Progress made in technical assistance to County Governments Kenya School of Government (KSG) 8 May 2018 Francis Nzau, ACCA PwC

Overview of presentation 1. Background 2. Objectives 3. Scope – Key activities 4. Overview of key activities undertaken Recommendations 6. Conclusion

1. Background of the TA assignment The PFM Act, 2012 mandates the National Treasury to formulate financial and economic policies, effective coordination of government financial operations, and management of public finances for the rapid and sustainable economic development of Kenya. In fulfilling its mandate, the National Treasury through the Directorate of Accounting Services has over the past three years provided technical support to County Governments, through consultancy from PricewaterhouseCoopers (PwC), on the preparation and consolidation of annual financial statements and in-year reporting. PwC is in its third year in provision of technical assistance to County Governments, with the current contract focusing on the annual financial statements for FY 2016/2017 and in-year reports for FY 2017/2018.

2. Objectives of the assignment The general objectives of this assignment are to: Provide technical support to Accountants and Accounting Officers in County Governments and County Government Entities in the preparation of financial statements for their respective entities; and Provide support in the consolidation of these financial statements. The Accounting Officers of County Government Entities are responsible for the accuracy and fair presentation of the financial statements and the underlying books of accounts, while the role of PwC is to provide technical assistance. As we offer our technical support, we work very closely with the National Treasury, Directorate of Accounting Services and Quality Assurance; and the Public Sector Accounting Standards Board (PSASB) who are key stakeholders in this engagement.

3. Overview of the key activities The assignment broadly covers the following key activities: Inception and scoping work; Training and capacity building; Preparation of annual and consolidated financial statements; Support in in-year financial reporting; Support to IFMIS with an aim of generating financial statements from IFMIS; Support on implementation of issues arising from OAG audits; and Close out activities.

4. Overview of key activities undertaken Quarterly financial reporting In accordance with Section 166 (1 and 2) of the PFM Act, 2012, an Accounting Officer of a County Government entity is required to prepare quarterly financial reports in respect of that entity and submit the same to the County Treasury no later than 15 days after the end of each quarter. Section 166 (4) requires the County Treasury to consolidate the quarterly reports and submit the consolidated reports to the County Assembly with copies to the Controller of Budget, National Treasury and the Commission on Revenue Allocation not later than one month after the end of each quarter. Our technical assistance on quarterly reporting has been in the following ways: Through the office of the DG, AS and QA, issued reminders on the timelines for submission. Followed up with the counties on a regular basis to ensure timeliness in submission.

4. Overview of key activities undertaken (Continued) a) TA on quarterly reporting (Continued) Provision of clarifications on use of reporting templates prescribed by the Public Sector Accounting Standards Board. Quality review of reports submitted and provision of recommendations on areas requiring improvement on the quarterly reports. Supported the counties (on a need basis) in implementation of recommendations raised through the quality review process. Revision of quarterly reporting templates for approval by PSASB before being uploaded on the treasury website. Assisted the National Treasury on consolidation of quarterly financial reports for all 47 County Governments

4. Overview of key activities undertaken (Continued) a) TA on quarterly reporting (Continued) – Status of compliance There has been noted improvement in submission of quarterly reports in FY 2017/18 compared to previous FYs. The table below shows summary of counties that submitted quarterly reports to NT on time (one month after the end of the quarter). Quarter 1: Isiolo, Nyamira, Kwale, Nakuru, Makueni, Bungoma Quarter 2: Isiolo, Nyamira, Kwale, Nakuru, Makueni, Mombasa, Murang’a, Nairobi. NB: The remaining 39 counties submitted Q2 reports after the deadline. Quarter 3: Isiolo, Mombasa, Murang’a, Nairobi, Nyamira, Nyeri, Bomet, Elgeyo Marakwet, Kakamega, Kiambu, Kisii, Kitui, Kwale, and Vihiga. NB: 6 Counties i.e Makueni, Bungoma, Baringo, Taita Taveta, Trans Nzoia and Busia have submitted Q3 reports after the deadline

4. Overview of key activities undertaken (Continued) b) Support in the audit process Annual financial statements for FY2016/2017 were submitted to the OAG by 30th September 2017 in accordance with Section 164 of the PFM Act, 2012. In accordance Section 48 of the Public Audit Act, 2015, the Auditor General is required to audit and report on the accounts within six months after the end of each financial year. We have continued to support Counties during the audit of annual financial statements for FY2016/2017 in the following ways: Upon invitation, attending exit meetings to assist the counties in providing preliminary responses to audit findings and preparing of action plans on any findings that could be resolved before audit finalisation. We have attended audit exit meetings for Lamu CE, Kisumu CE and Bomet CA.

4. Overview of key activities undertaken (Continued) b) Audit support (Continued) Remote support in responding to audit queries raised and clarifications needed during audit fieldwork by OAG auditors. Todate we have supported the following entities: Samburu CA, Samburu CE, Machakos CE, Machakos CA, Baringo CE, Kitui CE, Makueni CE, Kakamega CA, Vihiga CE among others. Analysis of findings and recommendations raised by OAG in previous years’ audits and providing support on implementation of the recommendations. We have faced the following challenges in our efforts to support Counties in the audit process: Counties not willing to update and invite us for the exit meetings; Counties not willing to share with us the draft findings once shared by the OAG; Counties not willing to engage us in addressing audit findings, especially what they consider as non-accounting matters.

