1. The National Treasury WORKSHOP ON LESSONS LEARNT YEAR 2014/15 IN THE PREPARATION OF THE FINANCIAL STATEMENTS OF PROJECTS

2. DAY 4 3 DECEMBER 2015

3. Page 3 Workshop Topics 1. Workshop Overview/Expectations 2. Introduction 3. Key highlights from the Projects Consolidation 4. Top 10 Quality Review issues FY 2014/2015 5. Tax Matters affecting MDAs 6. Fire Award Evaluation 7. Peer presentations 8. In year reporting

4. Page 4 EXPECTATIONS 1. What were your expectations from the Technical Assistance? 2. What are your expectations from the Workshop?

5. Page 5 HOUSE RULES 1. Active participation 2. No phones 3. Sharing experiences 4. Keep time

6. Page 6 Introduction and Overview The Government of Kenya has prioritized enhancing public financial integrity institutions as one of its top priorities underpinned in its Public Finance Management Strategy (PFMR) 2013 – 2018 and as spelt out in the Constitution of Kenya, 2010. PFM Act 2012 and Gazette Notice 5440 in 2014 led to the adoption of IPSAS for FY 2013/14. This is the second year of implementation.

7. Page 7 Introduction and Overview PFM AGENDA The object of the PFM Act, 2012 is to ensure that - (a) Public finances are managed at both the national and the county levels of government in accordance with the principles set out in the Constitution; and (b) Public officers who are given responsibility for managing the finances are accountable to the public for the management of those finances through Parliament and County Assemblies.

8. Page 8 Introduction and Overview The objective of the technical assistance is to support MDA Accountants in the preparation of financial statements and in the management of the audit process. The assignment to be covered in the following 3 phases ► Phase I: Preparation and consolidation of financial statements ► Phase II: Audit support and quality review ► Phase III: In-year reporting, training and continued support during audit

9. Page 9 OVERVIEW ON THE CONSOLIDATION ► The Financial Statements submitted to OAG with copies to National Treasury were subjected to a further quality review ► The quality review was to ensure compliance with relevant accounting standards and formats prescribed by the Public Sector Accounting Standards Board ► A number of quality review issues were noted and quality review matters arising raised in draft memos to be issued for projects and to be addressed before conclusion of FY2014/2015 audit ► The lessons learnt workshop was informed by a number of key accounting issues that were cross-cutting in the projects are follows

10. Page 10 OVERVIEW ON THE CONSOLIDATION GOVERNMENT OF KENYA Consolidated financial statements for the National Government Entities Under Lot 1 ► Part 1 : Ministries, Departments and Agencies (includes projects) ► Part 2 : Consolidated Fund Account

11. Page 11 Part 1 : Ministries, Departments and Agencies (includes projects)  This part has consolidated a total of 54 votes and 83 projects:  IPSAS cash basis of accounting has been applied with exception of few commissions using accrual basis. Category of EntityCount Ministries and departments30 Commissions17 Consolidated Fund Services4 Constitution Offices3 Total Vote54 Projects83 Total137

12. Page 12 Annexure to MDAs Projects Implemented by Ministries

13. Page 13 Project Revenues

14. Page 14 Project Expenditure

15. Page 15 Project Net Financial Assets

16. Top 10 Quality Review Issues for FY 2014/2015

17. Page 17 Challenges faced in preparation of the financial statements From observations in the field and from the quality of financial statements, there were quite a number of Projects that did not produce good financial statements 1. What were the practical challenges faced in the preparation that were dealt with and which ones are still challenges?

18. Page 18 The Financial Statement Close Process – How to ensure completeness and accuracy in reporting 1. Overview of the process and derivation of the numbers in preparation of financial statements ► Posting of transactions ► Generation of reports ► Continuous and Periodic reviews of the reports generated, both manual and electronic ► Timely Correction of errors ► Timely closure of books ► Timely reconciliations/confirmations ► Accurate Financial Statements

19. Page 19 Top 10 Quality Review Issues FY 2014/2015 1. Counterpart funding through Ministry 2. Other transfers from/to government entities 3. Appropriations-in-Aid/ ERD Reconciliation 4. Proceeds from domestic and foreign grants 5. Loan from external development partners 6. General Suspense / "Prior year adjustment“ 7. Cash flow statements 8. Missing Other Important Disclosure 9. Manual Bank Reconciliation 10. Other Quality Issues

20. Page 20 Top 10 Quality Review issues for FY 2014/2015 1.Counterpart funding through Ministry Observation Significant differences noted between the transfers to and from other government entities as per consolidated financial statements for projects compared to amounts in the consolidated financial statements of MDAs.

