both transferring entity and the recipient.

Review issues arising from consolidation (continued) 2a. Inter-entity reconciliation – Between County Governments and MDAs These were variances between Counties consolidated financial statements and MDAs’ consolidated financial statements as tabulated below: Description MDA Amount recorded by Counties Amount recorded by MDA Variance Comments KShs Fuel Levy Fund State Department of Infrastructure 10,646,685,455 7,875,000,000 2,771,685,455 The difference of KShs 2,771,553,032 relates to CARA allocation of FY 16/17 that was disbursed in FY 18/19. Ministry of Health – User fees Ministry of Health 900,000,000 450,000,000 In the fourth quarter of FY2017/18, KShs 450,000,000 was disbursed to Counties through the NT

Review issues arising from consolidation (continued) 2b. Inter-entity reconciliation – Between Counties and Water companies (Transfer to WCs by CGs) Variances between amount recorded by water companies as transfers from counties and amounts recorded by counties as transfers to water companies as shown below: Description Amount recorded by WCs as per transfers from Counties Amount recorded by Counties as transfers to WCs Variance Comments KShs Transfers 484,123,426 306,094,407 178,029,019 a) Payment for utilities (Either water bills utilized by CGEs or Electricity bills paid by the CEs on behalf of the WCs) of KShs 178,029,019 reported under Use of goods in the financial statements of the County Executives. b) Amount recorded in the counties FS but the respective water company has not been included in the SAGAs consolidation as WC’s FSs were not received e.g. GAWASCO

Review issues arising from consolidation (continued) 2c.Inter-entity reconciliation – Between Counties and Council of Governors (Transfers to CoG by CGs) Description No of Counties Amount recorded by CoG Amount recorded by Counties under transfers to other entities Variance Comments KShs Transfer to CoG 47 220,545,600 - KSHs 220,545,600 was confirmed to have been paid by the County Governments to the Council of Governors a follows:  KShs 174,946,107 was reported in the financial statements of the 47 County Executives under “Use of goods (Note 12)” for payments expensed as rent and other operating expenses for the support to the conference held in Kakamega  KShs 45,599,493 was reported in the financial statements for 12 CEs under “Other payments (Note 18) for intergovernmental contributions.

Review issues arising from consolidation (continued) 3. Inconsistency between the notes and the financial statements. For some of the consolidated financial statements submitted, the notes did not tie to the primary financial statements. This was a result of the County Treasury feeding directly in the primary financial statements other than the notes. Resolution The County Treasury should ensure they feed all amounts from the notes as per each line item

Review issues arising from consolidation (continued) 4.Incomplete Statement of Appropriation Some of the consolidated financial statements submitted, had incomplete statement of appropriation i.e. the recurrent and development were either incomplete or not populated. Resolution The County Treasury FRU should ensure they populate the statement of appropriation as it forms the primary financial statements.

Review issues arising from consolidation (continued) 5.Incomplete ‘Other disclosures’ For some of the consolidations financial statements submitted, other disclosures i.e. pending bills, fixed assets register were either incomplete or not populated. Resolution The County Treasury FRU should ensure they populate the other disclosures as it forms the primary financial statements.

Review issues arising from consolidation (continued) 6.Failure to use the revised consolidated financial statements reporting template For some of the consolidations financial statements submitted, the revised financial statements reporting template was not used posing a challenge in the National Treasury consolidation because of mismatch of various item lines. Resolution The consolidated financial statements reporting template was revised and approved by the PSASB in June 2018 and subsequently uploaded on the National Treasury website for ease of access. Therefore, the County Treasury FRU should ensure they use the revised consolidated financial statements in the consolidation of the County entities’ financial statements.

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