kenya national audit office -...

RF Pl. R LIC OF KENYA

KENYA NATIONAL AUDIT OFFICE

REPORT OF

THE AUDITOR-GENERAL

ON

KENYA TRANSPORT SECTOR SUPPORTPROJECT (KTSSP) IDA

CREDIT NO.4926KE

FOR THE YEAR ENDED30 JUNE 2014

KENYA CIVIL AVIATION AUTHORITY

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13 NOV 20

RECE V D


KENYA TRANSPORT SECTOR SUPPORT PROJECT (KTSSP)

IDA CREDIT NO: CR 4926 KE

ANNUAL REPORT AND FINANCIAL STATEMENTS

FOR THE PERIOD ENDING 3 0 TH JUNE 2014


CORPORATE PROJECT INFORMATION, MANAGEMENT & IMPLEMENTATION:

The KCAA component is part of the IDA financed Kenya Transport Sector Support( the ProjectNumber is P124109 while the Credit Number is 4926-KE) that the Government of Kenya signed in

May 2011 for the purpose of financing development projects Transport Sector. KCAA is one of theimplementing agencies of the project.

The Financing Agreement (FA) was initialed signed between the Government of Kenya (GoK) andthe World Bank on 23d May 2011 and became effective on 2 2nd August 2011. However in March

2014, due to an additional financing given to the project by the World Bank, a new FinancingAgreement was signed between GoK and the World Bank. Under the additional financing, KCAAreceived a grant support of USD 1,660,000.0. The overall implementation period of the entireproject is seven years. The KCAA component, is projected to be implemented over a 5-yearperiod at an approximate cost of US$ 22 million.

To date KCAA has received Kshs.659, 430,925 (USD 7,579,666 Approx.) from IDA as the drawnloan amount. The loan attracts an interest of 5% p.a, payable on 152 April and 15t October eachyear. The repayment of the principal amount of the loan shall commence from 2019 for a periodof 23 years.

Project Sub-components:-

The KCAA Component of the KTSSP project is comprised of four sub-components which arebriefly described here below:-

a) Provision of technical assistance to strengthen KCAA's Aviation Safety andSecurity Oversight Capacity.

Implementation of this sub-component entails the following key activities: procurement of flightsafety consultancy services, purchase of aviation security training equipment, establishment offlight safety technical library, review and development of technical examination questions,rehabilitation of technical examination center and purchase of reference documents for thelibrary. To date the following contracts have been signed and are currently underimplementation: four contracts for flight safety consultants and two contracts for procurement ofaviation security equipment. The amount allocated for this sub-component is USD 2.89 million.

b) Upgrading of Air Navigation Systems

Implementation of this sub-component entails supply, installation and commissioning of thefollowing four types of air navigation systems: Communications systems, ATS Message HandlingSystem, Navigation Aids Systems, and Flight Safety Procedure Design. Four contracts have beensigned for implementation of the foregoing systems. Implementation of the contract for ATS

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Message Handling System and Flight Safety Procedure Design have been completed, while theimplementation of the two remaining contracts is currently ongoing and are expected to becompleted by December 2014.The amount allocated for this sub-component is USD 6.40 million.c) Construction of an office block for KCAA headquarters and supervision of therelated construction works.

Implementation of this sub-component entails construction of an office block that will serve asthe headquarters of KCAA. Towards this end a consultant has been engaged to design andprepare detailed technical drawings for the proposed head office and also to supervise the actualconstruction. To date the consultant has completed preparing the technical drawings and aworks contractor was engaged in December 2013 and the construction of the office block iscurrently underway. The amount allocated for this sub-component is USD 11.50 million.

d) Implementation of Information Communication Technology SystemsImplementation of this sub-component entails procurement of the following seven ICT Systems:Human Resource Management System; Electronic Document Management System; E-mail andCollaboration Suite; PABX for EASA; Five Servers and Server Racks; Car track and FleetManagement Solution; and establishment of Remote Disaster Recovery Site. The E-Mail andCollaboration suite, PABX for EASA, Five servers and server racks have been completed, while thehuman resource management system, electronic document management system, and the cartrack and fleet management solution are underway. Preparations of technical specifications of theremaining system are currently on going. The amount allocated for this sub-component is USD1.0 million.

e) Training of KCAA Staff

This is meant enhance appropriate competencies in aviation safety and security. The amountallocated for this sub-component is USD 1.0 million.