4. Overview of key activities undertaken (Continued) b) OAG audit – Opinions in the last audits Key observations on the trend of opinions for Counties: No unqualified opinion yet Improvement of opinions noted across the years Significant improvement from FY14/15 to FY15/16 by Kisii and Kajiado counties from Disclaimer to Qualified Drop from FY14/15 to FY15/16 by Isiolo and Wajir counties from Qualified to Adverse We have an expectation to get at least one clean opinion from the FY16/17 audits

4. Overview of key activities undertaken (Continued) c) Support in IFMIS (AR and CM) IFMIS is one of the key components of the Revised Strategy for PFM reforms in Kenya, 2013 – 2018. Under theme 7 of the PFMR strategy, it is envisaged that there shall be established a secure, reliable, efficient, effective and fully integrated PFM system in National and County Governments. The Strategy further seeks to deepen implementation of IFMIS and its seamless integration with other PFM related systems. A key task in our TA is to ensure that Counties financial transactions are processed through the system and focus on actualization of Accounts Receivable (AR) and Cash Management (CM) modules of IFMIS. This will lead to being able to perform bank reconciliations in IFMIS and hence being able to generate complete and accurate financial statements from IFMIS.

4. Overview of key activities undertaken (Continued) c) Support in IFMIS (AR and CM) – Continued Working closely with the National Treasury Financial Reporting Unit and the IFMIS Department, our support in IFMIS has been as follows: Support on capturing of financial transactions into the system and hence be able to perform bank reconciliations in the system. Analysis of actual receipts and payments captured in IFMIS per County compared to information provided in the financial statements and advising the Counties on the variances for their necessary action. Resolving IFMIS set up issues for counties where transactions captured in the system do not appear in the IFMIS GL. Held a pilot workshop at National Treasury for Nairobi, Nyeri and Tharaka Nithi Counties with an aim of identifying challenges to full actualization of the AR and CM modules of IFMIS.

4. Overview of key activities undertaken (Continued) c) Support in IFMIS (AR and CM) – Status of revenue capturing CARA Revenue FY 2015/16 FY 2016/17 FY 2017/18 CARA fully captured in MRR 15 18 4 CARA almost fully captured in MRR 22 23 8 CARA partially captured in MRR 3 19 CARA not captured in MRR 2 16 Total 47 Own Source Revenue OSR fully captured in MRR 6 10 11 OSR almost fully captured in MRR 1 OSR partially captured in MRR 17 OSR not captured in MRR 20

4. Overview of key activities undertaken (Continued) d) Training and capacity building Training is a component of the technical assistance. This is accomplished through formal workshops and on-the-job technical support to County Government entities on aspects related to financial reporting. These capacity building initiatives mainly target (a) Accounting Officers and Accountants involved in financial reporting at the County Treasuries and County Assemblies and (b) the Financial Reporting Unit (FRU) at the National Treasury, to enable the team carry out quarterly and annual consolidation with minimum support from external consultants. Training has been in the following ways: On the job training through County field visits County specific training on a need basis Formal training workshops held twice a year at KSG Working with the PSASB to identify capacity gaps and training needs at the Counties Working with the FRU to share knowledge and experiences

4. Overview of key activities undertaken (Continued) e) Year End Closing Procedures for FY 2017/2018 The current FY2017/2018 closes on 30th June 2018. It is therefore our responsibility to ensure that provisions and guidelines contained in the PFM Act, 2012 and the PFM (County Governments) Regulations, 2015 are strictly adhered to. The National Treasury has issued a Circular on Year End Closing Procedures to enable CECs Finance prepare County specific year end closing procedures pursuant to Section 97(5) of the PFM (County Governments) Regulations, 2015. The guidelines are applicable to County Governments and other entities under their control. It is the duty of the Accounting Officers to ensure that these guidelines are disseminated to all entities and officers undertaking PFM functions within the County Governments. There will be a detailed session in the training programme to discuss in details the specific guidelines on year end closing procedures.

5. Recommendations Ensure compliance with PFM Act, 2012 requirements Seek and utilise support from National Treasury FRU and PwC consultants Involve your senior officers in the financial reporting process Have passion to have things done the right way Purpose to utilise IFMIS Enhance compliance with applicable laws e.g. procurement laws, tax laws, etc. Ensure implementation of issues raised by the National Treasury, OAG and other regulatory/ oversight bodies.

6. Conclusion Counties who have not submitted Q3 reports – Kindly ensure these are submitted for quality review and consolidation an National Treasury level. Timely submission results to timely quality review hence timely corrections in the next set of financial statements Q4 financial reports should be submitted on or before 31st July 2018 Annual financial statements for FY2017/2018 for individual County entities will be due on 30th September 2018 Consolidated financial statements for FY2017/2018 will be due on 31st October 2018

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