21. Page 21 Top 10 Quality Review issues for FY 2014/2015 1. Counterpart funding through Ministry ► Transfers to- is money given to another entity that is then expected to report/disclose that it received the same amount, and also report on how it has utilized such funds (prepare its own financial statements). ► Transfers from, is money received from another reporting entity that shows the same amount as a transfer to

22. Page 22 Top 10 Quality Review issues for FY 2014/2015 1. Counterpart funding through Ministry Issues noted at individual entity level; ► There is failure to disclose in the notes or have a listing appended, of Transfers to and Transfers from Government Entities ► Lack of follow up on inter-entity reconciliations ~ agreeing balances with the corresponding entities. ► Failure to distinguish between grants and transfer

23. Page 23 Top 10 Quality Review Issues FY 2014/2015 2.. Statement of Assets and Liabilities not Balancing resulting into a suspense Observation  The financial statements of a number entities did not balance resulting to a suspense in the consolidated financial statements. Suspense amount in FY 2014/2015 was KShs 10,201,515( FY 2013/2014 KShs (5,519,342).  The key reasons as to why individual financial statements did not balance were: casting errors, opening fund balance not tying to 2013/2014 brought forward balance and Inconsistencies between the notes and the financial statements

24. Page 24 Top 10 Quality Review Issues FY 2014/2015 3. Appropriations-in-Aid/ ERD Reconciliation Significant differences noted between the transfers from the External Resources Department, National Treasury, ERS and compared to amounts in the financial statements of the projects.

25. Page 25 Top 10 Quality Review Issues FY 2014/2015 4.Proceeds from domestic and foreign grants A significant number of projects did not provide the following in relations to domestic and foreign grants. ► Disclosing a listing (a note) of Domestic and Foreign grants ► Inter entity reconciliation ~ Agreeing balances with the corresponding entities. ► Distinction between transfers and grants and disclosing them separately.

26. Page 26 Top 10 Quality Review Issues FY 2014/2015 5. Loan from external development partners 1. A significant number of projects did not provide the following in relations to loans from external development partners. ► Disclosing a listing (a note) of Loan from external development partners ► ERD Reconciliation for reconciliation.

27. Page 27 Top 10 Quality Review Issues FY 2014/2015 6. General Suspense / "Prior year adjustment“ ► Opening Balances - fund balance brought forward in the current year not agreeing to fund Balance carried forward from FY 2013/2014 ► Entities did not provide sufficient explanation in form of a note to support these prior year adjustments ► The consolidated financial statements for MDAs for FY 2015/2014 contained an adjustment that could not be properly supported.

28. Page 28 Top 10 Quality Review Issues FY 2014/2015 6. General Suspense / "Prior year adjustment“ Suggested Resolution All entities are required to ensure that the opening balance adjustments /prior year adjustments are authorised and an explanatory note provided as a note to financial statements. A copy of the approved journal voucher should also be provided.

29. Page 29 Top 10 Quality Review Issues FY 2014/2015 7. Cash flow statements Cross cutting issues Reasons why your statement of cash flow will not balance  Net cash from operating activities (before adjustments) not tying to the Statement of Receipts and Payments Indirect –  Adjustments for none- cash items not made in the statement of cash flowChange in receivables and payables  Cash and cash equivalent not agreeing to Cash and Bank Balances in the Statement of Assets & Liabilities and the note. ► Cash and cash equivalents at the beginning of the year 2014/2015 not tying to cash and cash equivalents and the end of the previous year- 2013/2014.

30. Page 30 Top 10 Quality Review Issues FY 2014/2015 8. Missing Other Important Disclosure Some financial statements include the following schedules of detailed listings - Accounts Payable - Accounts Receivables - pending bills - Summary of fixed assets.

31. Page 31 Top 10 Quality Review Issues FY 2014/2015 9. Manual Bank Reconciliation  Bank and Cash balances to use - Use of bank statement balances instead of cash book bank balances in the statement of assets and liabilities and statement of cash flow  Receipts and payments in the bank not in cash book  Use of Unrevised/misstated manual cash book balances in the financial statements.  Ensuring the cash book is updated at the time of board of survey (Reconciled to the Cash Book Ledger)  Long Outstanding Reconciling Items – this should be investigated and resolved.

32. Page 32 Top 10 Quality Review Issues FY 2014/2015 10. Other Quality Review Issues. ► Errors on schedules to the financials statements i.e. casting errors. ► Inconsistency between notes and financial statements ► Financial statements not properly formatted ► Notes to the financial statements not flowing and out of sequence. ► Notes without any information of data not deleted ► Errors in appropriation accounts

33. Questions?