Project Staff:

As per the Financing Agreement KCAA is to constitute a Project Implementation Team (PIT)comprising of the following:-

1. Project Team Leader,

2. Project Coordinator,

3. Financial Management Specialist,

4. Procurement Specialist,

5. Technical specialist.

The PIT is directly responsible to the Director General in the performance of its duties.

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STATEMENT OF ACCOUNTING OFFICER AND PROJECT COORDINATORS' RESPONSIBILITYThe Financing Agreement dated May 23, 2011 between International Development Association (IDA) andKenya Civil Aviation Authority (KCAA) Article IV requires the Accounting officer and the project coordinatorto prepare financial statements for each financial year, which adequately reflect the operations, resources,and expenditures related to the KCAA Component of Kenya Transport Support Project as at the end of thefinancial year under review. It also requires the project accounting officer and the coordinator to ensurethat proper accounting records are kept, which disclose with reasonable accuracy at any time, the financialposition of the project.; It also requires the project to design, implement and maintain internal controlsrelevant to the preparation and fair presentation of the financial statements and ensuring that they are freefrom material misstatements, whether due to fraud or error; safeguarding the assets of the project ,selecting and applying appropriate accounting policies and making accounting estimates that arereasonable in the circumstances.

The Accounting Officer and the Project Coordinator accept responsibility for the annual financialstatements, which have been prepared using appropriate accounting policies supported by reasonable andprudent judgments and estimates, in conformity with International Public Sector Accounting Standardsand the requirements of the Credit Agreement.

The Accounting Officer and the Project Coordinator are of the opinion that the financial statements give atrue and fair view of the state of the project financial position as at 30 th June 2014. The Accounting officerand the project coordinator further confirm the completeness of the accounting records maintained for theproject which have been relied upon in the preparation of the financial statements as well as on theadequacy of the internal control systems.

The Accounting Officer and the Project Coordinator confirm that the project has complied fully with theterms and conditions of the Financing Covenants in accordance with the legal agreement and theapplicable Government regulations and that the project funds received during the period under audit wereused for the eligible purposes for which they were intended and were properly accounted.

CHARLES KOMBO JOSEPH K CHEBUNGEIPROJT RDINAT OR Ag. DIRECTOR GENERAL

Date Dae

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...... .....

REPUBLIC OF KENYA

Telephone: +254-20-342330 P.O. Box 30084-00100Fax: 254-20-31 1482 NAIIBE-Mail: oag@oagkenya go.ke NAIROBI

Website: www.kenao.go.ke

KENYA NATIONAL AUDIT OFFICEREPORT OF THE AUDITOR-GENERAL ON KENYA TRANSPORT SECTORSUPPORT PROJECT (KTSSP) IDA CREDIT NO.4926KE FOR THE YEAR ENDED30 JUNE 2014 - KENYA CIVIL AVIATION AUTHORITY

REPORT ON THE FINANCIAL STATEMENTS

I have audited the accompanying financial statements of Kenya Transport SectorSupport Project (KTSSP) IDA Credit No. 4926KE, set out on pages 5 to 12 whichcomprise the statement of financial position as at 30 June 2014, the statement ofcomprehensive income, the cash flow statement, the fund accountability statementfor the year then ended and a summary of significant accounting policies and otherexplanatory information in accordance with provisions of Article 229 of theConstitution of Kenya and Section 14 of the Public Audit Act, 2003 and theDevelopment Credit Agreement No. 4926 KE dated 23rd May 2011 between theRepublic of Kenya and International Development Association. I have obtained allthe information and explanations which, to the best of my knowledge and belief,were necessary for the purpose of the audit.

Management's Responsibility for the Financial Statements

The management is responsible for the preparation and fair presentation of thesefinancial statements in accordance with International Public Sector AccountingStandards and for such internal control as management determines is necessary toenable the preparation of financial statements that are free from materialmisstatement, whether due to fraud or error.

The management is also responsible for the submission of the financial statementsto the Auditor-General in accordance with the provisions of Section 13 of the PublicAudit Act, 2003.

Auditor-General's Responsibility

My responsibility is to express an opinion on the financial statements based on theaudit and report in accordance with the provisions of section 15 of the Public AuditAct, 2003. The audit was conducted in accordance with the International Standardson Auditing. Those standards require compliance with ethical requirements and thatthe audit be planned and performed to obtain reasonable assurance about whetherthe financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amountsand disclosures in the financial statements. The procedures selected depend on theauditor's judgement, including the assessment of the risks of material misstatementof the financial statements, whether due to fraud or error. In making those riskassessments, the auditor considers internal control relevant to the entity's

Promoting Accountability in the Public Sector

preparation and fair presentation of the financial statements in order to design auditprocedures that are appropriate in the circumstances, but not for the purpose ofexpressing an opinion on the effectiveness of the project's internal control. An auditalso includes evaluating the appropriateness of accounting policies used and thereasonableness of accounting estimates made by the management, as well asevaluating the overall presentation of the financial statements.

I believe that the audit evidence obtained is sufficient and appropriate to provide abasis for my audit opinion.

Opinion

In my opinion, the financial statement present fairly, in all material respects, thefinancial position of the Project as at 30 June, 2014 and of its financial performanceand its cash flows for the year then ended, in accordance with International PublicSector Accounting Standards and conforms with the Financing Agreement.

In addition, the special account statements presents fairly the special accounttransactions and the ending balance has been reconciled with the books of account.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

As required by the International Development Association, I report based on myaudit that:-

i. All International Development Association funds have been used inaccordance with the conditions of the Loan Agreement, with due attention toeconomy and efficiency and only for the purpose for which the fund wasprovided;

ii. Counterpart funds have been provided and used in accordance with theconditions of the Agreement, with due attention to economy and efficiencyand only for the purpose for which they were provided;

iii. Goods and Services financed have been procured in accordance with theAgreement and in compliance with the World bank rules and procedures;

iv. Necessary supporting documents, records and accounts have been kept inrespect of all project activities;

v. Adequate internal control to monitor expenditure and other financialtransactions exist; and

vi. A fixed assets register for the Project's assets was maintained during theyear.

Edward R. 0. Ouko, CBSAUDITOR-GENERAL

Nairobi

23 December 2014

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KENYA TRANSPORT SECTOR SUPPORT PROJECT CR: 4926 KESTATEMENT OF COMPREHENSIVE INCOMEFOR THE YEAR ENDED 30TH JUNE 2014

Note 2014 2013Income Kshs KshsInterest Receipts 6 2,585,879 4,361,363Project counterpart 7 889274 25250Total Income 1,479r5S4 6,917,613

Expenditure

Training of staff and trainers 7 5,225,350 7,618,170Aviation Safety Consultancy 7 27,309,645 21,503,233Project operating costs 7 20,143,229 2,096,423Bank Charges 8 22,671 12,891Total Expenditure 52,700,895 31,230,717Surplus/ (Deficit) for the year 41,221,742 24313,104Surplus /(deficit) B/F (24,313,104)Surplus/(Deficit) C/Forward (65,534,846) (24,313,104

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KENYA TRANSPORT SECTOR SUPPORT PROJECT - CR: 4926KE

STEMENT OF FINANCIAL POSITIONFOR THE YEAR ENDED 3 0 TH JUNE 2014.

2014 2013ASSET Note Ksh KshFixed AssetsProperty Plant & Equipment 2 26,922,542Motor Vehicles 2 11,401,843Computer Hardware & Software 2 25,739,638Property Plant & Equipment Work InProgress 2 431,282,356 127,600,654Building Work in Progress 2 169,117,512Total - Non Current Assets 664,463,891 127,600,654Current AssetsInterest Receivable - 2,412,159Cash in Bank 3 11,218,155 70,017,347Total Current Assets 11,218,155 72,429,506TOTAL ASSETS 675,682,046 200,030,160

Equity and LiabilitiesIDA Loan 4 659,430,945 221,216,899KCAA Counterpart 4 55,442,880Accounts Payable 5 26,343,067 3,126,364Surplus / (Deficit) Account (65,534,845) (24,313,103)TOTAL LIABILITIES & LOAN 675,682,046 200,030,160

CHARLES KOMBO JOSEPH K CHEBUNGEIPROJECT OORDINATOR Ag. DIRECTOR GENERAL

Date Date

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KENYA TRANSPORT SECTOR SUPPORT PROJECT - CR: 4926KECASHFLOW STATEMENT AS AT 30TH JUNE 2014

2014 2013Note Ksh Ksh

Cash from Operating ActivitiesNet Surplus from Operations (41,221,742) (24,313,103)Adjustments

Operating profit before workingCapital changes (41,221,742) (24,313,103)(increase) / Decrease in InterestReceivable 2,412,159 (2,412,159)Increase / (Decrease) in Creditors 13 23,216,702 3,126,364Net Cash from Operating Activities (15,592,880) (23,598,898)90% Surplus Paid I Corporation Tax 14Paid

(15,592,880) (23,598,898)Cash used in Investing ActivitiesPurchase of Fixed Assets (536,863,237) (127,600,654)Disposal of Assets - .Total Cash used in Investing (535,863,237) (127,600,654)Activities (535,863,237) (127,600,654)Cash flow from Financing ActivitiesLoans received IDA 438,214,046 221,216,899GOK/KCAA Counterpart 55,442,880 -Net Cash flow from Financing 493,656,926 221,216,899ActivitiesIncrease / (Decrease) in Cash & Cash (58,799,192) 70,017,347EquivalentsCash & Cash Equivalents at the Start of 70,017,347the YearCash & Cash Equivalents at the End 11,218,155 70,017,347of the Year

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FUND ACCOUNTABILITY STATEMENTFOR THE YEAR ENDED 30TH JUNE 2014

2014 2013Receipts Ksh KshReceipts from Min. Of Transport (WB) 66,878,286 127,720,743Interest income 2012/2013 2,412,159 -Interest Income 2,585,879 1,949,204

71,876,324 129,669,947

PaymentsTraining of staff and trainers 3,688,350 7,530,780Consultancy services for Aviationsafety 27,451,001 18,322,922Consultancy services for KCAA HQ 11,077,150 19,072,910Aviation Equipment Purchase 88,434,342 14,715,098Bank charges 24,672 10,891

130,675,515 59,652,601

Excess Receipts over Payments (58,799,191) 70,017,346Opening balance as 70,017,346 -Closing Balance IDA Account 11,218,155 70,017,346

STATEMENT OF COMPARATIVE BUDGET AND ACTUAL AMOUNTSFOR THE YEAR ENDED 30TH JUNE 2014

Revised Actual 2013- VarianceBudget 2013- 201414Ksh Ksh Ksh

Aviation Safety & Security 75,000,000.00 27,309,645.00 47,690,355.00

Aviation Equipment 325,000,000.00 221,279,586.50 103,720,413.50

Training of Staff & 34,418,105.00 29,192,755.00Trainers 5,225,350.00Purchase of ICT 65,138,895.00 20,650,159.00 44,488,736.00EquipmentsHead Office Construction 290,000,000.00 218,209,868.03 71,790,131.97& ConsultancyGrand Total

789,557,000.00 492,674,608.53 296,882,391.47

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NOTES TO THE FINANCIAL STATEMENTS

1. Accounting Policies

The financial statements have been prepared in accordance with International Public SectorAccounting Standards (IPSAS) and IDA/Donor guidelines. The principal accounting policiesadopted remain unchanged from the previous reporting period and are set out below.

a) Basis of preparation

The financial statements have been prepared under historical cost convention as modified toinclude valuation of donations received in kind, long term investments, and equipments asdescribed here below.

b) Revenue - Grants

Unrestricted grants are accounted for in the period when confirmation of the commitment to payis received from Donors or GOK. Grants received for specific purposes are treated as deferred.income and only credited to the income and expenditure statement when the activities for whichthey are provided for have been undertaken.

Grants received for specific asset purchases are treated as deferred income for asset acquisitionand only credited to the income and expenditure statement when activities for which they wereprovided for have been undertaken.

c) Project Income

Project income represents income from project carried out by KCAA and is accounted for onaccrual basis.

d) Donation in Kind

Donations in kind are recognized on a receipt basis and recorded at their fair value.

e) Interest Income

Interest income is recognized on accrual basis.

f) Fixed Assets

Fixed Assets acquired under this project are shown in the books at cost price.

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)2. Asset PurchasesThe Project made payments for the following Works & Equipment during the year ended 30thJune 2014

During the year 2013-2014 the assets purchased were as below:

MOTOR VEHICLES KshTOYOTA KENYA LTD TOYOTA LANDCRUIZER HZJ79R-TJMRS 6,158,843CMC MOTORS LTD FORD RANGER XLT NO MTD-914-045-11 5,243,000PLANT & EQUIPMENT

11,401843INTERTECH BATINORM EXPLOSIVE DETECTION TRACE EQUIPMENT 16,552,868ACHELIS KENYA LTD X-RAY BAGGAGE INSPECTION UNIT 10,369,674COMPUTER & COMPUTER SOFTWARE 26,922,542SYMPHONY SERVERS & SERVER RACKS 8,124,459SYSTEM INFORMATION &TECHNOLOGY EMAIL SOLUTION & COL SUIT 7,769,632MFI CONSULTING LTD PABX AT EASA 9,845,548

25,739,638Total Fixed Assets 64,064,023

2012-2013WORK IN PROGRESS DESCRIPTIONMutiso MenezesInternational Design Consultancy for KCAA HQ 19,389,400CGX AERO IN SYS FLIGHT PROCEDURE DESIGN TOOL 23,153,686INTERTECH BATINORM 10% ADVANCE PAYMENT SCREENING TEST EQPT 1,636,438SUPPLY OF VHF, VOICE RECORDERS & VOICESELEX ELSAG S.P.A COMMUNICATION SYSTEMS 13,350,058THALES ELECTRONIC SUPPLY & DELIVERY OF NAVAIDS SYSTEMS -SYSTEMS GmbH ILS/DME & DVOR/DME 49,895,146

Supply, Installation & Commissioning of ATS MessageTHALES AIR SYSTEMS S.A Handling System 20,175,927127,600,654

2013-2014WORK IN PROGRESSLANDMARK HOLDINGSLTD CONSTRUCTION OF KCAA HQ 218,209,868MMI CONSTRUCTION SUPERVISION OF KCAA HQ 12,659,600SELEX ELSAG S.P.A

57,332,400THALES ELECTRONIC SYSTEMS GmbH 104,121,284THALES AIR SYSTEMS S.A. 59,825,902CoreTEC System &Solutions HUMAN RESOURCE MGT SOLUTION 8,415,200XRX TECHNOLOGIES DOCUMENT MGT SYSTEM(CGALS & SCANNERS) 9,100,871FROTCOM LTD CAR TRACK FLEET MOT SOLN 3,134,088

472,799,213

Total Work In Progress 600,399,867

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

3. CashAtBank

The IDA funds held by KCAA in the project account held at National Bank of Kenya- JKIA Branchas at 30th June 2014 was Kshs 11,218,154.65

4. IDA Loan received to date is Kshs 659,430,945. This is made up as follows:

2014 2013

Kshs KshsBalance B/F 221,216,899.00

Direct payments 371,335,760.30 93,496,156.50Receipts Thro' MOT 66,878,285.70 127,720,742.50Total 659,430,945. 221,216,899.

The counterpart contribution by the Authority was Ksh 55,442,880.

5. Creditors represent amount owed as at 30th June 2014 but for which the services had beenrendered to the project as follows:-

CreditorsThales Electronic Systems S.A ILS/DME & VOR/DME NAVAIDS 906,678Frotcom K Ltd CAR TRACK FLEET MGT SOLN 3,134,088

PRODUCTIVITY IMPROVEMENT & MGT COURSEKenya School of Government 10/04/14-14/04/14 1,537,000XRX Technologies CALS & SCANNERS 650,404CoreTec Systems & Solutions HUMAN RESOURCE MGT SOLUTION 5,049,120MFI Consulting Ltd EASA PABX 984,555System & InformationTechnology E - MAIL SOLUTION 776,963Achelis Kenya Ltd X-Ray Baggage Screener Kit 10,369,674African Touch Safaris Airticket 8,584Capt Joe Mutungi Flight Safety Consultancy 2,064,000Capt James Ouma Flight Safety Consultancy 787,000

26,343,067

6. Interest Income

The interest income is on the current account balances as held at the National Bank during theyear. The total for the year was Ksh 2,585,879.

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

7. Expenditure during the financial year in each category were as follows:

a) Training: various officers were trained under this category. The total expenditureincurred during the year amounted to Kshs 5,225,350

b) Consultancy: Aviation safety & KCAA HQ design. Individual flight safety consultants andKCAA HQ design consultancy services during the year. This amounted to the followingtotal .Ksh 27,309,645

c) Project operating costs- this is the Authority's contribution to the project recurrentactivities as per the contract. Ksh 20,143,229 was incurred during the year.

8. Bank charges for the year 2013/2014 were Ksh 22,671.

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